Swiss bank Julius Baer got fined $79M for playing a part in bribing FIFA officials in the United States. The bank also failed to be compliant with mandatory regulations. This example of economic crime shows the danger they represent for businesses and society at large. Read on to learn about what economic crimes are exactly, how they impact businesses, and how to protect your company.
Trustpair prevents financial fraud (a type of economic crime) by constantly monitoring third-party data and raising the alarm in case of a risky situation. Request a demo to learn more!
What is economic crime?
Economic crime definition
Economic crime is also called financial crime. It’s when an individual (or group of individuals) commits an illegal action to obtain a certain advantage. Usually, they’re doing it for economic gain.
The types of economic crimes
Economic crime refers to both organized crimes that happen through illegal groups like drug gangs, and white collar crimes. Concretely, economic crimes can take the form of:
- Financial fraud (eg wire transfer scams and credit card fraud),
- Money laundering,
- Bribery and corruption,
- Embezzlement,
- Cybercrime,
- Theft (theft of property and identity theft),
- Intellectual property theft,
- Investment fraud,
- Tax fraud,
- Environmental crime,
Etc.
While there are different types of economic crimes, they’re usually combined.
For example:
- An organized gang can bribe a company official to participate in a money laundering corruption scheme to clean their illegally obtained money.
- A criminal can launch a cyberattack against a company’s network to access sensitive information (social security and credit card numbers) that they’ll resell on the Dark Web. This information can lead to another kind of fraud, like vendor fraud, or spoofing.
Financial crime is linked with and contributes to, even more sordid forms of crime: child and people trafficking, political corruption, and terrorism financing. That’s a real-world application of “Evil begets evil”, a vicious cycle of illicit financial flows.
What is the impact of economic crime?
Besides the human and social impact, economic crime also costs businesses and society a lot of money. It isn’t only the direct financial crime, it’s also the consequences of it.
Selling illegal goods and services is bad enough, but it’s worse when the proceeds are reinvested in legal entities — to be accessible in other countries, or used without attracting attention. That’s when another layer of economic crime comes on: money laundering.
- According to a United Nations report, money laundering accounts for 2-5% of the world’s GDP (that’s about $2 trillion!)
- According to the U.S. Sentencing Commission, 1,001 cases of money laundering were reported in 2022’s financial year. The median loss for these cases was over $300K.
Crime money laundering isn’t the only culprit. In 2019 according to the USSC, embezzlement and theft accounted for 25% of all economic crime cases.
When it comes to financial fraud, our recent survey found that:
- 96% of US companies were targeted by at least one financial fraud attempt in 2023.
- 94% were targeted multiple times.
- 36% of victims of successful fraud lost more than $1M.
Little by little, economic crime spreads to the fabric of our society, taking over businesses and even governments. Fortunately, there are ways we can prevent financial crime.
Download our entire fraud survey for more details!
How can you prevent financial crime?
Economic crime is a global problem that needs to be addressed globally. Governments, businesses, and individuals need to work together to prevent it from happening.
Adhering to regulations
The first layer is governmental: in many countries, there are regulations in place to prevent economic crime:
- The Bank Secrecy Act and SOX Law in the United States (plus many federal regulations),
- The Anti Money Laundering and Countering the Financing of Terrorism (AML/CFT) policy in the EU.
- The Money Laundering Terrorist Financing and Transfer of Funds Regulations in the UK.
Anti-Money Laundering (AML) regulations are now widespread and a requirement for any business that deals with financial transactions. AML guidelines contain different components such as:
- Know Your Customer (KYC) process,
- Know Your Supplier (KYS) process,
- Identifying your Ultimate Beneficial Owner (UBO)
- Risk management strategy.
In the United States, federal regulations vary depending on the states from which your business operates. Different states have different commissions in charge of compliance.
The US Congress also regularly publishes press releases and public statements regarding AML. For example, this notice (in PDF) from January 2022 clarifies the federal stance on cryptocurrency and corporate transparency.
It’s always a good idea to be in contact with law enforcement locally to stay in the loop regarding the latest regulations — and what to do in case of crime-fraud. Being compliant is important to protect yourself from fines (which are hefty!), and from the risk of financial crime itself.
Internal policies
PwC’s Economic Crime Survey of 2022 found that the main perpetrators of the most damaging fraud cases were:
- 43% external,
- 31% internal,
- 26% collusion between internal and external.
The facts are clear: economic crime happens through third parties, but also with the help of your own employees. That’s why internal policies are so important to prevent white-collar crimes in your company.
For example, ING (the financial institution) decided to implement its own corporate policy against economic crime. This kind of statement is important to take a public stand against financial crimes.
But it shouldn’t just be about press releases and official statements: to be effective, these should be paired with a strong internal policy that includes:
- Clear safety guidelines to follow,
- Ongoing security training with up-to-date training materials to spot common red flags of fraud,
- Direct access to an internal person or a law enforcement agency to report suspicions of economic crimes to,
- Internal controls to ensure that all the above are respected,
- Regular reports and audits on your security.
With the rise of cybercrime, it’s even more important for leaders to be proactive in their fraud detection and prevention. As we saw, a breach in your defenses could expose your company to fines, be liable to appear in front of a federal agency or state courts and create even more opportunities for corruption and economic crime.
Anti-fraud software
Last but not least, one of the ways to prevent economic crime in your business is using software solutions.
Anti-fraud software helps you monitor your payments automatically to ensure you don’t send money to criminals, thus funding illegal activities or terrorism.
Monitoring economic crime is an ongoing cycle: scammers don’t care if it’s March, September or November and it’s incredibly busy in the office. Companies must learn to be proactive and regularly check their anti-fraud policies, filling their security gaps with effective third-party services.
Criminals only need one quick phishing email with a disguised request of “click here to access your downloads” to access your network. In turn, this gives them access to your intellectual property and other sensitive data and creates global issues in your company.
Using software services means you’re continually protected against third-party fraud. Truspair checks your supplier’s identity in real time, so you always know you’re paying your real suppliers — not impersonators committing vendor fraud.
We use machine learning and predictive modeling to spot any suspicious activity and raise the alert so you can manually check any questionable transaction before it is sent.
Using fraud detection software is faster and more secure than doing it manually. In turn, that frees your team’s time to focus on higher-value tasks. It also sends a strong message internally that fraud won’t be happening in your business.
Key Takeaways:
- White-collar criminals are more organized than ever, and economic crime fraud is a reality that governments, businesses, and individuals have to face together.
- Anti-crime measures for businesses include compliance with AML laws, strong internal policies, and using fraud prevention software like Trustpair.
