problem gambling and fraud - European Association for the Study of ...

problem gambling and fraud - European Association for the Study of ...



The Cardsharps Michelangelo MERISI da CARAVAGGIO (1573 - 1610)

Problem Gambling & Fraud

1. Is due to a fault in the financial system,

whether present or created

2. The fault is hidden

3. It gives access to ‘credit’

4. A thief is motivated to steal the ‘credit’

5. A problem gambler ‘needs’ more ‘credit’

to spend more time gambling

6. The longer the fraud lasts the greater the


A Neglected Hungry Elephant

Financing Fraud

In the roaring 20s, during that fantastic stock

market boom, people were allowed to

purchase stock on just 5% margin.

Economists widely regard the Florida real

estate crash of 1927 to be a material

factor in triggering the 1929 crash.

1933 Glass-Steagall Act

All common stock purchases to be backed

by at least 50% margin.

'Fraud on the market’ judicial approaches to causation

and loss from securities nondisclosure in the United

States, Canada and Australia

Act Shattered in 1999

Express Glass

The Crash of 2008

Enormous derivatives markets traded

typically on 3-5% margin.

Seeking Alpha. 18.3.08 Matt Dubuque

Resale (house) prices collapsed at a pace

reminiscent of the Great Depression.

Bob Willis and Shobhana Chandra. 23.12.08

When the Tidal Wave of Credit


Authorities chained up Madoff's

$7 million yacht "Bull“

Associated Press 6.4.09

Most Credit=Biggest Fraud

• Bernie Madoff was Chairman of the

NASDAQ stock exchange:

– Committed the largest investment fraud in

Wall Street history. Investors lost $22.77

billion dollars in cash.

– Is serving a 150 year prison sentence for


Non-Punitive Rehabilitation

• Clifford Douce, formerly a senior constable in

Victoria, Australia, tried to get $5,000 form an

accused man for helping him in court

• In serious financial problem after seeking solace

in pokies after helping his wife who had a

gambling problem

• Sentenced to a four-month intensive correction

order – custodial sentence served within the

community. 6 August 2010

Australian Gambling Mirrors

Finance Industry Reform

• 1999 Australian Productivity Commission

promoted the liberalisation of gambling in


• 2009/10 Australian Productivity

Commission promoting further regulation

of gambling in Australia. The aim is to

reduce problem gambling, without

discouraging social gambling.

The Costs

In its 1999 inquiry, the Productivity

Commission estimated the costs of

gambling in Australia. Between $1.8

billion and $5.6 billion, the costs arise from

a multitude of problems, including crime.

The Commission noted that gambling is one

of the most common single motivations for


Don’t Mention The Fraud

Organisations tend not to comment on fraud for

fear of undermining customer, investor or

stakeholder confidence in them and/or attracting

the attention of the regulators.

Stephen Horne, Managing Director at NSW Internal Audit Bureau Services

It is the corporate stain which dare not speak its


Fairfax Digital Business Day. Adam Courtenay. 12.11.09

Gambling, Fraud and Regulation

1. Deregulation of gambling increases access to


2. Increased access to gambling increases

problem gambling

3. Problem gambling is the primary cause of fraud

4. Increased problem gambling leads to increased


5. Regulation to decrease problem gambling will

decrease fraud

6. Regulation to reduce fraud will reduce problem


Gambling, Fraud and Money

1. Money is a medium for exchanging goods and services.

2. Exchange of goods and services is a win:win event. All

parties benefit ‘equally’.

3. Social gambling is a win:win event where money is fairly

exchanged for entertainment and leisure.

4. Gambling is a win:lose event where monetary gain is

the sole driver.

5. Rules of law are designed as win:win social


6. Those who breach rules of law for personal, or win:lose,

gain have committed a crime of deception or fraud.

7. Access to gambling encourages fraud.

Gambling, Fraud and Patrons

The American Psychiatric Association’s

‘Diagnostic and Statistical Manual of Mental

Disorders’(DSM-IV), contains a set of questions

that is used to determine whether a person is a

problem gambler.

‘Problem gambling is characterised by difficulties

in limiting money and / or time spent on

gambling which leads to adverse consequences

for the gambler, others, or for the community.’


Persistent and maladaptive gambling behaviour is indicated by five (or

more) of the following:

• 2. needs to gamble with increasing amounts of money in order to achieve

the desired

• 3. has repeated unsuccessful efforts to control, cut back, or stop gambling;

• 6. after losing money gambling, often returns another day to get even

(“chasing one’s losses);

• 7. lies to family members, therapists or others to conceal the extent of

involvement with gambling;

• 8. has committed illegal acts such as forgery, fraud, theft, or embezzlement

to finance gambling;

• 9. has jeopardised or lost a significant relationship, job or educational career

opportunity because of gambling;

• 10. relies on others to provide money to relieve a desperate financial

situation caused by gambling.

Non-Fraud Indicators?


‘How greedily I gazed upon the gaming-table, with its scattered louis

d'or, ten-gulden pieces, and thalers upon the streams of gold as

they issued from the croupier's hands, and piled themselves up into

heaps of gold scintillating as fire; upon the ell—long rolls of silver

lying around the croupier. Even at a distance of two rooms I could

hear the chink of that money—so much so that I nearly fell into




Wikipedia says that Dostoyevsky is often acknowledged by critics as one of the greatest psychologists in world


Sigismund Schlomo Freud

Freud attributed

Dostoevsky’s gambling to

fits of pathological


1856 - 1939

Problem Gamblers

‘Investigations suggest that the most common underlying

stimulus to lead people into fraud is gambling.’

‘It may add into a complex melting pot of other motivators,

but I feel it is not at all unreasonable to say that gambling

is one of the top, if not outright no. 1, causes of

employees committing internal fraud.’

Stephen Horne, Managing Director at NSW Internal Audit Bureau Services

Casino Fraud

Monte Carlo Casino Picture

Monaco Tourism Office

In China …

• Li Weimin, the mayor who gambled away more than 90

million yuan in Macau, did not spend a penny of his own


• As mayor and head of four township companies, Li could

take money from company accounts as easily as if it

were his own money. And his power was totally

unmonitored: nobody launched any complaints and no

auditor raised any questions. He was not caught until

after he left his position in 2004. Beijing Losing the

Gambling Battle. Stephen Wong. Asia Online Times 27.6.9

Racing Fraud

Royal Randwick, about 1968, photo

by David Mist. ’Gambling in Australia: Thrills, Spills and Social Ills’

In Karratha …

"He'd keep betting in huge amounts until all the money was gone" . . .

Kim Faithfull, centre, after being charged. 18.10.03.

Photo: Sean Cowan

Extent of Fraud

‘Gambling Motivated Fraud in Australia

1998-2007’ Brett Warfield. May 2008

The study included any conviction in an Australian

court of law during the period 1 January 1998 to

31 December 2007 for deception related

offences where evidence was led that the

proceeds of the crime were mostly gambled or

where existing gambling debts were the

motivation for committing the illegal acts.

Some of Warfield’s Findings

• 528 persons convicted for deception

related offences

• Over $269 million taken

• Employees were responsible for 2/3 of all

fraud perpetrated by problem gamblers

• At least five murders were the result of

gambling addicted fraudsters trying to

cover their frauds.

Warfield’s Assessed Gambling

with Fraudulent Proceeds

Mode of gambling Cases Amount ($m)

Poker machines 184 64

Casinos 74 71

Horseracing 27 71

TAB 18 6

Other 23 22

Total 326 234

Measures to Combat Fraud

1. Transparency

2. Analysis of trends

3. Credit control

4. Time out from the workplace

5. Time out from gambling

6. Adult only gambling

7. Non-punitive rehabilitation

Transparency and Fraud

• Under accounting standards fraud is rarely, probably never, classed

as “material”. Barings Bank would be an exception, as would NAB a

few years ago. Materiality tests are one of the hurdles to

transparency that we face.

• More pragmatically, organizations tend not to comment on fraud for

fear of undermining customer, investor or stakeholder confidence in

them and/or attracting the attention of the regulators.

• What I think organizations should do in their annual report, either

under governance or risk management, is to show that they have

taken steps to keep up their level of awareness about fraud risk

factors, and adjust their corruption prevention strategies accordingly.

• Fraud is but one of many risks that an organization faces, but

especially in the public sector, it is an area that warrants more

attention that its absolute dollar materiality suggests.

Stephen Horne, Managing Director at NSW Internal Audit Bureau Services

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