The New Breed of Fraudsters

Bruno Pavlicek


March 3, 2012

The term "white collar crime" was coined by sociologist Edwin Sutherland in 1939. It was meant to describe a crime committed by a person of respectability, high social status and in the course of one's occupation. In recent years, as major scandals have unfolded -- Enron, Worldcom, Tyco, subprime mortgage fraud -- white collar crime has become elevated in the public's conscious. Then, federal investigators uncovered one diabolical con to trump them all.

The massive Ponzi scheme orchestrated by disgraced stockbroker Bernie Madoff outraged the nation and forever changed how the world thinks about white collar crime. But researchers, too, have begun to find a darker side to modern fraudsters. Until recently, the research conducted into occupational fraud has maintained a prevailing view that, at the end of the day, these culprits need to rationalize their negative behaviors in order to actually commit their acts. That may no longer be the case. As more thieves like Madoff are discovered, it seems we are seeing a new, harsher, more deviant brand of white collar criminal.

Donald R. Cressey is one of the most renowned theorists on occupational fraud. He started out as a doctoral student of the legendary sociologist Edwin Sutherland, who literally re-wrote the book on criminology when his aptly named work, Criminology, was published in 1924. Like his mentor, Cressey moved on to study white collar criminals during the 1940s and developed a hypothesis that would influence everyone who has researched workplace fraud since.

Cressey's study of embezzlement matured into what became referred to as "the fraud triangle," which describes three factors that must be in place for workplace fraud to occur: pressure, opportunity and rationalization.

In terms of pressure, fraudsters would violate the trust of their employers when faced with personal problems that led them to misappropriate their company's assets as a solution. In more common terms, one would describe this as the motive behind the crime.
This pressure could be created by other desires as well -- revenge against the employer being a common example. In such situations, the offender psychologically displaces blame for his actions onto the employer -- or perhaps a coworker -- and the company, in their mind, becomes the cause of their behavior.

The opportunity aspect is simple enough: a fraudster must be able to capitalize upon a chance to engage in theft. Such opportunities generally happen when there is a loss or breakdown with an organization's internal controls.

The third and final factor that must be present in Creesey's fraud triangle model is the act of rationalization. This occurs before the theft, wherein the employee looks upon themselves as being a good person and not as a criminal. In essence, before committing fraud, an offender must overcome the psychological hurdle that the negative act in and of itself presents for them. They do this by justifying it first within their own minds, where the act becomes more of a way out of a problem or a justifiable act of retribution than a crime.

Although it has long been studied and held up as an accurate description of white collar crime, Joseph Wells of the Association of Certified Fraud Examiners believes the fraud triangle model no longer reflects current times. Researchers such as Cressey have led us to believe that occupational fraud offenders are people who possess a sense of morals, and therefore need to rationalize their criminal acts before committing them. But Wells says that society has changed over the decades. Looking at many of the fraud cases we have seen in recent years, it is hard to disagree.

With criminals like Bernie Madoff being thrust into the public eye, a new view of fraud is emerging. It is one in which occupational offenders operate without any moral compass in life. They feel no need for self-rationalization in their actions.

Instead, they act with self-perceived impunity in the face of all regulations or laws in place to deter such activity. These offenders possess deviant personality traits that represent unorthodox profiles compared to the traditional criminal profiles of the corporate embezzlers before them.

Some employees today do not steal because of need or even revenge; they steal simply because of opportunity and have very little fear of discovery. More than that, they steal no matter what an employer does.

This category of employees is described as dishonest, manipulative and lacking integrity. These truly bad-to-the-core employees have a tremendous need for power, prestige and wealth and operate according to their own self-serving needs in life, bearing no conscience whatsoever. In other words, they are psychopaths who operate with a lack of any feelings, or empathy, as well as guilt, or loyalty to anyone but themselves.

Many may argue that Madoff is the epitome of the modern, psychopathic fraudster. Although this may be true, one could also attribute such a distinction to Sam Antar of Crazy Eddie, a consumer electronics retailer that was founded in Brooklyn in 1971 and was brought down by the SEC in 1989.

As CFO of Crazy Eddie, Antar conspired with the store's two founders -- his cousin, Eddie Antar, and uncle, Samuel Antar -- in a massive scheme that defrauded company investors and countless others. Antar's culpability and criminal actions included skimming, money laundering, insurance fraud, securities fraud, and a host of other illegal activities. After being convicted in federal court and pleading guilty to three felony charges, he was subsequently sentenced to only six months of house arrest, 1,200 hours of community service and $10,000 in fines.

Antar confessed in a manner befitting someone with psychopathic personality traits, stating publicly that he and his family committed their crimes at Crazy Eddie for "fun and profit." He has openly acknowledged having no empathy for his victims and that neither he nor his co-conspirators have ever had a conversation about morality or remorse. Moreover, Antar admits that his subsequent cooperation with the government to serve as a witness against his own family members had nothing to do with regret. He did it to avoid a longer prison sentence.

In a 2009 interview with Fox News, Antar was asked by a reporter if he was any "healthier today for what had happened." He responded by saying that he was still the same person and that no one really knows anyone's intentions. He was later asked whether he would commit fraud again if given another opportunity. "You never know," he said.

Former Tyco CEO Dennis Kozlowski, who is currently serving an 8-to-25-year sentence in New York state prison for securities fraud and embezzlement, was not as forthcoming during a 2008 interview on CBS' news program 60 Minutes. During this interview, he adamantly denied any criminal intent or wrongdoing during his time as head of Tyco.

This refusal to admit to his crimes or show any remorse came from a notorious defendant who lived a lavish lifestyle. This was a man who was publicly vilified for owning a $6,000 shower curtain and throwing a $2 million exotic, Roman-style birthday party in Italy for his wife -- half of which was expensed to Tyco. After Kozlowski joked about his penchant for purchasing priceless works of art, news correspondent Morley Safer asked him what it was like to earn the type of money he was making. The disgraced CEO responded by saying it was simply a way of "keeping score."

Although Kozlowski may be viewed as a real-life version of Gordon Gecko from the movie Wall Street, his behavior, past actions and statements reflect someone with psychopathic characteristics. He had a great desire for personal gain and possessed a wheeler-dealer attitude towards acquiring new companies that earned him the nickname "Deal-A-Day Dennis."

Within this world of white collar crime, we begin to encounter a newly observed phenomenon: behavior devoid of morality but replete with a psychopathic drive to defraud anyone and everyone. And the more powerful the employee's position, the greater their sense of entitlement, the larger their propensity to lie and the more absolute their lack of remorse, the more grandiose the fraud becomes.

Dr. Robert D. Hare describes many occupational offenders as criminals who are insignificant and harm a limited amount of victims. When it comes to white collar psychopaths, however, companies are faced with highly problematic offenders, says Hare, a professor of psychology at the University of British Columbia and president of Darkstone Research Group. They can become involved in grossly lucrative scams while living lavish lifestyles as their victims lose their life savings.

Steve Lee, managing director of Steve Lee & Associates, a forensic accounting firm in Los Angeles, describes how his firm is continuing to see an increase in inquiries about fraud perpetrated by C-level executives. This is a type of fraud that entails grandiose thievery involving millions of dollars. More than that, Lee says that the suspects who engage in these large-scale frauds are usually motivated by anything but intense financial needs or pressure.

As companies and working-class employees continue to be scammed by these jet-setting psychopaths, it becomes increasingly apparent that occupational fraud, as a form of white collar crime, is a problem that will never cease to exist. From the simple pilfering of cash from a register or warehouse inventory to intricate schemes of embezzlement or financial statement manipulation, employee theft will always be a scourge on the business world and society.

The degree of this problem will always depend, as it does today, upon internal controls that are set in place within an organization, coupled with training, education, and awareness of unethical and illegal workplace behavior. This loss prevention philosophy keeps in mind the fact that human nature is such that most employees, as described through the contributive theories of Donald Cressey, will always continue to engage in theft from their employers as a result of available opportunities, the financial need or external pressures facing employees, along with their actions of rationalization.

However, there are those deviant offenders who pose the greatest challenge to all organizations, for they cannot be deterred or educated to stray away from their most diabolical of intentions. Outside of catching and prosecuting them after the fact, there is only one method of loss prevention against such criminals: do not hire them. Then again, this is easier said than done, for the Devil comes in many forms. Hence, the question at the end of the day is, how does an employer recognize the Devil during a job interview?
Bruno Pavlicek is senior corporate security investigator for Verizon Wireless. He is a certified fraud examiner, and formerly has served as both a county prosecutor's detective and police officer.