How To Spot Whether Organized Crime Has Infiltrated Your Business

Legitimate businesses are increasingly being exploited by criminal networks. More than 80% of organized crime groups use established, legal business structures for their criminal purposes, according to a new EUROPOL study on organized crime in the European Union. Among these purposes are disguising their criminal activities, defrauding the businesses themselves or laundering illicit income through them. Here are examples of how to spot the warning signs:

  • Your company has a small segment of client companies or „partner“ firms who are responsible for a disproportionally large share of your revenue and are completely invisible, i.e. have no marketing presence anywhere. They might be shell companies. Arrangements such as these sometimes occur especially in foreign subsidiaries, which are harder to control from the HQ.
  • There are rumors in your company that one of your executives keeps meeting business partners under a cloud of secrecy. At face value, the reasoning for it sounds plausible: they are discussing confidential new projects; protecting the company from nosey competitors; building trust and rapport with partners who are used to discretion. But these meetings take place fairly regularly and involve extravagant entertainment, according to rumors…
  • Some corporate files are being kept separately by an executive with „my eyes only“ instructions to his/her administrative assistants. These files may contain invoices, project documents or other data that is being kept out of view from internal watchdogs.
  • Your business keeps warehouses full of products or raw materials which are disappearing at a certain percentage every year, to some extent a normal ocurrence. Whenever your loss prevention officers, however, catch thieves among the warehouse staff and remove them, the losses go back up after a short hiatus. You may have an organized gang among you.
  • An important supplier of yours is in financially dire straits and borrows money from shady sources, according to the grapevine. The supplier now seems to be under the lender’s control.
  • You notice that some of your most protected trade secrets must have fallen into your competitor’s hands, even though only a handful of your own employees had knowledge of them. Someone appears to be bribing one of your team members to use this inside information against you.

This list is obviously non-exhaustive and only a loose indication of organized crime trouble that may be brewing in a company.

What the EUROPOL Study Found

Organized crime groups raise billions of euros from their illicit activities, and a considerable part of this money flows into Europe’s legal economy through corruption and money-laundering disguised as investments or revenue.

Members of organized crime groups infiltrate companies‘ supply chains, trade in counterfeit goods, provide „financial support“ to legal but struggling businesses, create shell companies to launder proceeds of crime, or take over legitimate companies to use their land or buildings for criminal ends. 

An example of how land and properties are sometimes used by organized crime can be found in a video mentioned in the study which was produced by police in the Netherlands in 2020. In it, a tactical police team raids a warehouse and uncovers unusual rooms hidden in shipping containers and behind false office walls.

How to Prevent Criminal Infiltration in Your Company

1. Know Your Business Partners

Thoroughly investigate key individuals and companies involved in potential major business deals or transactions, including your suppliers and vendors, strategic trading partners, and potential investors. When third-party providers are reluctant to provide information about their business, its purpose, or its beneficial owners, you are dealing with red flags. Background & Checks of UBOs (ultimate beneficial owners) tell you who is behind things and whom you can trust, or not; what connections harbor risks; or whether outsiders may soon be corrupting your business.

2. Conduct Forensic Accounting

Regularly analyze your company’s financials and transactions to detect fraud, corruption, or money-laundering. Monitor and review your suppliers‘ financial information to protect your company. Get to know the origin of your business partners’ financial assets to avoid that criminals use your company to launder their illicit profits.

3. Secure Your Digital Infrastructure

Criminals generate huge profits by exploiting digital infrastructure – an easy way to make money with minimal risk of getting caught. Almost all criminal activities now feature some kind of digital component and many crimes have fully migrated online, for example payment diversion fraud. (Read our top tips of how to deal with this frequent phenomenon.)

4. Run Pre-Employment Checks

Getting hired by a legitimate business is a good way for organized criminals to infiltrate it. With a pre-employment screening on potential employees that verifies résumés and identifies red flags, you can protect your company from unwanted „moles“.

5. Raise Awareness

Increasing your employees’ knowledge of criminal risks, such as corruption and fraud, will help them detect red flags. This includes conducting trainings for employees who may be dealing with high-risk business partners. Organized crime groups engage in social engineering (subtle manipulation) to gather personal or business information on their targets, use encrypted communications to communicate with each other, and advertise illegal goods or fake services through social media and instant messaging services. Raise awareness among your employees about these issues.

6. Protect Whistleblowers

Encouraging employees to report wrongdoing is essential. An efficient whistleblower program that protects the informant has the potential to minimize misconduct, strengthen transparency, protect reputations, and ultimately avoid financial damage.

The authors:

Sebastian Okada is proxy-holder and head of Investigations & Fraud Prevention White-Collar Crime at Corporate Trust in Munich. He has been conducting investigations and due diligences worldwide for almost 20 years.

Katharina Stocker screens business partners and employment candidates around the world. She holds a Masters in International Affairs from George Washington University in Washington D.C.

+49 89 599 88 75 80

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