Self Prevention of Fraud Crimes

Self Prevention of Fraud Crimes

The financial cost of fraud crime, to both its victims and the American public, is astronomical. Losses for telemarketing and direct personal marketing fraud schemes alone are estimated to be more than $40 billion annually. Check fraud accounts for additional yearly losses of at least $815 million, more than 12 times the $65 million taken in bank robberies annually and these represent only two examples of common fraud schemes (PSVF, 2011).

Fraud deceives a person by unfairly misrepresenting truth. It also restricts the freedom of its victims as it robs them of their money and it isn't easy to detect fraud, especially if there is no clear indication that it exists; posing the question, what can you do to see the signs and protect yourself and are they enough? I believe by understanding the types of people that fall victim and the motives behind the perpetrators, one can take their own precautions without completely relying on the inefficient regulations currently in place.

In society today, virtually anyone can fall prey to fraudulent crimes. Some perpetrators seek out families that may have limited means or financial difficulties, making the assumption that this bucket of people may be particularly receptive to a proposal that offers a fast and large profit.

The key to avoiding these schemes is the understanding in your own thought process and things that you should ask yourself when faced with an investment opportunity.

 Are you overconfident? Overconfidence; remain humble and skeptical at all times when you have been approached. The slightest slip could cause you to become a victim of fraud (Elan, 2010).

 Are you being sentimental? Human Sentiment; known as the engagement in wishful or magical thinking rather than logical thinking. (Elan, 2010).

 Are you lonely? Lonely people often remain on the phone or listen to perpetrators longer to hear the fraudulent sales pitch (Henderson, 2012).

 Do you understand what is being offered? Lack of maturity or experience that would otherwise help the victim recognize fraudulent pitches (Henderson, 2012).

 Are you determined to get rich quick? The desire and social pressure to increase your standard of living quickly and the lack of information about investments in general (Henderson, 2012).

The second key in the self prevention of fraud is to understand the reasons and motives of the perpetrators. We often wonder why people commit fraud, why they steal things that do not belong to them and what goes through their minds when they do such awful things. The answers can be explained by Donald R. Cressey's famous concept, which was developed in the 1950's to explain why people commit fraud. Cressey, a criminologist, came up with a theory which he called the 'fraud triangle' to understand the basics of fraud. According to Cressey, there are three elements present in every fraud: Motivation, Opportunity and Rationalization (Sorkin, 2011).

 Rationalization: Fraudsters always rationalize their behavior by convincing themselves that committing fraud is okay. For instance," I deserve it. I only want my share", "After this, I'm done", "They'll blow their money anyway" etc. Fraudsters will also rationalize their behavior by convincing themselves that they are just "borrowing" money and will pay it back one day. Some fraudsters may say that the company has enough money and it won't affect them in a big way (Sorkin, 2011).

 Financial need: Financial need is another motivator for the perpetrator. Whether it is high medical bills or debts or simply the desire for material objects that can drive a person to commit fraud (Sorkin, 2011).

 Opportunity: When there is a need, the fraudster usually looks for opportunities to commit fraud. And the workplace is always a good target. Employees may have certain access to records, valuable documents or other information that would allow them to commit fraud. They may also have heard stories from other employees, who may have cheated the employer before, and may have gotten away with it. Therefore, internal access as well as knowledge about what goes on in the company may make it easier for them to commit fraud (Sorkin, 2011).

You may think a referral to a financial advisor from a friend or relative will help to protect you, but you still need to do your due diligence and cannot assume the financial advisor has been pre-screened or pre-approved.

Here are some red flags to watch for:

 Unreasonable or guaranteed returns: Investment returns fluctuate so if you are offered a guaranteed 20% return, understand that it is simply not realistic and just walk away (Smolkin, 2011).

 Out of your comfort zone: If the advisor is suggesting that you take out another mortgage on your house or cash in your RRSPs to invest, this should make you very uncomfortable (Smolkin, 2011).

 Too complex to explain: Never invest in something you don't understand. Be suspicious if you ask for more information about the product and the advisor says it is "too complicated to explain" (Smolkin, 2011).

 Time pressure: Beware of "one time offers" and the limited opportunity to invest in a "big deal." These situations do occur occasionally, but a legitimate advisor should be taking a longer term approach to your portfolio (Smolkin, 2011).

 All or nothing: You are being pressured to "put all your eggs in one basket." Don't give in. A well diversified portfolio will ultimately deliver long term, consistent returns (Smolkin, 2011).

What has been put into place to detect and prevent fraud?

 The Foreign Corrupt Practices Act of 1977 was enacted for the purpose of making it unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining business. Specifically, the anti-bribery provisions of the FCPA prohibit the willful use of the mails or any means of instrumentality of interstate commerce corruptly in furtherance of any offer, payment, promise to pay, or authorization of the payment of money or anything of value to any person, while knowing that all or a portion of such money or thing of value will be offered, given or promised, directly or indirectly, to a foreign official to influence the foreign official in his or her official capacity, induce the foreign official to do or omit to do an act in violation of his or her lawful duty, or to secure any improper advantage in order to assist in obtaining or retaining business for or with, or directing business