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Dr. Alexander Stein: We are what we hide

Martin Kenney and I wrote a post for the FCPA Blog recently called “How, then, do we stop the fraudsters among us?”. The post is structured as a conversation between us regarding psychodynamic and other non-conventional approaches to compliance and fraud. I’m quoted as saying “everyone is a fraudster.” 

A reader posted this comment (edited for clarity and concision but otherwise unchanged):

“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, economic exchanges based on the honor system often work efficiently?  As an anecdotal case in point, see “What The Bagel Man Saw” [by Stephen Dubner and Steven Levitt, New York Times, June 6, 2004].

While it is prudent to take precautions against 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.

This was the only published comment to focus on the idea that everyone is a fraudster. But there may be other readers who were confused, provoked, or, like this commenter, had a very different takeaway from what I intend. I want to take this opportunity to clarify what I mean.

First, my phrase and the thinking behind it are unconnected to economic theory, honor, ethics, integrity, behavioral finance, or compliance practices.  I am also not referencing the type of pseudo-social science captured in Dubner and Levitt’s New York Times article. The “Bagel Man” is an essay about honesty and thievery in workplaces framed around the story of a man who observes people’s behavior and attitudes regarding paying or not paying for bagels and donuts, and is described as an “accidental study of white collar crime.”

I’m also departing from the standard definitions of fraud and fraudulent acts: deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage. And I’m likewise not offering a forensic psychological accounting of fraudsters or people with a greater likelihood of committing white-collar crime.

Rather, finally, I’m referring to universal, quotidian features of the human condition: private mental operations serving idiosyncratic non-criminal functions which are neither necessarily pathological nor intended to cause damage or unjust profit.

Lying, deception, opacity, manipulativeness, duplicitousness, evasiveness, secrectivness, and craven self-interest are all closely associated with malfeasance and criminality. But they are also normal, garden-variety psychological devices.  People employ contrivance and deception as coping devices and for self-preservation in a million circumstances, ranging from the innocuous, daily social falsities that are mainstays of communal life to the avoidance, obfuscation, or concealment of anxieties, embarrassments, inadequacies, or key aspects of self.

Everyone hides or disguises a nearly infinite range of thoughts, feelings, impulses, or desires in order to avoid scrutiny, punishment, humiliation, or to preserve emotional homeostasis. There need be no other person or even any actual external threat, although it isn’t uncommon for people to view themselves as a fraud or feel fraudulent.

People who know each other very well successfully deceive one other about all manner of things every day.  Organizations, as in social groupings and even among intimate family members, are comprised of individuals interacting in densely layered relationships. Roles, positions, and observable behavior notwithstanding, everyone navigates his or her unique experience of the world in ways mostly invisible and unknown to anyone else.

Words and speech are other areas central to our existence as individuals and as social animals but which can also be used both to reveal and conceal. Communication can be a signal not just a statement; understanding those signals, typically more semaphore than billboard, is complicated. People frequently say things they don’t necessarily mean. 

They also don’t always know themselves what they mean or how they’re being received by others, and very often reveal more (or less, or something else) than they realize or intend. And if we only focus on deriving conclusions from what people literally say or write, we invariably miss meaningful shadow narratives — what people imply, don’t say, seem to say, or hint at by non-verbal gestures and cues.

The nuanced complexities of all of this are amplified in scenarios where dissembling, distortion, and distraction are intentional (whether or not malice is afoot), or in nefarious schemes involving stealth, guile, seduction, or inducement.  But all are equally common in everyday life.

In suggesting we’re all fraudsters, I’m underscoring a reality always at play in fraud but not absolutely about the perpetration of criminal fraud: we are all masters of self-generated deception, misperception, magical thinking, and fantastical delusion. As André Malraux, the early 20th century French novelist and art historian, observed, “Man is not what he thinks he is; he is what he hides.” 

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Dr. Alexander Stein is founder of Dolus Advisors, a New York-based consultancy that employs expertise in human risk forecasting and the psychodynamics of fraud, corporate ethics, compliance, and organizational culture to help companies proactively mitigate white-collar and cyber malfeasance risks.  www.dolusadvisors.com

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