National strategic assessment on Serious Organised Crime (SOC)
Operationally, the National Crime Agency (NCA) leads and coordinates the UK’s response to serious organised crime. It publishes an annual national strategic assessment on the issue, highlighting key findings and trends.
The National Strategic Assessment of Serious and Organised Crime 2020 is 60 pages long and covers all aspects of SOC. This article summarises the areas that are relevant to accountants in practice.
What is serious and organised crime?
Serious and organised crime (SOC) is defined as criminal activity that is planned, coordinated and committed by people working individually, in groups, or as part of transnational networks. It usually centres on acquiring money, profit, influence and power. The main category of serious offences covered by the term are child sexual abuse, modern slavery and human trafficking; organised immigration crime, illegal drugs, illegal firearms, cybercrime; fraud, money laundering, organised acquisitive crime and bribery, corruption and sanctions evasion.
What is the impact of serious organised crime?
The NCA prudently estimates the social and economic cost of SOC at £37 billion. It estimates that there is a minimum of 350,000 individuals in the UK involved in SOC and 4,772 Organised Criminal Gangs (OCGs). Victim reported losses from fraud rose by 38% in the year ended March 2019. There is increasing exploitation of the vulnerable, particularly the young and the old. The scale of the threat continues to grow and become more complex, as criminals use online services, including social media to contact victims and recruits.
Enablers of crime
The NCA highlights enablers of crime as:
There are three key enabling trends within technology:
- Encryption: 100% of NCA investigations encounter some form of encryption. The NCA reports a continuing upward trend in the criminal use of encryption tools, the dark web and virtual assets.
- Virtual assets: Criminals use virtual assets to buy and sell commodities on illicit online market places and to launder criminal profits. The privacy features of virtual assets continue to be enhanced making them increasingly attractive to criminality. Virtual assets include technologies such as Bitcoin, Blockchain, crypto assets and virtual currencies.
- Dark web: The dark web is the descriptor for parts of the internet that are encrypted and cannot be found using ordinary search engines. There are large scale vendor markets trading in criminal commodities on the dark web.
Potential customs control and border check changes resulting from the UK’s EU exit could lead to increases in border vulnerabilities. Organised Criminal Gangs will be quick to attempt to exploit any such changes.
Corruption in the UK
Criminals will seek to corrupt individuals who are in roles that can enable criminality. Key targets are accountancy and legal professionals who can facilitate the laundering of the proceeds of crime and help those involved avoid prosecution.
Harm to the UKs economy and institutions: key themes for accountants in practice
Key criminality themes and red flags that accountants should be aware of include:
- Data remains the key commodity for cyber criminals and there are several ways to exploit it for financial gain. CVV data (bank card security codes) is the most coveted. This is increasingly being scraped from website payment pages.
- Business email compromise is one of the fastest growing threats, especially for small businesses. Criminals imitate an employee or common supplier of a company.
- Investment fraud resulted in the highest total losses from victim reported fraud. A main driver here is the low interest environment, with victims enticed by high returns.
- Crypto currency investment fraud is an emerging area of concern.
- Alcohol and tobacco fraud contribute billions to the UK tax gap.
Money Laundering – factors to be alert to:
- The UK remains an attractive place for criminals who want to set up companies to launder profits. They will exploit the ease with which UK companies can be established. Transparency International Research suggests 929 UK companies were involved in cases of corruption and money laundering in 2019 amounting to £137 billion in economic damage.
- Criminals purchase property in the UK to launder large sums of money. They create complex company structures so the true owners behind the purchase are hard to find.
- Specialist networks have been set up specifically to launder money for criminals. They deal in cash in the main but also abuse trade-based money laundering to disguise international money movements.
- Cash-based money laundering is still a major method of laundering funds in the UK, despite 2019 changes which made it harder to introduce criminal cash into the UK banking system. Launderers use money mules, money service businesses, post offices and virtual assets. Money mules are individuals who transfer criminal proceeds on behalf of others into the banking system. OCGs entice vulnerable people, often through social media.
- Some money service businesses act as intermediaries.
- There is an increasing use of virtual assets, such as crypto currencies to launder the proceeds of crime.
What are the warning signs for trade-based money laundering?
Be alert to the following. These signs may not confirm trade-based money laundering but could be an indicator:
- Third party settlements where goods are paid for by unrelated companies/individuals.
- Large cash payments used to settle transactions.
- Overly complicated shipping arrangements.
- Goods being under/overvalued and/or being vaguely described.
- Company business models that do not make sense.
- Poor company documentation such as primitive invoicing or rounded amounts.
Bribery, Corruption and Sanctions
The NCA also sets out its assessment of international bribery and corruption. There are two types of threat; where individuals or businesses pay bribes to gain advantage overseas, and where corruption involving overseas Politically Exposed Persons (PEPs) are laundered through the UK.
The key themes and red flags that accountants should be aware of are:
- PEP-related bribery and corruption originate from various regions, but particularly Africa and Eastern Europe
- Vulnerable sectors include construction, extractives, aerospace and defence, and pharmaceuticals
- In terms of domestic bribery and corruption the relatively high spend and complex supply chains in social care and construction make these sectors of local councils vulnerable to organised crime.