Industrial espionage rife in chemicals; sector worries about cyber crime - PwC survey

02 July 2004 12:36  [Source: ICIS news]

LONDON (CNI)--Industrial espionage is a key problem for chemical companies, financial consultants PricewaterhouseCoopers (PwC) concluded in a study* just released.

 

Incidence of this crime is approximately twice as high for the sector when set against other industries, the consultants suggested.

 

PwC said this may be due in part to the decision by companies to shift production to Asia where intellectual property rights are not as well protected and companies may be vulnerable to competitors by-passing licensing arrangements and copying proprietary formulae.

 

It added that its survey results suggest that total losses to fraud, espionage and other forms of economic crime are probably much higher that estimates from chemical company executives. These estimates point to a loss to the industry from economic crime of just $21m (Euro17m). The PwC  survey was conducted in 2003 among 115 chemical companies in 37 countries.

 

The industry suffers mainly from theft and the survey shows that 67% of companies see such ‘asset misappropriation’ as their main vulnerability. This is not surprising, PwC said, since theft of tangible, easy to value items is the easiest form of fraud to detect.

 

During the past two years, 40% of chemical companies have suffered from economic crime, according to the survey. Apart from theft, industrial espionage, product piracy and counterfeiting were key concerns for 28% of companies.

 

Chemical companies do not appear to be significantly affected by financial misrepresentation but PwC said it can have a significant and sometimes catastrophic effect on areas like share price and brand.

 

“Far from being a victimless crime, fraud can have a material and lasting impact,” Saverio Fato, PwC’s global chemicals leader, said.

 

“Chemical companies which have been fortunate enough not to have suffered from fraud should learn from those companies which have,” he added.

 

PwC said its survey showed that chemical firms do not have good controls in place to detect fraud. One third of all frauds were detected by accident. Almost 40% of frauds detected were discovered by both internal and external audits.

 

An organisational code of conduct can help companies prevent economic crime, PwC said, and its survey showed that 69% of chemicals firms had implemented such a code.

 

To make this effective, however, the consultants said every employee from the chief executive down needs to know how the code works

 

When combined with more tangible risk management procedures the risk from fraud is reduced even further, PwC added.

 

The industry cited cyber crime as the most prevalent and ever-evolving future threat. Other types of crime are, however, diminishing in importance, the survey suggested, including corruption, bribery and financial misrepresentation. This may be due to increasing regulation and legislation in these areas, PwC said.

 

 *See: www.pwc.com/crimesurvey

 

By: Nigel Davis
+44 20 8652 3214

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