Stories to Keep You Up at Night: Nightmares Fueled by True Tales of Fraud

By Cocheo, Steve | ABA Banking Journal, September 2012 | Go to article overview

Stories to Keep You Up at Night: Nightmares Fueled by True Tales of Fraud


Cocheo, Steve, ABA Banking Journal


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Much ink and many pixels are spent urging the importance of "tone at the top" in ethics, corporate governance, and risk management. But a story from former FBI agent Dennis Lormel made the point elegantly during ABA's Regulatory Compliance Conference.

Shortly after retiring from a 28-year career with the bureau, Lormel accepted a position with a Fortune-200 company. The recent passage of the Sarbanes-Oxley Act had convinced management that it had to make a serious stab at addressing the risk of internal fraud. The company enjoyed a reputation as a decent corporate citizen, but wanted Lormel to conduct a corporate risk assessment.

Early on, management summoned Lormel because his early internal research seemed to be upsetting employees. But he explained that a solid baseline assessment of anti-fraud practices and experiences was essential, so an internal fraud survey was approved.

"It's legal--really!"

Lormel began by interviewing top executives, and one of the first was the CFO. When he sat down, the CFO blurted, "Do I need a lawyer?" Lormel assured him he didn't, explaining the project. Nevertheless, as the interview continued, the officer began sweating profusely. Finally, Lormel stopped taking notes and crossed to the other side of the desk. He put his arm around the CFO's shoulders, in a compassionate gesture, and said, "Just what is it you want to plead guilty to?" The man spilled his guts. He said that the company was doing something perfectly legal, but obviously bothered him. Funds were being parked in the Cayman Islands to avoid U.S. federal income tax. "It's tax avoidance, not tax evasion," the CFO explained to Lormel.

The FBI fibers in Lormel resisted such a suave explanation. He suggested to the CFO the kind of company the corporation was keeping by adopting that strategy and attitude. He pointed out that money launderers and others up to no good favored the Caymans.

And he didn't have to point out that men who feel they are in the right don't soak themselves in sweat during interviews.

"Of course, my fraud survey was ended that day," said Lormel. "This guy felt like he was going to have a heart attack, and he went and complained to the company's president."

This put Lormel on the spot. Would he just adapt himself to the new employer? Or walk?

"I made a career decision," said Lormel. "The tone at the top was not what it needed to be, at least in terms of fraud." Lormel quit and found new work.

With stories, Lormel and other speakers breathed life into the sometimes dry details of fraud, ranging from internal fraud to mortgage-related shenanigans to human trafficking, telling the human experiences behind the statistics and trends of their PowerPoints.

Lormel is now president and CEO of DML Associates, LLC, Lansdowne, Va. One of his points of advice to listeners is the need for bankers to "think like a bad guy" to understand how someone in or out of the organization is going to try to rip off the bank. One key, he advised, is to remember that most criminals have an "exit strategy"-some means in mind to consolidate what they've stolen and beat it before they get caught and arrested.

Classically, said Lormel, fraudsters' deeds come down to what he called the "fraud diamond." There is opportunity; an incentive (or, in the case of the unwilling fraud, pressure); rationalization and bad attitude; and capability. Sometimes they outsmart themselves.

Broker, "partner," and ruse

Reaching back to his bureau days, Lormel told bankers about a crooked broker, who invented a long series of customers that kept his sales volume high, creating a Ponzi-like pyramid--except he was the beneficiary. No one quite knew how he produced such results, but his superiors weren't asking any questions. …

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