Times of crisis: Collaring the white-shirted criminals

s the global financial crisis continues to weaken the Spanish economy, recent surveys suggest that growing numbers of employees in companies are resorting to criminal practices.

"The economic crisis continues to offer the perfect conditions for increasing amounts of fraudulent behavior in the business world. Almost six out of 10 employees in Spanish companies say that they know of theft and fraud in their companies, a figure that is 20 percent higher than the EU average," reads Ernst & Young's annual European Fraud Survey, published in May.

It adds that it sees no signs that companies are interested in combating the problem.

Other surveys also show that in-company crime is a growing problem. Gat Intelligence, which specializes in detecting business fraud, says that some 42 percent of illegal activities in companies is carried out by employees, with middle managers responsible for 41 percent of that amount, and senior management taking the blame for 17 percent. That said, the higher up the ladder, the greater and more costly the damage caused, says Gat.

More and more companies are now employing private detectives to discover the source of inside fraud. At Zenit Detectives, a Madrid-based agency specializing in corporate crime, 80 percent of the almost 500,000 euros it generates each year in turnover comes from this type of business.

Nuria Blázquez, a partner at Zenit, says that most problems are small scale, citing absenteeism as the biggest issue. Blázquez adds that theft is on the increase, as well as unfair competition, leaking information, industrial espionage, and even sabotage.

Absenteeism is a bigger issue than many people realize, she says. Companies will typically hire a detective to monitor an employee who is taking large amounts of time off without justification, and then sack them. Tracing somebody in this way involves hiring a detective to follow the employee's movements for three days to prove that he or she is not ill. Such an investigation costs a company around 2,500 euros a day. Another growing problem that impacts negatively on productivity, says José María Vilamajó, president of the Winterman Group, which has around 100 investigators and a turnover of five million euros, is employees who are hooked on the internet.

Nabbing workers who are stealing from a company typically involves a private detective going undercover as an employee. Recent reports highlight theft of copper, cellphones, medicines, and luxury items such as perfume and fashion ware, says Nuria Blázquez. If the cost of stolen items exceeds ¤400,000, companies are prepared to pay the estimated 70,000 euros involved in tracking down wrongdoers working from the inside.

Francisco Marco, the managing director of detective agency Método 3, says that the biggest crimes take place in the purchasing departments of businesses.

"Multinationals and leading companies on the stock exchange are seeing fraudulent purchases, which are automatically investigated when they surpass 100,000 euros," he says. His company, which employs around 40 detectives and has a turnover of around 3.5 million, charges between 3,000 and 60,000 euros depending on whether the culprit has already been identified, or whether an extensive investigation has to be carried out - or if an initial trace on where money might be going missing, for example through commissions, is required.

Unfair competition cases tend to involve higher-level management, who might have been sacked or who may have been passed over for promotion or a pay rise, or who simply can't make ends meet, and who then decide to set up parallel companies to divert business from their employers. Tracking down this kind of fraud costs between 40,000 and 60,000 euros, says Marco.

Marco adds that industrial espionage is also on the increase. "This is something that has always existed, but is a much bigger problem nowadays than most people realize. Delinquent practices in this regard involve rifling through a company's garbage to find clients or suppliers, or to find out how to undercut prices; this is a constant in industry," he says. But uncovering spying is an expensive business, and will cost a company at least 100,000 euros.

The release of information can be detected by hacking into the computers of suspects, an operation that costs around 7,000. According to Vilamajó, this is the corporate crime that has increased most with the recession, alongside falsification and frauds against insurance companies. Industrial sabotage, by contrast, has not risen perceptibly at all in the same period.

As regards honest employees' attitudes to in-company crime, Ernst & Young's report shows that many people feel much more needs to be done. "Our respondents think that the current corporate response to fraud, bribery and corruption risk is inadequate. In this pressurized environment, employees look to regulators to raise the cost of inappropriate conduct and thereby drive positive change. Perhaps unsurprisingly, the economic downturn appears to have had a significant impact on people's expectations of regulators and what they want regulators to do to protect them," reads the report's summary.

It adds that in 2009, less than 15 percent agreed strongly with the idea that there should be more supervision by regulators to reduce the risk of fraud, bribery and corruption. This year, 45 percent agreed strongly, rising to 57 percent in emerging markets, with another third of respondents tending to agree.

More than 50 percent of people said they would feel more secure in their job if government regulators were to scrutinize their company more closely. In 2009, the figure was 41 percent.