Economic crime has evolved profoundly over the years. No longer dominated by opportunistic or greedy white-collar employees, it is increasingly the domain of external, sophisticated and intentional actors who run their organised gangs like international businesses.
These groups adapt their methods and refine their approaches for each season. For example, some of those who defrauded the state during the Australian bushfires of 2019-20 implemented what they’d learned to again rip off taxpayers during the Covid-19 pandemic.
Criminal groups share information on the weak links they’ve encountered, like in Blofeld’s Spectre meeting
‘Schoolboy errors’
In the UK, billions of pounds of taxpayers’ money has been lost to Covid-related fraud. In 2022, when Lord Agnew resigned as minister of state for efficiency and transformation, he said that ‘schoolboy errors’ were made – for example, granting Bounce Back Loans to more than 1,000 companies that were not even trading when the coronavirus struck – and that efforts to deal with fraud were ‘desperately inadequate’.
The enactment of the Economic Crime and Corporate Transparency Act 2023 (see box) is the latest stage of the UK government’s drive to tackle fraud. But while legislation could go some way to dealing with the issue, it is vital that organisations are aware of the dangers they face every day.
Claire Jenkins FCCA, forensic accountant in the Integrity, Enforcement and Intelligence Unit at Companies House, suggests two analogies for how these criminal groups work together to perfect their craft: first, like the Borg in Star Trek, they learn lessons and collaborate on projects in order to ‘assimilate and grow’; and secondly, like Blofeld’s Spectre meeting in the James Bond film Thunderball, they share information on the weak links they’ve encountered.
From 2020-22 almost two-thirds of British businesses experienced fraud, corruption or other economic crime
Investigations have also revealed that these groups provide cover for each other in their respective supply chains by cross-referencing each other.
Vast scale
It’s hard to get an accurate picture of the scale of fraud, as most victims don’t realise for a long time. Those that do often don’t report it out of embarrassment or a lack of faith that the fraudsters will be caught.
It is estimated that economic crime costs the UK around £350bn a year; that’s 17.5% of UK GDP. According to PwC’s Global Economic Crime Survey, from 2020-22 almost two-thirds of British businesses experienced fraud, corruption or other economic crime – significantly higher than the global average of 46% and second only to South Africa. The National Audit Office also estimates that public sector bodies lose between £33bn and £58bn annually to fraud.
Introducing the ECCTA
The Economic Crime and Corporate Transparency Act 2023 (ECCTA), which will come into force this year, aims to tackle criminals’ abuse of the UK’s corporate, property and business sectors.
Key features include:
- imposing criminal liabilities on organisations that fail to take measures to prevent fraud
- making it easier to prosecute companies for criminal wrongdoing
- expanding the requirements on limited partnerships
- requiring information on beneficial owners of foreign entities
- enabling certain businesses to share information about economic crime without breaching confidentiality duties.
For more on the ECCTA, read the government’s policy paper.
Part of this could be due to companies focusing their controls in the wrong areas, often directing checks on the internal rather than external and global risk. Interpol lists low-level fraud, misuse of non-profit organisations and digital currencies as several potential sources of terrorist funding.
‘There’s no precise science or silver bullet to guarantee success in the fight against economic crime’
The International Monetary Fund, meanwhile, points out that money laundering, terrorism and weapon-financing make countries less stable, and can weaken law and order, governance, regulatory effectiveness, foreign investments and international capital flows.
Countries with vulnerabilities are attractive to serious criminals who try to conceal what they’re doing within the complexity of global financial systems, variations in national laws and the lightning speed that money can cross borders thanks to modern technology.
One step ahead
Tackling economic crime starts with acknowledging that it is a real problem and you are at risk from it; no organisation is too big or too small to be defrauded.
Businesses also need to be aware that fraudsters have been honing their craft for a long time, so internal and external fraud controls need to be one step ahead of them.
’There’s no precise science or silver bullet to guarantee success in the fight against economic crime,’ says Jenkins. But she suggests strengthening the organisation’s checks and balances, and avoiding cold calls and invoice factoring agencies (companies offering finance to improve cashflow).
‘You should regularly assess what you’re doing, as opposed to taking a “once-and-done” approach,’ says Jenkins. ‘It should be a living, breathing method where you assess what’s working well and what needs improving continually over time.’
In addition, it’s important to do due diligence on every company you deal with. Investigate their online and physical presence, as well as their stated revenues relative to how long they’ve been trading. Look for inconsistent or erratic data at Companies House. Dig beyond the front page and note any name changes, income shifts year on year, amended accounts and liquidated companies. Assess how legitimate their audit report looks and whether there is a stated – and qualified – accountant.
‘Fraudsters try to capitalise on fear or confusion, creating a sense of urgency to make you act quickly’
‘Fraudsters try to capitalise on fear, anxiety or confusion, creating a sense of urgency to make you act quickly without thinking things through,’ says NerdWallet UK’s Amy Knight. ‘Never let suppliers put you on the spot; buy yourself time and look up the organisation, check its contact details and reviews online or seek independent advice.’
Stay cynical
Be critical and cynical about what you’re seeing. For example, you may notice a supplier’s communication style breaks the usual pattern, such as their choice of phrasing or the method they use – perhaps a phone call when normally you exchange emails.
‘If you are unsure whether something is trustworthy, ask a colleague to listen to a suspicious voicemail, or read an unfamiliar text or email,’ says Knight. ‘A second pair of eyes and ears is an additional line of defence.’
Also vital is to adopt a more open culture of talking about fraud; this will help to remove the shame and unknowns surrounding it.
Above all, look at the whole picture from the information you’ve gathered and ask: what is it telling you?
More information
See also the AB article ‘Spotting VAT fraud’
