June 5, 2020 (update) | Profile of a Fraudster | by Dr Alexander Schuchter

“Obviously people lie when they’re trying to hide something. I did it too.”

Statement by a fraudster | personal interview


When I met a convicted fraudster for the first time, I didn’t realise how much it would change me. The surprising openness of the offenders offered me countless glimpses into unplumbed depths. My understanding of white collar crime changed radically as a result.

 

How is a fraudster different to a normal employee? Does a person need to have certain personality traits in order to commit an offence? How can these insights help us in practice? One thing is certain:

IF YOU DON’T KNOW WHO YOU’RE FACING, YOU’LL HAVE DIFFICULTY

  1. READING CLUES,
  2. ASSESSING RISKS &
  3. PROTECTING YOURSELF!

Science-based assessments enable us to draw reliable psychographs. We can then match certain personality traits with fraudsters once they have been caught. But is it possible to work the other way round – recognise potential offenders by personality traits which attract attention?

On the one hand, such a method for identifying fraudsters would be path-breaking in the area of prevention. It would revolutionise recruitment processes, team building, the development of control systems, risk assessments and various other areas. It would make it considerably easier to uncover fraud. If only this field were not a vicious circle!

Profile of a fraudster

How does a personality profile for white collar criminals benefit you and your management practices?

It benefits you by limiting damage and lowering the risk of liability and a tarnished reputation. Numerous studies show that companies lose an average of 5% OF THEIR ANNUAL TURNOVER to fraud!

A fraudster is someone who consciously chooses to deceive others. So you have to focus on such persons. If you know who you’re facing when push comes to shove, you’ll have a decisive advantage. Because understanding the motives and outward manifestations of offenders is important when it comes to exposing them!

Studies have confirmed the following features which recur with white collar criminals:

  • impeccable reputation
  • abuse of professional position
  • above-average level of education and creativity
  • criminal energy is not discernible
  • can come from any area of expertise, independent of sector
  • has been working for the company for more than five years

Typical profile of a fraudster: unremarkable?

Why is the typical profile of a fraudster so unremarkable? The profile of a typical white collar criminal corresponds largely to that of a normal employee. But only “largely”. Because the differences are there.

Characteristics of fraudsters!

“If you know your enemy and you know yourself, you need not fear the outcome of a hundred battles.”

Sun Tsu | Chinese military strategist

Radiates Trust

Even after talking to a dozen different white collar criminals, I was still impressed at how unbelievably courteous and charming they are. It is these traits which enable fraudsters to win the trust and empathy of those around them with playful ease. To a certain extent, this character trait prevents those around them from objective assessments.

This dangerous ability creates the perfect breeding ground for fraud. Controls, for example, are neglected. As a head fraud investigator, I often hear people say, “I thought this employee was a person of complete integrity. Of all people, he was the one I would have believed least likely of committing such an offence.”

White collar crime can often be traced back to non-targeted controls. This is the case in around 30% of my investigations in day-to-day business practice. Many studies confirm a comparable figure. The 2015 international ACFE survey of more than 40,000 experts, to name one example.

“You can write the best manuals and draw up the best work processes – but if something is urgent, and in emergencies, things never run to plan.”

Statement by a fraudster | personal interview

Tip: Improve your controls continually! Be consistent – even if you feel the person you are controlling is completely trustworthy. Find a reasonable balance and don’t go overboard. with controls. Just because a person is trustworthy doesn’t mean they’re a fraudster. Sensitise the necessary managers to this ability!

Socially manipulative intelligence

When I interviewed fraudsters, I surprised at how widely their characters and values differed. I soon realised that fraudsters have very different personalities, and do not form a homogenous group.

Nonetheless, there are various recurring traits. My practical experience corroborates numerous studies which have come to my attention during the course of my research at St. Gallen University (HSG).

Cooperation is faked in a targeted manner in order to deceive the professional environment. The aim is to promote one’s own interests, come what may. Colleagues are exploited to serve the offender’s interests. This personality trait is referred to as “social manipulation” or “machiavellianism“.

The typical fraudster – according to the profile of a fraudster – sees through the established tests – even those developed by experienced forensic experts. Even without knowing the diagnostic questions, fraudsters intuitively know what to reply. As a result, so-called business scans and integrity tests are unreliable. Numerous companies have abandoned the practice as a result.

Expert tip: When it comes to white collar crime, be wary of personality testing methods! These commercially marketed products can lead you to draw catastrophic conclusions. Stigmatisation could also poison the atmosphere at work. Quite apart from the expediency of such tests and moral concerns, they also give rise to data protection questions. And they also beg the question: if an employee has the personality traits of a typical fraudster, does that disqualify them completely?

Regular background checks are a different matter completely, particularly when it comes to positions in senior management. For example, checking the criminal record of an applicant, requesting the original copies of certificates etc. are highly effective and justified procedures!

Types of fraudsters in Switzerland

Following dozens of personal interviews with convicted fraudsters in Switzerland, I have discovered various recurring personality traits. Basic forms (“prototypes”) can be derived from these. Fraudsters will display these traits to varying degrees.

If you have ever encountered a fraudster, he will probably match one of the following four types:

I. The White-collar victim

The white-collar victim sees himself as the victim of unfortunate circumstances. Fraudsters of this type tell me they were under enormous pressure. They explain their fraudulent behaviour as their attempt to resolve an insoluble problem. Under normal circumstances, this profile of a fraudster is an exemplary employee who follows rules to the letter and would never hurt anybody. As a result, those around him are surprised and even shocked at his fraudulent behaviour.

II. The Pin-Striped Predator

The pin-striped predator consciously seeks and patiently awaits opportunities to commit fraud. Such a person is remarkably disciplined and focused, and translates his visions into action. His belligerent attitude makes him an opponent who needs to be taken seriously. With playful ease, he manipulates his superiors, public accountants and any regulatory bodies who have little experience in fraud. He is extremely skilled in organising complex techniques for evading discovery. To create confusion and uncertainty in an impending investigation, he creates false leads in advance to throw others off the scent.

III. The hedonistic Narcissist

The hedonistic narcissist has an exaggerated opinion of himself, is arrogant, and is not open to criticism. He commits fraud because he is convinced he is so uniquely clever that he’ll never get caught. Stuck in a groove, this profile of a fraudster loses all grip on reality with regard to money. His sense of entitlement is obsessive. However, financial considerations are not his sole motive. He also enjoys the cat-and-mouse game, demonstrating his superiority and getting an adrenalin rush. For such a person, the chase to win admiration is exciting – and never-ending.

IV. The Gullible Victim

The gullible victim regards himself as a social creature. In the eyes of the fraudster, he is being exploited by profiteers. Offenders of this type do not actively search for opportunities to commit fraud. But to maintain a relationship, or to revenge themselves for a disappointment, they are willing to commit serious economic crimes. Such persons will engage in fraudulent behaviour for a higher purpose, or to overcome separation anxieties.

If you know the different fraudster profiles, their patterns and their motivation, you can draw the right conclusions in advance and take targeted action. In this manner, damage can be minimised or avoided completely. The situation can be analysed swiftly and efficiently by conducting quick checks. This also makes preventive or investigative measures more effective.

How fraudster profiles develop

The fall of the victim

During the course of my in-depth interviews with fraudsters, I made a troubling observation. Offenders told me that they often began their criminal career as the “white-collar victim” described above. However, this profile of a fraudster shifted over time as the result of certain circumstances. This basic form, in other words, appears to have an “expiry date“.

The rise of the predator

To this day, I have never heard of a fraudster simply stopping in the middle of a successful raid. On the contrary: over time, offenders justify increasingly severe fraudulent behaviour as “normal business practice”. Their inhibitions melt away. In order not to be exposed, they conceal their fraud by further manipulation. Encouraged by the success of their actions, they perfect their approach over time. And so over time, the predator described above is born and raised.

Expert tip: Overall, the common development of fraudsters into pin-striped predators makes it harder to expose fraudulent behaviour. Investigations are more comprehensive. The financial damage is higher. The loss of reputation and liability risks become more severe. Protect your company and yourself with professional expertise and sensitisation!

Last but not least

Conversely, might we not ask how to recognise an employee of integrity? An employee who sees an opportunity for fraud, yet refrains from committing the crime? Do such employees simply have better morals and values? My research at St. Gallen University (HSG), and numerous interviews with fraudsters, show that this is not the case.

Employees analyse their observations to see whether there are any inconsistencies. Sometimes, something in the day-to-day business of the company will not be in line with their inner convictions. To decide on the correct course of action in such circumstances, the employee has to be sober enough to assess the implications of their decision. Anticipating possible adverse effects, the employee is then able to reassess their intentions.

My recommendation: This is a skill which can be learned, and should definitely form a part of professional development!

 

If you don’t know who you’re facing when push comes to shove, you’ll find it difficult to read clues, assess risk and protect yourself. Typical white-collar criminals know exactly what others want to hear. Moreover, their candid approach opens doors. But they do not all fit the same profile of a fraudster. To address the various types of offender, a combination of measures needs to be taken. Only then can prevention and detection be effective.

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Dr. Alexander Schuchter

I have been working in forensic since 2008 – but not as a fraudster! As Managing Director of Schuchter Management GmbH, I support executives and companies.

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