By: Martin Kenney, CFE and Dr. Alexander Stein
Martin Kenney & Co. Solicitors
Indonesian newspaper recently carried an
claimed the country’s investment scams were highly successful because of “low
financial literacy” among the Indonesian population at large.
cited a report by a researcher at Prasetiya Mulya University who concluded that
financial illiteracy was indeed a major factor in a large number of the
country’s frauds. His
paper also asserted that women were more vulnerable than men when it came to
As a lawyer
who specializes in the investigation of international fraud and asset recovery,
I initially read the piece with some surprise.
response was skepticism about the connection between financial illiteracy and
fraud. The claim about women was unlikely, as well as bordering on offensive,
and something which would certainly trigger a lot of backlash if it were
published in Canada, the U.K. or the U.S.
As I read on,
however, I eventually grasped the context of Indonesian culture — men ordinarily hand over their
salaries to their wives who then manage the household purse-strings. In this
setting it’s hardly surprising that women are defrauded more often than men,
simply because they are managing the family finances.
also concluded that financial literacy was not always in keeping with the
victim’s education level. Now all was becoming clearer — this was neither intended as sexist
nor as a slight against the Indonesian education system. Actually, the
report affirmed what we have been saying for years — no matter how clever, experienced
or sophisticated you are, everyone is vulnerable to becoming a victim of fraud.
The lack of
correlation between a person’s education and their propensity to fall victim to
a fraudster is all too familiar. Fraudsters are entrepreneurs. The types
of fraud they perpetrate and the marketplaces in which they find success vary
depending on their talents, skills and operating comfort zones.
is a relational crime. Potential victims — prospective
marks — will
be more susceptible to the persuasions or pressures of someone with whom they
are familiar. It can be difficult to say “no” in such circumstances. People are
often charmed or seduced by compelling elements which resonate as emotionally
familiar. Everyone scans for certain cues regarding other people's education or
social station, but ultimately we can give over trust or suspend disbelief for
reasons unconnected to rational thought.
We deal on a
daily basis with clients who are savvy and well-educated. Our clientele are
professional individuals who are university graduates and who have built up
companies and businesses that transcend international boundaries. They are
astute businesspeople who comfortably wield authority and whose backgrounds
demand respect. However, none of them are necessarily immune to the
silver-tongued fraudsters who weave tales of investment daring-do, and convince
these marvelous businesspeople to part with their hard-earned funds.
Being a fraud
victim is a trauma. It predictably triggers some common human responses — including embarrassment,
shame, guilt and outrage — regardless
of whether you're a fund manager, trader, corporate CEO, high-flying investor
or an Indonesian housewife.
fraud and other cons are very different from crimes of force, not only in how
they're executed but in what it's like for victims afterwards. The
money-or-your-life scenario is a no-brainer when looking down the wrong end of
a pistol. Law enforcement professionals always recommend acquiescence, not
heroics, and everyone understands that you really have no choice but to hand
over your valuables.
victims of fraud or some con inevitably end up playing a part in what happens.
It's a preventable crime which carries social stigma and accusations that
you're naive, greedy, witless or a gullible sap. Even if you're none of those,
shame, embarrassment and self-castigation for having been duped and fleeced are
I was once engaged to
assist in designing and implementing an incident investigation and response
plan at a privately held investment firm, following an internal fraud.
One day, several
months in, colleagues from other partner firms and I were called into the
massive oak-paneled board room. We listened as the billionaire CEO demanded we
immediately step back from the matter. He said that he “felt in his gut” it was
“unlikely” that there would be any recurrence. He “couldn’t be sure,” but
“hoped and prayed” all would be well.
It was mystifying.
Leaving our work unfinished would amplify his risks, not stabilize them. Why
would the astronomically successful leader of a business renowned for
surgically rational market calculations use hocus-pocus language? Why suddenly
The answer — he was
He’d held his dread
in check for a while, but it had become unbearable once he understood that regulators,
law enforcement or others in his community might become privy. He had now
convinced himself that if word got out about what had happened, his name and
his firm’s reputation — both worth more to him than his vast wealth — would be
irreparably tarnished. He would be seen as a failure.
It was an irrational
and disproportionate reaction to the pain that one of his own would deceive and
steal from him. But it was real too, fortified by understanding the stigma
fraud victims face. Counter-intuitively, elite investors feel especially
vulnerable. Mere mortals — desk traders and bank executives — could survive
being duped. But the world expects people like him to know better, or to be
In the end, for him,
at the pinnacle of his financial empire, the pain of being a victim was worse
than the fraud itself.
the forces binding fraudster and victim together are more complicated than they
appear — it’s never just about being greedy or hapless and it doesn’t
matter if you're male or female, well-educated or not. Anyone can be taken.
appeared to be backed up by Brig. Gen. Agung Setya, Indonesia’s Director for
Extraordinary Economic Crimes at National Police’s Criminal Investigation
Department (Bareskrim). According to Brig. Gen. Setya, “Even advanced investors who are
supposed to have a better understanding of investments sometimes let themselves
fall victim to illegal schemes as a result of greed.”
No matter how
sophisticated you consider yourself to be in terms of investment and your
business acumen, beware:
fraudsters will still target you regardless of your IQ.
For more information, contact Sarah Hofmann, Public Information Officer, at (512) 478-9000 ext. 324 or