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Risk of damage to global business will nearly always be low “ business and
trade will go on globally whatever the threat;
Risk of damage to the national reputations of the UK and India, however,
could be high if no action is taken;
Impact on communities is medium to high if no action taken against organ-
ised criminal networks; and
Impact on SMEs is higher because they are more at risk, particularly of infiltra-
tion, cyber crime and fraud “ SMEs in the UK employ 95% of the workforce, so
there is an impact on employment, and cost of trade could be adversely affected.


UK “ confidence building
Emerging issues:
Some of the most deprived communities in Britain exist alongside most afflu-
ent areas (City of London, for instance) “ but there is little in the way of
engagement or interface between the corporate world and UK communities
(e.g. employment, partnership, education);
New communities and their vulnerabilities from organised criminals;
In the index of multiple deprivation, three of the top 15 wards in London
have the largest South Asian communities (Mayor of London™s Index of
Deprivation 2005); and
UK consumers have concerns about off-shoring of fiscal call centres (see above).
Part B “ Overview of the Economic Aspects of Business Risks
142



Practical confidence building “ India
Emerging issues:
Need for bilateral agreements (police/police or police/industry);
Long value chains;
British Indians have bad experience of treatment when victims of crime;
Potential of attacks on British companies by organised criminals (e.g. call
centres, infiltration);
Speed at which criminal networks operate is very significant; and
Kidnap plays a significant part in current risk assessment.


Lack of concerted cooperation: affects risk exposure
Multi-jurisdictional issues cause complications;
Concealment of losses can exacerbate problems;
Commercial confidentialities compound risk vulnerability;
Myriad of different intelligence databases being developed in isolation;
Reluctance to acknowledge ownership of a problem;
Business emphasis is not holistic enough; and
Lack of willingness to assist police continues.


Key company vulnerabilities
Lack of transparency;
Low business standards;
Complacency and intransigence;
Lack of robust HR policies;
Communities that are not engaged; and
SME vulnerability.


The current situation: tackling international fraud and
money laundering
Compliance has been the main issue when considering global effects to tackle
global economic crime. There are many multi-lateral agreements in existence,
particularly in the fight to tackle terrorist funding. However, many countries do
not actually comply with such agreements when one examines their national
legislation with regard to such crime. Jurisdictional issues become an encum-
brance to the investigation of economic crime because of a lack of will to tackle
the problem once and for all.
The Financial Action Task Force (FATF) was set up as a global network of
countries to try to tackle money laundering across international borders. Not all
countries in the world are members because there are strict minimum standards
for membership. India is not a member but is a member of the Asia-Pacific
Chapter 7 “ Economic crime, bribery and corruption 143



Group (APG), which shares some of the philosophy of FATF. India™s problem is
one of standards, and efforts are being made, particularly by the UK, to encour-
age India to raise those standards with regard to economic crime.



Some solutions relevant to risk management
Building bi-lateral relationships
Law enforcement Memorandum of Understanding with Indian Police
Service/CBI;
Reducing value chain to cut down bureaucracy;
Speed up communication;
Share intelligence and information;
Development of technology to support, e.g. fraud alert websites;
One stop shop for police and industry;
Capacity building to achieve membership of FATF; and
Building fraud alert websites.


Indian companies
Companies investing in London must be prepared to:
Be transparent in their trading;
Engage with local communities (employment, investment through partner-
ship, education); and
Work with MPS by information sharing, entering into partnerships under
Operations Sterling (Fraud in Business), Grafton (Organised Crime around
Heathrow) and Quadrant (South Asian Organised Crime).


UK companies
The MPS is committed to making a significant impact on these high losses;
This cannot be achieved by reactive enforcement alone; they need the sup-
port of partners in sharing intelligence and taking preventive action; and
Those partners need to come from the business communities who see this as
their risk management strategy.


Hawala banking
Better regulation and supervision of the hawala banking system in the UK.


Practical initiatives
Business organisations are seeking to help trade and mitigate bilateral invest-
ment threats using economic crime initiatives (MPS, DTI (UK) and corporate
Part B “ Overview of the Economic Aspects of Business Risks
144



partners). The priority step is to raise the profile of the threat along with some
promise of action at ministerial level. For example, the MPS is seeking to
develop linkages between the UK and India, in order to reduce the numbers of
UK victims of economic crimes perpetrated in India, and also to reduce the
numbers of South Asians arrested in the UK for serious economic crime. The
formation of a partnership between government and industry could bring a
number of business benefits. These can be summarised in the following points
by way of example:


Business should establish an ongoing initiative to combat global economic
crime, where there is a gap in the marketplace at the moment;
Fundraising for partnership and research work should extend to academic
institutions;
EU and WB money should be available for the priorities being high-
lighted;
Keynote speaking on economic crime internationally with case studies will
raise awareness of the key players, including big companies as well as
governments;
There should be a cyber crime platform to the work of MPS, as well as devel-
oping and extending networks not previously accessible;
Long-term personal contacts and champions in big business; and
These are high profile projects that will play well to the business community,
and bring long-term benefits to the diverse communities in London, through
sponsorship of projects that enable similar projects globally and greater coop-
eration to improve risk management.



Rising economic crime: practical business concerns and the
need to be organised
Almost daily there are reports of criminal activity that is causing problems for
both private and corporate citizens alike wherever they operate. For example,
crimes against businesses cost the UK a staggering amount last year. Therefore,
increasingly companies are finding that developing a more positive relation-
ship with public agencies, particularly the police, can offer a healthy way for-
ward if business is to become really organised in its fight against organised
crime. Business should indeed be more innovative in dealing with these con-
cerns and keep abreast of developments as far as possible.
Running a business in today™s economy can prove to be a complex matter
that requires an alert and multi-disciplinary approach to issues that were trad-
itionally not relevant or were handled by others. Moreover those running a
non-profit organisation must consider the risks involved since there have been
reported cases of charities being used as vehicles of economic crime. In this
chapter the circumstances in the UK are examined in particular. However, most
of the issues are relevant to the business world generally.
Chapter 7 “ Economic crime, bribery and corruption 145




˜Victimless™ crime
It has been calculated that crimes such as embezzlement, money launder-
ing, fraud and dishonesty cost British businesses more than £40bn last
year, the equivalent of £110m a day or some 4% of the UK™s domestic prod-
uct. Indeed, some £32bn was lost to the criminals, while £8bn was spent
on prevention. It is largely because crimes against businesses are often
construed as ˜victimless™ that industry groups have had to campaign for
many years to press the authorities to take the problem seriously.




Survey case study
A recent survey by RSM Robson Rhodes has also found the following:
There is a stigma attached to crime that prevents companies from reporting it
to external auditors or industry regulators;
For this reason, just 14% of respondents said they shared information on
criminal activities with local firms;
Six in 10 respondents expected the problem to get worse in the next three
years; and
While nearly all respondents agreed that responsibility for tackling the prob-
lem should be held at board level, only 57% claimed to have extensive
knowledge of the problem.

As with other areas of emerging risk it has been found that businesses must also
take the risks posed more seriously. While there is no set time for how long
boards should spend tackling the issue, in order to achieve a proper under-
standing and response to the concerns they need to research the level of eco-
nomic crime in their industry sector. They then have to put in place effective
systems and controls to:

Prevent economic crime;
Identify material losses; and
Take action to recover those losses.


Sector issues: financial services
Clearly there are certain key sectors that are particularly vulnerable to eco-
nomic crime. By way of example in the UK the Financial Services Authority
(FSA) has warned that organised crime groups are attempting to place staff in
financial services firms to commit fraud and steal customers™ identities. The
FSA has advised that:
Firms must vet the background and identity of their staff more carefully
before confirming their appointment;
Part B “ Overview of the Economic Aspects of Business Risks
146



They also should be aware that devices such as personal digital assistants
(PDAs), USB pens and smart phones can be used to steal corporate informa-
tion or act as sources of virus infection;
Firms could do more to address the potential risks rather than responding to
attacks once they have occurred; and
In particular, senior management needs to take on responsibility for informa-
tion security which includes the need for firms™ defences to be continuously
reviewed and updated to keep on top of the increasingly sophisticated meth-
ods used by criminals.
The warnings come in a recent report by the FSA that demonstrated how finan-
cial firms are managing their information security in the fight against fraud and
other financial crime. Some findings have indicated that while some major
firms, particularly in the banking sector, have built some practical defence in
response to potential targeting by hackers and fraudsters, other sectors and
small and medium-sized firms are less well prepared.

London police initiatives
In London the Metropolitan Police Service at new Scotland Yard has priori-
tised the issue of global economic crime and the impact on the UK, particu-
larly in the context of its Operation Sterling. London is viewed as a centre
for economic crime. Yet there is an identifiable concern over the sharing
and partnership regarding intelligence. In general, business does not like to
share information. Accordingly the police are re-engaging with business to
enable a single office to consider the trends and tackle the concerns. Since
there has been a migration across sectors there needs to be an expanding
partnership with business that crosses traditional boundaries and sectors to
enable more proactive and dynamic intelligence. This has meant a more
proactive prevention team. By way of example, in 2006 the police in
London warned that gangs of organised criminals were infiltrating Britain™s
banking industry and blackmailing employees to obtain customer account
details. The problem was exacerbated by the use of unvetted temporary
staff. Firms should follow a preventive approach rather than reacting to a
situation once it has happened, which can be costly and damaging to repu-
tation according to the police. Having been the target of criminals in recent
times, as noted, via the internet and other such technologies, the major
banks tend to have strong defences in place. However, there is no room for
complacency and criminals will seek to exploit vulnerable points where
they can find them, including other sectors or smaller firms.


Small business
It has been reported that nearly 60% of small and medium-sized businesses or
SMEs in the UK become the victims of crime every year. A Federation of Small
Businesses (FSB) survey of 18 000 firms has revealed that while 58% of small
businesses experience criminal acts, less than half of these are reported. The
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