The challenge for retailers in combatting fraud

Fraud has become the most common crime in the UK, with almost six million fraud and cyber crimes committed in 2015. In the corporate world, more than 36% of organisations have experienced economic crime in the past two years. This widespread prevalence has led governments and regulators to crackdown on corruption, with new directives and tighter regulations.

For example, the government’s Criminal Services Bill makes it a new corporate offence to fail to prevent money laundering inside businesses. This means that if one of a company’s employees is charged with money laundering and fraud, the business needs to demonstrate it had preventative procedures in place, otherwise it will be held liable. Once the bill becomes law, businesses will face legal proceedings for non-compliance, not just regulatory penalties.

Another Anti Money Laundering (AML) initiative is the European Fourth AML Directive, which proposes the most sweeping AML changes for years and is due to be implemented into national legislation of EU member states by 2017. And yes, despite the UK’s exit from the European Union, the UK will adopt the framework. It’s worth remembering that the Financial Action Task Force (FATF) recommended the changes within the directive to begin with. FATF is an international governing body of which the UK and most of the EU countries are members, so the rules still apply. “The UK has the legislation and the political will to combat money laundering, whether or not the country sits within the EU” says Sam Hemment on Lexis Nexis.

When it comes to AML, many of us think predominantly of financial institutions being most widely affected. In fact, retailers have a significant part to play in the attempt to crack down on financial crime, and some of the changes being brought in have major implications on these businesses. The EU Fourth Anti Money Laundering initiative requires Customer Due Diligence for anyone trading goods in cash with a value of more than €10,000.

Prior to June this year, the figure stood at €15,000. Not a big deal, you might think – pun fully intended - but for high-end retailers, and those involved in car sales, perhaps white goods, furniture stores or electronics retailers, it’s going to have major implications. And if you’re stuck in a queue behind someone perhaps in a car showroom or a department store, with goods over €10000 in value – that’s currently only £8500 - you’re going to be there a while. A customer’s name is checked, photo ID validated and an address or data of birth verified. The retailer will look at purchase history and frequency, and may need to contact credit checking firms. Calls are made, databases consulted and various accounts are accessed. And if the buyer is purchasing on behalf of someone else – an art buyer, perhaps, or a representative at an auction – the checks will still have to be made.

Retailers also need to be on the ball when it comes to ‘linked transactions’ – perhaps there’s a series of several transactions in a short space of time which are deliberately under the threshold to avoid suspicion and the resulting due diligence; or maybe there are other customers carrying out transactions for someone else.               

The reduction in this ‘high value transaction’ threshold will become a headache indeed for retailers. But there is a solution to avoid this headache becoming a debilitating migraine: a retailer can minimise risk and drive compliance with the right software platform in place: a platform which standardises, validates, links and connects data, and establishes relationships across parties, accounts and transactions.

Intelligent software has the ability to localise and standardise names, so ‘Michael’ may be known as ‘Michel’ in France, or ‘Mikhael’ in Eastern European countries, for example. Each entity doing business with the organisation can be assigned its own unique identification number, and data from multiple sources can then be appended to this specific entity, improving insight, accuracy and precision.

This entity resolution, or single customer view, eliminates inaccuracies. It enables retailers to access integrated data sets in real-time. And it removes the need for them to spend time on manual checks, leaving them free to focus on driving revenue and providing a great customer experience.