Corporate Africa ‘at risk from evolving economic crime’, surveys show

Out-Law News | 27 Feb 2014 | 4:42 pm | 3 min. read

Economic crime is continuing to threaten businesses across Africa, with firms at risk of “secondary damage” from fraud and corruption, such as revenue losses and tarnished corporate images, according to two new surveys.

The 2014 Global Economic Crime Survey, published this month by professional services firm PwC, said Africa reported one of the highest overall percentages of bribery and corruption globally in 2014 (39%) – compared to 34% in a 2011 survey. The survey received 5,128 responses from more than 95 countries.

In a related third biennial Kenya Report published with the global survey, PwC said Kenya is still above the Africa average of 50% in instances of economic crime and substantially higher than the global average of 37%.

“Kenyan organisations still need to place more emphasis and dedicated resources to tackle the high instances of economic crime,” the report added.

PwC said threats and trends of economic crime are constantly evolving across Africa, alongside asset misappropriation, accounting fraud and bribery, due in part to increased use of technology.

In Africa, 61% of respondents reported bribery and corruption as posing the greatest relative risk to their organisations, followed by money laundering (25%) and competition law/antitrust law (13%).

Regionally, the highest response rates for procurement fraud were found in Africa (43%) and the Middle East (33%), areas with large government sectors, important energy and mining industries, and growing construction and infrastructure projects. “The results underscore the risks organisations in these industries face,” the report added.

South Africa headed the list of top territories reporting economic crimes. Reported fraud was 69% in 2014 compared to 60% in 2011.

In Kenya, the percentage of economic crimes reported in 2014 was 52%, compared to 66% in 2011. The report added: “This decline could be attributed to more aggressive efforts and deliberate actions by organisations to address the problem.”

According to 55% of respondents who reported suffering economic crime in Kenya in 2014, the impact is still less than $100,000 at organisational level, PwC said. “The percentage increase in the higher cost bracket ($100,000 to $5 million) on the other hand signals some warning signs with indicated response levels of 25% in 2011 up to 34% in 2014.”

PwC added: “This could indicate that fraud perpetrators in Kenya are getting bolder and targeting larger sums of money, which is generally in line with the recently reported incidences of economic crimes in the country.”

"Like any new market there are risks and when it comes to fraud and corruption often there is an assumption that it is the same everywhere in Africa," said Barry Vitou, a corporate crime expert at Pinsent Masons, the law firm behind Out-Law.com. "This is wrong. Botswana turns out to be one of the less risky places in the world to do business. Businesses should take steps to make sure that they understand the environment they operate in and take steps to reduce the risks."

Cybercrime is highlighted as a particular challenge for all companies, which PwC said offers fraudsters “an increased level of anonymity and convenience, and provides them access to larger pools of ‘virtual money’ compared to traditional types of economic crime”.

Africa is not immune from the increased use of new technologies, including the increasing digitisation of personal data and processes, which PwC said is “enabling more and more harmful incidents of economic crime”.

PwC said: “Asset misappropriation remains the most frequently reported type of economic crime globally.” Among respondents who reported economic crime in Kenya, 77% (73% in 2011) indicated asset misappropriation was the most prevalent form of fraud in their organisations.

According to PwC, the prominence of asset misappropriation “could be attributed to the fact that a wide range of irregularities can be easily classified under this type of economic crime and the opportunity to commit this type of irregularity is available to individuals at all levels of the organisation”. Other types of economic crimes, such as accounting fraud, “can be committed only by those individuals who are in a position to influence the financial statements”.

PwC added: “It is easy for those who have lived in relatively corruption-free societies to underestimate the significance and power of cultural norms related to the ‘demand side’ of corruption. It is likely that when your employees are challenged with sales and other business goals within ‘high corruption demand’ cultures, they may not perceive the risk of participating in a corrupt scheme with the expected, and required, degree of caution.”