Preventative Actions

Preventative actions can coincide with reactive actions, or they may be independent. According to Miller, Roberts, and Spence (2005, 137), regardless of being alone or not, preventative actions ought to (a) introduce mechanisms to promote “an environment in which integrity is rewarded” and fraud or corruption is discouraged; (b) implement institutional mechanisms that limit the opportunity of corruption and/or corporate fraud; and (c) ensure the mechanisms used to expose fraud or corrupt acts. In the minds of most people, law enforcement is encapsulated in the notion of deterrence. Therefore, let us examine it closely.

Deterrence Theory

The deterrence approach to preventing fraud and corruption has been used for years to deal with offenders generally. The assumption about rational thinking underlying decision-making behavior is well known to economists and is more likely to apply to economic crime offenders than to conventional criminals such as murderers. Supporters of deterrence assume that offenders (a) decide rationally whether to commit an offense (i.e., they weigh up the likely cost and benefit of an act and commit it if they believe it is worthwhile); (b) fear punishment and will refrain from criminal behavior if the punishment is harsh enough; and (c) consider the perceived risk of being apprehended and punished high enough. Thus, the aim of deterrence is to reduce the likelihood of fraudulent or corrupt behavior being perpetrated in the future by the threat of punishment (see Ashworth and Roberts [2012] for detailed discussion). A deterrence approach could be used by the management of a company in dealing with a fraudster within the company or a corrupt employee in the same way as a criminal court might deal with a rapist or robber. A particular individual who has already committed an offense is the target of the punishment imposed in order to “teach him/her a lesson.” When an individual offender is targeted, it is known as individual deterrence. Additionally, severe punishment may be imposed on a culprit in a case that comes to light and is publicized in order to impact the behavior of others who may be thinking about committing such a crime. When potential offenders are targeted, it is known as general deterrence. Irrespective of whether individual or general deterrence is used, deterrence is concerned with the consequences and effectiveness of the punishment and “is not concerned with issues of fairness and justice” (Davies, Croal, and Tyrer 2009, 352). In addition to the punishments a court could impose, many jurisdictions have implemented legislation providing for the confiscation of illicit assets or assets derived from illegal enrichment through corruption or fraud. Thus, potential offenders can no longer expect that they will receive a short prison sentence and will then be free to enjoy their unlawful gains with their family. They are aware of the fact that they will be stripped of all assets and stigmatized and may even lose their family in the process.

By punishing an offender severely, the management of a company also sends out a message that it condemns the behavior concerned and will take immediate action. Thus, the harsh punishment can be said to reinforce particular norms, enhance the company culture and company cohesion, and have an educative function. The basic weakness of the deterrence approach is that the assumption about offenders being rational thinkers has been questioned (Ashworth and Roberts 2012). In addition, very limited empirical evidence exists concerning the effectiveness of deterrent measures in reducing fraudulent or corrupt acts against or by corporations.

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