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Counter Fraud Treasure in Italy

Italy is a country of many treasures, among those rare finds, on a smaller scale than the Colosseum and Roman Forum, is a street named after one of the most significant, and my personal favorite, criminological researchers, Cesare Beccaria. Imagine my excitement when I unknowingly stumbled on this street in Rome.

So what exactly does my find have to do with counter fraud? Everything!

The principles of classical criminological theory revolve around rational choice, that is, individuals make rational decisions to commit or refrain from criminal activity. Cesare Beccaria, from Milan, was at the forefront of this perspective and added significant insights into this theoretical mind-set. In my opinion, fraudsters differ from other criminals and are unique in this exact respect, they are “cognitive” enough to be able to decipher between right and wrong and then act accordingly.

Deterrence and rational choice theory are considered components of this classical approach to criminology. In the eighteenth century, Cesare Beccaria focused his research on the legal aspects of crime and found surprising explanations toward criminal behavior. This classical approach to criminology follows the basic premise that the punishment should fit the crime, and, furthermore, actions are taken and decisions made by the free will and rational choice of the individual. This is a classical conundrum of risk versus reward and pleasure versus pain. This theory assumes that an offender will weigh the risks and rewards of an action and then take the most appropriate action based on a conscious decision.

Deterrence theory proposes that the punishment should be severe enough to outweigh the benefits, and if this is true, then an offender will make a conscious decision to refrain from deviant activity. Thus, if a legal system is unstable and does not provide adequate legal support and structure, offenders will be conscious of this and choose to manipulate the system and engage in illegal activities. A second element to deterrence theory proposes that punishment should be not only severe but also swift. If there is significant delay in investigating and prosecuting, than an offender will be more inclined to engage in deviant activity.

So how can we intertwine this into fraud prevention? It is important for companies to focus on actions to increase deterrence; on a specific level, fraudsters must be taught to think that fraud will not be tolerated, which will hopefully result in behavior modification in a positive manner. Specific deterrence focuses on ways that a particular individual can be deterred from a certain activity—in this case, fraudulent activity. On a more global level, companies must showcase that they are hard targets and thus deter fraud on a higher operating level. One strategy is to develop and publicize strict zero-tolerance programs by making it clear that fraud cases will be diligently investigated and prosecuted. Insurers can also support and publicize fraud convictions, which will send a strong message to future potential fraudsters. If we assume that insurance schemers are rational thinkers, then they will respond to deterrence if convictions are highly publicized.

Legislative antifraud efforts also will help create a deterrent effect. Because fraud is traditionally underprosecuted, this sends a message to the public that it is a relatively low-risk crime. There is no deterrent effect when the punishment is low because the reward will be worth the risk to the rational fraudster.

What does the academic literature in other circles tell us in regard to the effectiveness of deterrence as a prevention strategy? The results are mixed, but are positive toward counter fraud efforts if placed in theoretical context. Capital punishment has created debate for years, with supporters claiming that the law of retaliation, or an eye for an eye, prevails, and punishment should be severe. Detractors claim that capital punishment is too severe, inhumane, and immoral. In-depth studies on this topic have failed to prove that implementing the death penalty actually deters crime, thus causing more heated debates. Other studies I have reviewed also show weak support for deterrence as a solid preventative approach. However, it is important to consider the criminological perspective of rational choice and free will to understand the effectiveness of deterrence in our fraud industry.

We have established that most fraudsters operate as rational thinkers and make conscious choices to engage in or refrain from deviant behavior. Operating on this assumption, the development of programs and policies that are severe should in fact have a deterrent effect. Therefore, it is likely that focusing on deterrence in a counter fraud setting will in fact have a positive impact on deterring fraud. Crime is seen as developing from two main factors: the pursuit of one’s own self-interest and the lack of adequate punishment as a deterrent; thus if we outweigh self-control with severe punishment, fraud should be prevented.

Deterring offenders from future fraud activity is viewed as one of the most significant goals for counter fraud professionals; research has revealed that these individuals make conscious choices to partake in criminal behavior. This choice-focused behavior is deeply rooted in concepts of cognitive theory, which posit that motivation and decision making are the main predictors of criminal behavior. Internal motivation and state of mind are the focal point of cognitive theory, which is similar to various foundational, traditional criminological theories, such as the classical and rational choice schools of thought.

Good luck and stay safe! And next time you are in Rome, make sure to send me a selfie at the Via Cesare Beccaria!

-Dr. Fraud


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