With the development of economy, more and more banking frauds take place and cause many risks. However, according to the case study, one of the main reasons is greed. In recent years, psychologists and legislators have taken a keen interest in the relationship between bank fraud and psychology.
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This literature review examines one approach in which banking frauds occurs: psychology. It analyzes the psychology of greed which include the definition, the situation in which people are affected by greed and people’s response to greed. And also it make a conclusion about the connection and relationship between psychology of greed and banking fraud. Then, because the banking fraud is widespread and various, this paper uses the fraud triangle theory to analyze several classic cases and points out the role of greed. Besides, in order to explain the questions, this literature review also contains the aspects of social, psychology and economics.
The purpose of the literature review is to examine and analyze the psychology of greed and banking fraud. In this article, we will answer two fundamental questions:
What is the relationship between the person’s desire and power, prestige?
Greed, as a common secular psychological definition, is an excessive or insatiable desire for material wealth, whether it is food, money, status or power. (Richard.F, 1996, P1) Once the desired condition has been eliminated, people will decide the next desired condition again. It can be said that greed is like a bottomless pit, constantly forcing people to get certain material conditions without giving them corresponding satisfaction. The purpose of greed, and any behavior associated with it, may be to deprive others of basic or advantageous conditions, or to prevent them from obtaining certain material benefits. Alternatively, the aim may be to defend or fight back against such potentially dangerous negotiations on issues of ambiguity that are often acceptable to ordinary people but have a lawbreaking character in the legal sense. In most cases, the consequences of greedy activity are unaffordable costs and burdens, whether large amounts of debt or criminal facts, leading to counterproductive or self-destructive behavior. Therefore, the “excessive” degree of greed is related to vanity, malice, or the associated burden. Greed is often negative and gives a sinister and tyrannical impression. It is usually used to describe those who pursue excessive material interests.
Back to this literature review, why do the scammers have a strong desire for wealth, power and prestige? The answer is simple, “Wealth is one of the most common, obvious and basic symbols of the commercial society to reflect the social status of social members. It is the external value closest to rights and the basic condition to guarantee the existence of people. People pursue wealth not only to satisfy their biological and intellectual needs, but also to be recognized and affirmed by others for their own social existence.” (Gansu philosophy society, 2016, chapter 5) This is why the essence of greed is the reason why human beings are over-respected for material wealth.
In order to achieve the conditions set by the greedy psychology, some senior managers will use banking fraud to obtain a lot of illegal interests. Compared with the ordinary people, these senior managers do not lack the material wealth. However, the most horrible thing about greed is that it can make the ordinary people, even those who already have certain economic and social foundations, never satisfy the material wealth. Bank fraud involves the use of fraudulent means to obtain something of value from a financial institution. There are numerous types of bank fraud including identity theft, account takeover, loan fraud, wire transfer fraud, and check fraud. (Rachel.V, 2008, p.1) Fundamentally speaking, banking fraud is a fraudulent means to obtain funds, assets or other property by potential illegal means, or to obtain funds from depositors by posing as Banks or other financial institutions. Although the traditional frauds still existed, the development of internet upping the fraud stakes. Nowadays, all kinds of banking services are gradually electronic, people can use mobile phones, computers and other ways to
handle their bank accounts. Internet brings convenience to public, but also reduces the cost of fraud and exposes more ordinary people to the risk of fraud. If ordinary people have greedy ideas, the Internet can be a catalyst for them to fall into the trap of fraudsters. In the network, all sorts of news with unidentified true and false are bank bilks’ best cover. It can be said that banking fraud is in the life of normal people, as long as people have the idea of greed, it is easy to fall into bank fraud.
Yet greed and bank fraud have a mutually reinforcing negative relationship. Greed leads top managers to commit scams, lures ordinary people into scams. At the same time, the profiteering brought to the fraudsters by banking fraud will further stimulate people’s greedy psychology, prompting the fraudsters to further expand the scale of fraud, so as to satisfy their desire for no control. As Joseph T. Wells (2001) said “One element common to most occupational fraud offenders, from the CEO to the rank-and-file employee, is that almost none of them took their jobs for the purpose of committing fraud—they are typically first-time offenders. Facing that fact, one must ask the logical question: How do good people go badly? An obvious answer is greed.” Although most greedy people do not take the actual fraud, it is because they do not have the suitable opportunity and method. However, for the top managers, they have enough ability and opportunity to complete the fraud, at this stage, the greedy psychology will be an important condition to facilitate the complete formation of fraud activities. On the other hand, the top executives who perpetrate these scams may gain illegal wealth while being further controlled by greedy minds. Because after the success of the fraud, these people can feel the excitement of getting something for nothing, and thus rely on banking fraud. In order to obtain more illegal wealth and satisfy their excessive desire for material
wealth, fraudsters will intensify their efforts in fraud and even cheat others to form fraud groups. Ghost companies are a good example of fraud. Some corporate executives will use their jobs’ convenience to cheat and control a group of people to run the fake companies and achieve the purpose of tax evasion by lying about companies’ income.
In today’s society, there are more and more fraud cases happening on different people every day. What’s worse, the most fraud cases happened in the internet, which means even if people did not go outsides and trade with someone face to face, they just stay at home then may fall in to fraud cases and become victims. Although they pay more attention to the face to face trades, because they are afraid to been scammed, but in the internet when they are do a thing that they think is very simple, they still cannot avoid to catch up in a fraud case. So why the fraudsters so easily manipulate people’s minds for their nefarious ends? According to an article “The psychology of fraud: How do the fraudsters so easily manipulate our minds for their nefarious ends?” (Tom,2018), the author points out the trick lies in getting people to make one habitual response, the fraudsters are good at persuading and they can let victims think what they do are good for themselves, so victims will willingly do things and fraudsters get what they want.
Here is a typical example of fraud case about bitcoins. It’s a big case of fraud, greed, and the disappearance of bitcoin. “In this case, the two main parties are Symphony, an Irish investment company and J. Barry Thompson, the managing director of a global escrow and trade facilitation platform that focuses on bitcoin escrow services.” (Andrea, 2019, para.2). These two parties were in coordination partnership, and on July 2018, Thompson told Keating that there was an opportunity to make money
and both of them could gain a profit. Symphony agreed and he provided money to the third party——Volantis, and hoped Volantis offered bitcoins to him. However, things didn’t go the way they were supposed to. Symphony did not receive any bitcoin, nor was its money returned. Finally, they found the whole thing was Thompson’s fraud, he lied to many people and got money from them.
From this case, the psychology of two parties are worthy to be analyzed. According to the fraud triangle, there are three essential factors, they are pressure, opportunity and rationalization. Pressure is financial or emotional force pushing towards fraud, opportunity is a liability to execute plan without being caught, and rationalization is personal justification of dishonest actions (Susan, 2015, para.1-3). As for Thompson’s psychology, the pressure can be financial force, because he needed a lot of money to have a better life. In addition, his greed also pushed him to do fraud things. Greed is a strong desire for money, power, food and so on. So greed could easily become a catalyst for him to do some illegal frauds. Then, in this case he had so many opportunities to do illegal things. For example, he had a cooperation relationship with Symphony, and Symphony trust him enough that he can easily get money out of Symphony. Besides, he used a good excuse to hide the fact and people didn’t know where the money was going and just thought money was going to Volantis, even if the supervisory organ goes after him, he did not admit his fraud, and he had many excuses to explain where the money was spent. He could say he used money to another parties, and he would pay back to Symphony, it was not fraud. Then, he took dishonest action. He tried to promise to Symphony he would offer the bitcoins. However, the fact was he would never want to provide bitcoins to Symphony because he sold bitcoins out and now money owned by him. In the end, he admitted he real got bitcoins from Volantis but sold them to another party——KRFB, thus he could gain the money (Andrea, 2019, para.8). Therefore, fraud behavior happened, Symphony became the victim.
On the other hand, as for the psychology of Symphony, he also was greedy. Why he agreed Thompson’s suggestion to catch the “opportunity” to make money easily? Because he was greedy and he wanted to earn more money with less efforts. Because of his greed psychology, Thompson could set a fraud trap to cheat money from him. In addition, both of them had their abilities and needs, Symphony had money but he still wanted more money, Thompson had relations about outsides, he could find the agency but he also wanted more money. Therefore, they cooperated together, and hoped to gain more money easily. “The individual manages to justify what he or she is about to do.” (Susan, 2015, para.5), the author said, it was exactly what Thompson thought in this case.
Another typical example about banking fraud is the case of Mt. Gox, which is world’s biggest bitcoin exchange in the past (Brett, Emily, 2014). As a virtual currency, bitcoin circulated in the internet and didn’t have a completely secure system to protect personal assets, so it is easy to be used by customers and managers and become a tool of fraud. In 2014, Mt. Gox collapsed because scores of customers found they couldn’t withdraw funds. Mt. Gox said hackers had pilfered 650,000 bitcoins, then worth 4.5 billion pounds. “Now, according to a BBC article by Geoff White, investigators say almost half of the stolen coins ended up at the rival exchange BTC-e, supposedly run by a British company called Always Efficient LLP. According to the BBC, Duncan Hames, director of policy for Transparency International (TI), said Always Efficient is likely a shell company” (Ryan, 2018). From this statement, this case sounds like a banking fraud. Customers were the victims.
Karpeles, as the owner of Mt. Gox, Karpeles described Mt. Gox as the main bitcoin exchange and argued for the legitimacy of bitcoin while distinguishing the company from criminals involved in money laundering or drug-related activities. He noted that it was easy to track bitcoin across the web, so it’s open safe and transparent. This was his rationalization, “The mindset of a person about to commit an unethical act is one of rationalization. The individual manages to justify what he or she is about to do.” (Susan, 2015). As for pressure, it was his greed, he desired wealth. The increased supervision only began in 2013, which undoubtedly facilitated his criminal behavior, and customers trust him, which were his opportunities. Therefore, in this case, pressure, opportunity and rationalization were existed, the framework of fraud triangle was complete. Because of Karpeles’ greed, he did bank fraud and gained illegal income. On the other way, when he did fraud, he could gain money without efforts, he realized the benefits, which would promote his greed psychology.
Carlos Ghosn once was regarded as a hero in Japan for saving Nissan from bankruptcy. (Pozen, 2018) He was also the former chairman and CEO of Renault, former chairman and CEO of Nissan, and former chairman of Mitsubishi Motors earning more than $20 million in 2017. (Connexion Journalist, 2018) But he was arrested for underreporting his salary and misappropriating company assets at the end of 2018. As an entrepreneur, he was in charge of three car companies at the same time, and he had reputation, power and wealth. So what’s his motivation to conduct banking fraud under the risk of losing everything he ever had? I’m pretty sure the answer is greed.
For the pressure side of the fraud triangle, Carlos Ghosn suffered from great public opinion pressure. As western manager, he thought himself worth a massive paycheck for his great contribution to the company while in Japan, manager’s salary is always determined by age and seniority. His approach has caused a backlash within the company. If he took more salary, he would receive more criticism. (Baird, 2018) Under such pressure, in order to settle internal disputes without cutting his own income, covering up his real compensation came into his mind.
Next for the opportunity side of the fraud triangle, there are many problems exist in Nissan’s internal structure that Ghosn could take advantage of. The problem is that Nissan does not have audit committee, compensation committee and nominating committee. An audit committee is to review disclosures in its executives’ pay records in its annual report. Instead, the independent auditor in Nissan is elected by the chairman, which allows the chairman to easily manipulate the auditor to do things for them. The purpose of the compensation committee is to determine the compensation of company executives based on the laws of most advanced industrial countries. The nominating committee exists to ensure that directors are elected because of their abilities and to terminate a person with too much power to control the board. (Pozen, 2018) All of this three committees are missing that Ghosn’s power was lack of restriction which provide convenience for him to conduct banking fraud.
Last but not least, at the rationalization side of the fraud triangle, sometimes people are not even aware of their greed. In this case, Carlos Ghosn thought himself to be a redeemer that saved Nissan thus he deserved what he got. Ghosn often points out at annual shareholder meetings that although his salary was relatively high in this country, it was still lower than that of managers in the United States. (Baird, 2018) He even “called the allegations against him meritless and unsubstantiated”. (McLain, 2019) All his words and deeds shows that he didn’t recognize any of his guilt. He even thinks that everything he does is reasonable. His greed has lead him astray.
“Human nature is greedy” (Miller, 2016), whether human nature is good or evil, its ultimate direction is self-interest. The egoism objectively exists in the nature of human beings. If human desires are not satisfied, the inherent bad nature of human beings will be inspired to generate evil ideas, thus indulging human beings to corruption. From Carlos Ghosn’s case, we can see that he was already much richer than most people in the world, but he was not satisfied with things he already have. He wants more. Thus he took advantage of his power to facilitate his ideas and try to find more benefits for himself. If he was not as greedy as he is now, but content with what he already have, he may keep all these things. But now, for him, everything is gone.
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