Usually deception and fraud are assumed to be, if not synonymous, at least in a relationship of implying each other. This is a well justified view since deception is misrepresentation, distortion of truth, and hiding the truth while fraud is gaining something one is not entitled of or preventing illegally and/or immorally other persons to make a gain and causing them suffer a loss as a consequence of deception. To put it in brief, deception is the first step (a preparatory stage) and fraud is the second one—the fulfillment (No doubt, temporally both steps could coincide, but logically they are distinguishable).
There is, however, a vast area of emerging fraud aerobatics where deception cannot be identified but fraud, nevertheless, is present. This possibility is due to the connection between deception and truth and, on the other hand, between fraud and unauthorized gain/loss. It is perfectly possible that truth is not to be distorted (no evidence for deception) but fraud is still committed. In most cases, a statement is perceived to be false when it does not correspond to the matter of fact. This allows envisaging a situation where reality is defined and constructed way of statements expressing vested interests to correspond to it. The goal of such correspondence would be to ensure an unauthorized gain or cause an unjustified loss to another party, that is, fraud. This could be exemplified by mass privatization in a volatile situation. In such a case, there is no guarantee that the privatization companies, which have collected the privatization stocks, will be in a position of paying any dividends and even of existing on the market in foreseeable future. Therefore, no deception can be claimed where they stop (or even do not start) paying dividends or disappear from the stock markets. Which means that the losses of hundreds of thousand or even millions participants in a mass privatization are fraud free. The same holds true about situations of hyper inflation.
Another way to view truth would be to compare a statement to a set of initial principles. If the given statement corresponds to that principle set, it is true and if not, it is false. In this case too, the principles could be manipulated in such a manner as to secure the correspondence of the needed statements and to avoid any hint of deception. For instance, an industry can be suggested being in bridge of the principles of doing a sustainable business. No surprise, this industry will be under the constant threat of eminent bankruptcy and no deception could be argued of when the bankruptcy really happens. Neither the losses of industry’s shareholders nor the gain of those who profited from the bankruptcy could be considered as fraudulent.
Finally, truth could be described as what is beneficial for a community or for the society as a whole. Any assertion and action which does not contradict this definition would be true. The money acquired from some activities could be spent highly beneficially on a certain community (but be disastrous for the rest of society) and in this sense not constituting deception; for this reason the above money producing activities will not be classified as a fraud neither the subsequent fund investment as a money laundering.
In all above cases, there is no deception. Nevertheless, fraud is present. What is the criterion for a fraudulent activity? Being illegal? But any statement and following action that is deception-free and does not rely on violence will comply with the letter of the law. To extend the scope of the law a judiciary is needed ready to identify something as a fraud on the ground of acquiring unjust gain and/or causing unjust harm no matter whether any deception is detected or not.
By Assoc. Prof. Alexander Gungov,Ph.D.,Senior Consultant
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