Fraud happens! - a look at some of the reasons why

Wall Street - the home of much financial activity!
Wall Street - the home of much financial activity! | Source

Fraud - the victim less crime!

Many people consider fraud to be a problem yes, but they never think of it in the same way as they do murder, rape or drug trafficking. Why should this be, given that lives are destroyed by fraud, or even lost, in just the same way, as a result of financial crime?

When pension funds are pilfered, suicides take place. When the old are targeted for lottery scams, life savings are lost. When Albania was targeted by a massive pyramid selling scam in the 1990's, the foundations of a whole country's economy were rocked.

Fraud is an insidious crime. If your bank account is hacked by a Eastern European cyber criminal, a victim is left feeling violated in just the same way as someone who has been mugged. Therefore, it is wrong to think of fraud as a lesser crime. Its effects can be far reaching, creating havoc beyond the simple act of scamming money from unsuspecting people, in the same way as the first falling domino can impact others a long long way away.

Why does fraud occur?

It is possible to liken fraud to a terminal disease. You know how bad it is, you know that it happens to a lot of people a lot of the time - yet you never think it is going to happen to you. A little extreme perhaps, but people are simply complacent when it comes to the threat of fraud to their personal lives or to their businesses.

Complacency must be one of the biggest reasons that the fraudster gets to ply his or her trade (actually it is more likely to be a male fraudster that is conning you - as much as 90% of all frauds are committed by males). We throw our documents into the bins with details of our names, addresses and often much more. We enter into contracts without carrying out proper due diligence. We are attracted by the offers of easy money or incredible bargains. We fail to check the security of our financial controls.

In short we are in such a rush to make money in our hectic 21st century lives that we often miss all the warning signs. We don't make fraud a priority - a failing that we have in common with the law enforcement agencies. Fraud is not a proirity for the police because a modest case can take several persons months or years to solve and bring to court - resulting in one statistical tick in the box, whereas the same resources can clean up many break ins, thefts and other more easily dealt with crimes. So many more ticks in the boxes and unfortunately this is the way that regional forces are judged. Crimes such as rape, murder and drug trafficking are considered to be more serious than fraud and do comand the appropriate resources, but many of this that fraud should also be added to this list.

So we make it easy for the fraudster. This leads on to another reason why fraud is so prevalent around the world today. I will illustrate with a recent interview I held with a senior finance director in a global construction firm. He said "...Mark, can you see this cheque book sitting on my desk? I could write a check for $10,000,000 today (it was a Friday) and be in Panama next week spending the money..." He also said that he could never return home without plastic surgery and a change of identity but his point was that a major fraud was easy for him to commit in his position of trust.

So complacency and the ease with which fraudsters are able to commit fraud are the basic reasons why it happens time and time again. We can never know its scale because fraud is a hidden crime, bubbling away beneath the surface.

Private fraud investigation resources are often called upon to assist with the investigations of fraud, usually after it has happened. Much better if they were called in when everything is ok and asked to advise on the weaknesses that make fraud so easy in many cases!

It would take a big bonus to be able to buy this boat!
It would take a big bonus to be able to buy this boat! | Source

How to afford a super yacht?

When you see businessmen with their $500 million super yachts do you ever pause to wonder how they afforded them?

I have investigated fraud for years, and worked with like minded professionals in the law enforcement agencies and private sector alike. The general consensus is that such wealth cannot usually be legitimately earned.

This is quite a claim, but think about it! Apart from a few who inherit substantial wealth, or even win hundreds of millions on a Lottery multiple rollover, how is it possible to really create substantial personal wealth without adversely impacting others?

The best example of an answer is the problem of taxation for the very rich. It is no secret that the wealthy pay proportionately less tax than the poor. This is down to clever tax planning, use of expensive offshore havens and the use of even more expensive professional advisors. And, as the media is fond of reporting, it is not always individuals who benefit from tax planning, with Google, Amazon and Starbucks often making headlines regarding how little tax these profitable companies pay.

The Middle Eastern ruling classes are rich at the expense of their populace, as are the oligarchs who squander their national wealth for their own benefit.

Unfortunately, the reason why the rich get richer is because there is no limit to the opportunities open for the rest of us. It is just that some have the knack of exploiting them better! It is not always at the expense of the poor, because in general the standard of living in most developed countries is ever rising. Thus we find ourselves in a position where we must have growth, if not it is all doom and gloom with words such as "recession" being banded about.


Will stopping fraud help to balance the economy?

Given that we have what appears to be a disproportionate layer of wealth covering the working population that has mostly been created by exploiting tax systems and financial economies around the world, how can a more balanced society be created.

I support the western capitalist model, as certainly the socialist and communist models have been seen to fail in the past again and again. But would some rationalization of the disparity between the super rich and everybody else work?

There is no easy answer - when footballers and tennis players earn hundreds of millions each year, it is the man in the street that is willingly providing the cash. If a seat at the stadium costs $100, then it will be paid. We all desperately need to put our savings into investment funds for our pensions, yet the fund manager will take his massive salary whether or not the values go up or down.

You cannot change a system that seems top heavy by artificially adjusting the framework in which it currently thrives. But you can perhaps influence it indirectly. If you want to stop the bankers earning massive bonuses, you have to create opportunity for others to do the same.

How - I don't know. A shopkeeper might earn a $1,000 for every $1,000,000 earned by a fund manager. Yet we need the supplies sold by the shop just as much as the funds for our pensions.

A conundrum then?

Fraud flourishes because we are wealthy. The more money that circulates around the economy, the more the fraudster can ply his or her trade. So, in a way, the fraudster is part of that economy.

The fraud investigators working for law enforcement have a job because of the fraudster. The fraud detection software companies earn their income from fraud. Then the money the fraudster steals is circulated around the economy. The more the money moves, the bigger the economy - it is called the multiplying effect. $100 can pass through the hands, pockets and bank accounts of dozens of individuals, having the effect of a much larger amount of money.

Some argue that fraud can cost an economy such as that of the USA (or UK, or anywhere...) hundreds of billions every year. But I am not sure it is all a cost to the economy, as much as a total value of fraud taking place. Any proceeds of fraud are re-invested, and therefore it might not be correct to say that the "fraud" money could be used to build schools, hospitals, roads etc.

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Comments 4 comments

ChloeAliceWilson profile image

ChloeAliceWilson 7 years ago from Spain

Prevention certainly seems the best option but I guess most people don't think it's important until it's too late. Fancy men being so dodgy - shocking!


Mark Jenner profile image

Mark Jenner 7 years ago Author

Thanks Chloe - you are right, 90% of fraudsters are men!


prasetio30 profile image

prasetio30 7 years ago from malang-indonesia

we have to be aware with many things around the internet. Don't pay anything before you search some information. maybe it sound legitimate but unfortunately it also scam or fraud. nice topic Mark!


Honomoto 23 months ago

You can dispute the chrgaes with the credit card company, close the account and hope they will remove the chrgaes. This isn't always so easy though because what would stop me from going to Best Buy, buying a $1,000 TV and then go to my bank and say my card was stolen and didn't charge the TV. So in essence I would be getting the TV for free. That is a reason a bank would be reluctant to do anything.People steal your identity by finding out your name, birthday and social security number. They take that information and get credit cards, loans and other things in your name. The protection is up to you. You have to make sure to protect your credit cards, your birthday and social security number from people that doesn't know you. Its not up to anyone else to protect you.

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