AS the £3.6bn of losses at French bank Societe Generale thrust financial crime into the spotlight, the City's watchdog warned this week of a wider threat to UK businesses.

And with latest figures showing fraud already costing British firms nearly £4bn, the Financial Services Authority (FSA) said firms may have to foot an even higher bill from financial crime as economic storm clouds gather.

A tougher business climate could heap pressure on companies and their employees and offer more temptation for some to stray on to the wrong side of the law, the watchdog says, in its latest financial risk outlook.

While cases such as rogue trader Jerome Kerviel's unchecked betting on markets are the rare exception to the norm, investigators are expecting to be a lot busier in 2008 as the squeeze lures people astray and exposes problems which would remain hidden in less troubled times.

The FSA's report said: "The consequences of crimes committed under more benign conditions in previous years may be more likely to come to light when firms are faced with more difficult economic conditions."

Hossein Hamedani, a partner in accountant Grant Thornton's forensic and investigation services department, said of SocGen's woes: "These kind of things tend to come out in difficult times because liquidity forces the issue out - volatile markets increase losses that might have been small."

Struggle

But other kinds of wrongdoing are also likely to be on the rise this year as more businesses struggle - such as insurance fraud as owners of firms on the brink turn to desperate measures, or the making of fraudulent contracts with 'phantom' suppliers.

"Our business is counter-cyclical, like insolvency. We are busy at the moment but it is the calm before the storm - we are expecting to be a lot busier this year," Mr Hamedani added.

Construction and support services firm Alfred McAlpine is a notable recent casualty after reporting a 'systematic fraud' at its Welsh slate business, which supplied Buckingham Place.

In a difficult year which eventually saw McAlpine agreeing to be taken over, the alleged fraud and its investigation costs left it with a £40m bill.

An exact picture of the current impact of financial crime on the UK economy is hard to come by because of a lack of exhaustive and up-to-date figures, but a report by the Association of Chief Police Officers last year - quoted by the FSA - put business fraud costs at £3.8bn during 2005.

With understatement, the watchdog's head of financial strategy and risk, Lyndon Nelson, said this week that the SocGen scandal had been an 'interesting wake-up call' to the major financial institutions now scurrying to review their controls and procedures.

But at the same time, the FSA added that firms under pressure simply to stay afloat could also take their eye off the ball.

"There is a risk that resources may be diverted away from tackling financial crime," the watchdog said.

And a recent PricewaterhouseCoopers survey found UK businesses under-estimating the risk of fraud despite the average costs of the crime to business more than doubling to £1.75m since 2005.

Only five per cent of the companies questioned by the accountant believed they were likely to become a victim.

The FSA is keen to emphasise its appetite to pursue wrongdoers in financial fields such as market abuse through its financial sector team, which works in tandem with the Serious Fraud Office, the City of London police and the Serious Organised Crime Agency.

In January, the watchdog launched its first criminal prosecution for insider trading.

The implication is clear - the financial crime we see represents a fraction of its actual prevalence. Massive one-offs like SocGen may grab the headlines but, among UK businesses, many more misdeeds are being swept under the carpet.