In October 2003, Jamie Cardinal opened an account at a bank in Fort Macleod, Alberta. Two days later, Cardinal deposited a cheque into this account at the Calgary branch of the same bank. A second and a third cheque was deposited at two other branches of the bank into the same account. Two days after making his last deposit, Cardinal attempted to make a number of cash withdrawals from his account but was unable to do so. He tried again the next day but was again frustrated.
By the end of the week, Cardinal was calling the bank manager, asking why he could not access his funds and when they would be available. The manager explained that, because the cheques were from out of province, it would take a few days before the funds would be released. Cardinal told the manager that he would call him back in a few days. The manager never heard from Cardinal again. When the cheques were examined at the bank, it was discovered that they were all drawn on a company account that had its headquarters in Oshawa, Ontario. However, a closer examination of the cheques revealed more. The cheques that Cardinal deposited were “bleached” cheques and Cardinal’s name had been inserted in place of the original name. In addition to this, the amounts of the cheques had been altered.
Surveillance photographs of Cardinal making these deposits at the bank, and fingerprint examination of the cheques, all linked Cardinal to this offence. He was subsequently charged with fraud under $5,000, under Section 380(b) of the Criminal Code of Canada.
Paula was an employee of the Real Canadian Superstore in Calgary, Alberta. She would use the stand-alone bank machine, located in the foyer of the store, to withdraw cash after work. After Christmas, Paula noticed there were several cash withdrawals that she did not make. She contacted the police and claimed that someone had stolen her debit card and had taken money from her account. She did not know how this could have happened to her. In Paula’s opinion, if her bank card had been stolen and used, the bank should reimburse her for the stolen money.
In the course of their investigation, the police interviewed Paula and other employees at the Superstore. The police learned that Paula had a habit of using the bank machine without taking any precautions about hiding her Personal Identification Number (PIN) from other employees. Paula was also in the habit of leaving her card on a desk in the employee common room. This provided anyone who worked for the Superstore free access to Paula’s card without her knowledge.
Paula told the police that she was under the impression that the bank machine, and all bank machines, contained video surveillance cameras and the police could easily catch the culprit. The police explained to Paula that few ATMs have cameras. Without sufficient evidence to proceed with their investigation, the police informed Paula that there was nothing they could do for her. Paula resigned herself to the fact that her money was gone and that the bank would not compensate her for the loss.
WHAT IS FRAUD ANYWAY?
The crime of fraud is defined under the Criminal Code of Canada Section 380. The section reads: 380(1) Everyone who, by deceit, falsehood or other fraudulent means, whether or not it is a false pretence within the meaning of this Act, defrauds the public or any person, whether ascertained or not, of any property, money, or valuable security or any service,
(a) is guilty of an indictable offence and liable to a term of imprisonment not exceeding ten years, where the subject-matter of the offence is a testamentary instrument or the value of the subject matter of the offence exceeds five thousand dollars; or
(b) is guilty
(i) of an indictable offence and is liable to imprisonment for a term not exceeding two years, or
(ii) of an offence punishable on summary conviction,
Where the value of the subject-matter of the offence does not exceed five thousand dollars.1
But what does this mean to the average person? We have all had an experience that, to our minds, was definitely some sort of fraud. How does the above definition differ from what we know to be a fraud?
Fraud is an act of theft committed under special circumstances. Those circumstances are generally considered to be:
1. the person/victim was willing to part with the money, item, or service;
2. the fraudster used some form of deceit or trickery to obtain the money, item, or service; and
3. the person suffered some form of loss as a result of the trickery.
Fraud can be defined in more simple terms as “deprivation through deception,” where the deprivation is the loss of the money, item, or service, and the deception is the trickery.
The problem with investigating and determining claims of a fraudulent act is that they frequently tend to straddle the borderline between a civil matter and a criminal act. To complicate this further, victims are often confused about what they consider a moral obligation and a criminal act. Because of this confusion, it may be worthwhile taking a moment to differentiate between a criminal matter and a civil matter.
Civil matters involve some form of agreement between at least two parties, such as the writing of a cheque. A cheque can be described as a contract whereby one person is saying, “I have sufficient money to purchase your item,” and the other person states that he is willing to sell that item for that agreed amount.
If the cheque cannot be negotiated, or “bounces” for some reason, such as non-sufficient funds (NSF) in the account, the person who wrote the cheque has technically committed a crime. However, if it was a simple matter of poor bookkeeping that caused an overdraft to the person’s account, a fraud was not necessarily committed. In legal terms, there was no mens rea, meaning guilty mind, or intent to commit fraud upon the person who obtained the cheque. If, however, there was no money in the account, or there had never been sufficient money in the account, and the person writing the cheque knew there was no money or insufficient funds in the account, then that person has knowingly committed fraud. In this case, the person deliberately deceived the other party by implying that he had sufficient means to cover the amount of the cheque.
Moral obligations are more difficult to define because we each have our own views and beliefs on what we consider moral behaviour. Imagine you’ve contracted someone to repair your roof. You agree on a price and the money is paid for the repair. However, you do not establish with the contractor what quality of materials will be used, the standard to which the job will be done, or whether the job is guaranteed. You expect that the person you contracted to do the job will do the best job possible, just like you would.
After two months, and after the first rain, the roof leaks. When you call the contractor, he tells you he did the best he could. He can account for all of the money spent and the time he took doing the job. You demand that he fix the leak, but he tells you that he is too busy and the job is only guaranteed for thirty days, whether or not it rains in that time period.
Has the contractor committed a fraud or criminal act? No, he has not. All of the material and time has been accounted for and spent on the repair. Morally, should he repair the leak? Most of us would say so. Legally, can the contractor be forced to repair the leak? The civil courts would have to decide.
Often issues of fraud become confused because of the terminology used by the parties involved. Fraud victims will claim that they loaned the fraudster the money and now he won’t pay it back, or that the money was to help the fraudster out by paying his rent but instead he bought alcohol or drugs with the money. These types of circumstances generally fall into the realm of civil matters. The victim has issued credit to the individual, and now must seek a civil remedy, such as small claims court, cashiering, or taking part of their wages to regain their money.
The Criminal Code of Canada section on fraud also refers to a “false pretence.” A false pretence is a statement by the fraudster of a fact that is known by the person to be false or untrue. The purpose of the false statement is to cause the victim to act upon the information as if it were true. The false statement goes beyond simple exaggeration. The “statement” can be made by words, either verbally or in writing, or by deeds or actions, such as presenting a counterfeit document. We will look at some cases where the fraudster makes these statements and causes the victim to act upon these statements.
THE PSYCHOLOGY OF FRAUDSTERS AND VICTIMS
Too often fraud victims are dismissed as greedy, naïve, or just plain stupid and deserving of what they got. In some instances, this may be very true, but it is not necessarily the case for the majority of fraud victims.
Traditionally, we view ourselves as rational, logical individuals. We analyze the situation, weigh the risks against the potential benefits, and make our choices. Social psychologists, such as Carol Tavris and Elliot Aronson, believe that all of us have certain prejudices and biases programmed or “hard-wired” into our subconscious that justify our beliefs and perceptions and, at times, override our logic and judgment. In their book, Mistakes Were Made (But Not By Me), Carol Tavris and Elliot Aronson state that the brain has “blind spots” that cause us to rely upon introspection to tell us how we think and feel about ourselves and our decisions. These blind spots then allow us to justify the decisions we make based upon those beliefs.2
One of these biases is how each of us perceives ourselves in comparison to others. Generally, human beings have an inflated opinion of themselves. We believe that we are smarter, better looking, and more desirable than the people around us. How often have you looked at a couple and thought, “What does she see in him?” or “I have more to offer than she does.” How often at work have you thought, “Without me this place would just fall apart?”
This kind of bias is a necessary part of our psychological makeup. It provides us with the confidence in our own being to try new things, to stand on our own two feet, to survive, to walk tall, and to make a difference in the world. It can also lead to overconfidence in our abilities and cause us to make incorrect decisions.
We also have the predisposition to believe what we hear, regardless of the circumstances in which we heard it. Urban legends are often considered true, even when they have been disproved. One such example of an urban legend is that of a celebrity rewarding a passing motorist for changing a flat tire or repairing their broken-down limousine. The story usually says that a motorist notices a limo stopped on the side of the road, often at night, with some form of mechanical trouble. The passing motorist stops and changes the tire or fixes a broken fan belt without realizing who the unfortunate celebrity is. Afterwards, the Good Samaritan learns that the stranded limo belonged to Bill Gates or Donald Trump, or some other rich celebrity, and the motorist was rewarded for his good deed by having his mortgage paid off.
On the surface, this story sounds like it could happen. However, when the circumstances are examined, the story falls apart. Stopping to help someone could certainly result in a reward, but paying off someone’s mortgage may be a little extravagant. One might also ask why the limo driver didn’t change the tire or why the celebrity didn’t call for roadside assistance.
This windfall myth speaks directly to our belief that no good deed should go unrewarded. It also emphasizes the belief that sometimes you just have to be in the right place at the right time.
Phrases that begin with the preface such as “They say…,” “I heard once…,” or “I read somewhere …” tend to take on a life of their own. These sayings become part of our daily speech and become established in our minds, sometimes overriding our logic and better judgment. How many of us have heard somewhere or used the axioms, “They say we all have a twin somewhere,” or “I read somewhere that no two snowflakes are identical.” Although none of us can say when or where we first heard this “undisputed” fact, it appears to make sense: therefore, we know that it’s true.
Another adage, “A little bit of knowledge can be a dangerous thing,” also holds true with regard to fraudulent situations.3 When a person hears of various fraud schemes on the news, it gives them a false sense of bravado that again may overcome their judgment. They believe that by simply hearing of a scheme and by being alerted to the possibility that these fraudsters are out there, they now have the necessary knowledge to avoid becoming a victim.
Short news clips and exposés can only provide a sketch of a scheme and the victims it impacts. However, the viewer believes they have gained more information than they really have. By subconsciously believing that, “I have seen this on television. You can’t fool me, I know all of your tricks,” victims set themselves up for failure.
Other victims believe that they don’t need to pay for expertise; for example, in buying and selling stocks, they think they can do it just as well as anyone. Too many people believe that they have more knowledge and experience than they really have. It is these inherent traits that fraudsters use against us to carry out their schemes.
GENERAL TRAITS OF FRAUDSTERS
When we compare fraudsters, or white-collar criminals, to others who commit property crimes such as theft, robbery, and break and enters, there are several traits that separate them from their criminal colleagues. Although not always present, the following traits are often common to all frauds, whether the fraud is committed in a business setting or targets a mass market:
Fraudsters are often considerably older than regular property offenders, tending towards middle age. In business, they have reached a position within a company that allows them to carry out their fraud. When committing frauds on their own or as part of a group or team, they have often developed skills that will assist them in carrying out their deceptions.
Unlike property offenders, most fraudsters are not interested in the adrenalin rush or thrill of the chase by the police and law enforcement, especially when it involves physical effort. They are content to take a less strenuous or less physical approach to crime.
A higher proportion of fraudsters are female, for several reasons. Traditionally women have occupied the positions within a company that see them dealing with such matters as accounts payable, accounts receivable, and other clerical roles. This provides them with more opportunity to commit fraud by virtue of their access to accounts, records, and cheques. Additionally, women are in a higher proportion of positions in the retail and service industries, such as restaurants and lounges, where opportunities to access credit card information are higher. These occupational roles and types of fraud account for the higher proportion of female fraudsters.
In conjunction with being older than property offenders, most fraudsters have more education than other criminals. They have at least some college education, which allowed them to obtain employment with the company in the first place.
These fraudsters also have higher intelligence quotients than other criminals, which allow them to think in the abstract and to develop schemes. They know how to operate technology with a confidence that fools others into believing that their motives are legitimate. “Spoofed” websites and the use of publishing programs to create apparent legitimate documents are just two examples of a kfraudster’s ability.
White-collar criminals tend to come from happier families than their criminal counterparts do. They are not generally victims of child abuse and do not come from poorer neighbourhoods. This socio-economic condition also carries through to their present circumstance, where the fraudster is often married, has a home and children, and is apparently successful both financially and socially.
From an investigative point of view, fraudsters’ criminal records are generally shorter than those of other criminals. Their records will often start only a few months or years prior to being exposed in their latest venture.
In addition to having a shorter criminal record, their records will often show that several charges would have been withdrawn or minimum sentences such as probation, restitution, or conditional discharges were imposed. These minimum sentences often allow the criminal to work under the radar of law enforcement and stalk their victims.
The portrait of a fraudster, then, is that of a successful individual with high self-esteem and motivation. He or she is often kind, generous, and sociable, and comes across socially as an achiever and a doer, with a strong sense of family harmony. The fraudster also exhibits characteristics of self-sufficiency, self-control, and optimism that make him or her likeable and someone that others want to be associated with.
Although this portrait paints an individual that otherwise can be admired, the fraudster is still a criminal and a parasite, preying on the generosity and honesty of others. Their main raison d’être is to take from others in order to benefit only themselves.