How to Secure the Tech Sector Against New External Threats and Fraud

PwC has released its 2022 Global Economic Crime and Fraud Survey. The survey – encompassing 1,296 executives across 53 countries and regions – highlights the changing threat landscape of economic crime and explores why the technology, media and communications industry is the only sector to experience a rise in economic crime.

Technology Industry Suffers Greater Economic Crime

In PwC’s most recent survey, the share of organizations that experienced an incident of economic crime has declined from 49% in 2018 to 46% in 2022. This represents a 3% decline in incidents of economic crime over the last six years, despite a myriad of destabilizing events such as the Covid-19 pandemic.

However, across the world, the Technology, Media and Communications (TMT) industry defies this trend by suffering an increased incidence rate. In PwC’s survey, 69% of respondents from the industry reported experiencing an incident of economic crime in the last 24 months – an incidence rate that far exceeds that of all other industries.

“The growing maturity of the technology, media and telecommunications sector helped it identify a significant increase in fraud activity since 2020 with nearly two-thirds of companies experiencing some form of fraud, the highest incidence of all industries” – PwC Report

Why is this, and what can be done to reverse the trend?

A Changing Threat Landscape

Predictably, cybercrime dominates the TMT industry and features in 50% of economic crime incidents. What is notable, however, is the TMT industry’s high incidence rate of customer fraud, which featured in 35% of all incidents of economic crime, making it the industry’s second most common type of economic crime.

Although daunting, the issue of customer fraud can be addressed. While other types of economic crime such as bribery and corruption are far harder to tackle, customer fraud is one where “dedicated resources, robust processes, and technology have proven effective in prevention”. Identity Verification tools such as Know Your Customer (KYC) protocols have proven to be effective, and their widespread implementation is vital to curb the threat of customer fraud. To find out how ThisIsMe can secure your business against customer fraud, book a demonstration by contacting our team here.

On a broader scale, the rise of customer fraud is representational of the changing threat landscape for economic crime. External threats now dominate and external perpetrators have replaced more traditional internal threats. Of the most serious/disruptive incidents of economic crime experienced by the surveyed companies:

• 43% are committed by external perpetrators (a 2% increase compared to 2020)
• 31% are committed by internal perpetrators (a 7% decrease compared to 2020)
• 26% of incidents are collusion between internal and external perpetrators (a 5% increase compared to 2020).

In total, 69% of all the fraud experienced involved an external perpetrator.

These changes in the threat landscape signal an urgent need for businesses to reassess how they guard their perimeters against external threats in order to secure business transactions.

Why is the Technology Sector Being Targeted?

PwC noted that the TMT sector’s highly digitised nature, combined with its high perceived value, are major drivers of its higher rates of economic crime. Notably, annual global company revenue is a good predictor of customer fraud risk. The higher the global revenue of a company, the higher the incidence rate of customer fraud. For companies with annual global revenues of more than $10 billion, customer fraud was the number-one type of fraud experienced. For all companies with annual revenues of less than $10 billion, customer fraud was the second most common type of fraud experienced, behind cybercrime.

A report by Deloitte also discussed several reasons why the technology industry faces a higher risk of economic crime compared to other industries. These factors include the technology sector’s identity as an emergent and disruptive environment, its significant amounts of intellectual property, and a constantly evolving regulatory environment that typically lags behind a rapidly changing threat landscape. In addition, the industry’s high level of interdependence between technology businesses creates a myriad of opportunities for fraud and breaches of sensitive information – an issue that is especially threatening for the TMT industry, given its handling of massive amounts of sensitive personal information.  

The Technology Sector as a Trusted Institution – Balancing Public Expectations with Risk

PwC’s 2022 Global Economic Crime and Fraud survey highlights the extent to which business partners constitute external threats of economic crime. When ranked by the percentage of economic crimes that they account for, the most common types of external perpetrators are:

• vendor/supplier (4th, accounting for 20%)
• agent/intermediary (5th, accounting for 15%)
• joint venture/alliance partner (6th, accounting for 12%)
• shared service provider (7th, accounting for 12%)
• and consultant/advisor (8th, accounting for 10%)

Business partners of various kinds represent a significant threat of economic crime. This is especially noteworthy for the TMT industry because, as noted by Deloitte, the industry relies on a large amount of interdependence between businesses. This interdependence increases the risk of economic crimes such as business partner fraud, procurement fraud, cybercrime, or data leakages.

In comparison to other industries, the technology industry has a lot to lose from economic crime because it possesses a unique asset: trust. Edelman’s 2022 Trust Barometer – a global survey that analyses public trust in institutions – revealed that the technology sector has become the most trusted industry in the world, with 74% of respondents trusting the industry to “do what is right”.The more specific concept of digital trust (a central concept for the technology industry) relates to whether or not stakeholders can trust that their information is secure, as well as customers being able to trust that cybersecurity is a priority and that their transactions, information, and personal data are all correct, secure, and private.

The costs of breaching trust are severe. According to a study by Deloitte, 85% of respondents were very or fairly likely to sever an existing relationship with an organization if it does something that negatively impacts trust. Furthermore, case studies of three global companies that were embroiled in scandal lost 20-56% of their market cap relative to their peers over a period of three months to two years and fell behind the comparable industry index by 26-74%.

As is the case with businesses operating in the technology, media and communications industry, widespread reliance on business partners increases the risk of harmful crime. While data leakages and other forms of economic crime can cause significant financial loss, they may also inflict a significant and widespread loss of consumer and stakeholder trust that can cause irreparable reputational harm.

Considering these risks, businesses within the technology, media and telecommunications industry must secure their business partner relationships using trusted identities that can verify the integrity of those they do business with. Alarmingly, however, PwC’s 2020 Global Fraud and Economic Crime Survey noted that 24% of respondents had no third-party due diligence or risk monitoring program whatsoever. These shortcomings must be addressed if businesses want to reduce operational risk and address the rising threat posed by external perpetrators of economic crime.

Identity Verification and Data Validation – Combatting the Threat Posed by External Actors

The pervasive and increasing threat posed by external perpetrators of economic crime necessitates a renewed focus on the utility of identity verification and information validation tools to protect businesses against external threats.

Know Your Business (KYB) protocols like director lookups, business registration checks and Account Verification Services (AVS) are all tools that can ensure transactional trust and offer peace of mind by affirming the integrity of those we do business with. These tools – coupled with a risk-based approach to due diligence – have the potential to address the rising threat posed by external perpetrators of economic crime.

As South Africa’s leading provider of world-class due diligence and remote-onboarding solutions, ThisIsMe is proud to be at the forefront of a trust-based and privacy-compliant digital world. To experience our full suite of advanced due diligence services, book a demonstration by contacting our team here.

Citations

1. PwC. Global Economic Crime and Fraud Survey. 2020.
   
2. Edelman. 2022. Trust Barometer.
   
3. Deloitte. 2021. The Chemistry of Trust, Part 4.
   
4. Deloitte. 2021. The Chemistry of Trust, Part 2.
   
5. Deloitte. 2021. The Chemistry of Trust, Part 1.