Book Review: Robin Banerjee,Who Cheats and How?: Scams,Fraud and the Dark Side of the Corporate World

The Manuscript at a Glance

The book is a notable compilation of the de facto cases depicting the murkier side of the corporate world. It predominantly deals with corporate con games and crooked deals during the last few decades. The author observes that globally fraud has assumed gigantic proportions and the companies lose around 5 per cent of their annual revenue ($3.5 trillion) to fraud, according to the Association of Certified Fraud Examiners (ACFE) 2012 Global Survey.

The book is organized into nine chapters, each covering a distinct aspect or form of fraud and deception. It attempts to unravel the modus operandi adopted in various scams worldwide. Interestingly, while doing so, the author at times has put forth certain assumptions and hypothetical examples to give a comprehensive idea of how such falsifications are actually carried out. The book seeks to expose the diverse modes of accounting fraud, deception by banks, cybercrime, medical chicanery, misdemeanour by the auditors and the deceptive financing schemes, each with the portrayal of startling facts. Research on such practices has been presented eloquently and meticulously in different sections. Manipulative practices such as backdating stock options, juggling with mark to market concepts or the fixation of London Interbank Offered Rates (Libor) by banks need special mention.

The manuscript is rich in its use of terminologies and expressions. Interesting tailpieces, sometimes informational or making an attempt to generate awareness or at other times a bit sarcastic, cut through the chapters breaking the monotony and the solemnity of the theme. Two such examples have been narrated as follows:

Children have piggy banks. Accountants maintain cookie jar reserves. Both need to be broken open during emergencies. However, while children learn to be thrifty by saving their little nest egg, accountants sometimes resort to sordid trickery. Both have similar concepts but completely differing ethics.

Placing one’s trust in banks is good, but placing blind faith in them may be foolhardy!…..Display care and caution in bank dealings. It will be constructive.

The book has gone beyond the theme as it has also dwelled on measures to identify suspicious circumstances. The red flags to avert cybercrimes or Ponzi schemes or to detect troubled areas as the financial statements are fudged or doctored to camouflage the health of the company call for a noteworthy focus.

The book dissects a range of fraudulent practices along with the grave consequences and hefty penalties faced for the misdeeds. Not only has it endeavoured to delve deep into the popular high-profile corporate skulduggery of companies such as Enron, Satyam, General Electric or Xerox Corporation, but has also unraveled less popular facts such as digital espionage or violation of privacy policies by debonair companies such as Google and Facebook. One might also note the cases of heavy penalties, such as, the Royal Bank of Scotland agreed to pay a fine of $600 million to the UK and the US regulators for manipulating the Libor while Enron’s former CEO and COO, Jeffrey Skilling, was sentenced with 24 years imprisonment.

Prologue

The introduction sheds light on the different motives behind committing frauds and poses certain questions before the reader on egregious scams, consensual answers for many of those being difficult to obtain. Moreover, in a rare approach, the book has supplemented it with a section, namely, Fraud and Scams: Mode and Style. Statistics based on various fraud surveys have been offered.

While the author aptly suggests that ‘the asymmetrical approach to morality may be due to the unequal distribution of global wealth…………. unless the matter of fair distribution of wealth is proactively addressed (and no clear method has emerged to achieve this), the world may continue to suffer unethical practices,’ he also mentions that ‘conning can also be a habit’.

Reader’s Digest

The book unfolds an extensive account of scams and dire consequences of esteemed organizations all across the globe. Even it becomes hard to accept that companies noted for being socially responsible could also act irresponsibly at times. It is quite appropriate when the author puts forth that Croatian theologian Miroslav Volf had once said that fraud in business is no different from plagiarism in scholarly work. Even people committed to high moral standards succumb.

The first chapter ‘Corporate Charlatans’ provides a general idea on the murky and corrupt business practices in India and abroad encompassing various sectors: food industry, pharmaceuticals giants, energy sector, telecom, journalism and hospitality sector to name a few. Additionally, it focuses on the violation of data privacy rights and cautiously draws up the differences between the various terminologies, such as frauds, corruption, extortion, theft, collusion, contract rigging and price fixing, with appropriate examples. It sheds light on tax avoidance measures, such as taking advantage of tax havens offering low or zero taxation rates, secrecy and weak regulatory framework to draw non-resident funds or implementing other innovative accounting practices. There is a vivid account on fraud pertaining to employee stock option plans (ESOPs) and buyback of shares. This piece of work cites real-life cases of swindling to support in each case.

The next chapter encapsulates the wrongdoings of the banks, the entities that are supposed to be trustworthy, driven by greed, corruption, conflict of interest or self-aggrandizement. It puts forth in detail the Libor scandal. Libor is the most influential interest rate that affects the borrowings of consumers and companies all across the globe. The sections delineate how inaccurate fixing of the rate by banks gives rise to financial instability and asset bubbles. Additionally, there is a mention of money laundering by HSBC and the Indian private sector banks, namely, ICICI, HDFC and Axis Bank. One will be surprised to note that priests or high-ranking cleric of Vatican Bank or God’s Bank have also been charged with such illegal acts. Instances of banks assisting clients to avoid or save tax, debit/credit card fraud and many other weapons of falsification have been presented in a manner that an amateur reader can also relate to the message. The involvement of Goldman Sachs, an epitome of Wall Street’s prowess, in security fraud or the misdeeds of the super performers in banks that pushed the banks towards bankruptcy or collapse leave a lasting effect on the mind.

Gradually the author moves towards the quick financing Ponzi schemes and the likes, which have been a tool to devastate millions in recent times. People are wooed to join plans with an assurance of persistent takings more than market returns. The author warns against these and stresses on the application of foresightedness and the avoidance of imprudence.

Few red flags waved by the writer in the section are:

Beware of exaggerated earning-related promises

The fourth chapter deals with stock market swindles of different shades and sizes. There are cases of iconic companies getting engaged in insider trading or deceitful listing, and brokers not abiding by the terms and regulations placed on them or engaging in foul play.

The country-wise company ratings (2014) provided by Sustainalytics and CSR Asia based on parameters related to areas of ESGs (environment, social and governance) indicated poor performance of Chinese companies among the Asian emerging countries. This fact is supported to quite some extent on the governance front as the author peeps into the deceitful acts of numerous Chinese companies in North America as they raised money from the market.

The fifth chapter is exclusively dedicated to cybercrimes with an exposure to various concepts and terminologies such as snooping or hacktivism, vulnerabilities in terms of cyber fraud and cyber security issues.

While the sixth chapter is dedicated to the use of innovative techniques to camouflage the true and fair view of financial statements or the health of the company, the seventh one elucidates the misdeeds of auditors including the Big 4 as they violated their fiduciary duty to function as gatekeepers and belied trust.

Reasons for camouflaging the true and fair view of the statements are many—to show growth during a lull phase, to hide decline in the firm’s performance, stock price pressure on listed companies, tax avoidance, etc. Various means of falsification such as tricky revenue booking, tampering revenue recognition or allocation policies, improper lease accounting, creation of bogus sales or non-existent cash are cited. The section resonates with horrendous facts, like the case of Satyam Computer Services Ltd in which the individuals found guilty along with PwC partners were jailed for seven years and hefty fine was imposed.

Some of the cautionary red flags for predicting suspicious circumstances that are highlighted include:

Growth in revenue, but stress on cash flow

Chapter 8 puts forward the unpardonable misdeeds of doctors, pharmaceutical companies and health care workers with examples of roguish misconduct and heinous acts.

Concluding Thoughts

The volume concludes with a chapter ‘The Last Word on Fraud Yet to Be Revealed’ that digs into the changing face of scams and frauds in the contemporary world as the business entities continue to practise or become victims of deception.

Avarice mostly drives misdemeanour and the gullible people often fall prey. An organization comprising of people holding diverse perspectives finds it difficult to align the interests of various stakeholders, which may often lead to impropriety and misconduct for the accomplishment of self-interests. However, the recent global crises have somewhat pointed at being more cautious. Some positive steps such as hefty penalties, disclosure of modus operandi, imprisonment and introduction of whistle blowing mechanism have been taken to eradicate the corruption and malpractices all over the world.

The book leaves a lingering impact of the theme on the minds of the reader. It presents a well-rounded perspective of the message it seeks to deliver in a concise manner through a plethora of cases. To me it is Truth Well Told….