What Do Conmen and Entrepreneurs Have in Common?

What Do Conmen and Entrepreneurs Have in Common?

There's a simple thread that connects entrepreneurs and conmen. In the latest episode of Fraud Talk, Alexander Stein, Ph.D., discusses this connection and dissects how the psychodynamics of fraud can help fraud examiners spot the differences between ethical employees and malevolent ones. You can catch Dr. Stein as a keynote speaker for the upcoming ACFE Fraud Conference Canada in Montreal, October 20-23, 2019.

Below is an excerpt from the full transcript of the discussion, which you can download in PDF form, or you can listen to the episode.

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Breaching a Fraudster's Defenses: Psychology in Interviews

ACFE STAFF

Before becoming president of the ACFE, James D. Ratley, CFE, worked with the Dallas, Texas Police Department, developing many important interviewing skills along the way. While working in internal affairs, he joined a joint task force assembled to investigate possible widespread fraud at the Dallas/Fort Worth Airport (DFW). 

Looking back at that time he stated, “I didn’t know anything about white-collar crime, but I had to interview people suspected of committing it.” In this excerpt from Policing Fraud: My Journey from Street Cop to Anti-Fraud Leader, Ratley describes how he adapted and improved his interviewing skills to help him investigate white-collar crime through an understanding of the psychology of a fraudster.

“To match wits with a fraudster during an admission-seeking interview, I needed clear insight into why he or she stole and often kept stealing until caught. That would help me interpret what the suspect said or didn’t say, as well as understand how to persuade him to level with me.

On occasion, I read articles on why crooks committed a variety of crimes, and now my interest was surging. So I called the University of Texas in Dallas and asked for an appointment with Dr. Larry Redlinger, a highly regarded criminologist. When we met, he explained that although he didn’t specialize in white-collar crime, he knew of two books that might help me.

'Bring this over to the UT library,' he said while scribbling the titles and his signature. 'Tell them I’d appreciate it if they let you borrow them. The more important one is Dr. Donald R. Cressey’s Other People’s Money. It explains who embezzles and why.' He added that Cressey had co-authored the second book — Principles of Criminology — with Edwin H. Sutherland. 'It’s the standard text. Sutherland coined the term white-collar crime to describe this particular type of offense.' I thanked him and hurried to get those books before someone else did. That evening I began devouring both. They would eventually change my professional life. 

… Over the next several nights, I immersed myself in Dr. Cressey’s discussions of why and how people steal from their employers and others who trust them. The key factors that he said cause and permit fraud — need, opportunity, and rationalization … Together these three elements formed what Cressey called the Fraud Triangle.

Now, thanks to him, I understood what really linked white-collar criminals, their schemes, and the businesses they defrauded. 

… Reading Cressey revealed to me how rationalization stimulates and perpetuates fraud. I remember thinking to myself, 'You can’t judge these people by your standards. They don’t have your standards.' And that’s how it is. White-collar criminals often don’t feel like they’ve done anything wrong. Once I understood that, I changed my entire approach, tailoring my interviews to their rationalizations.

Before reading Cressey, I would have said to a suspect I had strong evidence against, “I know you took that money, so just tell me how you did it.” But it’s hard getting someone to admit he committed a crime; sometimes I’d be at it all day and wind up with nothing to show for my efforts. My new method was to ask the suspect how he felt about his job and the company. If he expressed resentment, I’d probe for specifics. That tended to induce the suspect to vent, for example, about working long hours and not getting a raise. Then I’d shift gears, no longer trying to get him to admit doing something wrong. 'All that extra work, and they didn’t give you anything for it?' I’d say. 'How did you manage to get the money they owed you?'

When I got a suspect to answer that question honestly, I knew I’d made real progress, far more than by being confrontational or accusatory. The next step was to get a written, signed statement from the suspect, as I’d done many times for nonfinancial crimes. In fraud cases, though, there’s no point in charging someone unless you can prove intent.

Some suspects admitted committing a fraudulent act, but said it was the result of an honest error or ignorance. To counter that, I’d appeal to the suspect’s vanity, encouraging him to explain how he’d cleverly managed to conceal his fraud. I’d also ask nonconsecutive questions about the specifics of the fraud, seeking contradictions in the suspect’s account that might lead him to tell lies I could disprove by comparing them to known facts or witness testimony. In this way, even when the suspect didn’t realize it, I’d obtain ample proof of his intent to commit fraud. And that gave me a solid case for the Dallas County D.A.”

Still need some last-minute gifts for your favorite fraud fighter? Read more about this book and the many other resources available in the latest ACFE Bookstore Catalog.

3 Psychological Tools That Will Help You Elicit Confessions

GUEST BLOGGER

Sarah Hofmann
ACFE Public Information Officer

On a Thursday evening your doorbell rings. You open the door to find a 9 year-old child on your threshold who says, “Hi. I’m selling candy bars for my school. Do you want to buy one?” Would you buy one? Or would you politely decline? What if the child instead said to you, “Hello. Do you think children should be reading more?” If you respond affirmatively, they follow up with, “Do you mind buying a candy bar to support our library?” Chances are that you are much more likely to buy that candy bar after agreeing with the child that children should read because you now feel compelled to back up your previous affirmative statement. That scenario is more than a clever sales pitch for a child — it is a perfect example of the social contract compelling you to act.

In his session, “Social-Psychological Behaviors: An Underused Tool for Fraud Investigators,” Bret Hood, CFE, will share that story and more at the upcoming 2017 ACFE Law Enforcement and Government Summit in Washington, D.C., October 30. The child in question was his daughter and after slumping candy fundraising numbers, he taught her to use a two-prong question method to increase the likelihood of people buying the bars. He says that fraud examiners can use a number of psychological tactics like two-prong questioning to interview and elicit confessions from suspected fraudsters. A few other tools Hood will discuss are:

Social Contract. If you force someone into a situation where they use cognitive dissonance to lie to themselves, they are more easily exposed. He says that if you lie to a stranger, you won’t have as much trouble changing your story later, or denying what you said previously. However, if you lie to someone you know, or if you write down the lie, you’re more likely to stick to that story, no matter how outlandish it might be. 

Reciprocity. Humans are naturally inclined to reciprocate what they perceive to be kind gestures from others. Hood suggests some seemingly minor tricks to use in an in-person interview with a suspect — like offering them a can of soda or a more comfortable chair. The same concept can even be applied to interviews over the phone. Starting a thought with an implication of camaraderie or collusion — like saying, “I normally don’t share this with people, but…” — can make the target of the interview feel that they must give you a piece of information equally special.

Priming. Simply softening an interrogation about embezzling to a line of questions about “misplaced” money can elicit more honest responses from suspects, or even unwitting pawns. When people feel like they are safe and understood, they’re more likely to share information. Priming your words to make them feel understood is an easy way to achieve that truth.

There are many ways that anti-fraud professionals can build a case against fraudsters, but much of the work that requests for documents, subpoenas and audits do can also be accomplished by tapping into the most basic aspects of the human psyche. 

You can hear Hood speak about this topic, and hear about the latest fraud techniques unique to law enforcement and government professionals in Washington, D.C. next month. Visit ACFE.com/fraudsummit and register by September 29 to save an extra $95!

Good Guy Gone Bad Gone Good: The Story of John Rusnak

GUEST BLOGGER

Mark Blangger
ACFE Research Editor

Once a good guy goes bad, there’s no turning back — right? For some, absolutely. For others, like John Rusnak, hope exists.

Allfirst Financial was searching for a savvy foreign currency trader to help boost its bottom line. Enter well-intentioned John Rusnak. During his first two years at Allfirst, Rusnak did well, but he wanted to prove that he was the go-getter he made himself out to be when he was hired. So, he began placing multi-million-dollar bets on the yen rising against the dollar, only to watch the yen’s value nosedive — and his anxiety skyrocket. Rather than face humiliation and the discovery of the mounting losses, Rusnak requested more cash to increase the size of his trades, hoping to alleviate his deficit. His hopes dashed, he took advantage of Allfirst’s loose (almost nonexistent) internal controls to enter bogus option contracts into the system, giving the illusion that his trades were remunerative.

After five years, Allfirst’s powers that be realized how much capital the bank had tied up in the currency market and demanded that Rusnak release it to remedy the bank’s balance sheet’s skew toward the foreign exchange market. Runsnak’s smoke screen soon dissipated. The discovery that the requested capital was nonexistent and Rusnak’s cover-up of $691 million in losses led to his arrest. He was sentenced to seven-and-a-half years in prison, fined $1 million for concealment and required to pay restitution.

After serving his time, a former acquaintance gave Rusnak a job and later put him in charge of running his ZIPS Cleaners franchise. Now an advocate for second chances, Rusnak works with jail treatment centers and similar organizations to staff the growing franchise, helps juveniles find entry-level jobs and uses his “bad guy” past to mentor others on the consequences of making poor choices.

John Rusnak is just one example of bad guys who, following their expiation, do turn back, and even pursue liberation from their past and associated guilt. Another on the list of bad guys who did an about-face is Kevin Mitnick, who was convicted of hacking into Digital Equipment Corporation and Motorola, and now evaluates organizations’ internal controls.

Financial cover-up and financial gain are most often the impetus for good guys like Rusnak and Mitnick to become bad guys. Studies on white-collar crime have brought to light some mind sets that are common among such white-collar fraudsters. Here are a few examples:

  • The fraud is victimless. (The organization and its employees and shareholders are victims. Enron and WorldCom are epitomes.)
  • The benefits outweigh the costs. (For those who fail to consider the consequences of being caught, the opposite is true.)
  • The victim is at fault. (The fraudster blames the crime on the organization’s [victim’s] failure to implement strict controls; the fraudster’s lack of self-control and moral integrity are to blame.)

The intricacies and results of these studies are explored in detail in the ACFE’s new online self-study course, Criminology and the Psychology of Fraud. The course offers anti-fraud professionals insight into crime causation, how criminological theories explain and predict white-collar crime, psychological and organizational restraints as well as other revealing information to add to their toolbox of knowledge.