Deconstructing the Minds of White-Collar Criminals

November 16, 2020

Psychology plays a significant role in investigations. Behavioral science profiling has proven to be invaluable to law enforcement and their ability to bring serial killers, terrorists and other violent offenders to justice.  And yet the use of the psychological techniques in the study of white-collar criminals has not garnered nearly the same amount of attention despite the potentially devasting financial consequences.

White-collar criminals are widely disliked and even the term suggests images of elitism, entitlement, home confinement and country-club prisons. White-collar criminals are not a better class of criminal, nor are they more deserving of leniency than other criminal offenders.  White-collar criminals are wired differently and understanding that fact can better position us to help safeguard organizations and individuals from the types of crimes that white-collar criminals commit.

In an episode of the Fraud Eats Strategy podcast, I interviewed with Sullivan & Cromwell partner Nic Bourtin and Harvard Business School professor and best-selling author Eugene Soltes, whom have both studied white-collar criminals extensively.  

Getting mugged at night on a street corner or having your 401k plundered are both terrible things. But if you put aside those kinds of normative judgments and think about what makes white-collar criminals tick, there are important differences. Failing to acknowledge those differences will negatively affect the approach to fraud prevention, deterrence, investigation and prosecution.

Part of what separates white-collar criminals is their detachment and lack of awareness of the negative consequences that their crimes have on their victims. For example insider trading, in most cases, the victims of insider trading are not readily identifiable.  Some would say insider trading undermines the integrity of the market, but that lack of a tangible victim doesn’t have that same visceral feeling of wrongdoing. What’s even more interesting in most white-collar crimes is when the person is engaged in the misconduct, what they are doing does not feel negative to them. When someone is trying to make their firm’s financial statements appear better than the company’s true financial condition to get them through a difficult time and protect the stock’s value, they likely see themselves in heroic terms.  It’s only with time when those negative consequences and feelings are revealed.

One of the things that sets most white-collar criminals apart is that they often don’t realize that they’re committing a crime until they’ve reached the point of no return. They are physically and emotionally detached from their victims and as a result, the psychological cues humans have evolved to have when they are causing injury are much more subdued in the case of the white-collar criminal — if they’re even triggered at all. 

A white-collar criminal’s perception of where the line is between aggressive business practices and illegality gets higher and higher over time. It’s not until they look back that they realize that they have crossed well over the line. Adding to the murkiness is the fact that some of these crimes are very sophisticated.

If it’s true that many white-collar criminals do not knowingly commit crimes, how does that impact the government’s ability to show criminal intent? This is part of the reason why white-collar crime is difficult to prosecute because it is unlike other crimes. Often criminal intent is the only issue. To prosecute white-collar crime, criminal intent has to be inferred from emails, memos and other correspondence which can be very ambiguous.  It’s a difficult thing for humans to do when you’re talking about very complex areas of business and industry. It requires you to get into the head of the person who wrote the email, to understand the business, the organizational and ethical culture and the vernacular of that particular industry, business and organizational sub-culture in which the crimes are occurring.

There is also a concept known as hindsight bias which is something that has been studied at length by psychologists. There are innumerable studies that show that the more catastrophic the outcome, the more people assume it was preventable and predictable before it happened. It’s an evolutionary adaptation that when we look back, we take the lessons of the present and we apply it to the past.  

It’s true in investigations too. It is difficult for an investigator to not bring any kind of preconceptions as to guilt or innocence in an interview room. Sometimes you have somebody dead to rights and it’s a different kind of interview. More typically, the interview is part of the process of determining where the investigation lands and bringing that kind of bias to the table isn’t doing anybody any favors.

Noted criminologist Donald Cressey advanced his hypothesis of the fraud triangle that underlying every fraud, there’s an opportunity, pressure and a rationalization justifying the actions of the person to commit fraud.  White-collar criminals are often very affluent and it’s not likely that they are motivated by financial pressure in the same way as someone who is living from one paycheck to the next.  For white-collar criminals, it’s about rationalization.  Many find some way to justify what they were doing.  Adding to that dynamic is the fact that some organizations’ incentive compensation can amplify these rationalizations for actions that they may never consider doing under different circumstances. This is the power of the situation. The surrounding norms and organizational culture can compel people to rationalize actions that would not ordinarily consider being acceptable behavior.

The more intelligent somebody is, the better they are at rationalizing their behavior. The people who commit white-collar crime don’t go about it in the same way as other criminals. They don’t wake up in the morning and say: “I can’t wait to break the law today.” They simply succumbed to the pressures to achieve what they wanted to achieve.

Decisions are made very quickly.  Accordingly, efforts at deterrence must include training people to stop and get outside of their head for a minute and say:” how might this look to somebody else?”  

In the early days of the FBI’s Behavioral Science Unit, they interviewed multiple serial killers to gain insights into what compelled serial homicide to apply what they learned as a predictive tool to unsolved homicide cases. Many serial murderers are egocentric and grandiose, show a lack of remorse, are lacking in empathy and impulsive. These same characteristics could certainly be applied to white-collar criminals.

Eugene studied nearly fifty white-collar criminals including Bernie Madoff, Allen Stanford and Dennis Kozlowski.  He did so to gain similar insights into the minds of white-collar criminals.  His research revealed most were highly intelligent and had an uncanny ability to rationalize their behavior.  Beyond that though, many white-collar criminals are good, well-meaning people who never set out to break the law. Applying similar techniques as those used by the FBI’s Behavioral Science Unit did not yield the same ability to spot white-collar criminals or predict which executives would commit crimes or become embroiled in scandal. 

In many ways, we’re all susceptible to fall prey to what Cressey describes in the fraud triangle. Given enough pressure exerted upon us, the right opportunity and we don’t heed the advice to slow things down and surround ourselves with people who would tell us that our rationalizations are wrong-headed and harmful, we could each to end up the subject of our own white-collar crime case study.  

To hear the full Fraud Eats Strategy podcast episode with Nic Bourtin and Eugene Soltes, click here.  

Note: The postings on this site are my own and do not necessarily represent White Collar Forensic’s positions, strategies or opinions

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