2001 Dutch Construction Fraud: Fraud Triangle Analysis

When it comes to any crime or series of crimes, there are three main components that are typically present. Those three parts are the opportunity, the financial pressure involved, and the rationalization. Similarly, any fraud involves an act, its concealment, and a conversion. This paper examines the 2001 Dutch construction fraud scandal through both the fraud triangle and the fraud activity triangle, before evaluating the anti-fraud efforts — detection, prevention, and deterrence — that ultimately brought the misconduct to light.

Opportunity

In the case of the 2001 Dutch construction fraud episode, the opportunity was created by the fact that regulation and control of the Dutch construction market were not sufficiently rigorous to stop the fraud from starting or perpetuating. The opportunity for crime in the Dutch construction industry from 1992 to 2001 was substantial, owing to a lack of clarity in the law and even weaker enforcement of the same (Vulperhorst, 2005).

Financial Pressure

The financial pressure involved in the scandal was the drive to create and extend profits beyond what was normally permitted under Dutch construction market conditions and government limitations. One intriguing facet of the 2001 construction scandal is that even those directly involved lamented what was going on. They noted how easy it was to engage in the behavior, but they also acknowledged it as a negative, feeling that it was "crippling the renewal of entrepreneurship in the building trade." In other words, the actors were not necessarily fond of what they were doing. At the same time, they apparently felt sufficient financial pressure — and saw sufficient opportunity — to pursue the fraud regardless. The prospect of money to be made was apparently enough to get them to act (Vulperhorst, 2005).

Rationalization

The rationalizations involved in a scandal like the 2001 Dutch case would obviously vary. However, in each instance, the rationalization sought to justify why the cheating or unethical behavior was acceptable. A few examples include the belief that regulations are too strict, that profit margins are not high enough, that the work being done has more value than is being recognized, or that those involved deserve the extra money as compensation for their service. When it comes to public-sector employees involved in the fraud, there is the concept of warping and otherwise reinterpreting what is permissible under the law. Moreover, the consent and involvement of government officials was often necessary for the fraud to function at all, as the scandal could not have been sustained without their cooperation (Vulperhorst, 2005).

A specific example of rationalization that can be directly attributed to the 2001 Dutch construction fraud scandal can be seen in the way construction directors reflected on their clandestine deal-making. They acknowledged that the system of collusion should be stopped, yet noted that "scarcely a single contractor argued that doing business illegally was totally inappropriate in itself." As for how these leaders could justify known and continued violations of the law, they pointed to the lack of clarity in Dutch legislation as it stood around 1992. Beyond that lack of clarity, enforcement of those rules was essentially absent. The construction leaders involved thus had little incentive to comply: there was money to be made from the behavior, and seemingly no negative consequences for engaging in it (Vulperhorst, 2005).

When it comes to any crime — whether a smaller offense or a large systemic one — there are three major components in the fraud activity triangle: the act itself, the concealment of the act, and the conversion.

The Act

The act alone is not enough to "get away" with the crime, but it is the genesis and onset of the malfeasance. Examples drawn directly from the 2001 Dutch construction scandal include bid-rigging, collusion, and improper coordination between parties. One of the acts that was part of the 2001 fraud revelations had supposedly been addressed in the early 1990s — but not firmly enough. At issue was the timing of when parties involved in a project were permitted to consult and work with one another. There is a defined period of consultation that is expected and allowed. Coordination outside of or prior to that period is not permitted. There was apparently knowledge of this pattern as far back as 1992, but the proper enforcement mechanisms were not put in place. By 2001, when some seventy million euros had been improperly handled or charged, it was clear that the same acts were still occurring (Vulperhorst, 2005).