47% of Global Firms Lose $1.45t From Financial Crime

Almost one out of two large global companies experienced some form of fraud, theft, money laundering or other financial crime in the past year, according to a new report Thursday.

The report, from Thomson Reuters surveyed more than 2,300 senior business leaders and found that 47% of them admitted their organization had experienced at least one incident of financial crime in the past 12 months. The respondents cited cybercrime and fraud as the most common financial crimes. The companies estimated a total aggregated loss of $1.45 trillion, or approximately 3.5% of their global turnover.

In a hard-hitting conclusion, the report said: “For the first time our research has put a price on financial crime: 3.5% of corporate turnover for the 2,373 large companies in our survey alone. That adds up to a staggering $1.45 trillion.”

The report also looked at the risk of fraud at third party vendors, but found that only 36% of relationships are regularly screened for criminal connections. The survey suggests that 41% of the parties the survey respondents did business with over the past 12 months weren’t screened at all.

The survey respondents admitted that 41% of known instances of financial crime are not reported, either internally or externally, by their organization. The reasons cited include 69% of detected bribery and corruption involved someone internal to the organization, 55% of privately owned companies worried about reputational damage and financial loss, and 60% of publicly listed companies were concerned there would be a significant negative impact on investor confidence if such crimes came to light.

However, the impact of financial crime can extend well beyond big companies. For example, 46% of the survey respondents believe money laundering can lead to higher prices for consumers, while 42% think it leads to lower government revenues. Financial crime has also been tied to modern-day slavery in some parts of the world.

Incalculable Harm

“Financial crime causes incalculable harm around the world,” said Phil Cotter, managing director of risk at Thomson Reuters, in a statement. “The proceeds of bribery, corruption, fraud, narcotics trafficking and other organized crime have all been implicated in the financing of terrorism, human rights abuses such as slavery and child labor, and environmental crime."

The survey respondents point to greater collaboration as an important factor in combating financial crime, with 94% indicating there should be more sharing of financial crime intelligence, while 93% said public-private partnerships should increase and improve.

In Middle East

Middle Eastern companies are losing billions of dollars in business opportunities because of fears about financial crime.

Concern about the possibility of severe financial and reputational damage due to regulatory breaches leads foreign investors and firms to shun companies and entire regions where they see “heightened risk”.

In the Middle East and North Africa, 77% of survey respondents said that they deliberately avoided customers, suppliers, countries or industries which they viewed as most exposed to financial crime.

“The impact in terms of lost opportunities at both organizational and national level is difficult to quantify, but likely to impact productivity and economic development,” Thomson Reuters said.

Financial crime was said to blight individual lives and undermine the ability of governments to provide key services such as education and health. The IMF has shown that it reduces economic growth and social cohesion.

“This has serious economic and social costs in terms of the lost revenues to national exchequers that could be invested in social development, and in terms of the impact on individual lives,” Che Sidanius, global head of financial crime regulation at Thomson Reuters, said.

Other key findings were that 45% of MENA respondents had been a victim of financial crime as opposed to 47% globally; 96% believed that bribery and corruption was an important issue to tackle; 57% indicated that the consequences of bribery and corruption meant less government revenue; only 59% said that they fully conducted due diligence, the report said.

On rooting out financial crime, reliable and complete data is a critical requirement needed to develop a 360-degree view of risk. Additional Thomson Reuter’s research has revealed a plethora of challenges that organizations encounter, specifically relating to third party risk data. These include unreliable risk data sources, insufficient availability of risk data and poorly connected data sources.

The global average was reported as 7,693, but rose to 9,007 in the Mena. Whilst this figure is substantially higher than the global figure, it remains some way off the numbers reported across Latin America and the Caribbean, where companies have an average of 12,985 relationships, the highest reported across all regions surveyed.