A Unique Crime: What Fraud Reveals About Ourselves

Fraud is a unique crime because it is premised on deception—a psychological act that requires participation from both the victim and the perpetrator. Why is this so notable? Consider other crimes, such as murder, theft, burglary, and assault.

In crimes like murder, the victim's understanding of the act is irrelevant to the criminal outcome. For instance, if someone is poisoned, they are still a murder victim, whether they comprehend what is happening to them or not. Similarly, a person whose wallet is stolen is the victim of theft, regardless of whether they notice it at the moment. Most crimes are defined by the action of the perpetrator, not the victim's perception.

Fraud, however, is fundamentally different. The mindset of the victim—and their interaction with the perpetrator’s intent—is central to the crime. To legally establish fraud, certain elements must typically be proven (though they vary slightly by jurisdiction):

• A false statement or representation of a material fact
• Knowledge by the perpetrator that the statement is false
• An intent to deceive the victim
• The victim’s actual reliance on the false statement
• Damages suffered by the victim as a direct result of that reliance

In fraud, there must be a true meeting of the minds—but in a distorted way. If the perpetrator does not intend to deceive, there is no fraud. Similarly, if the victim does not believe the perpetrator’s false statement, there is no fraud. For fraud to exist, the deception must be deliberate, and the victim must fall for it.

The Psychological Core of Fraud

What makes fraud particularly interesting is that it’s a crime that revolves around the psychology of both the perpetrator and the victim.

Compare this to crimes like rape, which hinge on the victim’s lack of consent, regardless of the perpetrator’s belief. For example, someone can commit rape even if they genuinely (though mistakenly) believe the encounter to be consensual. Fraud, by contrast, requires a deliberate intent to deceive. If the perpetrator genuinely believes their false statement, there is no fraud. Along these lines, the victim must truly have believed the perpetrator. If the victim understood that they were being deceived, and was a “willing victim”, then they were not a victim at all, for no fraud would have occurred.

Why Is Fraud a Crime?

It’s easy to take for granted that fraud is illegal. But why is it a crime at all? One might argue that gullible individuals should fend for themselves in a free-market society. Wouldn’t a system where everyone bears the consequences of their own naivety encourage self-reliance and caution?

The answer lies in the foundational values that underpin a functioning society. Laws against fraud exist not merely to protect individuals from harm but to foster a broader sense of trust.

One might think that if deception were allowed to thrive unchecked, only the most manipulative and unscrupulous would succeed; such a society would reward dishonesty and undermine collaboration and progress.

However, such a view would be simplistic because it fails to take into account the economics of adaptation. If fraud were allowed to go unpunished, the number of people falling for fraud would not grow in an unbounded way; because people adjust their behavior in response to legal systems. So, it is more likely that in a society where fraud is rampant and unpunished, rather than being constantly defrauded, people would be over-deterred from taking any risks that involve trust.

In other words, criminalizing fraud does not protect potential future victims of fraud from economic or other losses; it protects the value of trust itself.