October 18, 2010 12:02 am

Data theft overtakes physical losses

Reported thefts of information and electronic data have risen by half in the past year and for the first time have surpassed physical property losses as the biggest crime problem for global companies, the Kroll annual global fraud survey has found.

More than 27 per cent of 801 companies surveyed reported data losses, up from 18 per cent last year, while the share of companies reporting physical theft fell slightly from 28 per cent in 2009. Management conflict of interest rose slightly from 19 to 20 per cent.

“This is a reflection of the changing nature of the economy. More and more of the value of a company is intangible rather than things. Firms don’t make widgets. They make ideas,” said Richard Plansky, who heads the risk consultancy’s New York office.

China has become the single most problematic market for the multinationals that took part in the Kroll survey, with 98 per cent of those that do business there reporting some sort of fraud loss, up from 86 per cent the year before. Fear of fraud is dissuading 48 per cent of businesses from expanding into new markets, particularly China and Africa.

“Fraud has been such a taboo issue in the Asian environment. People were ‘Hear no evil, see no evil.’ Now the post-financial crisis situation means that many more companies are looking at where the dollars went and they are discovering more fraud,” said Violet Ho, head of Kroll’s China operations.

The survey also recently shifted to measuring fraud losses as a share of revenue, finding that average losses to fraud in the past 12 months rose 20 per cent from $1.4m per $1bn in sales in the 2009 survey to $1.7m in 2010.

The Kroll results dovetail with evidence that organised gangs have taken in droves to the internet, which makes cross-border crime much easier. The new underground has a highly evolved capitalist system, offering pilfered identities and other data for bulk sales, along with computer intrusion programs guaranteed by their sellers to evade detection.

There continue to be occasional headline-grabbing arrests such as this month’s capture of dozens of people suspected of distributing the Zeus Trojan online banking malicious software or laundering money for the crime ring. Far less than 1 per cent of culprits are caught, assuring a steady supply of new recruits.

A recent PwC survey found that more than half of companies expected to increase their spending on defence of intellectual property. Google disclosed in January that it had been targeted by hackers who were seeking intellectual property.

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