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report highlighted the crucial fact that businesses are twice as likely to fall vic-
tim to criminal acts as households, and criticised the Home Office for failing to
prioritise business crime. According to reports David Croucher of the FSB has
said, ˜There is a perception among business owners that the UK is experiencing
a crime epidemic and that no one cares. Sentences are lower for commercial
burglaries than domestic burglaries, and criminal damage and theft from com-
mercial premises have effectively been de-criminalised.™ Evidently, the busi-
ness group is calling for a number of measures to be put in place to help tackle
the problem, several of which highlight again the need for a partnership
approach with the police, including the following:
Business crime to be recorded as a distinct category from domestic crime;
Crime against business to be made a key performance indicator by the Home
Businesses to report all crimes to the police;
Sentencing guidelines to be revised, to ensure that crimes of a similar nature
are treated equally; and
A business crime compensation scheme to be established, to prevent other-
wise viable businesses from closing down (see also Chapter 8).

Corporate identity theft: the approach in the UK
The Metropolitan Police Service (MPS) has also launched a major initiative to
advice businesses how they can take simple preventive measures to minimise the
risk of their company™s identity being hijacked. Again the statistics cause concern.
The crime works in much the same way as personal identity theft. Criminals
change the details of UK registered firms by filing fake documents with Companies
House. Having done that, the criminals can then impersonate the companies and
use their credit lines to obtain goods. The police have said that criminals are so
well organised that they have even diverted lorries when they are mid-transit to a
new address. Meanwhile Companies House has warned that it could not check
every one of the seven million or more documents it receives every year relating to
changes of company details. Yet statistics show the rising crime figures: fraudsters
who steal the identity and then trade under a legitimate company™s credit and
name are thought to cost industry in excess of £50 million a year.
The Metropolitan Police™s ˜Sterling™ initiative is a long-term partnership
strategy which takes a proactive partnership approach to reducing opportun-
ities for, and combating, economic crime. Part of its aim is to dispel the myth
that fraud is a ˜victimless™ crime. Therefore, working together with Companies
House under the ˜Sterling™ initiative, the MPS has warned or advised com-
panies to take four simple steps, which will protect their company from being
cloned by a fraudster including:
First, checking your company™s registered details are correct at Companies
House and that they have not been fraudulently changed;
Second, for companies to sign up for Companies House electronic filing, by
which information is filed online with an electronic password “ registration
Part B “ Overview of the Economic Aspects of Business Risks

details can only be changed electronically with correct security codes.
Companies House electronic customers can then subscribe to ˜PROOF™, the
protected online filing service that reduces the possibility of fraud even fur-
ther. PROOF customers tell Companies House that they will only file elec-
tronically, and that paper that claims to come from them should be rejected;
Third, to sign up to Companies House ˜Monitor™, an email alert system,
which will warn the password-holder when any future changes to your com-
pany details are made. The alert system sends an email every time someone
tries to change a firm™s registered details; and
Fourth, to take the precautionary measure not to rely solely on Companies
House records in determining whether to lend goods or offer services on
credit. Companies House is a public record registry and not a credit reference
agency or crime prevention service. It is therefore recommended that you sat-
isfy yourself that your customer is legitimate through additional means.
For more details see http://www.met.police.uk/fraudalert and for more details on
how you can protect your company™s identity, see www.companieshouse.gov.uk
as such an initiative that supports proactive risk management deserves recogni-
tion in other jurisdictions.

A comparison: Ireland
It has been widely reported that economic crime is also rising in Ireland and cost
Irish businesses over ‚¬2bn in 2005, which is equivalent to approximately ‚¬1000
a year for every tax payer. Moreover the problem is getting worse, according to a
report launched recently by RSM Robson Rhodes LLP in association with
Dublin Chamber of Commerce. Evidently in total, Irish companies lost the esti-
mated ‚¬2bn in 2004 through acts such as fraud, embezzlement, cheque and
credit card fraud and corruption and spent a further ‚¬500m seeking to prevent
and combat the problem. Despite these findings the survey showed that only
51% of Irish companies discussed the matter of economic crime at board meet-
ings more than once a year, indicating that Irish boards are not doing enough to
tackle a potential ˜business killer™.
It has further been reported that the true cost of economic crime could be
even higher as the report only highlights known losses to businesses. It is also a
growing problem “ 44% of respondents believe the threat of economic crime to
their business will worsen over the next three years. The research also showed
that 34% of respondents took disciplinary action against perpetrators in 2005.
As regards the need to have an organised response to the threat, the find-
ings have shown that directors are beginning to acknowledge the severity of
economic crime. Eighty-one per cent of respondents were concerned about the
effect a disclosed financial fraud could have on supplier relationships, three-
quarters about the effect on shareholder equity and 74% stated that it could
have a serious impact on brand image. Meanwhile it is interesting to note that
47% of companies have no specific insurance to recover fraud losses should
they arise. The report also highlighted that respondents agree that the board has
Chapter 7 “ Economic crime, bribery and corruption 149

ultimate responsibility. It has been reported that ˜corporate denial™ is rife with
only 54% of Irish boards believing they have an adequate understanding of the
financial cost of economic crime. It is, however, reassuring to find that 62% of
businesses have invested in new risk management systems and that almost half
(46%) of the sample invested more in 2006 than in 2005. That said 57% of
respondents felt they would like to see more advice being made available to
companies on the problem and indicated that more involvement should occur
between government, law enforcement and industry associations.

Key findings from the report include:
* Nearly 43% of respondents did not inform their external auditors of
instances of economic crime and on average only 31% informed their
industry regulators of instances of economic crime;
* Only 31% of company boards have had formal training in how to recog-
nise economic crime and only 35% of respondents had trained staff in
aspects of economic crime;
* Only 9% share information with local businesses “ acknowledged as
a key method to understand and overcome the threats of economic
crime; and
* 10% of respondents have been a victim of corporate identity fraud, over
the last year, with criminals masquerading as well-known brands.

In Ireland the prime areas of corporate concern are “ as in the UK “ asset mis-
appropriation (embezzlement), cheque and credit card fraud and employee col-
lusion with fraudsters. Other ˜employee perpetrated™ crimes such as bribery
and corruption and procurement fraud also ranked highly.

Survey findings: remarks and suggestions
The findings of the surveys and the initiatives mentioned above show that eco-
nomic crime is a growing area of concern that extends beyond the business
community to the general public who suffer its negative effects. The belief
that white-collar crime is a victimless crime must be overcome; the negative
affects of economic crime are actually suffered by all. The statistics are striking
and reinforce the need for further collaboration between state and industry
bodies and consumer groups. Furthermore, as seen above, economic crime is
not confined to specific industries or regions and knows no limits or geograph-
ical boundaries. In an age of technological advancement, it is vital the issue of
economic crime is discussed within industry forums and closer collaboration
between industry bodies and consumers occurs to raise general awareness of
the problem. In most cases, the trust that businesses place in their staff is
rewarded by hard work and loyalty but since employee disaffection by one
Part B “ Overview of the Economic Aspects of Business Risks

member of staff alone can cause a great deal of harm this must be considered a
priority. For instance, software piracy and music piracy are huge concerns.
Moreover, while educating employees and management in methods of pre-
vention are crucial, they need to be combined with strong and effective
In view of the rising trend in economic crime globally, there is no doubt
that the cost of crime and of crime prevention is substantial to business. Firms
see the cost of crime directly, for example, in terms of goods that are stolen, but
also indirectly through increased security and higher insurance costs. In order
to become more organised in the face of organised economic crime improved
risk management is paramount for all businesses, regardless of size and loca-
tion. There is no doubt that greater cooperation is needed among all interested
parties and that this is an area that should be monitored and on which profes-
sional advice should be sought.

Economic crime, transparency, openness and ethics and
small business
In previous chapters there has been considerable consideration of the need for
improved risk management and governance by all business representatives. It
has been noted that while standards may be aimed principally at larger organ-
isations impacts occur for the small business sector in practice due to, for
instance: enhanced stakeholder interest and awareness; supply chain pres-
sures; and other competitive drivers. This is even more the case bearing in
mind that small business and small and medium-sized enterprises (SMEs) are
increasingly involved in international operations and activities and, as a result,
exposed to differing regulatory and non-regulatory business standards.
In this section the intention is to consider certain aspects of transparency,
openness and ethics from different perspectives, bearing in mind both the risks
and the opportunities presented by the ethics debate. The growing concern
over economic crime and other instances of commercial or business theft are
referred to only briefly as they are covered more fully above.

International considerations
As noted above for some time both international public and private organisa-
tions have demonstrated an increased interest in ethical issues involving busi-
ness “ principally in the fields of economic crime and corruption, in particular
the OECD (as mentioned above as well) and the International Chamber of
Commerce (ICC) are two well-known organisations that have been working to
combat extortion and bribery within the global marketplace. Their initiatives
also demonstrate and highlight the gradual agreement on some common,
worldwide standards for global business operations, as well as the need to be
proactive in dealing with such risks. One way forward, it is submitted, is
through the evolution and implementation of sound ethical corporate policies.
Chapter 7 “ Economic crime, bribery and corruption 151

As has been indicated, an awareness of ˜stakeholder relations™ further pro-
motes the practice of good business ethics. Since improved governance has
been the trend companies are recognising:

The impact of decisions outside their control; and
How these decisions could damage the reputation of the company from the
public™s perspective.

Just as the number of ethical issues appears to have grown with increased pub-
lic understanding and advanced technology and media coverage business has
to consider reputational issues more and more and avoid moral confrontations
that might result in their stakeholders™ disapproval. Moreover, it is often a mat-
ter of sound risk management to consider ethical issues as a priority regardless
of the location of the business and the sector in which it operates.

The small business challenge
Bearing in mind the above, the comparative lack of attention given to the eth-
ical concerns of small and medium-sized businesses is a significant area of
trepidation. It has been noted by various business advisors that there is too
much research on business ethics that assumes that all private sector commer-
cial organisations behave in similar ways or have similar problems. In fact, this
is not so, over 95% of organisations in most national economies are composed
of fewer than 50 people, and they provide the majority of employment.
Commentators have noted that it is, therefore, surprising that this distinction
between large and small companies, which function in different ways, has not
been more widely recognised with regard to ethical behaviour. Moreover it is
surprising that simple behavioural codes of conduct are not in place more
often, which can enhance the transparency, integrity and performance of the
organisation as a whole.
One clear and simple illustration relates to commercial dishonesty. By way
of example, business leaders anxious to discourage skiving, pilfering and scam-
ming at work should first examine their own behaviour and ethics. They
should, of course, set an example and this example is important for staff morale
and conduct in practice. According to the survey entitled Ethics at Work from
the Institute for Business Ethics (IBE), only personal telephone calls find favour
with more than half the workforce “ all the other ˜minor™ misdemeanours
received disapproval by the majority. Yet practical guidelines reflecting mod-
ern day business practice are often missing: for instance, it should be men-
tioned that in a world where people work from home, it is not clear that the pen
should be checked in as they leave the office anyway.
In another recent survey reported by The Times it has been indicated that
more than half the workforce think a ˜bit of fiddling on expenses™ is not as bad
as fraud and an even larger number think most people lie to their boss on occa-
sions. This is according to the first comprehensive survey of workplace attitudes
Part B “ Overview of the Economic Aspects of Business Risks

towards ethical conduct. The survey was carried out by Mori for the IBE. It also
found that evidently the vast majority frowned on:
Taking software home;
Going sick the day after a party at work;
Favouring family or friends with contracts; and
Charging personal entertainment to an employer™s account.
Moreover this does not only apply to commercial organisations. Just as busi-
ness is now operating in an era of exacting requirements of corporate govern-
ance, as has been discussed in Chapter 6, it should also be noted that charities
today are also similarly impacted. Furthermore those companies that donate to
charities should ensure that the non-profit organisations that they support are
following correct procedures and are responsive to change. The interaction and
influence between the commercial and non-commercial sectors can be wit-
nessed globally. As has been emphasised previously, issues of transparency
and governance include both macro and micro concerns. Developments and
comments can therefore extend from the larger organisations to very small
organisations in this vast global marketplace. This highlights the value of com-
pany codes in terms of risk management (see below).


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