What Are The Most Common Types Of Financial Crime In Supply Chains?

Financial crime has existed since the advent of trade. Anytime there is an exchange of goods, services, or currencies, there is an opportunity for criminals to make a profit by defrauding others.

As commerce, technologies, and consumers’ habits evolved over the years, so did the creativity and complexity of fraud. In a business environment that is global and digitized, occurrences of illicit activities have skyrocketed and plagued every sector and every country.

Knowing where risks lurk in your supply chain is critical to protecting your business and, by extension, its customers. The COVID-19 crisis proved once again that some will stop at nothing for a chance to make money, including selling fake medical products, as reported by Interpol.

With the plethora of corruption in supply chains, how can we make sense of it? Let’s dive in and see what steps you can take to identify and prevent financial crimes from putting your supply chain at risk.



Financial Crimes To Be Aware Of



Money Laundering


Money Laundering is the “art” of reinjecting funds obtained by fraud into the system after washing them through various schemes: trade, business partnerships, deceptive bookkeeping practices, etc.

This type of crime is particularly hard to identify in a global supply chain. Money launderers are well organized and deploy very complex processes to cover their tracks.

As we stated in a previous article Money Laundering In Your Supply Chain - Where You Could Be At Risk,  “[…] anti-money laundering is a matter of regulatory compliance (US Patriot Act, EU Money Laundering Directive, etc.) For industries focused on consumer goods, it is a matter of business ethics.”


Corruption And Bribery


Corruption and bribery can occur anywhere in the supply chain. Even countries ranking high on the CPI (Corruption Perceptions Index) like Sweden and Denmark are not immune to corruption.

Some may dismiss this crime as happening only abroad or as being endemic to a region or sector. Unfortunately, corrupt behaviors can hit a lot closer to home.

The most common scenarios include:

  • Kickbacks or gifts requested from or offered by the supplier
  • Supplier demands bribe to procure highly sought-after or monopoly goods
  • Supplier inflates invoices or short-changes contracted quantities
  • Government or customs officials requesting bribes to speed processes or bypass inspections
  • Supplier offering bribes to pass health and safety inspections


Cyber Fraud And Ransomware


Cyber fraudsters move quickly and manage to consistently be a few steps ahead, finding weaknesses in systems, sites, or applications. COVID-19 brought a new set of cybersecurity challenges to businesses forced to take operations completely online, many without proper protection in place. F5 Labs reports that phishing incidents rose by 220%.

Companies have been busy dealing with the challenges of disrupted supply chains and the spread of remote work has increased access points.

Unbeknownst to you, hackers can find entry through partners in your value chain, exposing your organization to data breaches or data theft. Once they get your data - in some cases sensitive or classified information – they can hold it for ransom.


Financial Crimes Have Dirty Connections


Fraudulent activities are rarely limited to one type and imply a deeper involvement in illicit enterprises or impacts in other areas such as human rights or health and safety.

Money laundering and corruption, in particular, are linked to other types of crime such as trafficking, conspiracy, sanctions violations, extortion, forgery, and terrorism funding.



Risks Associated With The Presence Of Fraud In The Supply Chain



National legislations are in place in several countries to counter and break illegal operations. Recent years have seen tighter enforcement and higher rates of prosecutions potentially resulting in heavy penalties and jail time.

Being implicated in financial crime, even because of a partner far down the supply chain, has negative effects for businesses:

  • Long and costly investigations
  • Criminal liability
  • Supply disruption
  • Reputational damage
  • Loss of contracts
  • Exclusion from tenders

On the other hand, having a process in place to assess, prevent and mitigate risks presents considerable benefits:

  • Reduce fraud and associated costs
  • Enhance reputation
  • Improve product quality
  • Build internal resilience
  • Create a more sustainable growth path


There’s higher risk of financial crime in relation to geographical locations to consider as well. According to a 2018 report by the Financial Conduct Authority (FCA), the top 10 countries with the highest risk of financial crimes are:

  1. Iran
  2. Panama
  3. Russia
  4. Iraq
  5. Laos
  6. Afghanistan
  7. Lebanon
  8. Libya
  9. Nigeria
  10.  Syria


Countries Associated With Higher Risk Of Financial Crime (1)



Priority Steps To Fight Financial Crime In The Supply Chain



You're probably aware of the financial requirements ‘Know Your Customer’ (KYC). As of now, your motto should be “Know Your Vendor”.

When identifying financial criminals in your supply chain, it’s important to consider:

  • Motive: what reasons can motivate a person or group to target your business?
  • Opportunity: are your controls sufficient or have events distracted your attention?
  • Rationalization: the perpetrator can justify his/her behavior with reasons that seem valid to him/her.


Your risk-based approach should be designed around two pillars: balancing costs and benefits, and understanding the fraud triangle:

  • Step 1: Conduct due diligence: collect and verify data of business partners, distributors, suppliers, employees
  • Step 2: Assess risk profiles based on location, local culture, local regulations (or lack thereof), compliance documentation
  • Step 3: Conduct periodic virtual audits hierarchized by risk score
  • Step 4: Continuously test your controls and update training material, policies, and procedures

About Source Intelligence’s Financial Crime Prevention Solution



With the help of AI, our financial crime prevention program empowers you to identify high-risk areas. By aggregating supplier data and documentation, global corruption index data, and sanctions data, our software narrows down the supply chain links that pose a threat. You can then prioritize remediation, assisted non-stop by our multilingual supplier engagement team.

The post-pandemic business landscape is likely going to be rocky. Global anti-corruption and anti-fraud laws may be subject to revisions in view of the scams that put people’s lives in danger. While you focus on bringing your operations to a new normal, rest assured Source Intelligence will work with you and for you to take the compliance burden off your plate.

Request a demo of our Financial Crime Solution now.

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