The high cost of economic crime

Economic crime stifles economic growth. It damages internal processes, erodes the integrity of employees and tarnishes reputation, not only of the firm, but of the economy it resides within. According to our report, PwC 2014 Middle East Economic Crime Survey, economic crime continues to be a significant threat to organisations across the region. Completed by 232 respondents from nine Arab countries, 37 per cent of our respondents say they have been victims of economic crime in the past twelve months.

Almost half of the UAE respondents said economic crime has damaged their organisation’s reputation and impacted business relationships. 56 per cent of UAE organisations interviewed reported that they lost between $100,000 and $5 million due to economic crime and three per cent indicated that this cost was in excess of $100 million, higher than the global average of two per cent.

The report identified the main five crimes that threaten our organisations in the region; asset misappropriation, cybercrime, procurement fraud — including bribery and falsifying expenses — accounting fraud and bribery and corruption.

Cybercrime is the second most common form of economic crime reported in the Middle East, and the fourth most common form of economic crime globally. The increase in digital applications and internet adoption means more complex security threats. Due to this complexity, it is very hard to gauge the extent of the issue however; our study shows that in the Middle East, the amount lost through cybercrime could be as much as $100 million annually.

No business anywhere in the world is immune to the impact of economic crime. Increasingly, banks are becoming the target of cyber-attacks and hackers. Nearly 40 per cent of the financial sector respondents said they had been victims of cybercrime, compared with 17 per cent in other industries Despite the reported cases of economic crime in the Middle East are falling over the last twelve months, more than 38 per cent of respondents expect their organisations to suffer from it in the coming years.

Despite the significant financial cost, only five per cent of economic crime is picked up by auditors. This indicates a widespread lack of effective fraud detection methods. The shortfall in effective fraud prevention and detection not only enables criminals to syphon off millions of Dollars worldwide, but it also leads to a substantial deficit in the knowledge of economic crimes actually being committed making prevention even more difficult.

There are many ways to tackle cybercrime, from traditional forms of fraud prevention initiatives to cybercrime prevention technology. However, the most far-reaching effect would come from increasing the level of industry-wide and international cooperation. By sharing and collating information on cyber issues, the level of surveillance at an international level would improve. Interconnected risks require organised responses and recent high profile cases in the Middle East highlight the risks that demonstrate that the time has passed when companies can take their own approach without regard to the wider system in which they operate.

This is one of the aims of governance organisations such as the Pearl Initiative, a GCC-based not-for-profit set up in cooperation with the United Nations Office for Partnerships to improve transparency, accountability, corporate governance and business practices in the GCC. This growing regional network of business leaders is committed to driving joint action and sharing knowledge and experience with the belief that installing policies and processes facilitates transparency. By encouraging more businesses across the region to come together to drive transparency, firms can directly contribute to higher country ratings and enable potential foreign investors to understand how the company operates.

Aware of the threat to its economy, the UAE has been tightening its cybersecurity net, becoming a leader in this area, not only in the Gulf but globally as well. A report issued by The International Institute for Management Development, Switzerland ranked it number one in the GCC and number four worldwide in 2012, but there is still a way to go until all of our organisations are protected.

Economic crime remains a big challenge for businesses all over the globe. With changing economic dynamics, political uncertainty and sophisticated advances in technology, organisations must proactively implement anti-fraud and anti-corruption programmes and robust cyber security initiatives to protect their organisations from attack. Economic crime is now steadily impacting key business processes impeding growth and ultimately, affecting the security of the wider regional economy. Therefore, organisations must come together to guard against the criminals who have set out to target them.

Hani Ashkar is PwC’s senior partner for the Middle East. Views expressed by him are his own and do not reflect the newspaper’s policy.