Fraud and Corruption

Corruption is defined as “the misuse of power to obtain an unlawful advantage” (Hetzer, 2012, p. 228). Corruption can be found in all sectors of a society, including government agencies, businesses, corporations, educational institutions, medical institutions, professional groups, such as doctors and lawyers, religious organizations, and private citizens. Corruption can be manifested in many ways, including bribery, extortion, intimidation, kickbacks, theft, and other forms. Some criminals, such as leaders of organized criminal groups, depend on corrupting government officials, business leaders, or bankers to facilitate their criminal activities related to drug and human trafficking, prostitution smuggling, money laundering, and other crimes.

Hetzer, (2012, p. 228) states, “In principle, corruption is a situation in which a person who is responsible for performing certain duties pursues improper or unfair advantage for performing certain duties, or pursues improper or unfair advantage for actions or omissions in the performance of those duties.”

As with corruption, fraud can be carried out in a variety of ways, including social security and insurance fraud, home repair fraud, financial frauds, and other types. The victims of fraud can be individuals, organizations, businesses, or government agencies. Frauds committed by large organizations can result in the loss of hundreds of millions of dollars, as in a fraud pertaining to a housing development, or in the loss of a few dollars, such as when a street merchant sells defective pieces of jewelry.

Having had many years of practical police work experience as well as experience in the theory of crime and its causation while teaching at different institutions about deviant behavior of all kinds, especially with violent crime, theft, corruption, organized crime, white-collar crime, financial crime, money laundering, and fraud, the conclusions from all these experiences made it clear that there exists an intensive relationship between corruption, terrorism, and organized crime.

Research outcomes and practical experience dealing with issues of crime show that there is a close relationship between corruption, terrorism, organized crime, and white-collar crime. In this chapter the link and nexus between corruption, organized crime, white-collar crime, and fraud and the shadow economy are highlighted with examples and statistical data. Although the relationship between terrorism and corruption is not a major focus of the chapter, the connection is considered in the context of explaining a major type of crime such as money laundering.

The author draws on his many years of experience as head of the major crimes bureau in Austria as a police chief in one of the most crime prone districts of Vienna to provide an in-depth account of the importance of prevention corruption and fraud in order to achieve the goals of the society. As a specialist in combatting organized crime, he soon learned that organized criminal groups must be successful in corrupting officials and people in power positions to be successful in their transnational criminal activities such as trafficking of humans, weapons, drugs, stolen art, and other criminal acts. To reach their goals those engaged in criminal activities have developed and used numerous technical and communicative devices. It appears as if in the present society, one can buy anything if the price is right.

Theory and research on crime in the public sector are concerned with financial crime in general and white-collar crime in particular. In this chapter, convenience theory is an umbrella theory for a number of well-known perspectives on white-collar crime. Convenience theory consists of three dimensions. First, there is the economical dimension where we find desire for profits to avoid threats and exploit possibilities. Next, there is the organizational dimension where opportunities occur both to commit offenses and to conceal offences. Finally in the behavioral dimension, privileged individuals short of self-control apply neutralization techniques to accept own personal deviant behavior.

Corruption – “grand” or “gray” – is an international problem, and government is a high-risk domain. Research in the field has tended to focus on the more serious and damaging area of grand corruption, including clearly illegal acts such as bribery and embezzlement. However, there is also a growing body of research concerned with more minor and ambiguous areas of alleged misconduct – or “gray” corruption. These include gifts and benefits, misuse of entitlements, influence peddling through donations, excessive and wasteful expenditures, lies and false promises, cronyism, nepotism, and sinecures. Government in Australia presents as an instructive case of scandal and controversy in these areas, with a record of partial and unsatisfactory attempts to manage the challenge. A crisis point was reached during the recent Abbott-led federal government (September 2013 to September 2015), although the problem reached back to previous federal governments and crossed over into state and local government. The issues coalesced around the federal “expenses scandal” of 2014/2015, leading to a major review of parliamentarians’ entitlements, released in 2016. The present paper reviews these issues, drawing primarily on media accounts, focusing on the period of the Abbott government and the aftermath of the entitlements inquiry up to mid-2017. The chapter highlights key lessons for corruption prevention beyond Australia, including the need for much tighter rules and much better enforcement to ensure comprehensive integrity in government.

On March 11, 2011, an earthquake occurred in East Japan, and many people suffered extensive damage. Immediately after the earthquake, tsunami, and a nuclear accident, no rioting or plundering were witnessed. Soon after these disasters, however, some people began to commit fraud. In this chapter I analyze the phenomena of fraud and fraudulent business practices in chronical order through the use of articles by Asahi Shimbun, one of three major Japanese newspapers covering all over Japan. In addition, the fraud by Boryokudan (a group of Japanese gangsters) and remittance fraud by swindlers against the elderly are analyzed. Last, fraudulent business practices and scandals of bid rigging are explained, through which we can estimate the spread of corporate crime in Japan.

There are numerous opportunities to commit fraud and corruption in government entitlement programs in the United States such as Medicare, social security, and unemployment benefit programs because of the complexity of these programs. State, federal, and local government agencies and private service agencies are involved in the administration and operations of the various programs. The oversight of the programs, in terms of having the mechanisms to detect fraud and corruption, is not always extensive enough to prevent the crimes committed by both the suppliers of the services and those who are the recipients of the benefits. In this chapter, fraud and corruption in the healthcare industry, in social security programs, and in government -sponsored programs pertaining to employment and unemployment are explored. The fraudulent activities of individuals receiving benefits, professionals, including doctors and pharmacists, suppliers of medical equipment and artificial body parts, government officials, as well as organized crime groups are explored. The strategies, programs, and techniques that are used by government law enforcement agencies and private investigative agencies to detect and prevent fraud in healthcare and related entitlement programs are described in the chapter.

In democratic society the police are part of the executive branch. As such, the police are checked and balanced in their power by the judicial and legislative branches. While this helps to minimize corruption, we find that corruption not only exists but morphs to deal with any control mechanisms. We demonstrate this through the New York City Police Department. Tracing this department’s history with corruption exemplifies the issues that law enforcement agencies in free society must deal with. Typical acts of corruption, whistleblowers, the police culture, and what can be done about corrupt activity will all be discussed in this chapter. Ultimately, corruption must be controlled for democratic institutions to properly function.

An examination of the response to major natural and man-made catastrophic events in the past reveals numerous examples of heroic deeds during and after the disaster, as well as many example of peoples from all walks of life providing assistance to the victims of the catastrophic events. However, one sees many examples of an opposite reaction, that is, either one of not being concerned and thus not becoming involved in any way or worse, using the event to enhance their self-interests. Those who have the power to make decisions relating to the disaster generally will have an opportunity to engage in corruption, fraud, and theft. For example, the “black market” and corruption have always flourished during wartime, during times when a country is in the midst of an economic depression and during the periods when a country’ s government has made a dramatic change. Corruption and fraud often become a major problem after a community experiences a hurricane, flood, tornado, or man-made disaster such as a terrorist attack or oil spill.

In this chapter, the predominant perpetrators of crimes such as fraud, theft, and corruption are examined, as well as the factors that enable the perpetrators to commit their crimes during and after catastrophic events. In addition, the strategies used by the government and private agencies to combat fraud and corruption during these disruptions to the normal routine of the community are considered. Major catastrophic events, both man-made and natural, that occurred in the United States are used to illustrate how both public and private agencies, as well as individuals, engage in corruption and fraud during these happenings.

Insurance fraud, while not a new problem, has recently taken on gigantic steps to becoming a leading crime problem through the world. In this chapter, the basic underlying principles of insurance are presented as well as some of the underlying reasons for the prevalence of insurance fraud in today’s society.

Insurance fraud differs from most other crimes in that the perpetrators of fraud often do not consider their acts as being criminal. The psychological motivations for taking on this attitude are presented in the chapter.

The dimensions of the insurance business in Austria, the types of insurance fraud committed by the offenders and the dimensions of insurance fraud in Austria are considered in the chapter. In addition the response of private and public investigators to violators, including the methods used to detect fraud in the insurance industry and the strategies used in the investigation and prosecution of fraudsters, is covered in the chapter. In addition, the importance of the co-operative efforts of the private investigators and the public justice agencies is considered.

The citizenry must have the motivation to change the disproportionate influence of the top layers of government by efforts to increase the influence of the civil society. This change will be resisted in any society where there is considerable corruption, since those in power will resist any change through which they will lose their power.

Theories relating to the reasons why corruption exists in many governments of developing countries and the reasons why attempts to prevent or reduce the amount of corruption in developing countries often fail are grounded in two models. The principal-agent model emphasizes the relationship between the leaders of government and those who administrate government operations. In this model, the principals (leaders in government) turn over the tasks of administration to the agents (administrators of government programs) who tend to serve their own interests rather than the interests of the agent. Given the fact that the governments of developing countries do not have the resources to monitor the agents, these agents have the opportunities to misuse their power and pursue self-interests, above the interests of the state.

The patron-client model implies that the patron enjoys access to state-created resources, property rights, and other benefits. The clients gain their access to such state-related resources through their relationship with the patron. A thesis that the patron-client model of corruption is a better explanation of corruption in developing countries than the principal-agent model is developed in the chapter.

In the chapter, an analysis of the questions regarding the missing of political will in combating corruption in developing countries is presented. The prevention of corruption in the governments of developing countries must address the corruption of the institutions identified by the citizenry as being the most corrupt. These are political parties, the police, and the judicial system.

The reasons why citizens tolerate corruption in government and public service institutions are many, including fear, the belief that nothing can be done to change the system, and, for some, self-interest, since they benefit from the corruption. Transparency International and many other nongovernment organizations have had some success in exposing the corruption of government officials and helping the justice agencies bring the corrupt officials to justice.

While being like any other investigation concerned with the past, investigating white-collar crime has its specific aspects and challenges. For example, while street criminals typically hide themselves, white-collar criminals only hide their crime. Often when suspicions of white-collar crime occur, business and government organizations hire fraud examiners to conduct internal investigations. Their findings are typically documented in reports of investigations. In this chapter, we stress the importance of the client evaluating investigation work upon receipt of an investigation report. Evaluation is a systematic study of work done or work in progress. Evaluation is an objective assessment of activities. Evaluation implies assessing or estimating the value of something. Evaluation involves analyzing to determine if the investigation did what it was intended to do and if the investigation had expected impact.

Endemic corruption has been a destructive legacy of the communist rule inherited by most successor states of the Soviet Union. While some post-Soviet states have managed to significantly reduce corruption, others are still among the worst performing countries. Armenia is one of them. Corruption is one of the defining characteristics of Armenian politics described by strong patronage client networks, by a lack of separation between private business and public office, as well as by the overlap between political and business elites. The judiciary and the police considered as crucial actors to combat corruption are themselves plagued by it. All of these undermine the successful implementation of anti-corruption efforts. As Armenia is doing poorly on the legal framework of an anti-corruption agenda, the application of legislative measures and rules is of particular importance in order to strengthen the legal and regulatory regimes to fight corruption in the country. The lack of political will to combat corruption is another main obstacle to overcome. The chapter explores the extent and effect of corruption in Armenia with a primary focus on political corruption and the role of civil society in combating it. Another crucial part of the chapter focuses on the United Nations Convention against Corruption which signifies the role of civil society in the anti-corruption measures. At first glance, Armenia has made some progress by taking the very first steps in order to harmonize domestic legislation in compliance with the provisions of the Convention. However, Armenia has not adopted many of the legislative and other measures mentioned in it which are essential for successful prevention and fight against corruption. Thus, the second part of the chapter reflects on the implementation of the convention in the country, reveals existing gaps, and develops recommendations for Armenia’s enforcement of some articles of the convention which are particularly important for crippling political corruption. It also offers some recommendations on how to make civil society’s engagement in the fight against corruption more active in the Armenian context and within the Convention in particular.

Corruption has existed ever since antiquity as one of the worst and, at the same time, most widespread forms of behavior which is inimical to the administration of public affairs when indulged in by public officials and elected representatives. In the last hundred years, it has come to encompass behavior within the purely private domain.

Gilinskiy (Crime and deviance: Russian survey. Baltic University of Ecology, Politics and Law, St. Petersburg, 2009), a prominent professor of sociology and criminology and professor of the Saint Petersburg Judicial Institute, contends that, while definitions of corruption vary, making it difficult to select one that is appropriate for all situations, there is no disagreement that some corruption permeates all of the sectors of a country, including all levels of government, public service agencies, the business enterprise, educational institutions, and other private organizations. The same conclusion was reached by William J. Chambliss in his research titled “On the Take” (Chambliss, On the take: From petty crooks to presidents. Indiana University Press, Bloomington, IN, 1988).

In this chapter, the predominant types of corruption are identified and the ways corruption is manifested are identified. In addition, the sociological foundations of corruption are analyzed in the context of the cultural traditions of a country in which the corruption is manifested. The changes in the methods used by those who instigate corruption and fraud are considered, with particular focus on the Internet, as well as the methods used by government and private agencies to prevent corruption and fraud.