PwC has released its 2022 Global Economic Crime and Fraud Survey. The survey – encompassing 1,296 executives across 53 countries and regions – reveals the changing threat landscape of economic crime and provides valuable insights into how businesses can protect against the growing threat posed by external perpetrators.
Economic Crime in Global Decline…
In PwC’s survey, the share of organizations that experienced an incident of economic crime has declined from 49% in 2018 to 46% in 2022 – a 3% decline over the last six years, despite a myriad of destabilizing vents such as the Covid-19 pandemic.
However, the technology industry remains plagued by economic crime: nearly two-thirds of all respondents in the technology industry experienced an incident of economic crime in the last 24 months, a statistic that far outstrips every other industry.
…but External Threats on the Rise
Although global rates of economic crime are decreasing, external threats are becoming more pervasive and dangerous than ever. The nature of economic crime is changing.
Of the most serious/disruptive incidents of economic crime experienced by the respondents, only 31% of incidents were committed by internal perpetrators (a 7% decrease compared to 2020). In contrast, 43% of incidents featured external perpetrators (a 2% increase compared to 2020), and 26% of incidents featured collusion between internal and external perpetrators (a 5% increase compared to 2020). In total, 69% of all the fraud experienced involved an external perpetrator.
Notably, PwC’s report highlighted the increasingly central role being played by organized crime.
“Organized crime groups are becoming more specialized and professional, with goals, incentives and bonus structures. They take advantage of vulnerabilities, and they invest continuously to outsmart their prey. Combatting these bad actors is unlike the effort to contain internal fraud, because companies have little ability to influence or control the perpetrator’s actions.”
Because external fraudsters are immune to traditional fraud prevention methods that rely on internal investigations and employee training, businesses are being forced to reassess the methods used to guard organizational perimeters against external threats.
Customer Fraud – a Pervasive and Increasing Risk
PwC only introduced customer fraud as a category of economic crime in 2018. In 2020, it became the most prominent type of economic crime listed in PwC’s report. Now, in 2022, customer fraud poses a greater threat than ever.
PwC’s 2020 survey reported that customer fraud was predicted to be the 3rd most disruptive economic crime for the next two years. When requested to predict an organization’s most deeply felt economic crimes over the next 24 months, 14% cited customer fraud (3rd), and 11% cited cybercrime (4th). These predictions have been surpassed. In 2022, cybercrime ranks as the most common type of external economic crime, while incidents of customer fraud have increased by three percentage points – customer fraud is now the second most common type of external economic crime.
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.
Predictably, customer fraud disproportionally affects some specific industries. 44% of respondents in the financial services industry experienced customer fraud, the highest incidence rate across all industries. The retail and consumer industry was the second most affected, with 37% of respondents having experienced customer fraud. The technology, media and communications industry was third most affected, with 35% of respondents experiencing it. The health industry and the government and public sector were also badly affected, with incidence rates of 28% and 27%, respectively.
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”.1
Guarding Against Business Partner Fraud
Vendors and suppliers featured as the fourth most common type of external perpetrator of economic crime, featuring in 20% of economic crime incidents – an increase of one percentage point compared to 2020.
Fraud by business partners, suppliers, vendors, and consultants can be devastating. Investigations have uncovered how South African businesses have routinely been scammed out of hundreds of thousands of Rands after fraudulent suppliers secured credit by impersonating legitimate businesses and faking credit checks.
Alarmingly, 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, even though 20% of respondents cited vendors/suppliers as the perpetrator of their most disruptive incident of financial crime. Considering the growing threat posed by business partners, enhanced due diligence measures must form part of a larger business strategy to manage risk and ensure transactional security when engaging with business partners.
The Utility of KYC-Based Due Diligence and Risk Management Protocols
Internally, businesses have made progress to institute effective controls and increase their internal monitoring practices.
“Two thirds of organizations that experienced fraud discovered their most disruptive incident through corporate controls, up seven percentage points from 2020.”
Nevertheless, the changing nature of economic crime is forcing businesses to reassess the measures taken to secure business perimeters against external threats. 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. These tools – coupled with a risk-based approach to due diligence – have the potential to address the threat posed by external perpetrators of economic crime.
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Citations
- PwC. Global Economic Crime and Fraud Survey. 2020.
