A matter of ethics: understanding the mind of a white-collar criminal.

AuthorMarks, Jonathan T.

In one of his early short stories, F. Scott I Fitzgerald famously wrote: "Let me tell you about the very rich. They are different from you and me." Years later, when he recounted the line in a short story of his own, Ernest Hemingway added the equally famous reply, "Yes, they have more money."

Hemingway's retort playfully ig-nored Fitzgerald's point, which was that the wealthy tycoons of the Jazz Age viewed the world in a way that was fundamentally different from their contemporaries' view.

Today, a similar point can be made about another group of individuals who are much more sinister and even less understood: white-collar criminals. It's not that they simply have (or want) more money - they actually think in ways that differ from their more trustworthy peers.

All too often, boards and manage-ment fail to grasp this fundamentally different world view as they carry out anti-fraud efforts. Most board members and executives do not think as fraudsters do - which is a good thing, of course. Unfortunately, this can also make it difficult for them to develop controls that reduce their organizations' exposure to fraud risk.

The challenge has been summed up succinctly by Sam Antar, onetime chief financial officer for the electronics chain Crazy Eddie, who was convicted of fraud and served time in prison in the 1980s. Today, he lectures regularly to the government, law enforcement, corporate groups and students about how to prevent white-collar fraud, Antar often points out, "My normal at Crazy Eddie was not your normal."

By understanding how a fraudster's normal differs from theirs, executives, managers and board members can develop more effective anti-fraud programs that take into account the behavioral and environmental factors that are common in cases of white-collar crime.

Behavioral Elements of White-Collar Crime

What type of person commits fraud on a large scale? By taking a closer look at executives who perpetrated massive fraud at corporations like Enron Corp. and Worldcom Inc., it is possible to identify a pattern of behavioral elements that are common to white-collar criminals. They include:

Lack of a Moral Compass. All organizations rely to some extent on individuals' moral compasses to guide behavior in the workplace. Moreover, as much a! corporations would like to maintain a separation between the personal and professional lives of their employees, th two are linked when it comes to ethical behavior. A pattern of questionable personal lifestyle choices - in areas such as spending or salacious conduct, for example - can indicate an individual's lack of moral compass.

Troubling Friends, Family and Relationships. To help them in their crimes, fraudsters often look for people who share the same social background or ambitions or who are gullible and easily manipulated. In his 2005 book, Sarbanes-Oxley and the Board of Directors: Techniques and Best Practices for Corporate Governance, Scott Green notes: "Those who are wil ing to commit fraud recruit from the co porate employee pool weak or needy personalities, and go to lengths to reward and protect them."

* Deception. Deception and cover-up are the hallmarks of white-collar crime. A 2010 working paper by the Rock Center for Corporate Governance at Stanford University found that the lan-guage used by executives often contains clues to deception. Researchers studied the words of...

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