More African companies fall victim to financial crime

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Africa has a higher percentage of companies affected by fraud, theft, money laundering or other financial crimes than the global average, according to a comprehensive survey of international business.

Thomson Reuters commissioned the survey of more than 2,300 senior business leaders in large companies to shine a light on how pervasive such crimes have become across the world.

The report, Revealing the True Cost of Financial Crime, shows that 53% of people questioned in Africa, and 47% of respondents globally, admitted that their organisation had suffered at least one incident of financial crime over the past 12 months, with cybercrime and fraud cited as the most common financial crimes. The companies surveyed estimated a total aggregated loss of $1.45 trillion, or around 3.5% of their global turnover.

The difficulty of tackling financial crime is starkly set out in the survey. Thomson Reuters found that many organisations questioned do business with more than five million customers or clients every year, and 9% of organisations have dealt with over 10,000 third party vendors, suppliers, or partners over the last 12 months. According to the report, however, only 36% of relationships are regularly screened for criminal connections. Indeed, the survey suggests that 41% of parties that respondents did business with over the past 12 months were not screened at all.

Furthermore, an astonishing 41% of known instances of financial crime are not reported, either internally or externally. The reasons behind this include a high rate (69%) of detected bribery and corruption involving someone internally. Companies are also reticent to report due to reputational damage and financial loss – 60% of the publicly listed companies surveyed stated there would be a significant negative impact on investor confidence if such crimes came to light.

The report reveals the scale of the challenges society faces in fighting financial crime, with its impact felt well beyond large companies. Taking money laundering as an example, 46% of respondents think that it leads to higher prices for consumers and 42% believe it leads to lower government revenues. That money in Africa and other emerging markets can be used to address critical social needs like education and healthcare. For example, $1billion can fund 327,000 additional primary and secondary school students in Mexico and the creation of 2,000 new schools in India.

The human cost of financial crime is also significant. The Global Slavery Index, produced by the Walk Free Foundation and International Labour Organisation, estimates that over 40 million people today are in modern slavery, including forced labour, and it impacts many countries in Africa.

The links between financial crime, economic cost and human cost are significant. In the EU, a recent survey put the economic cost of slavery/human trafficking at €30 billion ($35 billion). Given the EU’s representation of approximately 20% of the global economy, and the similar prevalence of financial crime in other areas, this puts the global cost of modern slavery alone at €150 billion ($175 billion).

Almost all those surveyed globally and in Africa, recognized that greater collaboration is vital to winning the war against financial crime, with 94% of companies believing there should be more sharing of financial crime intelligence, while 93% said that public-private partnerships should be increased and improved.

At Davos this year, the World Economic Forum, Thomson Reuters and Europol launched a coalition to improve awareness of the extent of financial crime, promote more effective information sharing and establish enhanced processes to share best practice.

“Financial crime causes incalculable harm around the world. The proceeds of bribery, corruption, fraud, narcotics trafficking and other organized crime have all been implicated in the financing of terrorism, human rights abuses such as slavery and child labor, and environmental crime. This has serious economic and social costs in terms of the lost revenues to national exchequers that could be invested in social development, and in terms of the impact on individual lives.

“Thomson Reuters is committed to uncovering the true scale of the challenge, working together with other companies, governments, and law enforcement agencies to create awareness of the scale of the problem. By gathering better data & intelligence and forming coalitions, we will increase our ability to effectively fight financial crime across the world,” said Sneha Shah, managing director for Africa at Thomson Reuters.