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E-criminals nicked £205m from UK retailers last year

Twice as bad for shops as thefts and fraud in meatspace – study

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Online fraud and other 'e-crimes' have cost British retailers operating over the internet at least £205m in a year according to the first comprehensive study of the make-up and scale of crimes affecting e-commerce.

According to figures (8-page / 590KB PDF) published by the British Retail Consortium (BRC), the direct and indirect costs associated with electronic crime (e-crime) are twice the level of overall retail crime. The study estimates that retailers lost 0.75 per cent of all sales in 2011-12, meaning that £205.4m was lost from sales of £28bn. In contrast retail crime as a whole amounted to 0.36 per cent of the £303bn value of all retail sales, according to the BRC.

The trade body called on government and law enforcement to "take e-crime more seriously" in order to maximise the sector's benefit to the economy. Sixty per cent of the retailers surveyed as part of the study said it was "unlikely" that they would report any more than 10% of e-crimes to the police, due to lack of confidence in the response by officials to complaints. Only 14 per cent said that they were satisfied with current law enforcement support for such attacks, saying that e-crimes were not "considered to be a priority" by many police forces.

"Online retailing has the potential for huge future commercial expansion but Government and police need to take e-crime more seriously if the sector is to maximise its contribution to national economic growth," said Stephen Robertson, director general of the BRC. "Retailers are investing significantly to protect customers and reduce the costs of e-crime but law makers and enforcers need to show a similarly strong commitment."

He said that the authorities should develop a consistent, centralised method for reporting and investigating e-crime and ensure sufficient resources were directed to tackle the "emerging threat".

"This will encourage retailers to report more offences and allow the police to better identify and combat new threats," he said.

The BRC questioned a range of companies including supermarkets, department stores, fashion, health and beauty and mixed retail which, when taken together, accounted for 45% of the UK retail sector by turnover, it said.

In addition to £77.3m in direct losses as a result of various types of fraud, retailers lost an estimated £11.6m in legitimate business deterred as a result of fraud prevention measures - for example, honest customers deterred from continuing with an online purchase by additional burdensome security measures. The cost to businesses of installing these measures was also considerable, the BRC said.

Personal identification-related frauds – for example, account takeovers - were the most expensive type of e-crime for retailers over the period surveyed, producing £20m of losses in 2011-12. Card fraud cost retailers £15m, while "refund frauds" accounted for an additional £10m worth of losses.

The BRC said that other types of e-crime, such as bogus 'phishing' websites, were also a particular problem for UK retailers; however losses as a result of these crimes were harder to quantify. UK brands and companies are the second most targeted by fraudsters after those in the US, the BRC said.

"Some respondents [indicated] that a single phishing attack within the period surveyed could have cost the company concerned up to £2 million to deal with," the paper said.

Although more sophisticated attacks like phishing or hacking were often carried out by perpetrators from outside the UK, the BRC said, its evidence suggested that the majority of frauds were carried out within the UK. Retailers reported that around 86 per cent of the attacks they experienced originated within the UK, it said.

Copyright © 2012, Out-Law.com

Out-Law.com is part of international law firm Pinsent Masons.

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