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Can Organised Crime Infiltrate Your Supply Chain

Updated: Aug 29, 2023

If we can't do the basics of checking whether modern slavery or child labour is being used within our supply chains, how can an organisation recognise the risk that organised crime has on its supply chain, particularly when they are continually diversifying their criminal enterprise and sectors of operation.

Use of corruption by organised crime groups

Change brings opportunity


Understanding the diverse nature of organised crime and its criminal enterprise is no simple task, each country has different groups focused on one or many areas of illicit activity from modern slavery to people trafficking and the multitude of global routes that have a nexus with business and legitimate supply chains.


Many international companies have been hit by the scandal of supply chains employing children or slave labour, so if we can't get this process right how can criminal enterprise be identified.


Organised crime groups recognise that diversifying into legal business can give a further revenue stream, hide their illicit activities and launder the proceeds of crime. Some of the common sectors where organised crime can be identified include:

  • Construction and infrastructure

  • Waste disposal

  • Cash based business

  • Transportation

  • Hotels and real estate

SUPPLY CHAIN IMPACT FROM ORGANISED CRIME

A number of organised crime groups have diversified into counterfeit goods because they recognise that these activities are low risk. Counterfeit goods in many cases can produce similar profits as drug trafficking and also low risk of prosecution if caught.


As we watched the global response to the Coronavirus, all sectors were impacted in one way or another and many organisations quickly diversified or enhanced their eCommerce capabilities, leveraged digital giants and shortened supply chains to enhance business outputs.


Government and healthcare response to the crisis was challenging, with limited availability of medical supplies has meant an international scramble to obtain the finite amounts of Personal Protection Equipment and related medical products.


As countries focused their attention on gaining access to these resources, the urgent need for the manufacture and supply of materials from international markets and new vendors gave opportunity for criminal enterprise to maximise their profits, when normal procurement procedure and supply chain guardianship was ignored or omitted. Organised crime groups quickly diversified into online sales and eCommerce using digital giants to sell inferior or counterfeit products, gaining credibility from the site and minimising risk because of sites inability to detect criminal enterprises.


It is when procurement becomes an urgent requirement that organisations change their procurement approach and control measures are dropped to expedite delivery and distribution, normal tendering processes are changed to single source and direct award and an organisations ability to confirm receipt and distribution of materials is limited due to reduction in resources and the need for urgent delivery.


When we initially saw food shortages and empty shelves in supermarkets, we only need to look back a few years at the horse meat scandal and the infiltration of supply chains by organised criminals and the adulteration of meat products. Although not specifically highlighted in the current crisis it is easy to see how supply chains could easily be compromised.


Corruption thrives in the shadows; let's bring it into the light and expose its destructive power

In the UK, initial information from Action Fraud, confirmed 16,352 people fell victim to online shopping and auction fraud during lockdown, confirming that they received reports of online shopping fraud totalling £16.6 million.


ORGANISED CRIME AND CORRUPTION

Moving into legitimate business is yet another way that organised crime groups can attract a different revenue stream and also, like greenwashing, give legitimacy to their operations. Using bribery to set up legal business and resolve some of the blockages in generating business may be important for the OCG. Whether it is within import/export, warehousing or introducing their illicit materials into a businesses global supply chain.


WILL LESSONS BE LEARNED

Looking at historical disaster events, organisations such as The Carnegie Endowment for International Peace reported that during the Ebola crisis in West Africa, the Red Cross has since estimated that over $6 million of its assistance was lost to fake customs bills, overbilled supplies, and payments to non-existent workers. Other international aid and domestic budgets were likely subject to similar leakage. Will waste and abuse again threaten citizens’ lives in the global response to the coronavirus pandemic?


In addition to the medical support, in its response to business impact governments are providing financial support to business. When we consider natural disasters like Hurricane Katrina in the USA, it produced one of the most extraordinary displays of scams, schemes and stupefying bureaucratic bungles in modern history, costing taxpayers up to $2 billion.


Criminal enterprises and organised crime groups already have an established supply chain and distribution networks because in the majority of cases is the same one used by legitimate companies, making it very easy to introduce inferior and counterfeit products into legitimate supply chains where organisations are urgently looking for new stock and proper due diligence isn't conducted.


It is also recognised by some of the many online retail and auction sites that identifying and removing fraudulent or counterfeit products from their sales site is challenging. The global threat from counterfeit pharmaceuticals and medical products is significant, in the current global drive to obtain medical equipment greater opportunity and profits are available to the criminal.


Interpol said 121 arrests were made related to the seizure of counterfeit medical supplies and medication amid the COVID-19 pandemic. 2,000 online advertisements related to the coronavirus were found, selling a range of illicit medical devices, such as substandard hand sanitizers, unauthorized antiviral medication and counterfeit face masks. About 326,000 packages were inspected and 34,000 unlicensed and fake products were seized, with an estimated value of more than US$14 million, according to Interpol.

TYPES OF CRIMINALITY

Looking at the current and historical types of criminality or illicit behaviour in such global events, there are many common types of behaviour in this type of event.

  • Charitable solicitations

  • Contractor or supply chain fraud

  • Product substitution & Counterfeit products

  • Bribery and corruption

  • False invoicing

  • Fake timesheets & ghost workers

  • Price gouging

  • Insurance fraud

  • Forgery

  • Theft


RISK PROFILING & MATURITY ASSESSMENT

Understanding the risk that an organisation faces can be challenging particularly where such a global event or disaster hasn’t been planned for that includes the limitation and the lack of information and resources. However, recognising and planning for this type of event including types of fraud and criminal activity in the short term is the first step in introducing risk mitigation.


Questions that should be asked include how mature is your organisation when it comes to business resilience and business continuity, do you understand and are you able to measure your operational controls approach and governance including information security and cyber risk.


Risk profiling and a maturity assessment will reduce future impact that includes illicit activity by criminal groups. To limit future financial loss organisations must take the position that this type of event will happen again and should introduce a strategy to mitigate risk to individuals, business and supply chains to ensure organisation and procurement integrity and that these risks aren't passed on to clients and customers.


RISK MITIGATION APPROACH

In many respects, recognising that organised crime group can target your organisation is important, however, introducing and maintaining strong control measures and a compliance programme can be effective in reducing and mitigating this risk.


Having a strong asset management system in place that includes the monitoring of quality assurance can be helpful in identifying whether counterfeit products have been procured. A compliance response to this identified risk, identifying the specific supplier and route in which goods were purchased can give additional protection from this risk.



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