Ukrainian companies suffer from economic crimes

Nearly half (45 percent) of Ukrainian companies suffer from economic crimes, their administrations have found. At the same time, this indicator is only one-third worldwide. These data were made public in the annual worldwide survey of economic crime by PricewaterhouseCoopers. This is the first time Ukraine has met the survey participation requirement — 65 participating businesses.

What do experts understand by economic crimes? An economic crime is defined as intentional fraud for the purpose of embezzlement or dispossession. Borys Krasniansky, managing partner of the company’s office in Ukraine, came up with apt paraphrase: this is when “an employee uses his/her office to rob the company or make a [personal] profit out of it.”

The most common economic crimes in Ukrainian businesses are embezzlement and bribery, followed by illegal financial transactions, illegal financing, violations of IT security, and even espionage. The respondents have also mentioned illegally obtained loans, tax fraud, and creative accounting (the latter crime’s incidence has tripled worldwide in the past six years). The least common types of economic fraud in Ukraine include trading insider information and price fixing.

The results of Ukraine’s first ever economic crime survey largely coincide with the conclusions of its worldwide counterpart and confirm that risks are higher in time of financial crisis. The participating Ukrainian enterprises do not yet see the end to the ongoing crisis, and their level of optimism is half of the worldwide figure.

The survey has shown that in the past year both the number of and the damages resulting from workplace frauds have increased — and these are not what you would call individual cases involving small sums. For 55 percent of the surveyed companies the direct damages from economic crimes were equal to over USD100,000. Among the negative consequences, a third cited worsened working climate and relationships with the regulatory bodies and business partners but no decline in share prices.

An interesting feature of the Ukrainian market is that 25 percent of economic crimes were detected by chance as compared to 16 percent worldwide. Nevertheless, most Ukrainian enterprises learned about the illegal activity of their employees with the help of risk management procedures, formal channels via which management was informed about fraud, or through internal security service.

Effective methods to detect and fight economic crimes are, no doubt, costly. This may be the reason why the detection procedures are in the nascent stage in Ukraine.

The survey has shown that in the past year nearly one half of the surveyed companies have introduced additional procedures to check their clients’ and suppliers’ identity and have stepped up internal auditing, while a third have focused on enforcing professional ethics, introduced new recruitment and dismissal procedures, and revised their anti-fraud policies. These are timely measures, because the Ukrainian respondents expect a rise in violations of intellectual property rights, tax fraud, and money laundering.

THE DAY'S FACTFILE

Countries with a high level of economic crime:

1. Russia –71 percent

2. South African Republic – 62 percent

3. Kenya – 57 percent

4. Canada – 56 percent

5. Mexico – 51 percent

6. Ukraine – 45 percent.