Fraud and Corruption: Evolution Laws and Compliance

Fraud & Corruption – what compliance professionals must understand is that where fraud is concerned “History repeats itself”. That is to say that if one looks to the past, one will see the same forms of corruption that happen today. This is the point where prevention best starts. Modern fraud methods may seem new and revolutionary, but in all actuality the wheel of crime is simply being redesigned repeatedly as time rolls on.

The key point is that compliance professionals must not allow the media to create the illusion that fraud and corruption is a new invention and spur them into hasty action. From a social standpoint most of what we do today has been done before. What is the historic context of corruption that a compliance professional should know?

The Repeated History

The administration of President Ulysses Grant was plagued with corruption in 1872. It was said that his Vice President (as Congressman) and other members of the U.S. Congress had been offered and probably accepted bribes to prevent the investigation of corrupt practices during the construction of the first transcontinental railroad. This matter and other corruption allegations probably contributed to Grant not being re-elected. That was then; today President Michel Temer of Brazil is being accused of corruption and having offered bribes to disrupt an investigation against him. Understanding the elements of the corruption in Grant’s administration can most certainly help investigate corruption in Temer’s administration as history repeats itself, repeatedly.


History also repeated itself when one compares the bank fraud that lead to the bank crashes in 1929 and the bank crashes of 2008. Similar bank and mortgage frauds were at work in both eras. Therefore had compliance understood the crashes they might have been avoided. Of course there are examples of corporations today going down the same corrupt path that corporations did on many occasions in the past.

The Evolution of Laws and Compliance

History teaches that as humanity evolved societies were formed and trade developed to provide for the needs of communities. With commerce crime and fraud came into being. The earliest of historic accounts show that product substitution, over charging, and corruption in both government and business grew as fast as legal businesses.

  • The Torah, Quran and the Bible all make reference to the ills of fraud and that fraud is offensive to God.
  • The Code of Hammurabi established in Babylon in 1754 BC is one of the earliest documents that set forth laws to regulate commerce and punish corruption.
  • The pharaohs of ancient Egypt used scribes to monitor their stocks of grain and gold as a way to prevent fraud.
  • In 19th Century United Kingdom, fraud and mismanagement caused many banks to crash.
  • Wells Fargo $185 million false accounts scandal in the U.S. in 2016
  • Deutsche Bank paid $85 million in U.S. tax fraud case in 2017

Throughout early history the lack of the rule of law, compliance organizations and responsible government agencies made it easy to steal government and private property. The fraud in the United Kingdom in the 19th Century and Lehman Brothers were both incidents in which loopholes in laws and regulations were found and exploited, and compliance was subdued. Moreover, as a direct result of all the above referenced situations, consumer trust in institutions and the government was lost and had an immediate negative affect on their economies.

Fraud and Corruption: Today

Presently practically all countries that are members of the United Nations have anti-corruption laws and procedures. Nevertheless, large scale fraud continues, seemingly unrestricted. Alleged emissions fraud by Daimler Benz and suspected frauds in the pharmaceutical industry could have been prevented had a strong compliance team been allowed to function as it should. The question is: If fraud has existed centuries, and every era brings forth more laws and regulations to stop fraud, why has fraud continued to exist and seem to grow?  The answer to this mournful question is complex and perplexing. Efforts thus far to stop fraud and corruption fail for many reasons, but in short sum, the efforts to stop corruption follow the cycle of corruption. That is to say, when a spectacular case of corruption is discovered society quickly makes new laws and procedures, which are implemented for a time, but rarely uniformly. Additionally, often resistance to compliance measures will come from within the corporation or as stated earlier, laws and regulations will lend themselves to interpretations that tempt members of the company to seek profit through questionable means.

Recommendations for Compliance Professionals

Compliance professionals must resist the temptation to spring into action to fight the “Newest Fraud” whenever it is discovered. Instead great effort needs to be put into meaningful anti-corruption awareness at all levels of an organization. Remember that history repeats itself. Therefore compliance and anti-fraud professionals must learn the patterns of fraud from the past and look for them inside their corporations today. In addition, time and money must be invested in recognizing potential fraud and corruption before it happens. The best thing about preventing crime is that there are no victims, and there are no monetary losses.

Schlagworte zum Thema:  Betrug, Compliance, Korruption