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Open to Persuasion?


November 2002



A rampant socio-economic disease is infecting individuals, companies, charities and even governments alike, yet it still eludes adequate definition in English law. Who is most likely to be infected - the greedy or naïvely stupid, perhaps?  The cold reality is that no one is immune, no matter how careful or cynical they might be because for fraud to succeed there must be trust.


Trust is essential for relationships to work.  Without it we would not have survived to develop and enjoy the benefits of a civilised society. We trust customers to pay our bills; employees to work in their employers’ interests; partners to share responsibilities; and our healthcare, business and legal professionals to honour the trust we place in them. We trust in the principles of contract, which are embraced by most modern laws.  They are: offer, acceptance, and consideration.  This is how modern society works. It fails when trust is betrayed, but there are remedies for genuine human mistake, fallibility, or succumbing to economic pressures beyond reasonable ability to control.  The most profound and devastating failure of trust, however, is when it is deliberately betrayed.


Fraud takes many forms and goes by many names: Scam; Con; Swindle; Bigamy; Sting; Long-firm; Bilk; Bunco; Insider Trading; Price, Race and Match-Fixing, and many others, but they are all variations of the same syndrome.  Even the most honourable of English games, Cricket, is not immune.  Wherever there is money, it is relentlessly shadowed by fraud.


Remedies are elusive and expensive. Prevention is therefore better than cure, and upon suspicion or discovery, prompt and decisive action runs a close second.  But how can it be inoculated against?  Changing one’s thinking into that of a fraudster is a good place to start.  Mix the allure of easy money with the thrill of biting into stolen fruit and the transformation has begun.  Recognising or creating the opportunity to withhold information crucial to the decisions of others is the next stage in the process.  Finally, render the target vulnerable by persuasion, blindness or ignorance and they will have parted with their money, expertise, and trust. Bingo!


So where are the vulnerabilities and what controls are in place?  Think of a computer file – or even a string bean.  They each possess a top, a tail, and all the stuff in the middle.  The top and the tail are each sufficient to identify the entire item in a broad sense, and their presence suggests that the middle stuff is somewhere and should therefore be accounted for.  Computers use File Allocation Tables (FATs), to identify tops, tails and the location of the middle stuff.  Humans, however, use a slightly different process.  We recognise a complete string bean immediately, yet upon seeing a pile of tops and tails, we deduce that the middle stuff is or was somewhere at some time.  Too often, however, we presume that the middle stuff – the rest of the bean – is where it is supposed to be, or that it is someone else’s responsibility, and we are not alert to the discipline of regularly matching tops and tails to the middle stuff: contracts, invoices, payments.  These are the margins in which the employee fraudster operates, and as long as we fail to reconstitute (audit) our beans regularly, they will continue to defraud, and the cleverest will not even be suspected, let alone caught.


The private individual is not expected to manage such machinery of trust in everyday living.  Instead, they operate within their own construct of reality, a world model that is based on the premises of common interest; that if something looks, smells and feels like it is supposed to be there, then it is supposed to be there. Relationships are entered into for mutual benefit – it is fundamental human nature. Often, however, assurances are needed before commitment, especially where hard-earned savings or other assets are involved. But as humans they are open to persuasion, and this is when crucial information is again withheld, setting the scene for utter demolition of their world model according to the fraudster’s own agenda.  The outcome is the same, but often for the individual the consequences are far more profound as the losses are proportionally far greater, both in material terms and in terms of faith.  It can devastate their lives.

Do organisations defraud each other?  As rule, no. But some organisations are set up with the sole purpose to defraud, and they are referred to as long-firms.  They will bear all the resemblance of a legitimate company or firm, even boasting one, two or even three years’ accounts to add credibility.  During the period of their operating, however, they build relationships on trust and credit, before moving in for the ultimate credit sting.  If insurance companies they will amass vast premium income; if brokers they will take vast commission income; or if traders they will amass vast amounts of goods.  The end is the same in all cases.  The directors/partners abscond; debts and liabilities are not honoured, and the audit trail, thanks to years’ of planning, is stone cold.  Early on in the game they will have established a distribution or money-laundering network, which is activated just prior to their disappearing act.  For this to work they need ostensibly legitimate business partners such as bankers, lawyers or accountants, many of whom are woefully and sometimes wilfully blind to their roles in fraud.


If prevention techniques do not work, are any cures available?  Sometimes confronting the fraudulent employee with evidence of their deeds is sufficient, because it might be the first time they swerved off the tracks in the face of overwhelming temptation.  Repayment and repentance usually follow in these cases, and publicity is avoided as the flawed system is quietly patched and the employee dealt with appropriately.  If confrontation is not an option, or if it fails, most victims turn to the authorities including the police.  In this eventuality gathering and presenting evidence quickly is paramount if there is to be any chance of limiting the damage, and obtaining partial if not full recovery of losses.  Full co-operation with the authorities is essential, including disclosure of accounts, systems and employee records.  Criminal prosecution might or might not follow.


The final sanction is going to litigation.  It can be an expensive nightmare and there are no guarantees.  In England, suing means approaching a solicitor, who will in turn consult a barrister, each of whom want to be paid for giving their opinions on the merits of a case.  If the case looks like a reasonable gamble – the law is a lottery – they will take it on and levy professional charges on the claimant (litigant), plus disbursements, known to mortals as expenses, which do not have to be accounted for.  Eventually, the case will grind its way through the court system as the claimant’s and defendant’s lawyers observe the process of Disclosure of each other’s documents, and modify the cases and defences to best fit their own perceptions of the odds against or for success.  It is worth noting here that, if the tiniest of archaic processes such as the binding of paper bundles fails to match precisely the requirements of the court, the case might be thrown back.  In this case the process has to begin all over again. Ultimately, the jury and the judge on the bench, all of whom are open to persuasion, will hear the case and decide upon whom should win.  Even if the claimant does win, the defendant, who probably qualified for Legal Aid whereas the claimant did not, has had plenty of time to ensure that they are not worth – you guessed it – a bean.  The claimant wins a Pyrrhic victory indeed, with attendant publicity that might compromise their professional, business or social standing.


By and large the system does not recognise victims of fraud, especially the individuals for whom the tortures are sometimes unbearable, with some exceptions that are only beginning to be established, and usually by corporate entities that have had to bear the cost such as credit card companies.  Fraudulent use of a card or identity theft usually absolves the legitimate cardholder or individual, but they are often required to offer evidence of fraud or misuse, or even proof.  Deliberate, constructive fraud, if it makes its way through the system at all, is still regarded as an affront to society generally rather than as a grievous assault on the person.  Because they are not recognised many victims remain silent and bear their burdens alone.


Fraudsters do not always work alone; they also network with each other.  They share information about techniques and even about victims themselves.  In many cases they might have close associations with bankers, lawyers or accountants, all of whom have confidential access to corporate and private accounts and records, including wills.  How is the network established and maintained, and how are victims identified, for surely the authorities and professional institutions have their own regulatory and preventative infrastructure?  They do, but like any systems they are open to abuse by some of their own members, either by design or complacency.  In the case of design or connivance, some theories go beyond the remit and scope of this article, but suffice it to say that some fraudsters are always on the lookout for a ‘Square’ deal. 

Do professional institutions deliberately defraud each other, organisations and individuals?  Again, the answer is a resounding no.  Most of them constantly monitor how they are perceived in the community at large, striving to ensure that their membership meets their evolving, constantly improving standards of professionalism, especially so in the face of some high-profile cases such as doctors Ledward and Shipman, and the Andersen/Enron affair. However, many of them are in conflict with their own doctrines of client confidentiality and this represents their own murky margin in which fraudsters can operate.  If deliberate fraud is perpetrated upon an individual or organisation by a member of a professional institution in connivance with one of their fraudster clients, the institution will nevertheless erect daunting barriers before the complainant.  The claimant might even be made to feel that the responsibility and fault is theirs for having trusted the profession in the first instance, which surely represents the most risible paradox of all.  Thus society continues its failure to recognise fraud and the impact on its victims.


Fraud is endemic and it costs every one of us, but who cares?  It remains largely a victimless crime, and the prevailing attitude is that fools and their money are easily parted.  Without a definition of fraud the majority will continue to mock the victims as naïve or foolish, and deserving of their fate despite having taken every conceivable, trusting precaution to protect their interests.  Until, of course, it happens to the mockers when it will be their turn to endure the utter indifference of the system, as they themselves become the mocked.


By the way -has anyone tried suing a solicitor or the Law Society?


Paul Bantock

09 October 2002