University Times

Thomas Czerski, above, special agent with the IRS-Criminal Investigation Pittsburgh Field Office, and Neal Caldwell, special agent with the FBI’s Pittsburgh Division, spoke Feb. 3 in the William Pitt Union Assembly Room on “The Role of Ethics in White-Collar Crime.” Their presentation was sponsored by the Pitt business schools’ Office of Alumni and Constituent Relations and David Berg Center for Ethics and Leadership and the School of Law.

Beware of the wolf in sheep’s clothing.

That was the advice in a nutshell from two federal agents who deal with the world of fraud and crime, particularly in the workplace. The agents’ Feb. 3 on-campus presentation — “The Role of Ethics in White-Collar Crime” — was geared principally to business and law students who are contemplating employment in the corporate or business world, but also offered some suggestions for current employees of all ilks on being wary of criminals in their midst.

Federal Bureau of Investigation special agent Neal Caldwell and Internal Revenue Service special agent Thomas Czerski discussed in the abstract why ordinary people sometimes resort to workplace fraud and how their profiles differ from those of career criminals. The agents agreed that employees need to be aware of the presence of both types of malefactors in the workplace.

Caldwell noted that federal statutes cover all types of fraud, which is why the FBI and the IRS most often are involved in the investigations.

The definition of criminal fraud as delineated from the statutes “is intentional lying or misrepresentation of the facts to induce an individual to part with money or property,” Caldwell said.

“What is interesting here is the idea of intent. It applies to the extent of the lies, the extent of the misrepresentation. We want to look at whether the circumstances were not just unintentional error or accident, but [whether] the act was committed with knowledge and resolve,” he said.

“In my experience, I would describe a typical fraud scheme as one where the perpetrator’s goal is first to put a victim at ease by gaining a victim’s trust. The further purpose of that is to gain access to the victim’s property or money. The third stage of the scheme is the betrayal of that trust, that is, to steal the property or abscond with the money,” Caldwell said.

Why do ordinary people sometimes commit fraud?

Caldwell said the FBI has developed an explanatory model, a triangle of causal factors that allow ordinary people, typically otherwise reliable employees, to commit fraud. “Everyone can identify with this scenario. The three points of the triangle are opportunity, pressure and rationalization,” he explained. “When all three of these elements are in play, there is a high risk for fraud.”

Opportunity entails gaining trust and access, he said, both of which usually are afforded to established employees by employers as a matter of course. “So employees often have a head start on committing fraud,” Caldwell said.

“There also usually is some kind of pressure in the perpetrator’s life such as a need for money to support a gambling or drug addition. Some financial need typically is involved in fraud,” but it’s not something that’s necessarily out in the open and often is hidden intentionally by the perpetrator, Caldwell noted.

Rationalization comes into play when perpetrators are not just lying to an employer, but to themselves as well, to justify their criminal behavior, he said. “You could also refer to this triangle as an ethical-lapse triangle. These are the types of factors that cause people to act unethically, too,” he added.

To limit employee fraud, “What employers or businesses need to do is have better controls to limit the access of the employees,” he noted.

“What individuals, particularly employers, need to do is ask the question: Is this person a wolf in sheep’s clothing? After a fraud occurs, the victim is usually in shock by what happened. But with the benefit of hindsight, the victim often is able to discern red flags, such as a series of small lies that went unnoticed,” or secretive actions, Caldwell said.

Why do evil people prey on others?

While ordinary people who commit fraud and career criminals share some commonality, “Career criminals position their life story to attract you and gain your confidence. They put on a face for you. They have no conscience; they don’t care who they hurt. By the time you see through them, it’s going to be too late,” Caldwell said.

Citing the example of notorious fraudster Bernard Madoff, Caldwell said, “An ordinary person could not rationalize cheating thousands of people out of billions of dollars.”

Madoff is the classic example of a criminal fraudster, he said. “This type of fraudster is capable of acquiring trust and access. Madoff looks like everybody’s uncle. He’s always three steps ahead of you. You need to guard against that. You need to look for red flags that can tip you off,” Caldwell said.

“In Madoff’s case, he outperformed everybody in the stock market. His methods were earning steady returns every year. He employed a small accounting firm that was clearly incapable of competently accounting for all his activities. No major firms were investing with him. He had mostly a celebrity clientele. He was ‘trendy.’ When people inquired about his investments, he would shut them off. There wasn’t transparency, just fast talking. These are all red flags,” Caldwell said.

For both types of fraudsters, he recommended that employees be on their guard.

“There are predators out there. Be aware of them. If you’re in close proximity to a crime and if you make a small ethical lapse and let it slide, that can come back to haunt you. Use your best judgment, even if you haven’t been recruited yourself to do any kind of criminal behavior. Ask questions. Have skepticism. Don’t ever assume. Don’t trust — verify. And don’t rely on an outside [evaluation]; do your own due diligence.”

What does this all have to do with me?

Following Caldwell’s talk, IRS agent Thomas Czerski elaborated on similar themes.

“You might say, I don’t intend to get involved with Bernie Madoff, so what does this all have to do with me? One of our goals with respect to professional con men is to get you to recognize that they’re out there. You need to recognize that to these people at that far end of the crime spectrum, you’re the sheep for them. To the wolf, you’re the sheep,” Czerski said.

In the case of an ordinary co-worker, he said, “There really is not a lot you can do to alleviate the pressures on a fellow employee, but you do have the opportunity to at least recognize that an employee is feeling some of those pressures. That’s a warning sign.

“If you’re an employer, maybe you can recognize that they are rationalizing what they’re doing, but the biggest thing you can do is try to eliminate the opportunity they have, and how you do that is to have strong internal controls.”

Motivation differs between the two types of fraudsters, Czerski said. “In white-collar crime the motivation almost universally is greed.”

But the levels of greed differ, he said. The ordinary person who commits fraud is looking to see how much he or she can get away with. They might skim a small amount of money from the company till, and if they don’t get caught, their crimes may escalate with each act.

“Most ordinary people in the fraud triangle don’t foresee the ultimate consequences of their acts. ‘What can I get away with? If I stole money and no one missed it, next time I’ll steal some more,’” he said.

In contrast, career criminals always think of the “big score,” and often engage conspirators to aid in their crimes. “They might hire people with information about bank accounts, or counterfeiters” or people who know how to “cook the books,” Czerski said.

Also, most people who are professional con artists are not dissuaded from crime by fear of going to prison, he said. “They just think of prison as the cost of doing business. For most people that you’ll deal with, that’s not something that enters their minds. When they’re caught, they usually confess,” he said. Most hardcore criminals, however, will impede law enforcement and judicial consequences at every step, he said.

What should an individual do when faced with an ethical dilemma in the workplace?

Czerski said the answer varies by the scope of the crime and whether the employee can prove any charges he or she might level at a co-worker.

“When we talk about ethical dilemmas, we should first recognize that they don’t come with flashing lights and signs. Your challenge is to recognize a dilemma and know what to do. If you choose wrongly, you could be on the 6 o’clock news,” he said.

What sometimes muddies the waters is the blurry distinction between ethics and legality, Czerski noted.

“Legal does not necessarily equal ethical and, conversely, unethical does not necessarily equal illegal. For example, if I share contents of a document, that may be unethical, but not illegal,” he said.

The most common dilemma employees face in the workplace arises when they are asked by a supervisor or co-worker to do something they don’t believe to be ethical.

“Sometimes your dilemma is not ‘What should I do?’ Sometimes doing nothing is as unethical as a certain act,” Czerski said. “From our point of view [as federal agents] sometimes the difference between being a witness and being a defendant is largely dictated by what you do.”

Employees first should listen to their instincts, he said. “At what point does the ethical voice inside your brain tell you to do something? When you’re asked to perform some function you feel is unethical, do you just not do it and keep going to work? Do you do it and rationalize that’s it’s not your fault because you were directed to do it? Do you not do it and tell your boss you’re not going to do it?

“Do you quit? Do you quit and go to the police or some other authority and say, ‘Hey, I was asked to do this.’

“Or, do you rationalize that you can’t quit because you need the job to support your family and you can’t get another job? ‘I’ve got to do this or else I’ll get fired.’

“Again, there is no simple, clear-cut answer for the best path to take,” Czerski said.

“But your decisions are important, because they not only shape what you’re going to do, but they shape how people like us are going to view you” if the crime is uncovered, he said.

—Peter Hart