Author(s)

Karl Lallerstedt

Posted on 04 Jul 2018

A new Swedish survey has estimated the cost of crime to the private sector as equivalent to 1.2% of the country’s GDP, but the real figure is likely to be much higher.

The Confederation of Swedish Enterprise has published a unique study quantifying the cost of crime to the private sector. From the responses, gleaned from over 2 300 businesses in different sectors that took part in the study, the total cost of crime has been extrapolated. The figure, according to the report: 55 billion Swedish krona ($6.2 billion) per annum, or around 1.2% of Sweden’s GDP.

Although it might seem large, this figure takes into account only the direct costs of crime, meaning that expenditure to prevent or counter crime (such as the cost of security guards, surveillance cameras and so on) is excluded from the total. Other examples of indirect costs not taken into consideration by the survey are the reduced investment and lower productivity resulting from crime.

Furthermore, the financial sector was excluded from the Swedish study, leaving a major unaccounted-for hole in the real cost of crime to the private sector. As financial institutions absorb a significant portion of the cost of financial crime, in the form of card fraud or insurance, for example, this would mean large additional sums have been omitted from the total cost of crime bill. Businesses incur crime costs borne by financial institutions indirectly through higher credit-card fees and insurance premiums.

And the disparities between the reported and actual costs of crime don’t necessarily end here. As the costs were based on self-reporting, certain categories of crime are most likely underestimated in the new survey. Although fraud was one of the top three crimes (in terms of the participants’ declared expenses), this figure represents only discovered fraud. A robbery is highly visible and its direct costs easy to calculate. Successful fraud, however, is frequently never discovered. And the same is true for certain types of cybercrime and intellectual-property infringement – and even when they are revealed, it is sometimes almost impossible to estimate the actual cost.

Until further studies are undertaken, it will not be possible to put an accurate figure on the total cost of crime to business. But if one were to take the figure of 1.2% of GDP from the findings of the Swedish study, which excludes the banking and payment systems, the insurance industry and indirect costs (such as preventative costs, reduced investment and productivity), and which is based on an underreporting of certain costs (such as fraud, cybercrime and intellectual-property infringement), it is not a completely far-fetched guesstimate that the total costs of crime to business could exceed 2% of Sweden’s GDP.

Swedish security firms have a multibillion-krona turnover, perhaps around half of which derives from revenue from corporate security. A ballpark estimate from an industry insider is that the private sector spends about 15 billion krona ($1.7 billion) on security annually, equivalent to more than 0.3% of GDP.

Taking this security spend into account would give us a cost of crime equivalent to around 1.5% of GDP. The OECD and the EU Intellectual Property Office estimate that 2.5% of global exports are counterfeit products. From this, one could estimate that Sweden forgoes export revenues worth around 33 billion krona ($3.7 billion) due to the market for illicit products. (The total loss is much larger still if one includes Swedish-owned intellectual property manufactured abroad, the damage incurred to Swedish brands through substandard fakes and the pirating of digital content.) Combined, these additional costs bring the total to above 2% of GDP.

And yet this higher figure is still likely to be an underestimate, as it does not include the costs to financial institutions or the insurance sector, underestimates the direct costs of certain crime categories and excludes most indirect costs.

Generally, as a December 2017 Global Initiative report found, the scale of organized crime and its impact on the private sector are growing alarmingly worldwide. According to that research, the total financial impact of organized crime (on society as a whole) was a staggering $3.6–$4.8 trillion in 2015/2016, or 7% of global GDP (it should be borne in mind that the direct costs of crime are likely to be higher as a proportion of GDP in many other parts of the world than they are in Sweden). Of this, the revenue loss borne by the private sector alone is estimated in the region of $130 billion.

While certain key private-sector industries are particularly disadvantaged (notably from revenue loss incurred by counterfeit goods in the consumer-goods market and asset theft in the transport and logistics industries), the challenge is economically overarching and multi-dimensional, and there is a sense that current measures to combat organized crime in the private sector are proving ineffective.

As the recent Swedish study foregrounds – especially evidenced by its methodology gaps and underestimates – more comprehensive analysis is needed that accurately examines the costs of crime and organized crime as they affect the private sector.