A Felon’s View of White-Collar Crime – Why Society is Very Vulnerable to Fraud by Sam Anthar

White-collar crime is more brutal than violent crime. The actions of one or a few corrupt public officials and corrupt businessmen can affect the livelihoods of thousands, even millions of people. Fraudsters use a combination of persuasion and deceit to execute their crimes. Unfortunately, most people are unaware of how easy it is for fraudsters prey on their behavioral and cognitive vulnerabilities. Furthermore, the amount of prosecutions of white-collar criminals recommended by the FBI has steadily declined over the last 20 years. The government devotes far more resources to battling street crime than white-collar crime. The current framework involving, compliance, audits, and law enforcement does little to protect investors from fraud.

Every person is capable of doing white-collar crime. At the 22nd Annual Conference of the Association of Certified Fraud Examiners Conference in San Diego California in 2011, Joan Pastor, PhD, Clinical Psychologist and Fraud Expert said, “We’re all capable of committing fraud. Every single person in this room is capable of committing crimes.” For all of us, ethics is a matter of convenience depending on the situation and pressures involved. White-collar crime is an inevitable byproduct of the human condition. Seriously, can anyone truthfully claim that they live without sin and temptation?

At best, people can prevent themselves from being victims of fraud. However, there is relatively little that our society can do to stop fraudsters from victimizing other naive and vulnerable people. If you are smart enough to avoid being victimized by a fraudster, they will simply find someone else with an exploitable weakness.

Exploitable Weaknesses

White-Collar criminals use a combination of persuasion and deceit to achieve their objectives. Fraudsters prey on the psychological and cognitive vulnerabilities of their victims using the following techniques:

  • White-collar criminals consider your humanity, ethics, morality, and good nature as weaknesses to be exploited in the execution of their crimes.
  • White-collar criminals measure their effectiveness by the comfort level of their victims. They use a combination of charm and deceit to achieve their objectives. It’s far easier to get a potential victim to believe your lies, if they like you.
  • White-collar criminals fabricate false integrity to gain the trust of their victims. Stature, generosity, and good deeds gain the respect of their potential victims and make it less likely that victims will question their behavior.

White-collar criminals will always have the initiative to commit their crimes. Your ethics, morality, and good nature limit your behavior, but fraudsters have no such constraints on their behavior. The ethical foundation of our society is based on trust and legal basis of our society is based on the presumption of innocence. The inclination to trust and the presumption of innocence gives the fraudster the initial benefit of any doubt while they are free to plan and execute their crimes. Therefore, trusting and decent law abiding human beings are easier prey for fraudsters.

It’s common knowledge that effective internal controls, oversight, and checks-and-balances reduce the opportunity for fraud. However, people tend to ignore the fact that their trust, ethics, and good nature limit their behavior and create a fertile opportunity for white-collar criminals to seize the initiative and execute their crimes. Fraudsters are unfettered by society’s moral constraints on behavior.

Crime and Punishment

Many people mistakenly believe that strong punishment such as long prison sentences is a major deterrent to white-collar crime. Recently, many white collar criminals have received very stiff prison sentences, which I firmly support. At best, it holds those guilty of white-collar crime accountable and responsible for their actions. However, strong punishment does relatively little to prevent white-collar crime. Often, we watch prosecutors pound the podium in front of the cameras and claim that their latest successful case sends a strong message to fraudsters to stop doing crime. However, white-collar criminals don’t listen to the rhetoric of prosecutors. No white-collar criminal discovers ethical behavior and stops doing crime because another criminal ends up in prison. While white-collar criminals take precautions against failure, they do not plan on ever ending up in prison.

Don’t Trust. Just Verify

Trust is a hazard that will destroy your future livelihood. While you initially give a fraudster the benefit of the doubt, they will attempt to solidify their trustworthiness before you follow up to verify their claims. The fraudster hopes that you trust them enough to never verify their claims. However, if you later seek to verify their claims, your skepticism may be substantially diminished by your increased comfort level with them. In other words, you will accept the fraudster’s deceptive answers as factual, even if you have some doubts.

A common mistake made by victims of fraud is called “unexamined acceptance.” Claims received from any source should not be taken for granted as being truthful and accurate without any critical analysis, investigation, and verification. Therefore, learn to exercise professional paranoia. Do not trust. Just verify

Apologies

Apologies are irrelevant. While contrition and forgiveness are admirable traits, apologies do not change the past or undo the harm caused by fraudsters. Apologies tend to make the victims feel a small measure of comfort and make fraudsters, as a minimum, appear remorseful. However, apologies should not be relied on to predict future behavior. People should be ultimately judged by their actions, not by their “well meaning” words or claimed “good” intentions.

Invisible White-Collar Criminals

According to the Association of Certified Fraud Examiners (ACFE) 2014 Report to the Nations on Occupational Fraud and Abuse, “Occupational frauds can be classified into three primary categories: asset misappropriations, corruption and financial statement fraud.” Less than 10% of fraud perpetrators had been previously charged with a crime or had criminal records. As the economic impact of an economic crime goes higher, it is less likely that the perpetrators involved have any previous criminal records. Did Bernie Madoff, Ken Lay (Enron), Bernie Ebbers (Worldcom), or Dennis Kozlowski (Tyco) have criminal records? The answer is no. Therefore, it is difficult for law enforcement and professionals to profile the white-collar criminals among us.

Most Fraud is Discovered from Tips

The ACFE 2014 report found that, “Tips are consistently and by far the most common detection method. Over 40% of all cases were detected by a tip — more than twice the rate of any other detection method.” Specifically, the study states that 42.3% of occupational frauds are initially detected from tips and 6.8% of such frauds are found by accident. Therefore, 49.1% of occupational frauds are found by tip or accident. Furthermore, the ACFE stated, “Management review and internal audit rank second and third, respectively, in frequency of detection, but they lag far behind tips.” Only 16.0% of frauds were detected by management review, 14.1% by internal audits, and 3% of frauds by external audits. Unfortunately, our society must primarily rely on the actions of whistleblowers to inform us about most frauds.

Who are the Whistleblowers?

While many whistleblowers are glamorized by the press, most of them are not motivated by altruism, but are motivated by revenge or personal gain. Every source has an agenda. To government investigators, it’s known as the XXX principle (and I am not talking about pornography).

  1. Ex-lovers: Divorced spouses, former girlfriends and boyfriends.
  2. Ex-business associates: Former customers and suppliers.
  3. Ex-employees: Fired employees, laid off employees, and
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