Consumer Alerts

Understanding White Collar Crime

Securities fraud costs investors hundreds of millions of dollars, cost many people their life savings, cost many people their jobs and careers, cost creditors hundreds of millions of dollars, and many people’s suffering that cannot be measured. Sam Antar, a former CPA and former Chief Financial Officer of Crazy Eddie, Inc., who in the 1980s, helped mastermind one of the largest securities frauds of its time was coined by US Attorney Michael Chertoff as, “the Darth Vader of Capitalism” now educates people about White Collar Crime.

On his website, www.whitecollarfraud.com, he has a great article about White Collar Crime. This may help people to understand why Bernie Madoff’s ponzi scheme was able to last as long as it did. It is also great advice in general, especially when it comes to shopping for financing and investing.

The following is from Sam Antar’s website and is used with his permission:

To understand how to stop white collar crime, key thoughts to remember are:

1.Competence cannot be legislated. However, competence can be learned. New reforms require stronger skills by the profession to be effective.

2. The criminal always has the initiative. To attack white collar crime, you have to prevent it from happening by creating barriers such as strong internal controls.

3. Criminals are judgment oriented in their approach to crime. Auditors are process oriented in their approach. Therefore, the criminal has the fundamental advantage over the auditor.

4. Unexamined acceptance is the auditor’s worst mistake in judgment and the fraudster’s greatest hope.

5. Critical thinking is an important skill. You cannot stop white collar crime or investigate it credibly with  a “check the boxes” approach. Auditors must be taught investigative skills.

6. Professional paranoia should be added to professional skepticism in all references in accounting and auditing training literature. Criminals fear skepticism, cynicism, and effective oversight.

7. Criminal fear people who have good questioning skills.

8. Auditors and law enforcement professionals should show outward respect but inwardly have none in the conduct of their work. It is also called being “poker faced.”

9. “Don’t trust, just verify” instead of “trust, but verify” should be the auditor’s mindset.

10. The word “trust” is a professional liability for accountants, auditors, and other anti-fraud professionals.

11. White collar crime is about the color green and is not “red” or “blue.” It really does not matter which political party is in power whether it be the Republicans or Democrats.

12. Most white collar criminals are likable people. They use their personality as a tool. White collar criminals use your humanity, personality, and good intentions against you as weaknesses to be exploited in the execution of their crimes.

13. Criminals are capable of doing good deeds while they are involved in executing their crimes. For example, many convicted felons were involved in charity work during the same period of time they were committing crimes. Good deeds in one area of life do not prevent a person from being a criminal in another area of their lives.

14. Criminals try to avoid accountability by showcasing their good deeds. Crimes cannot be excused and scrutiny stopped because of the good deeds people have done in other areas of their lives. White collar criminals often build a false wall of integrity around them by showcasing their good deeds while living a parallel life of crime.

15. Criminals are not stopped because of well meaning Codes of Ethics. Since they have no respect for the law and their victims, such Codes of Ethics have no effect on them.

16. White collar crime is a crime a persuasion and gentle and subtle intimidation.

17. White collar criminals are artful liars.

18. You can steal more with a smile than you can with a gun. You can steal more with a pencil or a keyboard than you can with a gun. Therefore, smiles, pencils, and key boards can be more dangerous than guns.

19. White collar crime inflicts collective harm on people and society and should be considered as brutal as violent crime.

About White Collar Crime and Criminals

A white collar criminal carries a lethal weapon that any “weapons or metal detector” at an airport or even our nation’s safest installations can prevent them from carrying. That weapon can be in many ways more lethal than a gun. The white collar criminal’s weapon is the intellect within his mind.

White collar criminals cannot be profiled, since according to most studies over 90% of them have no previous criminal records. Worst yet, the criminals who commit securities fraud and financial statement fraud almost never have previous criminal records.

White collar crime is a crime of persuasion. It is a crime committed with a smile rather than a gun. Many white collar criminals are likable people. They use their personality as a tool.

They use your humanity, personality, and good intentions against you. White collar criminals consider your good traits such as goodwill and trust as “weaknesses to be exploited” in the execution of their crimes.

Criminals are capable of doing good deeds while they are involved in their criminal acts. For example, many convicted felons were involved in charity work during the same period of time that they were committing their crimes. Good deeds in one area of their lives do not prevent a person from being a criminal in another area of their lives.

Criminals try to avoid accountability by showcasing their good deeds. Crimes cannot be excused and scrutiny stopped because of the good deeds people have done in other areas of their lives.

In fact, an important tool of a white collar criminal is your gratitude. White collar criminals hope that their “good deeds” will weaken your defenses, professional skepticism, objectivity, and inquiry into their actions. They hope that one day you may come to their aid and publicly defend them. White collar criminals build a wall of false integrity around them by showcasing their good deeds, while living a parallel life of crime.

White collar criminals commit crimes simply because “they can.” They commit their crimes simply because the incentive and opportunity is available to them.

The most effective way to reduce white collar crime is by prevention. We must create barriers such as strong internal controls. Such internal controls must be reviewed by competent, educated, skilled, experienced, and truly independent external auditors.

We need to move towards a more preemptive approach to white collar crime. We cannot hope to significantly prevent or reduce white collar crime by relying on the threat of long prison terms for convicted felons.

The auditor and fraud professional’s biggest mistake is “unexamined acceptance.” No information received during the conduct of their work from any source (human, documentary, and otherwise) can be taken for granted as having truthfulness and integrity without critical analysis.

I took full advantage of Crazy Eddie’s auditor’s failure to investigate information without critical analysis. In fact, an auditor’s lack of questioning skills is frequently cited in fraud literature as a major factor in failed audits. Most accountants and fraud professionals are never trained in interviewing skills. They do not know how to ask questions, whom to ask questions the proper questions, how to formulate proper follow up questions, and are often too quick to accept false and misleading answers.

Accounting and auditing students need to be trained in the skill of “critical thinking.” In fact, certain colleges have courses just on that subject. Maybe a new course approach can be geared toward auditing and fraud investigation. Auditors and fraud professionals must have “professional paranoia” and adopt a no-nonsense “don’t trust, just verify” approach to their work. They must be hard-nosed and cannot be intimidated by the environments around them both from their front and rear. Intimidation can masked with the smile of so-called cooperation.

The Mindset of a Fraudster

As a criminal, I used every tool I knew to gain my objectives. I took advantage of people’s weaknesses, niceties, prejudices, etc., in any way I could. I could be any person I had to be as the situation warranted. I was, simply stated, an “economic predator.”

Joseph T. Wells former Chairman of the Association of Certified Fraud Examiners once wrote in the Journal of Accountancythat Crazy Eddie’s auditors were, “…just too trusting. After all, no one wants to think the client is a crook. But it happens too often. That’s why the profession requires the auditor to be skeptical.”

As a criminal, I exploited people’s initial inclination to trust me. I played any role I could to gain that person’s confidence. For example, if I needed to be politically correct, than I could be politically correct. If I needed to be politically incorrect, than I could be politically incorrect. I could play any role to take advantage of any individual to further my aims.

White collar criminals build a wall of false integrity around them to mask their true criminality. Some criminals spend great amounts of money on charity and associating with people of high integrity, hoping to build a wall of integrity and legitimacy around them. Recipients of the criminal’s deceitful largess are conned into making public proclamations and private favorable references before, during, and after the criminality of the person is exposed.

How many so-called upstanding citizens do we read about or see on television everyday that are indicted and convicted of crimes and still have their supporters in the community? You can steal more with a smile than you can with a gun.

These supporters will still cling to the person’s innocence, rationalize their guilt, and sometimes even claim that such crimes were mitigated because of the so-called “good deeds” the felon dolled out while committing crimes. White collar criminals carefully distribute the fruits of their crimes in the form of charity in order to build a wall of false integrity. Just ask sentencing judges how many letters they receive prior to sentencing an individual. You can steal more with a smile than you can with a gun. White collar criminals use your gratitude to weaken your skepticism and required cynicism.

Finding the truth is the auditor and fraud professional’s only objective. As a former criminal, outwardly showed respect to my victims and those monitoring and auditing me but inwardly had none. Likewise, the auditor and antifraud professional in pursuing their work should outwardly show respect but inwardly cannot have any respect for any person while pursuing an audit or fraud. One of Crazy Eddie’s auditor’s failure to investigate information without critical analysis. In fact, an auditor’s lack of questioning skills is frequently cited in fraud literature as a major factor in failed audits. Most accountants and fraud professionals are never trained in interviewing skills. They do not know how to ask questions, whom to ask questions the proper questions, how to formulate proper follow up questions, and are often too quick to accept false and misleading answers.

White Collar Crime is a Crime a Persuasion and Gentle and Subtle Intimidation

As a criminal, I used the human element of bonding to prevent critical analysis of my actions. I would use charm as a tool to make our auditors feel guilty about asking critical questions. I hoped that our auditors would be afraid, intimidated, or feel guilty rather than ask proper questions and pursue leads.

One technique that we used during audits was to “bond” to the audit staff by frequently taking them out to lunch and engaging them in conversation in order to distract them from their work. By unknowingly wasting time, they would be pressured in the final days of the audit to finish their work quickly and thereby be prone to make serious errors without being able to blame Crazy Eddie staff for obstructing them.

In addition, we were very generous in doling out consulting agreements to our audit firms. In many years, consulting fees paid to our auditors exceeded our audit fees by an excess of six to ten times. We use your gratitude against you.

A Question for You

Remember the term “unexamined acceptance.” You may even question the sincerity of my apologies and intentions in publishing this website. What are my real intentions by making uncompensated and unreimbursed speaking appearances? Can it be that I am just trying to gain respectability by building a wall of false integrity for my next criminal scheme? It is very easy for a convicted felon to falsely claim remorse for their crimes and apologize for their criminal actions.

The assumption of good intentions is professional hazard to any CPA, auditor, law enforcement officer, and anti-fraud professional. In my fraud presentations, I inform people to never assume my good intentions or that I am a “boy scout.” You should never assume that anyone has good intentions. Criminals hope you do.

What I am saying may scare some people and hopefully it raises everyone’s alert level. Our future auditors and anti-fraud professionals cannot afford the luxury of assuming any person’s good intentions, even mine now.

All I ask is that you please analyze the logic of my recommendations and intelligently consider them. I do not ask you to “trust” me. Do your own assessment of the integrity of my advice based on your assessment of the facts. Do our accounting and auditing students, who will be our future white collar fraud professionals, receive this kind of education and exposure in their college curriculums? Whose careers get ruined on an audit gone sour?

What is the ultimate cost to all of us in terms of life savings lost, jobs lost, creditors not paid, destruction of our economy, and lost integrity of the free market system? Remember the concept of “don’t trust, just verify.”

If you are thinking now, then I have begun to succeed.