25 April 2007

White Collar Crime: Enduring Truth...

In the 19th century a famous sleuth by the name of Al Pinkerton was quoted:

"A professional should possess the qualifications of prudence, secrecy, inventiveness, persistency, personal courage, and above all, honesty."

Inside the walls of global enterprises are the ticking time bombs waiting for the next opportunity to rationalize their malicious acts upon the organization. Individuals with advanced degrees, outstanding performance and continuous community service are operating just like Al Pinkerton has described, with one exception. Honesty.

White collar criminals are taking the corporate beaches by storm. Backdating once a common practice has now more than 100 companies under investigation. Yet, good old fashioned theft of corporate assets is running at an all time high and internal fraud is now with more tips and leaks a much more easy crime to detect, prosecute and punish. Why do so many companies look the other way and just fire an employee when company wrong doing is uncovered? Reputation.

The phrase "white-collar crime" was coined in 1939 during a speech given by Edwin Sutherland to the American Sociological Society. Sutherland defined the term as "crime committed by a person of respectability and high social status in the course of his occupation." Although there has been some debate as to what qualifies as a white-collar crime, the term today generally encompasses a variety of nonviolent crimes usually committed in commercial situations for financial gain. Many white-collar crimes are especially difficult to prosecute because the perpetrators are sophisticated criminals who have attempted to conceal their activities through a series of complex transactions.

The most common white-collar offenses include: antitrust violations, computer and internet fraud, credit card fraud, phone and telemarketing fraud, bankruptcy fraud, healthcare fraud, environmental law violations, insurance fraud, mail fraud, government fraud, tax evasion, financial fraud, securities fraud, insider trading, bribery, kickbacks, counterfeiting, public corruption, money laundering,embezzlement, economic espionage and trade secret theft. According to the federal bureau of investigation, white-collar crime is estimated to cost the United States more than $300 billion annually.

A true Operational Risk Management professional has to operate as Al Pinkerton described and with even more capabilities than in his day. They have competencies and subject matter expertise to address:

  • Identification
  • Assessment
  • Design
  • Implementation
  • Audit
  • Supervision
You have to ID the corporate assets to protect and the threats to those assets. You then have to determine the likelihood of occurrence. What are the impact to organization from a loss? One must also have knowledge and expertise in accounting, auditing, interviewing, investigation, legal elements, digital forensics, reporting, testifying and communicating. Not only does the OPS Risk professional today require honesty, it also requires much more.

Hiring good people is the constant headache of every manager in every industry in every part of the world, and bankers have probably complained about the situation the loudest. But if a bank makes a bad hire, the pain will only be felt years later when it comes out in the newspapers that both the employee and several million dollars have gone missing.

The situation should be avoidable, but the fact is that nobody can really know who it is that they are hiring. Consider the case of one senior banker, who was ready to hire a new personal assistant. Besides being the best candidate for the job, he had once known the applicant when he had worked at her previous company. Through a chance meeting with one of his old co-workers at that bank, he found out that his applicant had been fired for embezzlement, although the information had not been made public.

Actual levels of internal fraud across the industry are a closely guarded secret, although each banker will have a good idea how much it costs his or her own bank. While it is commonly agreed that the cost of internal fraud greatly exceeds that lost on credit card and other fraud, expensive systems required by regulators to manage fraud throw a monkey wrench into the works.

Whether you are in search of the facts or are rendering an opinion, the way you operate and behave within your organization and in front of those individuals you are in pursuit of, remains the same. You are a "Citizen Soldier". This means that you are not influenced by the politics nor the power of those who may try to pursuade you to see it their way. You see it as it is and your mission is to uncover the real truth and only the truth. Reputations are at stake. Lives will be changed forever. But the truth will endure.

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