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Why it’s important to know who the victims of corruption are

One of the more complex and instructive business scandals of the 1980’s concerned fraud in the sale of specialty pipe that was used in the construction of nuclear and fossil fuel plants. It’s also a perfect example of why “victim distance” is a crucial element in compliance programs. 

Manufacturers sold this high-performance pipe to distributors, who resold it to fabricators at an inflated price — some of which was kicked back to the distributor — who sold it to architectural engineering firms on a cost-plus basis, who sold it to the end-user, typically energy utilities. The identities of the ultimate victims, who were far downstream, were generally not known to the wrongdoers, who were upstream. Indeed, some of the latter joked that given all the layers of commerce involved, anyone could be a victim, including themselves – which they felt meant nobody was. 

The logic of this defense was obviously specious. But it may have been effective – as, by some accounts, this practice lasted for about 40 years, even though it was widely known in the industry. The notion that the crime was essentially victimless may have been enough to make those involved – who were not otherwise engaged in the general business of crime – feel comfortable with their participation.

The notion of “victim distance” (sometimes called “victim anonymity”) has been around for quite a while. Much of the research into victim distance concerns charitable contributions. As one would expect, appeals for donations were found to be more effective when featuring actual in-need individuals, rather than relying more generally on statistics and other less personal forms of information.

Victim distance is relevant not only to promoting pro-social activity, like charitable contributions, but also to prevent anti-social behavior. Perhaps the earliest recognition of this comes – rather surprisingly – from Ben Franklin’s describing the risks of an ethics shortfall where the victim is anonymous: “There is no kind of dishonesty into which otherwise good people more easily and more frequently fall than that of defrauding the government.”  

Understanding why “otherwise good people” do bad things is much of what behavioral ethics is about.

“The Effects of Victim Anonymity on Unethical Behavior,” by Kai Chi Yam & Scott J. Reynolds published several years ago reflects some of the behavioral ethics learning that has been developed in this area. As noted by the authors:

We theorize that victim anonymity is an important factor in ethical decision making, such that actors engage in more self-interested and unethical behaviors toward anonymous victims than they do toward identifiable victims. Three experiments provided empirical support for this argument. In Study 1, participants withheld more life-saving products from anonymous than from identifiable victims. In Study 2, participants allocated a sum of payment more unfairly when interacting with an anonymous than with an identifiable partner. Finally, in Study 3, participants cheated more from an anonymous than from an identifiable person… Taken together, our research suggests that anonymous victims may be more likely to incur unethical treatment, which could explain many unethical business behaviors.

Besides the area of government contracting that Franklin identified, many other types of offenses involve distant victims. One is insider trading. Another is tax. And yet another is corruption. 

Through training and other communications, companies should directly address this issue by showing that violations of anti-corruption compliance laws are not victimless. Of course, some companies already do this. But – at least from my perspective – too few play the victim card, and fewer still play it well.

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  1. We so often forget the pain and suffering of the victims of corruption by focusing more on the wrongdoers. Thank you for the reminder

  2. Excellent piece of work! Michael’s comment is spot-on, how often do we actually look at remedial action that focus on how to minimize impact on victims?

  3. Years ago, at an SCCE program, I saw a graphic presentation by an anticorruption expert from the World Bank, who used photographs of what projects looked like in corrupt deals – roads that were impassible, the condition of communities that were victims of this corruption. It’s probably been more than 10 years, but I still remember that presentation. It is so important that we picture the victims of this type of crime.

    The problem is much greater in the competition law area. In anti-corruption there is a sense of anger about corruption. As I read one young African person say it, “evil should be called by its name.” In competition law, enforcers and academics treat it much more like a game, i.e., leniency is based on a calculation of who will win and tell on the other violators first. But I have heard and read little, if any, sense of outrage. There is almost no attempt to personalize the victims.

    In competition law it may be more difficult, but since when is difficulty an excuse for not even trying? Whether it is price fixing, bid rigging, or bribery, it is stealing from real people and causing real harm. This is not just an intellectual exercise. We should be angry and determined to stamp out these crimes. Jeff, you are right on about this. Cheers, Joe

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