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What is Fraud? Definition and Criteria

 

  1. Fraud is not explicitly defined

Before delving into the discussion of fraud, it is essential to clarify what fraud entails and what aspects are being addressed. However, defining fraud is not straightforward, and there is no universally agreed-upon definition of fraud, either domestically or internationally.

Commonly associated with the term fraud are activities such as fraudulent receipt of benefits, tax evasion, accounting fraud (cooking the books), embezzlement of company funds, bid-rigging, bribery of voters in elections, seismic retrofitting fraud, food origin misrepresentation, passport forgery, fraud, and research misconduct.

These actions are legally considered unlawful in various countries, falling under laws such as civil law, company law, criminal law, financial instruments and exchange law, food labeling law, and public election law in Japan. However, from an ethical standpoint, some may include actions like cheating and interruption in a line while waiting, considering them as fraud. Thus, the term “fraud” does not necessarily exclusively refer to illegal activities.

On the other hand, even for acts that violate the law, few people would refer to murder or assault as “fraud.” There seems to be a need for certain characteristics or requirements to recognize something as “fraud.” Consulting a dictionary, the Kojien dictionary broadly defines fraud as “something that is not right, not just, or unseemly.” This broad definition leads to debates about what is considered right, just, or unseemly.

According to Oxford English Dictionary: Fraud: Wrongful or criminal deception intended to result in financial or personal gain.

This definition explicitly highlights deception and the intent to gain something as the two criteria for fraud.

According to Longman English Dictionary: Fraud: The crime of deceiving people to gain something such as money or goods.

This definition similarly emphasizes deceiving people with the intent to gain something, aligning closely with the Oxford English Dictionary’s definition.

As mentioned earlier, there is no consensus on the definition of fraud. However, the Fraud Act 2006 in the UK is likely the world’s only law that comprehensively defines fraudulent activities. This law outlines the scope of its application as follows:

Fraud (1) A person is guilty of fraud if he is in breach of any of the sections listed in subsection (2) (which provide for different ways of committing the offence). (2) The sections are— (a) section 2 (fraud by false representation), (b) section 3 (fraud by failing to disclose information), and (c) section 4 (fraud by abuse of position).

According to these criteria, it is noteworthy that the intent to gain, as mentioned in English dictionaries, is not a necessary element. For instance, cases where information is not disclosed, perhaps unintentionally (but should have been disclosed), may also fall under the definition. However, in legal precedents, it has been established that cases involving dishonest non-disclosure are considered fraud. Dishonestly, therefore, appears to be a key element in the definition.

2. Accfam’s Definition of Fraud:

From my personal perspective, fraud involves the element of “deception,” and I believe that as long as this element is present, an action can be considered fraudulent. I consider Unaccountability, the inability to publicly explain the reality of what has been declared or asserted (such as in financial statements, the use of funds, business activities, etc.), as the essence of fraud. Fraud is an accountability issue.

Even in organizations with noble visions, principles, or purposes, if there are lies or deceptions in reporting their activities or realities, if there are acts of deceiving people, then isn’t this fundamentally wrong? Companies advocating for SDGs, NGOs/NPOs/charitable organizations promoting charitable activities, companies disclosing their performance, governments advocating for sound, clean, and transparent administrative execution—all these can involve acts of deceiving people, and the magnitude of this can be immeasurable. Why should one believe that there is no fraud within the organization one belongs to? Fraud, being inherently malicious, often involves concealment (perjury, forgery, falsification, etc.) and appears as if nothing is amiss. Therefore, mechanisms to prevent errors are insufficient, and there is a need for systems that prevent fraud (governance structures). In the course of advancements such as the invention of accounting and the establishment of various internal and external audit systems, rapid globalization and digital transformation have changed the era significantly.

It is about time to evolve traditional systems concerning fraud worldwide, ensuring accountability. Perhaps it is time to invent new governance for the new era. While there is awareness of fraud in general and issues related to public and private corruption worldwide, especially fraud involving money, I, as an individual who has witnessed various instances of fraud and corruption in Japan and globally, consider designing and implementing a system that ensures accountability for the use of public and private capital—a system that ensures that public and private funds are used properly—as my personal mission and challenge.

Believing that this mission is worthy of a lifetime is based on the hypothesis that, with the elimination or minimization of fraud,

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