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Martin Kenney: How, then, do we stop the fraudsters among us?

When I read the FCPA Blog post by Caveni Wong (Who Cheats? Most of us, it turns out) I contacted Dr. Alexander Stein.

Dr. Stein is founder of Dolus Advisors, a New York-based consultancy that employs its knowledge of the psychodynamics of fraud to help companies better-manage business, security, and malfeasance risks. Regarded as a leading authority in the psychology of fraud, he has been a member of my team on numerous fraud investigations and asset recovery operations.

I wondered: “What will Alexander make of this?” Not surprisingly, as a subscriber to the FCPA Blog, he had already read the same post and was likewise interested to know my opinion. Alexander and I have written articles on harmonizing our respective cross-disciplinary approaches to combating corruption on behalf of victims.

Alexander began by reminding me of an idea he introduced at an ICC FraudNet meeting in Calgary in 2010. “Everyone is a fraudster,” he said. Of course, not everyone is a malicious felon, he assured us. But the core psychological devices used in the commission of fraud are normal and shared by all. They are part of being human.

So, yes, most people do cheat. But Alexander and I know, as will most readers of the FCPA Blog, that declaring a war on malfeasance and mandating ethics are fools’ errands. The better goal, however challenging, is to first understand why and in what circumstances some people will cheat (or lie or steal) and others will not. Then we can redesign corporate cultures and regulatory measures to better align with those unavoidable human impulses, instead of perpetually trying to legislate in the dark.

My initial deliberations centred upon the many individuals I’ve investigated or sued who had convinced themselves that they had done nothing wrong. This is the classic fraudster mindset: the ability to deny to oneself that you have been dishonest. Even when faced with overwhelming evidence to the contrary, such individuals frequently cannot admit to their guilt. Many will even assert some astonishing rationalisation to justify their actions.

The explanations for this, Alexander offered, go beyond the simplistic motivations commonly ascribed to cheating and fraud (such as greed, pressure, opportunism or indifference to others). The answers are more nuanced and complex; they relate to the psychological drivers which cause people to make unethical choices.

Alexander pointed out that in her post, Caveni displayed thinking common to many compliance officers, reiterating standard deterrence-based solutions to the problem of cheating. It is typical for professionals tasked with mitigating wrongdoing, or dealing with its results, to see such situations in sharp cause-and-effect terms, Alexander has found: somebody cheats, and then someone else must impose a sanction to redress that cheating.

Alexander mentioned that Caveni had actually provided a useful and less conventional insight, when she wrote that: “… cheating often involves people who don’t even realize that they’re crossing the line”. But then she minimized its importance by focusing on the confusion of seeing apparently “good people” incrementally rationalize their transgressions. 

In Alexander’s view, behavioral drivers and internal notions of ethical correctness are more complex than whether or not we are compliant. And while social, cultural, and institutional attitudes regarding integrity can be regulated by law, individual impulses toward fuzzy ethics (or criminality) won’t be staunched by legislation alone.

I pointed out that Caveni did provide several ideas designed to impede people’s gravitational slide from minor cheating towards something more serious. I particularly liked her idea of including the image of an “eye” on reports and forms, to generate a subliminal understanding that the employee’s truthfulness is being monitored. Alexander agreed that ethical cultures, whether societal or corporate, require a clear articulation of values and acceptable conduct. But based on his experience, he questions whether these and other such techniques favoured by conventional compliance professionals can, in the clinch, be as effective in practice as they appear on paper.

Alexander’s skepticism links to the two main definitions of cheating:

(1) to act dishonestly to gain an advantage or

(2) to avoid or try to get away with something. 

Continuing, he explained that the denial of wrongdoing and negative consequences I so often encounter in fraudsters invariably involves a radical disconnect between the accepted “real-world” definition of cheating and some idiosyncratic distortion of it. These people will refute to the death your assault on their notion of themselves as having acted justifiably, however confounding this may seem in relation to the facts. You can punish them for their offense, or threaten penalty for the next occurrence. But getting them to agree that they are accountable will likely be futile.

Why? As Alexander explained, it is because impulse and action are rarely linear. Many forms of human behavior are not actually the direct outcome of a clear cause. One consequence of this under-estimation of convoluted psychodynamic forces is the inevitable inadequacy, even failure, of many compliance, counter-fraud, anti-corruption, AML, and other insider threat programs: they pivot on expecting rational responses to ostensibly rational principles.

But the psychology of malfeasance exists down the rabbit-hole and involves a slew of nesting, highly irrational mental mechanisms. One, importantly, is called ‘displacement’, which is closer to the second definition of cheating. People are constantly trying to avoid something or get away with something, whether actual or imagined. And most of the time the forces propelling that imperative are stronger than, or even perversely fueled by, any conscious realisations about “right” and “wrong,” or “unethical” and “illegal.” They may at their core have little to do with actual cheating (hence being considered a displacement).  Which is another reason why it can seem so effortless for bad actors to wilfully rebut their own wrong-doing.

Most of you reading this will pride yourselves on having the ability to think outside the box. It is an important skill we use as professionals when faced with what appears to be an insurmountable problem. Many of us undergo similar training, which prepares us to focus on narrow objectives linked to issues such as compliance, the prevention of money laundering and fraud. 

Until Alexander and I started working together, I considered intelligent and creative problem-solving more than sufficient to tackling the problems created by fraudsters and only vaguely appreciated the limitations of relying on lay psychological knowledge in our specialist field, which is in fact so squarely centred on the human element.

Since meeting him, my experience has been that behavioral experts and soft-data analysts like Alexander can help us see and understand the underpinnings of white-collar malfeasance risks, as well as investigative, regulatory, and case management problems and solutions, from a refreshingly different perspective.

Because everyone cheats, our professions are in no imminent danger of obsolescence. But we will do our work better, helping victims or preventing others from becoming them, by better preparing for battle with our fiercest adversary: the human mind.


Martin Kenney is Managing Partner of Martin Kenney & Co., Solicitors, a specialist investigative and asset recovery practice focused on multi-jurisdictional fraud and grand corruption cases |@MKSolicitors.

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  1. “Everyone is a fraudster,” That is the starting hypothesis of compliance management based on rules, monitoring and sanctions. It coincides with an economistic view of human behavior, according to which we are self-interested utility maximizers who will commit fraud when no one is watching. But is it so? How come, for example, that economic exchanges based on the honor system often work efficiently (as an anecdotal case in point, see Dubner's and Levitt's NYT article "What The Bagel Man Saw")?.While it is prudent to take precautions against the malfeasance by some, the assumption that everyone is a fraudster feeds the exaggeration of control-based compliance and obstructs the view on complimentary solutions that recognize and strengthen what Lincoln referred to as the "better angels of our nature": the capacity of many people for self-regulated ethical behavior.

  2. I wholeheartedly agree with the premise that “Everyone is a Fraudster”.. Let me see if I can explain this from an eastern philosophical thinking.. Once of the question ancient Indian thinkers from 5000 B.C were asking was “What is the true nature of human beings?”.. Is "Being Human" and a "Human Being" the same..

    The eastern philosophy and eastern philosophers says NO. What is that makes a mammal called human a real human being.. they identified what differentiates from every other known animal is the development of human mind and intellect, what are the unique attributes of a Human Intellect.. a Human intellect can Observe, Investigate, Reflect/Contemplate, Discriminate (between Good and Bad) and Decide.. The Intellect does not exist and operate in vacuum and needs the Advanced Human Mind which is the source of awareness, consciousness and thought, and the mind cannot exist and operate in vacuum and needs a advanced Human Body.

    What is the pure and true nature of a Human Being that truly makes him/her a Human?.. The eastern philosophy says it is Altruism There is a wonderful TED talk by a Buddhist Monk Matthieu Ricard on Altruism

    Anybody who does not reflect the “True Nature” of a Human Being is a Fraudster according to eastern philosophy. (which is 99.999% of all humans).. there are a handful of humans you atleast publically expose altruistic behavior .. as seen from this 2015 Book by Larissa MacFarquhar Strangers Drowning: Grappling with Impossible Idealism, Drastic Choices, and the Overpowering Urge to Help ..

    I think Dr Stein has come to the same conclusion that in a modern world "everyone is a Fraudster"

    What is Altruism?

    fellow feeling
    good will
    public spirit

    What is the opposite of Altruism ?

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