Something's Up: Crimes Without Criminals

Sometimes you start a book, and right from the first page it starts dropping bombs.

Extract from Dan Davies' The Unaccountability Machine: Why Big Systems Make Terrible Decisions – and How the World Lost it's Mind

"I should probably introduce myself at this point. I have a professional interest in situations like this – cases where the exact thing that nobody wanted to happen has happened.

I was once an investment banker, and during the bouncing-rubble period of the last global financial crisis, I wrote a book called Lying for Money, about the history and economics of financial fraud. One of the big questions people were asking at that time why, despite there being a strong popular perception that hanging was too good for them, bankers were not going to jail. I ended up reaching a pretty surprising conclusion: that although there were a number of bad reasons why prosecutors were reluctant to take on the vested financial interests, the basic problem was that in a democratic society, if you want to put someone in prison then you need them to intentionally carry out a specific criminal act

Many years ago, in an earlier financial crisis linked to small savings banks in the USA during the 1980s, the fraud investigator Bill Black had coined the concept of a 'criminogenic organisation'. It referred to an institution in which incentives and management systems were structurally designed to ensure that crimes would be committed. This was an integral part of his theory of the savings bank crisis, that of 'control fraud'. This occurred when a bank came under the control of a criminal, who was then able to set in place a system of incentives which ensured that fraudulent loans would be made and the profits declared, which would naturally flow into the fraudster's pockets.

This solved several of the key problems that had bedevilled white-collar criminals over the years, the biggest of which was the need for overt acts of embezzlement. Stealing money by dishonesty had previously tended to require you make illegal transactions – improper payments or false bookkeeping entries – which posed a risk of detection. In a control fraud, the dishonesty resided in the overall scheme and all the transfers of cash were legitimate – dividends, salaries, stock options and commercial transactions with parties connected to the management. Furthermore, there was often a number of layers between the guilty mind and the criminal act – unless there was a paper trail, most of the prosecutable things were done by people other than those that the authorities would naturally want to prosecute.

As it happened, the technology was in it's infancy in the 1980s and most of the crooks pursued by Bill Black were careless about leaving the kind of paper trail he needed. But by the beginning of this century things had got weirder. After investigating some of the biggest scandals of the financial crisis, I concluded that not only was there no paper trail between the low-level crooks and the bosses, in most cases there was actually no connection. I ended up coining the term 'self-organising control fraud'. The idea was that the financial system of the developed world, from around the fall of Communism in Europe, had reached a point where the overall system of incentives in the economy was so criminogenic that banks had a natural tendency to organise themselves into fraudulent behaviour. All the top executives had to do was set unrealistic profitability targets and underinvest in legal departments and compliance systems. It wasn't so much that anyone had told their traders what to do; more that nobody ever organised things in such a way that they wouldn't form a criminal conspiracy." This brings to mind the concept of what Hannah Arendt called 'The Banality of Evil'...watch this clip. The greatest crimes committed by man are committed by nobodies. https://www.youtube.com/watch?v=wmBSIQ1lkOA If you are complicit with a corrupt system, you are complicit. "I was just doing my job" is no excuse for monstrous outcomes.