News

New Maplecroft report, assessing the economic crisis and crime, identifies Eastern Europe as hotspot

25/11/2009

Crime and Security trends during the Recession and Recovery - November 2009

Money laundering, financial crimes, human trafficking, labour exploitation and street crimes pose particular risks to businesses operating in Eastern Europe and Russia according to a new report on global crime and security trends.

The report, Crime and Security trends during the Recession and Recovery, released by global risks analyst Maplecroft, provides a high level assessment of global crime levels affecting business during the economic crisis and recovery periods. It finds that the state of the economy is one of the most significant variables that affect a country's crime levels. Fewer employment opportunities and higher unemployment across the world have provided a greater incentive for individuals to turn to criminal activities to make ends meet. As the economic crisis took hold in 2008, Russia reported a 10% increase of criminal offences per 100,000 individuals. This, according to Maplecroft's research, contrasts to Hungary (-4.1%, 4,065.7 cases per 100,000 population), the Czech Republic (-4.7%, 3,298.8) and Slovakia (-5.5%, 1,937.8 cases) which registered decreases.

The financial crisis is believed to have increased the reputational risk for companies that may have partnerships with entities involved in money laundering activities and financial crimes. There are indications that the vulnerability of financial systems, due to the current dearth of liquidity, may create more opportunities for money laundering, allowing for organised crime groups to increase their penetration of the financial system.

In its March 2009 report on Money Laundering and Financial Crimes, The US State Department classified Poland, Hungary, the Czech Republic, Slovakia, Bosnia and Herzegovina, and Slovakia as 'jurisdictions of concern' and listed Russia and Ukraine as 'jurisdictions of primary concern' (the highest risk). The risk in these countries derives, in no small part, from their transition to a market economy and weaknesses within the financial and legal and law enforcement systems. Russia and Ukraine rank as 'extreme risk' countries in Maplecroft's Corruption and Transparency Risk Index.

Money laundering is not the only risk associated with organised crime groups exploiting their financial power for financial gain. Maplecroft points to Europol's OCTA 2009 report which says that entrepreneurs struggling for survival on the market might become victims of organized crime, as for instance in the field of usury. Businesses should therefore ensure that they carefully screen the partners with whom they are engaged.

Global Map of Human Trafficking

Maplecroft's report also states that companies face an increased risk of association with human trafficking and labour exploitation, as organised crime takes advantage of business opportunities arising from the economic crisis. Countries such as Slovakia, Hungary, Ukraine, Poland, the Czech Republic, Romania and Russia serve as starting points or form part of trafficking routes. Figures from the UN Office on Drugs and Crime show that sex slavery accounts for 79% of all human trafficking and that most victims are women and girls.

An increase in human trafficking increases the supply chain risk and reputational concerns for businesses that outsource and subcontract their work to entities which may use illegal or exploitative labour practices.

- Anthony Skinner, political analyst at Maplecroft.

In addition to analysing crime, the report also assesses the wider geopolitical and security implications of the economic crisis and concludes that risks in these areas are likely to increase. These range from terrorism, to a lack of food security and increased social tensions spilling into countries considered relatively stable. In some cases these heightened risks derive from unemployment and a lack of government spending. Cuts or insufficient increases in defence and security spending as a result of the economic crisis are also thought to heighten the risk of a successful terrorist attack by Islamist militants or other groups against Western companies around the world.

Economic pressures are likely to sustain or increase the risk of instability and violence in countries where conflict intensity risk is already elevated due to high unemployment and adverse socio-economic circumstances, Companies risk losing material and human assets as well as risk disruptions to their supply chains as a result. Maintaining detailed intelligence to monitor and mitigate risk at the local level where crime rates and instability are highest is an imperative for companies operating in these regions.

- Professor Alyson Warhurst of Warwick Business School and Founding Director of Maplecroft.

For more information about the Crime and Security trends during the Recession and Recovery Report please contact info@maplecroft.com