Fraud Psychology and the Forensic Process

David Debenham, C.P.A., C.M.A. (Co-Chair of the Fraud Law Group, McMillan LLP)

It is important to parse the forensic process to understand how it works, and where problems can occur.   Consider any fact situation.  There is:

  1. The actual event (what happened)
  2. The perception of the event (how participants perceived what happened)
  3. The recapitulation of the event (how the event is recounted)
  4. The consensus view of the event (how the event is recorded for posterity).

The actual event is easy enough.  This is what actually happened without any observation or analysis being required.

However, we only know what happened through human perception in a variety of forms. First, there may be eyewitnesses.  Second, there may be circumstantial evidence that allows us to make inferences as to what happened.   Sometimes we need expert witnesses to tell us the meaning, or inferences to make, of what otherwise appear to be innocuous facts.   

Then we have to make sense of the evidence into a coherent “story”.   Events have to make sense to us.  That means we have to put a weight on DNA, fingerprint and other evidence, and attempt to wed it to eyewitness testimony and confessions, and create a story that accords with our everyday experiences and understanding.  This is an inherently “human”, and therefore fallible, process.  Consider, for example, “The Wells effect” where a jury’s determination of someone’s guilt in a trial setting, is not necessarily connected rationally to evidence that makes a defendant’s guilt more or less probable.   Intuitive decision making is in play as unconsciously we order facts in a way that seems “right” to arrive at a “correct” or “comfortable” result that aligns with our worldview.  While we may buy toothpaste rationally by objectively comparing limited data, important, complex decisions we typically make more complex decisions in a less rational way. Intuition can play an important role in making decisions such as: Choosing your life partner, selecting the right car to buy, evaluation of a career or job, decision about an education, selecting a meal when eating out, selecting the next book to read, decide how to dress for today, and so on.  Our pre-existing beliefs and opinions guide our ordering of evidence into a coherent story.  Once we have arrived at the story we believe, we then it as a means to weigh evidence that supports that story (confirmation bias) and react with hostility to evidence that contradicts that story and “stick to our guns” even more (the backfire effect). 

The coherent story often is a social process, because “truth” as it is perceived, is usually a social construct.  Many participate in this process.  The role of the barrister is to tell a compelling story that fits the evidence into a compelling narrative in a forensic setting.   However, the advocacy process begins well before trial, with investigators, prosecutors, witnesses, and on-lookers all trying to piece together what happened into a compelling narrative.  As their stories are re-told there is an editing process where “inconvenient” facts are changed, “unimportant” facts are lost, and “important” facts are highlighted:  The resilient facts build the narrative, and then the narrative molds the facts. Every time a story is repeated, it changes. Tales evolve over time as various facets of the story are exaggerated, diminished, idealized, or vilified.  Eyewitnesses who are subject to this phenomenon often “witness” more than they actually saw, as the memory of what they saw, and what they were told, becomes fused in their memory.  The controlling narrative, or the molding power of their own worldview, can cause memories to change over time, sometimes radically.  Where what they saw does not “make sense” in the context of their own life paradigm or the controlling social narrative, it changes. The amount of change depends on susceptibility to peer pressure, lack of self-confidence, respect for authority, and other factors. In such circumstances, witnesses will often later renounce their own signed witness statements given shortly after the event. 

There is a growing body of research in fields such as psychology, cognitive science, political science and sociology showing that people do not make decisions through a purely rational process, and that emotion and a range of cognitive biases play a important role.  We think unconsciously, we think socially (by consensus) and we think using established models or stereotypes based on education and experience.    The educational process helps professionals establish common perspectives, beliefs and professional experience helps create mental shortcuts that help us make sense of the world around us. These are all brought to bear in creating a narrative surrounding a particular event.  

Fraudsters have no boundaries preventing them from controlling the narrative. Credible narratives require stories to be probable, coherent and to correspond to our experience.  Following the first rule of salesmanship, the fraudster sells himself before he sells his idea— thus making himself a credible source of information and thus the underlying data more credible.   Then, the underlying story is coherent— the underlying logic of inevitable success is sold by a simplistic but coherent concept.  Finally, the idea is sold as ultimately “common sense”, although the details of the “black box” have to be kept confidential lest they lose their competitive advantage in the marketplace.   The fraudster builds a persona and a narrative that often convinces himself and others to believe almost anything with a mix of charm, charisma, bravado, pressure, persuasion and persistence.  The fraudster originates and is then becomes captive to his own reality distortion field in which he and his victims adopt a narrative that distort the underlying facts to make a desired result not only possible but seemingly inevitable. In this world the ruling paradigm screens out bad facts and emphasized good ones, as cognitive dissonance blinds those who are too heavily invested (both literally and figuratively).    Having accepted a false reality, investors/follower feel they have no choice but to go on, and go “all in” to make what appears increasingly hopeless to the outside observer, a reality.  Facts challenging the accepted narrative are challenged by the fraudster, his shills (knowing accomplices), and dupes (unwitting accomplices) who attempt to maintain control of the narrative by both denigrating their critics, and denying the data upon which they rely.  They “accuse the accusers”.  

Each profession has its ethical and legal boundaries that limit how far the professional can go to control the narrative by lying to witnesses or suspects, pressuring witnesses to change their testimony, exaggerating or suppressing evidence and the like.  When the professional goes too far to aid “their side”, fraud in the form of “cheating” may have taken place, whether it be by investigators (bad faith investigation), (hired gun) experts, prosecutors or defence attorneys. For example, a lawyer shall not do anything that the lawyer considers to be dishonest or dishonorable; knowingly attempt to deceive a tribunal or influence the course of justice by offering false evidence; misstating facts or law; presenting or relying upon a false or deceptive affidavit; suppressing what ought to be disclosed, or otherwise assisting in any fraud, crime, or illegal conduct; knowingly misstate the contents of a document, the testimony of a witness, the substance of an argument, or the provisions of a statute or like authority; knowingly assert as true a fact when its truth cannot reasonably be supported by the evidence or as a matter of which notice may be taken by the tribunal, make suggestions to a witness recklessly or knowing them to be false; dissuade a witness from giving evidence or advise a witness to be absent. [1] 

Competing narratives can be a motive for fraud.  The fraudster has a narrative that has to be overcome by law enforcement.  Law enforcement has a narrative that has to ben overcome by the defence attorney.  In each a predecessor has established a narrative that explains events in one way, that they believe is wrong.  Because of anchor bias, the successor has extraordinary difficulty in “revealing” the “truth” because the narrative means that few will admit any facts that challenged that narrative, which is “feels” cogent, coherent, and true.   The narrative has helped understand the events in question in a satisfactory way, and we do not wish our state of contentment to be upset.  What is someone with a competing narrative to do? Remember that narratives are not anchored in, or wedded to, logic and therefore not readily susceptible to logical discourse.   Sometimes those with a competing narrative choose to “fight fire with fire” by employing the same underhanded techniques as those who established the original narrative.  Such situational fraudsters often feel impelled to their misdeeds to correct or avoid an injustice. 

It is important to understand that most people have an internal, personal narrative.  A person normally does not see one’ life as a chronological collection of neutral events.  A person integrates one’s life as a series of facts and events that are weaved together with self-perception of one’s character to produce a revelatory story. This narrative becomes a form of identity, in which the things someone chooses to include in the story, and the way he tells it, can both reflect and shape who she is.  A life story doesn’t just say what happened, it says why it was important, what it means for who the person is, for who they’ll become, and for what happens next. 

So, for the grifter, or professional fraudster, they adopt a “persona” to sell themselves much as an actor plays a part— they do what they do out of professional necessity.  Police who accept graft often do so because it is an unavoidable part of the job in their view.  Movies like “Serpico” show how those who demonstrate that graft is, indeed, avoidable, are harassed for interfering with the worldview that tacitly accepts corruption. 

For the opportunist or circumstantial fraudster, they are the hero of their own life story who is forced to by circumstance to become an anti-hero (a good person doing bad things for the right reasons).  For law enforcement officials, this is called “noble cause corruption”, with “Dirty Harry” Callaghan the fictional archetype.   Once it becomes part of the persona, it is difficult to revert to one’s previously lawful conduct even where the rationalization that led to the bad behavior disappears.  Think of the “Godfather”, whose circumstances impelled him into a life of crime, and who rationalized that he simply ran out of time to regain a lawful lifestyle. 

In investigating fraud, it is important to understand the personal narrative of the participants to identify, fraudsters, shills, and dupes.  If the fraudster is a professional, then a long history of previous frauds is likely.  If the fraudster is a situational opportunist, it is important to identify when the situation arose, and track a history of the frauds thereafter along a sloping curve from small isolated frauds in the distant past to frequent, larger frauds during the period immediately prior to discovery. 

In investigating investigator/expert witness/lawyer fraud, once again one has to identify the internal narrative as well as the narrative of their fraud (their modus operandi), and identify their shills and unwitting dupes who facilitated their fraud.  For the professional fraudster investigator/expert/lawyer, one has to do an extensive audit of their past cases to determine the extent of their fraud.   For the situational fraudster, one has to identify the situation that caused or causes the fraud, and identify any past situations that might have led to similar misconduct.  

[1] Law Society of Ontario Rules of Professional Conduct, Chapter 5.