Textile & apparel industry targeted by financial crime

WTiN Textile 4.0 assesses the financial crime risks faced by the textile & apparel industry, and what changes can be made or digital tools adopted to minimise these threats.

1. Introduction

Financial crime is a minefield for the international textile & apparel industry – textile and apparel brands and manufacturers must take special care. This is because international supply chains extend into jurisdictions where the rule of law or any reliable independent judiciary may have a weak hold – if it exists at all.

Textile and apparel brands and manufacturers may be attacked by financial criminals or their managers or commercial partners may be involved in financial crime. Given this often involves deception – through fraud, corruption and money laundering for instance – textile and apparel companies must monitor their business transactions carefully.

The result of not doing so can be serious: reputations can be damaged should a company be associated with or fall victim to financial crime. And regulatory or criminal penalties for failing to report, or in some case even notice financial crime, can be severe, especially if managers are complicit with offenders.

International sanctions are a particularly acute problem. Textile and apparel companies must avoid trading with beneficiary individuals or companies named within international sanctions, a scanning process that can be complex – sanctions are numerous, multi-jurisdictional and dynamic. For example, should China be sanctioned over its human rights policies in Xinjiang, textile and apparel companies may have to ensure their products do not include cotton from that region.

Of course, when entrepreneurs launch textile and apparel brands and manufacturers, financial crime exposure is not always front of mind. But as a company becomes successful, owners and managers need to be aware of this risk. Here, WTiN Textile 4.0 assesses the financial crime risks faced by the textile & apparel industry and what it can do to minimise these threats.

2. Sanctions

2a. Risks

Financial crime litigation in the textile & apparel sector was infrequent until a few years ago, says Angela Santos, a partner in the customs and forced labour practice at New York’s Arent Fox law firm, which specialises in representing the fashion industry [1]. In the US, companies must be mindful of false declarations on imports bought on a delivered duty paid (DDP) basis or landed duty paid (LDP) basis [2].

Santos explains: “Most fashion companies don’t think imports could lead to jail. Companies pay a premium to not be responsible (for import declarations), but now the government is saying ‘you are responsible, you have to know what is behind it’. That information can be difficult to get as vendors don’t always want to give costing information to companies.”

The opaqueness that can blur the multi-tiered textile & apparel supply chain makes mapping it challenging. To ensure that forced labour is not used at any tier is particularly challenging since the textile & apparel supply chain has up to 12 steps involved – from the raw material to spinning, fabric-making and cutting and sewing.

Santos adds: “There are specific regulatory requirements regarding the value that must be included in the import value of merchandise, and it is not always declared properly to customs.”

The primary concern for the fashion industry is the US Customs and Border Protection (CBP) agency’s withhold release order issued in January 2021, which bans the import into the US of cotton and cotton products produced in China’s Xinjiang region over forced labour concerns regarding its Muslim Uighur population [3]. In July 2021, the US Department of State updated its Xinjiang Supply Chain Business Advisory to highlight the heightened risks for businesses with supply chain and investment links to Xinjiang [4]. With Xinjiang accounting for 20% of global cotton supply, and 84% of cotton used in Chinese manufacturing, extracting Xinjiang cotton from the supply chain is a tall order for fashion companies.

Santos says: “The supply chain is so opaque you don’t know if the (Xinjiang) cotton is blended with another cotton or other materials, which could then go to another country for spinning or fabric making. It is really difficult for a retailer to trace that cotton all the way back to cotton pickers, which is what US customs is requiring.”

Buyers are also having to ensure they do not trade or engage with entities listed on the US Treasury’s Office of Foreign Assets Control (OFAC) Specially Designated Nationals (SDN) list, which includes the Xinjiang Production and Construction Corporation (XPCC) as well as members of the Xinjiang autonomous region government [5].

Alexis Early, a partner at law firm King & Spalding’s international trade group in Washington DC, says: “The US has deployed sanctions fairly sparingly on Xinjiang so far, mainly targeting officials for human rights reasons for detention of Uighurs. But it does present compliance difficulties [for buyers] if those sanctioned persons are required for signoffs. It can create sanctions risks.”

Retailers also have to be aware of the US commerce department’s own Entity List, which is similar to the SDN list.

Early adds: “These restricted parties pop up on screening lists, and there’s reputational risk even dealing with them, even if you are legally allowed to do so.

“There is definitely a broadening of using entities lists likely to come into contact with the apparel industry. Even if you get through the sanctions gauntlet, the entities list gauntlet and are only receiving items, not sending, you can still get caught up with Customs and Border Protection (CBP)" [6].

2b. Regulations and sanctions

The potential punishments for breaching international sanctions are severe. The UN and European Union (EU) – along with the US, UK and other national governments – maintain bans on doing business with certain companies or individuals, usually deemed to have been responsible for human rights outrages or breaches of international law. These rules are compiled and accessible but complex. For instance, the UN maintains a comprehensive list of sanctions, as does the US Treasury and the EU [7],[8],[9].

Governments enforce these rules by imposing fines on companies or individuals who breach them. These fines can amount to hundreds of thousands of US dollars. This year, the Union de Banques Arabes et Françaises (UBAF), a bank based in France that facilitates trade finance between Europe and the Middle East, North Africa, sub-Saharan Africa and Asia, agreed to pay US$8.5m to the US Treasury to settle liability for 127 apparent violations of Syria-related sanctions [10].

In the UK, the Office of Financial Sanctions Implementation (OFSI), fined Standard Chartered Bank GB£20.47m (US$29m) for breaching sanctions imposed against Russia by the EU, and to the UK, since 2014 (until the UK’s full exit from the EU) [11]. 

The US treasury’s Office of Foreign Assets Control (OFAC) administers and enforces American sanctions [12]. These cover transactions involving Russia, Iran, Venezuela, North Korea, and more. Any company falling foul of these complex rules may suffer. Financial information company Dow Jones explains: “OFAC treats violations as a serious threat to national security and foreign relations. As a result, criminal offenders face monetary fines – ranging from a few thousand dollars to several million – and prison time up to 30 years" [13].

US sanctions, including those of other countries, are underpinned by legislation. For example, Dow Jones notes the Trading with the Enemy Act (US$90k per violation), the International Emergency Economic Powers Acts (US$308k per breach), and the Foreign Narcotics Kingpin Designation Act (US$1.5m per violation). Dow Jones adds: “The severity of punishments depends on the crime and the number of prior convictions" [14].

3. Corruption

3a. Risks

Corruption and bribery pose real risks to textile and apparel companies, especially given the complexity of the industry’s supply and distribution chains. Mason Wilder, senior research specialist at the Association of Certified Fraud Examiners (ACFE) says: “The longer a supply chain is and the more countries that are involved in a distribution network or manufacturing operation, the higher the likelihood of having to pay bribes, depending on the countries" [15].

Wilder says that a country from which a manufacturer is sourcing raw materials “might have very corrupt public institutions where personnel are willing to certify the authenticity of sub-standard products or materials in exchange for a bribe or a kickback.” A sourcing country might insist on challenging certifications by government agencies, which a supplier might bypass with bribes.

In a 2020 report on corruption perceptions, anti-corruption group Transparency International (TI) was pessimistic about the amount of graft that companies must cope with when trading around the world. It said: “Most countries have made little to no progress in tackling corruption in nearly a decade" [16].

A real concern is that TI gives poor ratings to some key textile and apparel manufacturing hubs in terms of corruption – meaning companies may come under pressure to pay bribes to get government approvals or ensure commercial and public official partners do their jobs. Out of 179 countries, major clothing supplier Cambodia was joint 160^th in TI league table of corrupt jurisdictions; Nicaragua, a significant central American supplier, was 159^th; Bangladesh, one the world’s largest suppliers, was 146^th; and China was a middling 78^th [17].

A 2019 TI report on Bangladesh concluded that the country’s police were perhaps the most corrupt national institution: “There is a high risk of corruption when interacting with Bangladeshi police. Businesses ranked the Bangladeshi police as one of the least reliable in the world,” it said, citing analysis from the Business Anti-Corruption Portal 2018 [18].

While managers may face pressure to pay bribes, there is of course a cost – and not just a monetary one. Many countries outlaw the payment of bribes overseas by their own companies and there could be serious reputational risk. Some NGOs are very proactive in highlighting how brands perform in ethical terms. The Fashion Transparency Index is an influential ranking system, which in 2020 reviewed 250 of the world’s largest fashion brands and retailers were reviewed and ranked according to their social and environmental policies, practices and impacts, in their operations and supply chain.

3b. Regulations and sanctions

In the past foreign bribery may have been considered good business practice, with bribes being tax deductible in many instances – but this is no longer the case. The 1997 OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions [19] was one of a series of initiatives that have fought against such corruption. It built on the US’s Foreign Corrupt Practices Act of 1977, [20] which has led the way in outlawing bribery and corruption. The UK’s 2010 Bribery Act is a good example of laws that have since been enacted elsewhere [21] that punish graft.

Bribery laws are spreading. International law firm CMS notes that nine countries – Australia, Chile, India, Italy, Kenya, Malaysia, Switzerland, Ukraine and the UK – now hold corporations criminally liable for failing to prevent representatives committing bribery on their behalf [22].

Apart from reputations being damaged in court, breaches of these laws can be expensive. The UK Bribery Act allows for unlimited fines (and 10 years jail for guilty executives) [23]. FCPA in the US, administered by the Securities Exchange Commission (SEC), can spark fines of up to US$2m per violation for companies; up to US$250k for corrupt individuals; and five years’ jail time [24].

Anti-bribery laws are spreading around the world to emerging market countries. CMS’ 2021 report on corruption legislation said: “We have seen more countries introducing corporate liability for bribery offences. In both India and Malaysia, the law has been updated to include a corporate offence (with an adequate procedures/compliance defence)" [25].

Countries with significant organised crime problems (and a major textile & apparel sector) are among these countries fighting graft. For example, Italy’s 2019 Bribe Destroyer Law stiffened penalties, banned bribes of international organisations and introduced a new offence of undue trading of influence, which attracts criminal corporate liability [26].

4. Fraud

4a. Risks

Without question, the Covid-19 pandemic had increased frauds committed within the textile & apparel sector, especially via ecommerce, with a significant increase in retail dollars spent online. The problem, says ACFE’s Wilder, is that consumers “don’t have a chance to inspect items in-person before purchasing them,” so they can be sent something different or of a poorer quality than described in ecommerce messaging [27].

Wilder explains: “It’s become a lot easier for retailers to copy other listings to lure buyers and then either send them counterfeit products of poor quality, or just take the buyer’s money and never send a product in the case of fly-by-night vendors that pop up on established retailer sites like Amazon.”

Indeed, Amazon announced in May 2021 that it had blocked more than 10 billion bogus listings from its sites [28]. 

Clothing or other textile manufacturers seeking to keep up with demand might also face the same issues when trying to identify new suppliers, says Wilder.

Greenwashing is a particular problem for both consumers and clothing and textile industry buyers: “A plain white cotton T-shirt from a Hanes outlet store versus a plain white organic cotton T-shirt from a high-end retailer – how are you going to verify that cotton is organic?” Wilder asks.

Since the term organic has become increasingly popular in the 2000s, “there has been a lot more opportunity for fraudsters to carry out greenwashing scams,” he adds. Consumers do not understand organic certification and how to verify it. “There’s probably an undue amount of trust from consumers […] and any time there is an undue amount of trust in a type of transaction, fraudsters can and will exploit that.”

Moreover, some outsourcing countries, including China, have restrictive regulations regarding public availability of information or transfers of data internationally, or do not allow private investigation, “which makes conducting effective due diligence very difficult”, adds Wilder.

4b. Regulations and sanctions

Fraud – obtaining property by deception – covers a multitude of sins and crimes, and textile & apparel companies commit them at their peril. Obviously, consumers want to trust their brands to sell them products with honest labelling regarding issues such as fibre content, origin and production processes. And failures to abide by such good business can spark criminal convictions as well as a loss of goodwill. For example, the 2013 US cases against Amazon, Leon Max, Macys and Sears who were fined penalties totalling US$1.26m for breaching the Textile Products Identification Act (Textile Act) and the US Federal Trade Commission’s textile rules by labelling and advertising products as made of bamboo, when their fibre was rayon [29].

Counterfeiting is an obvious and important fraud that manufacturers should steer away from. France, for example, punishes the sellers and buyers of counterfeit goods, including clothing, with up to three years’ jail and a EUR300k (US$366k) fine [30].

But general anti-fraud laws, covering a wide range of criminal deception, can be damaging for executives and business partners. For example, Canada’s criminal code says that a conviction for fraud netting more than Canadian dollars CA$5k (US$4.1k) can attract a jail sentence of up to 14 years. If a scam is conducted by a senior company official with the aim of benefiting a corporation, Canadian companies are also criminally liable under the code, with fines unlimited for serious cases [31].

Corporate fraud liability is increasingly widespread – for instance in Japan, where criminal cases can be onerous, including accounting scams, document fraud, and more [32].

5. Money laundering

5a. Risks

A key risk for the textile & apparel sector regarding financial crime is that brands and manufacturers’ long supply chains might be abused for trade-based money laundering (TBML). This usually involves the deliberate over- or under-valuation of clothing, textiles or upstream inputs to disguise the movement of value from one jurisdiction to another, either by excessive profits on a transaction, or losses.

In some instances, textile & apparel might be mis-declared on falsified customs paperwork as a higher or lower value item – to the same end, the illicit transfer of value. This can happen without an honest company in the supply chain being aware, but careful assessment of invoices and bills should alert a manufacturer or brand to the risk of TBML. A December 2020 report on TBML by international anti-money laundering organisations – the Financial Action Task Force (FATF) and the Egmont Group (EG) – highlighted concerns that the textile & apparel sector was vulnerable to financial crime [33].

It said the clothing and second-hand textiles trade were “compelling example of a low-value, high-volume product that allows for an extended supply chain, making them attractive for exploitation in TBML schemes. The extreme price variability also makes it attractive in terms of mis-description of the price to support the laundering activity.”

There are tech systems available to help manufacturers and brands check whether an input is so under-valued that it may have been bought by dirty money and its purchase will legitimise that transaction. For instance, Prof John Zdanowicz logs US customs data every year into his International Trade Alert database [34] and combines it with analytical algorithms to identify bilateral trade flows including products that are being apparently under- or over-valued from the average prices commanded either in the US or its trading partners.

5b. Regulations and sanctions

Laws punishing involvement in money laundering have become increasingly onerous since the formation of global anti-money laundering body, the Financial Action Task Force (FATF), in 1989 [35].

FATF has created 40 recommendations, allied to detailed guidance, that tells governments how they should criminalise and fight money laundering. These impose requirements on certain business sectors, such as financial institutions and casinos, to log suspicious transaction reports to government financial intelligence units (FIUs) when they fear they may involve the processing of criminal earnings [36].

And while these bodies do not include the textile & apparel sector, including luxury goods traders, it does cover their banks, lawyers, accountants and real estate agents. This means that key service partners of textile and apparel companies are obliged (where FATF recommendations have been properly enacted) to report concerns that a business maybe handling or using dirty money. The punishments for money laundering can be severe.

The EU has passed a directive mandating minimum penalties for its 27 member states, telling them companies must be punished for money laundering “by effective, proportionate and dissuasive sanctions, which shall include criminal or non-criminal fines,” while individuals must face jail terms of up to four years [37]. Arguably, this has had an impact. In Malta, for instance, not known for a heavy corporate regulatory stance, corporate money laundering fines can range from EUR10k (US$12.1k) to EUR2m (US$2.4m) [38].

Fines can be tougher in the US. Last year, Ambiance Apparel agreed to pay US$118m after pleading guilty to money laundering, along with conspiracy and customs offences [39].

6. Terrorist finance

6a. Risks

To be associated with transactions that ultimately finance terrorism poses some of the worst reputational risks for brands and manufacturers that can be imagined, and for the unwary, this can and does happen.

The recent FATF/EG report on TBML says trade-based terrorist financing (TBTF) is a reality and companies need to be alert to its potential. The report concluded: “In practice, TBTF schemes can and do rely on the common TBML techniques. They can also feature legitimate firms and transactions right through the supply chain, until the funds are eventually diverted to terrorist organisations.”

It highlights case studies. One involved a terrorist group in one country (C) buying goods made in another country (B), which were then shipped (effectively for free) to a customer in a third country (A). The importer then bought these goods in case from a local representative of this terror group for cash, moving terrorist finance from one country to another through the legitimate international trading system. In this case, country ‘A’ was Israel, and its customs teams detected the scam and seized the goods before they could be sold [40].

FATF and the Egmont Group also say that manufacturers and brands in complex supply chains should be particularly wary of commercial partners who use money or value transfer services (MVTS) utilising informal payment systems such as Hawala, where money is moved via an honour system without wiring currency. Complex trades using these systems maybe abused to transfer terrorist finance from one country to another, the report warns.

Another red flag is the use of unusual payment systems, such as using diamonds to pay for goods and supplies, warned another FATF/EG report [41].

6b. Regulations and sanctions

Laws against terror finance differ from those against money laundering, but they are linked, and also guided by FATF’s recommendations, numbers five to eight [42].

As with money laundering, banks, lawyers, accountants and others, including cryptocurrency exchanges, have a duty under FATF guidance to report suspicious transactions that may involve the sending of funds to terrorist groups. If textile & apparel companies miss such transactions, or worse, turn a blind eye, they could be the subject of a suspicious transaction report, which may lead to a company or its executives being prosecuted and convicted.

Fines and other punishments for aiding the financing of terrorism are, as can be expected, often harsh. In the UK, an individual involved in terror financing can be sent to jail for up to 14 years and money suspected of association with terror groups can be seized [43] [44].

In China, the home of a significant portion of the world’s textile & apparel supply chain, anyone convicted of promoting terrorist financing can face capital punishment penalty, although five years’ jail and life imprisonment are also options available to judges.

Companies can also be liable for terror financing convictions and fines, with no maximum amount, although a minimum amount has been set by Chinese law of as little as Chinese Yuan Renminbi CNY1k (US$156). An assessment of this by FATF said it was unclear whether this corporate punishment was “dissuasive and proportionate” [45].

Jail terms are common for anyone involved in terrorist financing. In another textile & apparel manufacturing hub, Pakistan, an anti-terrorism court in April 2021 sentenced five financiers of the 2008 terror attack on Mumbai, India, to nine years’ jail [46].

7. Tech solutions to avoid financial crime

The “state of the art in fraud prevention” is a solution that uses artificial intelligence (AI) and big data to understand the identity and intent of the shopper and learn from the millions of transactions it processes across a broad network, said a spokesperson for California, US-based commerce protection platform Signifyd [47]. Signifyd offers such a solution and backs it with a financial guarantee. If an order approved by Signifyd turns out to be fraudulent, Signifyd will reimburse the merchant for all the costs involved.

Meanwhile, SAS, headquartered in North Carolina, US, has developed an AI-driven solution, Continuous Monitoring for Procurement Integrity (CM4PI), which, according to Alex Boothroyd, senior fraud solutions manager, SAS UK & Ireland, offers “end-to-end holistic coverage throughout the chain, from the first interaction with a supplier, through bid and tender processes, right up to the final settlement for the company's products” [48].

The product enables entities within the textile & apparel supply chain to analyse multiple disparate data sources to identify, investigate and address risks to minimise fraud losses across the supply chain using machine learning, analytics, text mining, link analysis, scoring and geo-mapping to ensure legitimacy of suppliers and purchasers.

Tech is also available to help tackle another threat, botnets, which can be a released into exploited supply chain networks and, in the case of ecommerce for example, within retailers’ systems. They can be used with stolen payment and identity information, so the transaction appears to originate from a location connected to the credit card being used. Fraud prevention solutions supplier Kount says: “In this way, infected computers appear to be ‘good’ when, in fact, they are not" [49].

Based on its Identity Trust Global Network, Kount’s event-based bot detection is able to distinguish between good and malicious bots. Its unsupervised machine learning (ML) uses advanced algorithms to detect transaction anomalies “on a more scalable basis than human judgment alone” and its supervised ML analyses billions of historical transactions and looks for signals that have predicted fraud in the past across 250 countries, more than 75 industries, 50+ payment processors and card networks and decisions from thousands of fraud analysts.

When it comes to sales of luxury items, extensive work has been undertaken to tackle card not present (CNP) fraud – but that could, inadvertently, have increased the likelihood of false declines for card users warned ClearSale fraud prevention specialists based in Florida, US. The company blog notes: “That risks alienating legitimate customers and losing their transaction values, the lifetime value of purchases and future revenue to cover customers’ acquisition costs — all significant financial losses" [50].

The company combines AI analysis with a team of more than 700 manual reviewers to assess the validity of transactions.

Meanwhile Japan’s Fujitsu, which provides equipment to both the manufacturing and retail sectors, leverages blockchain technology to tackle fraud and piracy [51]. It has two products based on the distributed ledger technology (DLT), Invoice Flow and Document Flow [52], the former reconciling invoices with purchase orders and the latter enabling the tracking and verification of any digital asset such as images, documents and files.

Frederik De Breuck, head of Fujitsu’s Blockchain Innovation Centre, in Brussels, says: “By using an immutable record combined with automated tracing, it is possible to gain immediate insights into any changes to a digital document of any kind. For example, the removal of DRM (digital rights management) on a copyrighted media file, changing a value in a spread sheet or a proposal, or any unauthorised changes to something like a CAD file, which could have unexpected consequences further down the line. This enables businesses to have complete confidence in any digital file – and helps stop fraudulent use, since it’s easy to see that a file has been manipulated.”

8. Good practice challenges

Textile and apparel companies have enough challenges without falling foul of financial and sanctions crimes imposed by governments. This is especially the case for companies importing into the US, where the government takes an aggressive approach towards enforcement. This pushes buyers to have documentation for all aspects of their supply chain, which can be a tough task.

Indeed, to mitigate the risks of being caught up in compliance requirements, experts advise carrying out enhanced due diligence on suppliers and importers, and utilising screening lists to ensure individuals and entities have not been blacklisted by law enforcement. Early says that TBML was not as much of a concern for the industry in terms of complying with anti-money laundering rules as corruption in sourcing countries. The concern here is whether export documentation that has been acquired through illegal backhanders, or from individuals or entities that are allegedly corrupt. As for all industries, the fashion sector must abide by the US’ Foreign Corrupt Practices Act, and in the UK, the Bribery Act [53],[54].

A good example of compliance challenges facing the industry – where only the best practice may offer protection against criminal and administrative punishments – are the US sanctions against textile & apparel, including materials made in the Xinjiang autonomous region because of concerns about Chinese government human rights abuses. Even with plenty of documentation, given the mixing of cotton blends in China and elsewhere, it may be difficult for companies how to show they have not incorporated yarn associated with forced labour connected to Xinjiang. Early comments: “The CBP (US Customs & Border Protection) has not articulated what is sufficient to overcome that.” A key operational difficulty is assessing the situation on the ground in Xinjiang.

Law firm partner Santos adds: “The US has determined that third parties cannot accurately audit in Xinjiang due to police surveillance and workers being under pressure.” In August 2021, Shenzhen Verite, a Chinese third-party auditor connected to US-based Verite, was forcibly closed in China by the Chinese government after it released what it claimed was a fabricated report on Xinjiang [55],[56].

Concerns extend beyond Xinjiang, with US government inter-agency guidance on forced labour issues noting that several worker programmes in China involve the government moving Uighurs to various factories across the country.

Early comments: “It is not enough to say my cotton is not from there, or my factory, as there could be forced labour issues with Uighurs elsewhere in China, which is hard to audit on the ground. It makes the whole China supply chain issue riskier.”

The US is also pressuring the UK, Canada, Australia and the European Union to follow its lead on Xinjiang and impose import controls.

Early concludes: “For these globally integrated supply chains, attempting to comply with this spaghetti bowl of regulations, all with different standards on regulations and reporting, can be a real compliance burden.”

9. Risk assessment advice

Thankfully, there are plenty of sources of advice for textile and apparel companies that want to avoid brushes with compliance problems regarding financial crime.

Obviously, one is securing good legal advice – in house or external counsel. A good place to start researching potential advisors is online – such as Legal Business’s directory [57] and Chambers & Partners rankings [58]. In New York, Arent Fox’s Santos advises companies to take a holistic approach to the issue by adopting policies that prohibit forced labour in the supply chain, and to map the supply chain itself so there is ‘no nexus to Xinjiang.’ International standards can offer useful guidance, such as following the UN International Labour Organisation’s (ILO) 11 standards on whether forced labour is being used is a further risk prevention method [59].

The same can apply to the recommendations of global AML body Financial Action Task Force (FATF) in terms of informing companies about the risk of money laundering and terror finance – FATF also releases detailed reports on typologies, explaining how launderers ply their trade [60].

Standards from the International Organization for Standardization (ISO) can also help with detailed and practical advice on how to avoid and deal with financial crime [61].

And international industry associations offer professional assistance and advice – for instance the International Compliance Association [62].

Early explains: “Companies need to consider whether auditors and legal counsel can respond quickly, especially if they have a withhold release order as it has immediate impact on retailers. Another prong is what can they proactively do. If you can say 100% of our cotton comes from elsewhere, investing in a third party to prove that validation is more important than ever.”

With the fashion industry expected to be increasingly under the regulatory spotlight, the sector should “pay attention to up-to-the minute changes to regulations as they’re coming so quickly,” adds Early.

10. Conclusion

Covid-19 has led to an explosion in online fraud, with attacks being made on companies through manipulative and bogus text messages causing managers to yield up confidential information and download viruses to computers [63].

Digital payments, already increasing prior to the Covid-19 pandemic, have boomed in the past 18 months and led to ecommerce becoming ‘a playground for cybercriminals’ and the retail environment working alongside the open use of financial data creating “a perfect storm for fraud,” according to Juniper Research analysis [64].

Commerce protection platform Signifyd tells WTiN Textile 4.0 that ecommerce sales in the fashion, apparel & luggage category were up 140% globally in August over sales a year ago. A company spokesperson said: “As sales were skyrocketing, fraud attacks were also increasing at an alarming clip.”

Depending on the price point of the apparel items, fraud attacks in the apparel vertical were up from 45% to 221% in the last week of August 2021, compared to pre-pandemic levels, according to Signifyd’s Fraud Pressure Index, a measure of the rise and fall of high-risk online orders, which are presumed to be fraudulent. 

Also, with diplomatic relations between China and the West especially getting cooler, sanctions impositions are likely to get tougher to manage. With reputational damage from financial crime often more harmful than the financial cost, including fines, textile and apparel companies need to pay special attention to the risks posed by such offences.

For major brands and manufacturers, the resources are available to secure professional advice, but for the smaller companies who make up so much of the textile & apparel supply chain, spending time worrying about financial crime can consume resources managers would rather devote to the immediate bottom line – but digital tools can indeed alleviate this pressure.

Given compliance risks are growing within the industry, it can only be hoped that textile and apparel industry associations become more proactive in delivering practical and free advice to smaller companies in the sector, because a weak link in the supply chain can cause real problems to all connected parties, including big corporations.