Economic crime

Most of the organisations across the world are facing a newer risk that has emerged due to environmental, geopolitical, financial and social pressures. Indian organisations are equally at risk in this extremely volatile new world that is complicating the challenges of preventing fraud and economic crime.

Companies in India have been undertaking measures to combat fraud for several years now. While fraud prevention measures are working — 52% of Indian organisations experienced fraud or economic crime within the last 24 months, according to a report by PWC India.

The report says, more than 50% of Indian companies experienced an economic crime in the last 24 months and 95% of them suffered new types of fraud as a result of the disruption caused by Covid-19.

The pandemic has made organisational perimeters more vulnerable and external fraudsters are emerging as a major threat. These external entities are more difficult to control or influence. As many as 60% of Indian companies having global annual revenues above $1 billion experienced fraud in the past 24 months. Among companies with global annual revenues below $100 million 37% experienced fraud during this period.

Customer fraud--involving mortgage, credit cards, claims, cheques--was reported by 47% of companies. Cybercrime came second, with 45% of companies reporting such incidents. KYC failure was reported by 34% of Indian firms experiencing financial crime.

Among new types of fraud experienced

# 67% organizations reported misconduct risk, 16% reported legal risk, 31% reported cybercrime incidents, 19% reported insider trading, and 38% experienced platform risk.

# As many as 12% organisations experienced ESG reporting fraud which alters disclosures to misrepresent the activities or progress of an organisation.

# As many as 9% experienced anti-embargo fraud which involves participation in unsanctioned foreign boycotts, or when an organisation is tricked into breaking an embargo, and 19% experienced supply chain fraud.

Misconduct was the biggest challenge faced by organisations, referring to bad actors collaborating and taking advantage of pandemic-related uncertainty and volatility. Conduct risk, associated with individuals within the firm, or vendors, agents and customers, was the biggest threat at 90%.

Businesses have been exposed to new risks related to digital security, employee safety and disinformation due to uncertainties created by the pandemic and the subsequent shift to digital operations and remote working. The businesses must continually focus on policies, training and internal controls.

It is increasingly becoming important for organisations to understand the end-to-end life cycle of customer-facing products and also strike a balance between user experience and fraud controls.

Over time, formidable actors become better at exploiting cracks. Given the low level of digital literacy in India, KYC and customer frauds can prove to be a far greater risk for organisations in the future.

With the rise of digital platforms to perform business operations, platforms have emerged as new fraud frontiers.