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n 2003, the United States Department of Justice reported that property crimes had continued their trend and fallen to an all-time low. In fact, property crimes have surged to an all-time high since Enron collapsed in late 2001. The reason for the contradiction is that the Justice Department does not count serious property crimes because it excludes white-collar crimes from its data keeping. A wave of frauds led by the men who control large corporations, what I term “control fraud,” caused the massive losses from property crimes. In the 1980s, a wave of control frauds ravaged the savings and loan BOOK EXCERPT I BY WILLIAM K. BLACK The Best Way to Rob A Bank The following article is excerpted and adapted from The Best Way to Rob a Bank is to Own One by William K. Black. An assistant professor at the LBJ School of Public Affairs, Black was a federal regulator during the S&L crihis background in economics, law, and criminology to develop a theory called “control fraud”the looting of a company or a country for profit. Control frauds cause greater financial losses than all other forms of property crimes combinedyet no one even recognized their existence and common characteristics prior to Black’s work. Recently he was appointed Executive Director of the Institute for Fraud Prevention at the University of Texas at Austin. It’s a tall order: to teach future lawyers, economists, accountants, and others to identify the calculated dishonesty that can lead to a financial scandal on the scale of Enron or to the kind of devastation that control fraud has wrought in many poor nations. The real-world consequences, as Black reminds us, are almost unfathomable. Unfortunately, conventional wisdom doesn’t simply leave us unprepared and unduly sanguineit leads us to adopt policies that greatly encourage control fraud. The most recent wave of control fraud was a major contributor to the loss of an estimated $9 trillion in market capitalizationroughly equivalent to the GDP of the United States. The defining element of fraud that distinguishes it from other forms of theft, says Black, is that the perpetrator createsand then betraystrust. That is why nothing is as effective as fraud in eroding trust. sis, with an uncanny ability to end up in the wrong place at the wrong time and a talent for getting powerful politicians furious at me. After the crisis, I went back to school at the University of California at Irvine to learn to be a criminologist. I knew that the S&L crisis had grown out of systemic fraud. My dissertation studied California S&L control frauds. My book arose from concerns that we had failed to learn the lessons of the S&L debacle and that the failure meant that we walked blind into the ongoing wave of control frauds. The defrauders use companies as both sword and shield. They have shown themselves capable of fooling the most sophisticated market participants and academic experts. They are financial superpredators who use accounting fraud as a weapon and a shield against prosecution. Fraudulent CEOs can transform the firm and the regulatory environment to aid control fraud. They can use the full resources of the firm to bring about these changes. Control contributions. They may lobby in favor of deregulation or tort reform, or seek to remove the chief regulator. They can place the firm in the lines of businesses that offer the best opportunities for accounting fraud. This generally means investing in assets that have no readily ascertainable market value and arranging reciprocal “sales” of goods, which can trans form real losses into fictional profits. It can also mean, however, target ing poor 16 THE TEXAS OBSERVER MAY 27, 2005