What are economic crimes?

There is clear evidence that the number of economic crimes in the UK is growing at a shocking rate. This article explores the background to that and answers the question, what are economic crimes?

Examples of economic crime

Also known as financial crimes, this term refers to various types of illegal activity designed to gain an economic advantage. Some of these activities are cyber-related. An example of this sort of economic crime is when companies or individuals obtain information digitally, to defraud an organisation or commit some form of identity theft.

For instance, data obtained by cybercriminals can enable them to take money directly from a company’s bank or makes it possible for them to generate fake invoices that are then paid.

However, economic crimes can also involve an individual or group of individuals within a company seeking to create financial gain by illegal means. One of the most common types of economic crime is falsifying VAT and tax records, or fraudulently gaining grants and other commercial benefits. Excise fraud involves bringing highly taxed goods into the country ‘under the radar’.

Other types of economic crimes include fraudulent manipulation of investments, insurance, loans and mortgages.

Economic crimes also include individuals or a company as a whole engaging in money laundering, or even malicious interference with a rival organisation’s data or ability to trade. If someone offers a bribe or payoff to secure a contract unfairly, this too could be classified as an economic crime.

From 2018 onwards, the National Economic Crime Centre(NECC) has been tasked with bringing together “law enforcement and justice agencies, government departments, regulatory bodies and the private sector with a shared objective of driving down serious organised economic crime, protecting the public and safeguarding the prosperity and reputation of the UK as a financial centre.”

It is especially tasked with tackling online crime linked to financial gain.

Are economic crimes a big problem?

The short answer is YES!

The Crown Prosecution Service describes fraud as: “the most commonly experienced crime in England and Wales”.

Efforts to address the issue appear to be losing ground. From June 2020 to June 2021, there was a shocking 43% increase in fraud and computer misuse in the UK.

No organisation can claim to be ‘safe’ from economic crime either. Even the UK Government has been on the receiving end of this type of illegal activity. Fraudulent online claims for Covid-19 funding were in themselves an ‘epidemic’!

One of the reasons economic crimes are growing is that cybercriminals are becoming increasingly sophisticated and determined. They use advanced methods to obtain or interfere with financial data.

If you need further evidence of how unscrupulous these types of criminals are, statistics from the National Cyber Security Centre show that in 2020/21, 20% of the 777 cases reported to them involved attempts to obtain and use sensitive information connected to COVID vaccine research, distribution, and supply chains.

Clearly, one of the reasons this sort of illegal activity is on the rise is that it is potentially very lucrative. According to the EU’s law enforcement agency, one of the most ‘profitable’ economic crimes is ‘social engineering’. This refers to the process of obtaining confidential data from individuals for financial gain.

In one case, an organised crime group generated profits of 3 billion EUR from this technique!

What about company directors and managers who commit fraud, or engage in other forms of financial crimes? It could be argued that in times of economic uncertainty when many companies are fighting to survive, the likelihood of some decision makers engaging in illegal activities to gain an economic advantage increases.

The impact of economic crimes

Economic crimes sometimes carry the misnomer of being “victimless crimes”, as they are often directed toward big companies, with deep pockets. Or it is companies misrepresenting or manipulating financial statements and defrauding the Government and their own funders and other stakeholders.

There is also a view that they are ‘low risk’ criminal activities, not least as many perpetrators hide their techniques in complex digital codes. This makes them hard to detect when in action, and even harder to trace after the event.

However, economic crimes can seriously destabilise a company’s financial health and future development. That’s true even when the organisation is the victim, rather than the perpetrator of financial irregularities. They face more than ‘just’ fines and regulatory censorship. Both consumers and business decision-makers can be unforgiving when a company leaves itself vulnerable to cyberattacks, or when one of its officers commits a financial crime. This can lead to the organisation losing its most valuable asset – its reputation!

How to reduce economic crime risks

There are various ways companies can protect themselves from economic crimes, including having robust cybersecurity strategies and ensuring compliance with GDPR. But for accountants and bookkeepers, one of the best ways to guard against economic crime is to ensure they have the ability to spot discrepancies and inconsistencies in financial documents and accounts. With the right training and knowledge surrounding anti-money laundering, they are able to act quickly and engage in crisis management.

If you’re an accountant or bookkeeper, IAB membership could provide you with the support you need throughout your career. We offer a range of benefits, services and industry updates that will help you achieve your ambitions.