Economic Crime Hits 35% of U.S. Businesses, According to Wilmer, Cutler & Pickering U.S. Economic Crime Survey.

Business Editors/Legal Writers

NEW YORK--(BUSINESS WIRE)--July 8, 2003

Economic crime continues to menace U.S. businesses and over a third of U.S. based companies said they were victims of fraud in the last two years, according to a just released U.S. Economic Crime Survey produced by the law firm of Wilmer, Cutler & Pickering in association with PricewaterhouseCoopers' Global Economic Crime Survey 2003.

Based on more than 90 interviews with CEOs, CFOs and those responsible for detecting/preventing economic crime in the largest U.S. companies, the U.S. Economic Crime Survey is one of the most comprehensive assessments of the nature and impact of fraud in the country and the first such survey since the introduction of Sarbanes-Oxley legislation.

Key Findings of the Survey:

-- In the United States, economic crime is prevalent, has a

highly negative impact on business organizations of all sizes,

and is viewed as likely to increase over the next 5 years.

-- More than one third of U.S. respondents (37%) to the Economic

Crime Survey report significant economic crimes during the

previous two years. Asset misappropriation is the most

prevalent at an incidence of 25%, followed by cybercrime at an

incidence of 8%. Most worrisome to respondents, however, is

financial misrepresentation, which respondents believed was

prevalent in half of all companies, despite the fact that the

actual instances of this crime was reported by only 2% of

respondents.

-- Economic crime is consistently harmful to a company's

intangible assets. More than 75% of the incidences of economic

crime had a negative impact on the company's reputation and on

staff morale and motivation, in addition to damaging business

relationships.

-- More than 84% of U.S. respondents believe their risk of fraud

will be the same or greater in the coming five years, and that

the greatest incidence of economic crime will be in three

primary areas: asset misappropriation (53%), cybercrime (30%)

and financial misrepresentation (17%).

-- Yet, despite the heightened awareness of the existence of

fraud, its negative impact on an organization and a widespread

sense of continuing vulnerability in the future, the

perception of where the greatest risk of economic crime exists

and the perceptions of how economic crime is detected are the

areas of greatest inconsistency among U.S. respondents.

-- Whereas U.S. respondents believe the prevalence of financial

misrepresentation to be over 50 percent, the actual reported

incidence is far lower at only 2%. These findings suggest that

the media attention surrounding some of the large,

high-profile cases of financial misrepresentation in the U.S.

has exaggerated the perceptions of the instance of financial

misrepresentation, and that only a small percentage of public

companies actually suffer from financial reporting abuses.

This no doubt also reflects the fact that while the instances

are low, the harm to corporate reputations and the actual cost

of investigating and resolving allegations of financial

misrepresentation and related investor lawsuits are very high,

commonly in the $10 of millions and sometimes in the $100 of

millions or more. Because of this, impressions about the

prevalence of such matters appears to reflect the inordinately 

high risk of monetary and reputational loss attached to them,

as opposed to their actual frequency of occurrence.

-- Confidence in controls appears to be misplaced in comparison

with how economic crimes are actually discovered. 95% of

respondents believe they have adequate risk management

systems. Yet respondents reported that risk management systems

detected only about one-third of the instances of economic

crime, suggesting that internal systems are co-opted,

circumvented or overridden in a majority of instances of

economic crime. In our experience this reflects the fact that

economic crimes are often schemes based on collusion and

deceit among corporate employees or between employees and

outside parties, or that the economic crimes are committed by

executives of sufficient rank and seniority to over-ride

control and risk management mechanisms.

-- 50% of all economic crime detection came from internal or

external investigations and audits. Another 36% of economic

crime detection came from whistleblowers (in contrast to 27%

globally), suggesting U.S. companies have provided a high

degree of access to audit committees and auditors, as well as

a regulatory structure that encourages and rewards tip-offs.

-- The survey reveals that 76% of U.S. respondents have some form

of insurance (versus only 52% globally) but only 37% report

recovering damages through insurance, and these recoveries are

small. 81% of recoveries are for less than 40% of damages,

suggesting that many instances of economic crime are small and

fall below insurance coverage levels.

Additional Information

Copies of the U.S. and Global Economic Crime Surveys are available to view and download online at: www.wilmer.com.

Andrew Kaizer from Wilmer, Cutler & Pickering is available to discuss the U.S. Economic Crime Survey Results. Additionally, Steven L. Skalak from PricewaterhouseCoopers is available to discuss the Global Economic Crime Survey. To schedule a meeting or interview, please contact John Hellerman (202.966.5253; [e-mail]).

PricewaterhouseCoopers Global Economic Crime Survey 2003 in association with Wilmer, Cutler & Pickering, is the result of 3263 interviews with CEOs, CFOs or those responsible for detecting/preventing economic crime at the top 1000 companies in 50 countries. The target number of respondents for each country was determined according to its GDP. As an indicator survey, a random sample from each country was surveyed as to whether or not they had experienced fraud. For the core survey, a sample of companies that had both suffered and not suffered economic crime was interviewed in each country. This was to ensure that an in-depth analysis of economic crime issues could be presented.

Wilmer, Cutler & Pickering is an international law firm with offices in Washington, D.C., New York, Baltimore, Northern Virginia, London, Brussels, and Berlin. The firm has more than 500 lawyers engaged in the full range of corporate matters, regulatory work, complex civil and criminal litigation, cross-border transactions, and international arbitration. Recently, the New York Law Journal described the firm's securities litigation and enforcement practices as "unparalleled."

PricewaterhouseCoopers (www.pwc.com) is the world's largest professional services organization. Drawing on the knowledge and skills of more than 125,000 people in 142 countries, we build relationships by providing services based on quality and integrity. "PricewaterhouseCoopers" refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.