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Revealing the True Cost of Financial Crime What’S Hiding in the Shadows?

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Revealing the True Cost of Financial Crime What’S Hiding in the Shadows? Revealing the true cost of financial crime What’s hiding in the shadows? Focus on Latin America and the Caribbean Refinitiv | Revealing the true cost of financial crime In March 2018, Refinitiv commissioned a global survey to better understand the true cost of financial crime and to raise awareness of its wider impact on business, individuals and society as a whole. In total, over 2,300 senior managers from large organizations across 19 countries participated. We also supplemented the survey findings by conducting in-depth research and holding interviews with leading NGOs (Education Endowment Foundation, Transparency International UK and Walk Free Foundation) and the European Union’s law enforcement agency to gain perspective on the human cost of financial crime. This report specifically examines the findings in Latin America and the Caribbean. 2 Refinitiv | Revealing the true cost of financial crime About the survey For purposes of this report we have based on first-hand experience and used a wide definition of financial knowledge. This report focuses on Latin crime, one that goes beyond the scope America and the Caribbean. with which Refinitiv is traditionally The survey sought feedback from both associated. In order to provide as publicly listed and privately owned complete a picture as possible on the organizations. social and financial impact of financial 2,373RESPONDENTS crime, we have included bribery and A range of industries was consulted, corruption; money laundering; fraud; including agriculture; mining; theft; cybercrime; and slave labor/ construction; retail; manufacturing human trafficking. and financial. that the standard A total of 2,373 C-suite/senior Please note 19COUNTRIES management in large organizations convention of rounding has been across 19 countries1 completed applied and consequently some totals the survey. do not add up to 100%. Respondents’ feedback was grouped according to the regions in which their companies operate in order to deliver a global opinion of those regions, 1. Respondents were based in the following individual countries: The USA, Canada, China, India, Singapore, Australia, the UK, Germany, the Netherlands, Spain, France, Russia, Poland, the UAE, Saudi Arabia, South Africa, Nigeria, Brazil and Mexico. Please note, however, that research shows that the operations of respondents’ organizations are global, meaning that the regional statistics included in this report do not only reflect information relating to the individual countries listed above. Rather they reflect broader regional perspectives according to the respondents’ firsthand knowledge and experience in those regions. 3 Refinitiv | Revealing the true cost of financial crime The hidden face of financial crime The true cost of financial crime On a macro level, raising awareness is extends far beyond pure economics. a key tool, as is collaboration and the Critical social consequences include sharing of information and ideas on the the proceeds of financial crime best methods to combat financial crime. FINANCIAL being used to fund the financing On an organizational level, invaluable of terrorism; human rights abuses tools include access to reliable risk data CRIME such as slavery and child labor; and that offers breadth of risk intelligence environmental crime. coverage and finding the right partners AFFECTS to enable a holistic approach to Loss of revenue to national effective risk mitigation throughout the governments has a host of knock-on EVERYONE compliance process. effects, too, including the fact that lower tax revenues mean that less money is Financial crime affects everyone available to fund schools, hospitals and and gaining insight into its true other essential services. magnitude and devastating effects is of paramount importance. 4 Refinitiv | Revealing the true cost of financial crime Financial crime: some background to the challenge Extensive networks safeguards – but when asked to rate Survey results indicate that, across these different pressures (as expected the globe, an average of just 59% of Financial crime can flourish if it is in the 12 months post-survey), the relationships have ever been screened allowed the opportunity to ‘hide’ in highest percentage across the globe with regard to issues including organizations’ third-party networks (83%) reported that pressure to increase bribery and corruption; money – networks that are often extensive turnover is either extreme or significant. laundering; fraud; theft; cybercrime; and can span the globe. To better This view was echoed in Latin America and slave labor/human trafficking. This understand the magnitude of these and the Caribbean, with 87% of the percentage was the same across Latin networks, our survey asked respondents same opinion. America and the Caribbean. to estimate how many third-party vendor, supplier or partner relationships their Ongoing monitoring to detect potential company had, globally, over the Initial screening and or emerging risk is also of paramount 12 months preceding the survey. ongoing monitoring importance, but survey results again revealed that, once they are initially The average across the globe was This pressure, added to a host of screened, an average of just 59% of reported as 7,693, but in Latin America global regulations and legislation to relationships across the globe are and the Caribbean, the figure rose combat financial crime, has led to a monitored and reviewed on at least an substantially to an average of 12,985 situation where compliance teams annual basis. The corresponding figure relationships, the highest reported often struggle to fully screen and in Latin America and the Caribbean was across all regions surveyed. monitor the vast number of customers, third-party vendors, suppliers and marginally higher at 60%. Ever-increasing pressure partners identified above. This means that only approximately 35% of relationships in the region are fully Organizations are operating against The consequences of compliance screened – both at the initial onboarding a backdrop of growing pressure – failure are significant and compliance stage and on an ongoing basis. pressure to increase turnover, grow teams are aware of their responsibilities, profits, develop new markets, increase but nonetheless often struggle with the market share and improve regulatory task at hand. 5 Refinitiv | Revealing the true cost of financial crime Measuring the impact of financial crime Respondents were asked whether their $1 billion could provide 180,000 companies had been victims of any of toddlers with the foundations they need GLOBALLY the identified financial crimes throughout to become fluent learners at school. their global operations during the In Mexico, it would mean 327,000 12 months preceding the survey. additional children placed in primary Responses revealed that, globally, and secondary schools; and in India 47% had been a victim of at least one 1$ billion could build 2,000 more % form of financial crime, compared to a schools. In Poland, this money could 47HAVE BEEN A VICTIM OF proportionally higher 54% across Latin pay for 64,000 additional teachers, or FINANCIAL CRIME America and the Caribbean. 21,000 in the USA. The true cost of such crimes must be These examples just begin to illustrate measured in terms of their financial, the real-life consequences and impact on OUT OF social and humanitarian impact. Within individual lives as a direct result of every each country surveyed, we calculated dollar of revenue lost to financial crime. the sum of the published turnover Moreover, there is a further ‘hidden’ (last 12 months) of listed companies cost – the opportunity cost that results with a turnover of USD$50 million or when organizations avoid doing 2,373RESPONDENTS more and applied a global estimate business with high risk customers of lost turnover as a consequence of because they feel unable to identify financial crime at 3.5%, giving a global actual risk. When questioned whether, estimated loss of turnover of just over in order to avoid rather than manage USD$1.45 trillion. heightened risk customers, their On the same basis, we analyzed 386 organizations consider de-risking listed companies in Latin America and to be appropriate, 72% across the the Caribbean with a total sum turnover globe agreed. In Latin America and USD$1.19 trillion and the estimated loss the Caribbean, this percentage rose amounted to USD$38 billion. substantially to 82%, the highest across all regions surveyed. In concrete terms, what could this lost revenue have meant? By way This is unsurprising, given that any of example, let’s look at how much connection, even unwitting, to any form $1 billion can buy in the vital area of of financial crime could potentially result education in different countries across in regulatory fines, reputational damage the globe. and even prosecution. In Spain, this amount could pay for high-quality early years education for 150,000 toddlers, whilst in Russia 6 Refinitiv | Revealing the true cost of financial crime Different aspects of financial crime Perceived relative a widespread lack of appreciation Conversely, two areas – bribery and of the importance of addressing and corruption; and cybercrime – stood importance eradicating these crimes against out across all regions, with the highest What aspects of financial crime humanity. With an estimated 40 million percentage across the globe (94%) do organizations feel are the most people living in modern slavery, selecting bribery and corruption as an important to prevent? the
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