Risk managers are always looking for ways to prevent and discourage fraud and corruption and there has certainly been progress in terms of data sharing and improved technology solutions to flag up suspicious cases. Although controls are improving, there is no cause for celebration if there are insufficient prosecutions - and recent figures will be both cheering news for fraudsters and a concern for risk managers.
According to figures from law firm Pinsent Masons – obtained from a Freedom of Information request - the number of white collar prosecutions fell by 12% between 2015 and 2016, even though there was a 4% rise in reported offences. What is more, it was revealed that such prosecutions have been falling since 2011. The figures show prosecutions dropped from 9,489 in 2015 to 8,304 in 2016. And there has been a 26% dip in prosecutions since 2011 (11,261). Yet, the number of reported offences was 641,539 in 2016 - up from 617,112 in 2015. And the number of reported crimes has risen nearly four-fold since 2011 (142,991).
The law firm is claiming that government cutbacks, such as a reduced police resource and less funding for the Serious Fraud Office (SFO), are key reasons for the decline in prosecutions.
The SFO is staying?
Some feared matters would become even worse if plans to merge the independent SFO into government department, the National Crime Agency (NCA), were implemented. The government had proposed this but critics said it would result in a loss of independence and focus – the NCA has a broader remit.
It now appears that the SFO will be remaining since the government has such a slim majority and there was fierce criticism about removing the SFO. The OECD group was amongst those who said the SFO was needed and it also called for more funding. The SFO’s funding has declined from £52m in 2008 to £34 million last year.
It is worth nothing that in exceptional circumstances, the SFO can request additional funds from The Treasury, as occurred for its investigations into Barclays Bank’s arrangements with Qatar.
Internal controls are the most effective deterrent
Those intent on committing financial crime will clearly relish the fact that authorities have less muscle. But equally, if risk managers can ensure their firms are doing all they can to repel criminals, this will produce results – fraudsters will target those business with the most ineffectual controls.
Working on resilience
It may make sense for risk managers to revisit their firm’s existing counter fraud strategy and consider the following:
- Conducting a thorough risk assessment to include the main threats and where these care coming from, in addition to covering measures to mitigate these
- Ensure the board is fully up to date with their responsibilities under current relevant legislation such as the Bribery Act, the Fourth Money Laundering Directive and the Criminal Finances Act
- Review cultural issues within the firm – what are attitudes and are all employees up to speed on countering financial crime?
- Is the current approach too fragmented and are there clear lines of communication?
- Is data of the highest quality in terms of analysing potential wrong doing and is there real time monitoring in place?
A final positive point is that risk managers with an interest in reducing the financial crime risk may well find there are useful organisations where they can develop their knowledge. For example, there are specialist interest groups within banking, insurance and FinTech. Beyond this, risk managers may also want to look at any databases they use to guard against fraud and see if these can up be upgraded.
It may well be that future years see further investment into national organisations such as the SFO and additional police and regulatory clout. But, while there is still work to be done, risk managers need to keep their own houses in order to stem the tide of a crime that continues to rise.