What are the causes of economic crimes?

The National Economic Crime Centre (NECC) was formed to unite the key agencies involved in tackling economic crime in the UK. There was a growing awareness that a cohesive response was needed in the face of a dramatically escalating problem.

The fact that so much business is now done online, plays a big role in economic crime’s proliferation. It enables organised groups of money launderers and fraudsters to ‘hide’ themselves and their activities far too well.

It is a level of anonymity that has emboldened many amateur criminals’ efforts to commit fraud, identity theft or industrial espionage too.

Also, the development of a global, networked economy opened up many avenues for such activities as asset misappropriation, bribery, false accounting, insider trading and money laundering. Particularly as some countries have immature controls, checks and penalties for illegal financial activities.

What are the other causes of economic crimes?

Is online fraud and data theft a ‘victimless crime’?

One reason why people seek to secure a financial gain they are not entitled to is the misconception that no one ‘really’ loses out.

After all, most companies now have disaster recovery plans and can download the data they backed up quickly. Also, defrauding big companies or even government bodies and funders is seen as a victimless crime as they have deep pockets.

Of course, this is far from an accurate picture of the repercussions of financial crime.

Sticking it to the ‘man’

There is also a lingering perception that committing criminal acts by manipulating data or defrauding companies digitally is ‘clever’. Some hackers are students or young people in general, who make a game of seeing how far they can go in disrupting or stealing data or funds.

Companies who make it too easy

One of the biggest causes of economic crime is the fact that organised criminals are highly sophisticated and determined in the way they misuse their technical abilities. There have been times when the abilities of cyber criminals have far outstripped the technology and skills needed to thwart their efforts.

However, that is not necessarily true now, and it is complacency and lack of proper response that makes it ‘easy’ for them. Many SMEs and even mid-sized organisations don’t have thorough plans to either stop or recover from economic crime and cyber attacks. Even if they have drawn up robust policies and procedures, there is a high probability they haven’t tested them.

For instance, according to a Ponemon survey (reported in the Harvard Business Review) 47% of organisations will only know if their incident response plan works when they experience a substantial cyberattack.

Yet, according to another survey by Coro, mid-sized companies are now 490% more likely to be victims of cyber security threats.

Lack of action and investment in specialist help will ensure they continue to be seen as a ‘soft target’ for economic crimes online.

Inflation and economic hardship

No list of reasons for economic crimes would be complete without stating the most obvious cause. Both individual and group activities are stimulated by economic hardships – real or perceived.

Inflation, energy price hikes and other financial challenges are probably one of the biggest reasons why financially-motivated cybercrime is up by an eyewatering 600% post-pandemic. The cost to the global economy is equally shocking- $6 trillion a year, rising to $10.5 trillion a year by 2025.

Certainly, for individual perpetrators, the promise of ‘get rich quick’ schemes to defraud funding bodies or banks, for example, can seem to be a way to ‘compensate’ them for a lack of opportunities to earn money legitimately.

Protecting your assets

Securing a financial windfall, due to the perception of economic imbalance in society, has been a motivation for economic crimes since it was peasants stealing grain or poaching from their local lord!

However, there is evidence that some modern economic crimes are more entrenched in a sense of entitlement, rather than injustice. For example, someone who has worked hard for many years and becomes financially successful can feel they have a ‘right’ to protect their wealth by tax evasion, illicit capital havens or even money laundering.

Disadvantages of taking action against economic crime

Finally, there are significant numbers of economic crimes perpetrated from within the organisations that suffer financial loss.

When it is your own manager who misappropriates money, it can sometimes seem much less damaging to dismiss them without taking legal action. Loss of faith from customers and staff – and a dented reputation – can seem too big a price to pay.

That can even make companies hesitate to bring in forensic accountants, or any other specialists, to advise them on highly visible checks and measures. However, by not taking decisive and robust action when internal financial anomalies are detected, companies leave far too many ‘holes’ open for someone else to exploit.

Or, they add more weight to the view that economic crimes are ‘easy’ to pull off or only risk loss of employment.

As one study on this topic stated: “The opportunity creates the offender.”

The trick is to introduce internal controls, checks and measures that are transparent and effective, without creating a climate of mistrust within the organisation.

For more help on this crucial topic, please contact the team at IAB about our AML course content.