backBusiness Resilience and Tackling Fraud

Three simple things your business can do now

1. Appoint a senior person to be responsible for business resilience, including counter-fraud activity.
2. Ensure that IT security and training is up to date.
3. Identify your top five riskiest trading partners and review the relationship with them.

Strategy

The WSTA has traditionally engaged with government and advised members on regulatory issues and, separately, counter-fraud and fraud reporting initiatives.

We have increasingly come to recognise that these share a common theme of “business resilience”. This entails members categorising risks and threats to their business as a cost to be managed, putting controls and measures in place at an early stage rather than an afterthought.

It involves a recognition that compliance is cheaper and more effective to a business’ profitability than running the risk of enforcement action.

This approach encourages businesses to anticipate regulatory change and new threats as part of a structured risk management programme.

The Office of National Statistics suggests that fraud of all types accounts for about 47% of all recorded crime.

Recent research by the International Alliance for Responsible Drinking (IARD) suggests that on a worldwide scale, up to 25% of alcohol consumption may be illicit alcohol, much of that being particularly toxic spirits-based products. The distribution of fraud between countries is highly variable.

HMRC’s most recent estimate of the tax gap remains at £1.3 billion per annum for alcohol (£900 million in the form of excise duty, with £400 million coming from VAT), although this has decreased from 8% to 7% of the total and continues a downward trend – even taking into account some uncertainties and optimism in their statistical method.

Excise duties on alcohol contribute about £11 billion to the total tax take, so the tax gap is just over 10% of excise duty revenue, or 0.2% of total tax revenue (around £566 billion).

HM Treasury (HMT) produced a national money laundering and terrorist financing risk assessment in 2015 which said:

“The best available international estimate of amounts laundered globally would be equivalent to some 2.7% of global GDP or US$1.6 trillion in 2009. Both money laundering itself, and the criminality which drives the need to launder money, present a significant risk to the UK.

“Money laundering is also a key enabler of serious and organised crime, the social and economic costs of which are estimated to be £24 billion a year. Taken as a whole, money laundering represents a significant threat to the UK’s national security.”

Crow Clark Whitehill LLP have access to data collected over 20 years and estimate that fraud losses average 6% of turnover. In the food and drink sector, this level of loss is approximately the same as the level of pre-tax profits reported by businesses.

The Association of Certified Fraud Examiners reports that the average time between a fraud starting and being detected is 18 months.

Once detected, the chances of a fraudster being prosecuted are close to zero and the prospects of recovering losses are patchy at best. Evidence from the British Crime Survey suggests that about 55% of reported crimes now are fraud-based. Of the approximately 3.5 million frauds reported annually, only 1,700 result in a positive outcome. Over 99% of frauds therefore go unresolved and it is arguable that fraud has been decriminalised for all practical purposes.

Government resources are scarce and likely to be allocated on the basis of the perceived vulnerability of the victim and the priorities of the individual enforcement agency. A corporate victim is unlikely to be given a high priority, except in the most extreme case.

All these indicate that fraud is a significant problem, manifesting itself in myriad ways and capable of having a serious and measurable impact on individual businesses, communities and nations.

Action

Current activities include:

• Liaison with government, regulators and enforcement agencies as set out above;
• Responding to consultations;
• Circulating police briefings, mainly around cybercrime and current scams;
• Working with Crimestoppers;
• Working with the Centre for Counter Fraud Studies (CCFS) at the University of Portsmouth. This has produced two research papers on investment wine fraud that confirm our main assumptions about perpetrators and victims and underpin them with evidence;
• Working with the fine wine trading community to support efforts to identify and remove counterfeit fine wines;
• Helping members and non-members make reports about specific cases;
• Working with London Digital Security Centre to improve defences against cybercrime.
• We have recently started exchanging knowledge with FIVS, who are interested in how industry-led counter-fraud efforts can be better coordinated.

The WSTA has teamed up with the charity Crimestoppers. We have developed an Integrity Line:

This enables anyone to report Alcohol-related crime anonymously, by phone or online.

To promote this, we run targeted campaigns encouraging the trade sector and the general public to report criminals selling illicit alcohol and undermining legitimate businesses