Fraud and the Common Man

On the way home from work tonight, listening to NPR, I caught a fascinating story about the nature of fraud. Psychology of Fraud: Why Good People Do Bad Things follows the story of Toby Groves, a seemingly good and ethical businessman who made a promise to his father at age 20 that he would never get into trouble and shame his family's name. Then only a couple decades later he committed a "massive bank fraud involving millions of dollars that drove several companies out of business and resulted in a loss of about 100 jobs."

Yet that alone is not at all fascinating, in fact most of us, at first glance would agree that he got what was coming to him. However as the story takes shape it becomes quite compelling and frightening, mainly because from all indications, Toby Groves spent most of his life trying to live the ethical life. And then, because of a series of bad ethical choices, he found himself and his company so far in debt that he believed he had to create what is called an "air loan" -- a full fledged loan given on a house that doesn't exist. No one bought it. No one sold it. It was never even built. What makes this story so disturbing is that Toby Groves could not pull this off by himself. He needed the help of others.

And that is exactly what he got.

A friend at a title company created a false document. An appraisal on a house that never existed appeared in the files. And someone within his bank approved the loan and transferred the money for a nonexistent home. Groves said that as he talked with these people and asked for their help he admitted to them that he knew he had screwed up. He says he never pressured them and told each of them that if they didn't want to help him that he would understand and they would never hear another word from him. He explained to his colleagues that he would be able to get himself out of financial trouble and save his company -- and he only needed just a little help from his friends. And without hesitation all of them delivered. No questions of the process. No questions of the legality. No questions of the morality or ethics. Each of them willingly participated in Groves's fraud!

What makes the story so interesting is that the reasons people commit fraud might not be what we would normally think. I certainly assumed that people commit fraud because of the desire to get rich -- or at least the desire to get themselves into a better place financially. However the story tells us that  psychologists and economists suggest that it is often not financial incentives that lead someone astray, but rather a more altruistic reason -- because "human beings like each other." Lamar Pierce, an associate professor at Washington University in St. Louis, discussed emissions testers to make his point. He reports that 20 to 50% of car emissions that should have failed actually passed. Financial reasons right? Not at all, instead it appears that most cars that falsely passed did so because the emissions testers felt empathy for the car owner. Pierce says that BMW or Audi owners usually failed when their emissions were above the accepted levels, but that Toyota or Honda owners tended to pass in the same situations. His conclusion is that the emission testers felt a common bond with the humble car owners and therefore passed them along simply because they liked them and felt for them.

So the scary part to this story is that maybe behaving ethically isn't as easy as it appears. Maybe human nature is able to justify bad behavior when an individual believes what he/she is doing is for the betterment of others ... or for his/her company ... or for his/her country. And if that is the case, then how is that we get people to understand when they are behaving unethically.

Because if we can believe the general conclusions of this story -- and because most of us like our fellow humans -- that given the right situation, many of us will do things to help out our friends and neighbors, even if the actions might not be "right." I mean why else would a bunch of middle class workers help Toby Groves commit massive fraud, especially when it appears they themselves did not receive huge financial rewards.

And if the assumptions from this story are accurate ... then are not all of us capable of committing fraud?