Fraud is a deliberate deception to secure an unfair or unlawful gain. This does not mean breaking into your neighbor’s house with a balaclava on your head, as the following elements also need to be present before you lodge your claim to infamy:
• Intentional misrepresentation or assertion of a fact that is false or misleading;
• Knowledge of the falsehood or concealment of the truth;
• Reliance on the fact by the deceived party; and
• Damage or loss suffered by the deceived party as a result of the deception.
I’ve encountered many cases that have been referred to as fraud but were simply theft and likewise cases that were classified as theft but were in fact fraud. I have no doubt that the State Prosecutor deals with this on a daily basis and that many cases are thrown out of court because of the confusion between the two crimes which are on different sides of the legal spectrum.
So why do people commit fraud? Contrary to popular belief, it is not greed that drives fraudsters but rather the presence of three components, ie; (1) Opportunity; (2) Incentive; and (3) Rationale. Remember COVID 19 and all the funds that were allocated to various government institutions. If memory serves a large sum of the money was used to buy officials luxury vehicles so I’m pretty confident that Vorsprung Durch Technick was the rationale, there was definitely an opportunity to help yourself and the incentive came in the form of a free German sedan. Imagine that; a just reward for being a good politician and wearing a mask during flu season.
South Africa is the economic hub of Africa but at the same time carries the dubious title of being the most dangerous country in the world. I am unfortunately one of the statistics and sometimes even the greatest amount of knowledge will not be of any benefit if the perpetrators of fraud resort to violence and place you or your family in a life-threatening position. So, let’s look at what you can expect to encounter in our illustrious little piece of paradise on the Southern tip of Africa:
• The Pyramid scheme aka stokvel – a business model that relies on recruiting new members to make money and while the people at the top of the scheme earn the most money, those at the bottom earn very little or nothing.
• The 419 scam aka Nigerian scam – the infamous advanced fee fraud tactic where an email is received from an exiled Nigerian Prince or Politician that there is a significant amount of money trapped in an account which can only be released if the reader pays a small fee to access the account and be granted a generous reward by His Majesty Obodugu.
These scams are usually underpinned by the presence of violent syndicates but there is another scourge which is the largest industry in South Africa – White Collar Crime. Naturally everyone will think of Markus Joost and you’d be completely right as white-collar crime refers to financially motivated nonviolent crime committed by individuals such as in the case of Steinhoff; the offender is often of high socio-economic status, occupies a position of trust in the organization and has a professional qualification. Here the underlying motive is greed but the only way that this type of crime differs from the other is in the backgrounds and characteristics of its perpetrators.
I hope you found this column informative but I also hope that it also serves as a warning that while fraud is an economic crime, it remains a crime and it may not necessarily be non-violent. There are specialist law enforcement units that investigate scams and also forensic accountants and auditors who can assist with investigating white collar crime. Various preventative measures also exist to prevent and detect occupational fraud, the most successful being a “whistle-blowing” platform which provides access to employees to report purported irregularities without fear of reprise. So, it goes without saying; “If it looks Vrot, report it.” Next time; Setting up a whistle blowing platform.