Economic crime hits Cayman

Cayman business owners and managers still aren’t comfortable with dealing with economic crimes and aren’t confident in taking them to police.

That was the loud and clear measure Tuesday when the Chamber of Commerce unveiled its latest survey, an investigation of economic crime in the Cayman Islands conducted by RSM Cayman Islands at the Marriott Grand Cayman Beach Resort.

In attendance were Police commissioner Stuart Kernoghan, Chamber of Commerce President Morgan DaCosta, Chamber CEO Wil Pineau and Ken Krys, Partner, RSM Cayman Islands who presented the findings.

The study covered the areas of asset misappropriation, bribery, cheque and credit card fraud, debit card fraud, corruption, cyber crime, identity theft, insurance fraud, insolvency fraud, money laundering and theft.

The survey was distributed to 525 corporate members in December 2005. Of the respondents, 55per cent were from the financial services sector, 30per cent from tourism/retail and 15per cent from professional services and other firms.

Mr. Pineau highlighted the importance of recognizing its significance to the Cayman Islands.

‘Its impact can be far reaching, tarnishing business reputation and diminishing hard-earned profits,’ he said.

‘In the worst case scenario, economic crime can have a serious impact on the Cayman Islands international image and reputation.’

Mr. Krys provided a detailed outline of the survey’s methodologies and results for attendees, showing that respondents represented a healthy cross-section of Cayman Islands businesses.

Among its notable findings, the survey revealed that while a large majority of businesses are concerned about the impact of economic crime, only a small proportion are actively addressing it.

‘While, on one hand 69 per cent of the businesses surveyed stated the board was responsible for the prevention of economic crime, only 39 per cent of respondent boards have formal risk management training and only 43 per cent of businesses fully train their staff in economic crime prevention,’ said Mr. Krys.

Furthermore, 54 per cent of respondents said they did not need advice and training on economic crime.

‘But the reality is, the research demonstrates that more work needs to be done,’ said Mr. Krys.

The study’s findings led Mr. Krys to conclude that the top threat to Cayman businesses is money laundering, followed by asset misappropriation, cheque and credit card fraud, and cyber fraud.

Mr. Krys commented that on average, economic crime costs businesses $60 thousand, and implementing anti-crime measures can cost $50 thousand.

Approximately one-half of the respondents expected economic crime to increase over the next three years

Mr. Krys expressed his surprise that despite the losses that have occurred in the Cayman Islands as a result of economic crimes, only one third of respondents had taken disciplinary action against perpetrators in the past year.

‘Many businesses believe the government, law enforcement and industry associations can do more to combat economic crime, however only 4per cent encourage whistle-blowing,’ he said.

The report revealed that that many management decisions regarding the discovery of internal frauds led to the situation being dealt with without any comment to auditors or any publicity, and with no record of the incident for the guilty party.

The reason is simple: ‘In reporting economic crime, 75per cent of respondents are concerned about damage to business reputation and 76per cent are concerned with the impact on shareholders’ equity,’ said Mr. Krys.

The survey also revealed that many businesses believe law enforcement and prosecution is insufficient ant that the costs and time do not warrant pursuing fraudulent activity.

Attendees questioned the value of investing in economic crime prevention when the rewards are apparently so low, with respect to a common perception that law enforcement appears to continue to display a permissive attitude to such activities.

Commissioner Kernoghan agreed that in the case of economic crimes, the prosecution process has not advanced to a stage where quick and speedy resolution of economic crimes can occur.

‘With regard to embezzlement and fraud, putting the case together can take months, and trials can take years in trying to bring the perpetrators to justice,’ he said

At the same time, he said that businesses should not hesitate to bring any suspected or confirmed economic criminal activity to the RCIP.

‘I can guarantee that any case brought before the Police will be investigated to the full extent of our capabilities,’ he said. ‘Our economic crimes unit specializing in money laundering is one of the most sophisticated in the region.’

Economic crime-fighting tips:

Assess the risk and potential impact on your specific business

Prepare written anti-fraud policies and procedures and communicate to staff

Consider insurance against fraud loss

Use information technology to determine unusual patterns of activity

Provide regular training to employees in the areas of fraud recognition and follow up procedures

Review HR practices such as pre-employment screening and background checks: ‘know your employees’

Segregate duties involving transactional matters (i.e. same person shouldn’t be dealing with invoices and writing cheques)

Join local organizations related to crime prevention and share information and experiences relating to fraud

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