What is economic crime and how can you protect your company against it?

Economic crime is a serious threat that poses significant challenges for companies worldwide. This article highlights the most common types of economic crime, the far-reaching consequences for companies, and effective protection measures. Learn how you can protect your company from financial losses by combining preventive strategies and a business fraud insurance policy.

Economic crime is a serious risk for companies of all sizes. It causes billions in damages worldwide every year and can have consequences that can threaten the very existence of a company.

Economic crime refers to all criminal offenses committed in an organizational context that cause financial damage. These include, for example, fraud, theft, and embezzlement. What makes this particularly insidious is that these crimes can be committed by the company's own employees and contractors. Economic crime can also be committed by external criminals.

Fraud—in various forms—accounts for a large proportion of economic crime. Here are a few examples:

In this case, people from outside a company cause damage by, for example, stealing money or goods. Examples of so-called external fraud include:

• A fraudster pretends to be the CEO or CFO in order to, for example, initiate fraudulent transfers (CEO-Fraud)
• Interception and falsification of invoices, to redirect the sums to the fraudsters' accounts (payment diversion).
• Ordering goods or services using a false identity to deceive the seller and avoid payment. (fake buyer fraud)
• Falsification of signatures or emails for the purpose of financial fraud

It should be noted that most of the cases listed above use social engineering techniques. These techniques involve exploiting human psychology to trick individuals into revealing confidential information or performing compromising actions.

To illustrate the significance of economic crime, here are some real-life scenarios:

• Theft: A five-figure sum disappears from the safe of a healthcare provider. Since there are no signs of destruction, there is much to suggest that an insider was at work.
• Embezzlement: An employee of a medium-sized company has been diverting small amounts to private accounts for years, accumulating a six-figure sum.
• External attack: Fraudsters pretend to be members of the management and send an email to the accounting department requesting that a large sum be transferred to a supposed partner company. The bank account specified in the email is actually controlled by the fraudsters (this is a typical CEO fraud).

These cases show that no company is safe from economic crime. It becomes particularly dangerous when the damage is discovered too late.

The consequences of economic crime can be drastic:

• Financial losses: Embezzlement or fraud can cost millions and ruin companies.
• Reputational damage: If cases of fraud or corruption become public, customer and investor confidence suffers and needs to be reestablished, which can be a costly endeavor in itself.
• Legal consequences: Contractual penalties with business partners may arise; company management may be held liable for inadequate control mechanisms.
• Employee morale: Fraud within a company often leads to uncertainty and mistrust within the teams.

According to a study by the ACFE (Association of Certified Fraud Examiners), a typical fraud case takes an average of 12 months to be discovered, and most fraud cases are detected through tips from internal employees.

The best defense against economic crime is smart prevention. Companies must continuously review and adapt their security measures.

Preventive measures and best practices:                            

1. Clear company guidelines and positive corporate culture: A code of conduct helps to establish
and embed ethical behavior within the company.

2. Regular training: Employees should be made aware of common fraud schemes.

3. Increase digital security: Measures such as two-factor authentication and anti-phishing training protect against attacks via IT.

4. Dual control principle for payments: No single individual should be able to decide on large money transfers alone.

5. Internal and external audits: Regular audits help to identify weaknesses at an early stage.

These measures reduce the risk, but there is no such thing as complete protection. What happens if damage occurs despite all precautions?

Even with the most comprehensive prevention and protection strategies, companies can still fall victim to criminal acts. This is where business fraud insurance comes into play.

What does business fraud insurance usually cover?

Business fraud insurance protects companies against financial losses caused by:

• Fraudulent employee activities (e.g., embezzlement, theft, sabotage, divulgation of business secrets )
• External fraud (e.g., CEO fraud, fake buyer fraud, payment diversion)

Good business fraud insurance also protects against follow-up costs that may arise from an insured event, such as legal costs or costs to mitigate reputational damage.

Please note: Not only large corporations benefit from business fraud insurance, but also small and medium-sized enterprises (SMEs), which can suffer serious liquidity problems as a result of economic crime.

A company falls victim to CEO fraud and transfers €500,000 to fraudsters. As the fraud is only discovered days later, the money has already disappeared. Our business fraud insurance covers the financial loss in accordance with the insurance terms and conditions and protects the company from a crisis that could have threatened its very existence.

Economic crime is a serious risk for every company. But with the right strategy, this risk can be minimized:

• Establish preventive measures: Introduce security guidelines, training, and control systems and update them regularly.
• Strengthen technical protective measures: Optimize your IT and digital security systems to effectively defend against potential threats.
• Secure your financial stability with business fraud insurance: Even with the best protections in place, economic crime and fraud cases can still occur. Business fraud insurance can help ensure financial resilience in the event of fraud and therefore completes your risk management strategy.