Unum Species Furti: Cressey to Madoff

Sixty years ago this month, the first version of Donald Ray Cressey’s landmark treatise on embezzlement was published in Illinois, a state with a colourful history of theft, corruption, and graft where embezzlement is hardly a foreign concept. Sixty years later, embezzlement remains a difficult crime to police, an impossible activity to completely prevent, and a recurring threat to the public’s trust.

Theft is among the oldest crimes. By that I mean that societies with a concept of property rights quickly erected barriers and consequences (social and normative, in tort and pecuniary, or criminal and penal) between one person and the property of another. The words used for these concepts reflect the diversity of their parentage: from Rome’s crimes furtum and crimes raptus to the modern day thorough taxonomy of embezzlement, forgery, vol-sans-force, larceny by bailee, and so on.

Learned scholar Harold J. Berman of Harvard Law School perhaps did more to illuminate the relationship between people, property, and the State (the capital “S” Lockean state is what is at issue here) than anyone else in the Twentieth Century. I remember sitting in seminars in the University of Chicago’s Social Sciences Building on 58th Street debating Berman’s work, a lifetime of considering the relationship between person, property, and state reduced to writing. The debates were sometimes so vigorous that no one in the room could be bothered to glance at the clock (or notice that class was supposed to have ended long ago).

Embezzlement has always fascinated legal scholars, perhaps because its concept strikes at the heart of not only the social contract, but the intimate bilateral crumbs of trust that cause us to entrust our treasure to others. In essence, embezzlement combines two of the most complex concepts unique to our tiny human jurisdiction within the animal kingdom: property and trust. In order to commit embezzlement, the Seventh Century Germanic scholars of Charlemagne’s rule reasoned, a person must fraudulently take funds or property entrusted to him.

This person (the custos in facto) breaches the trust of the funds’ (or item’s) true owner, but also the trust necessary for a peaceful, mercantile society (which is coterminous philosophically, if not legally). Later (nearly a millennium later), merchants in France and Switzerland pushed for similar laws. A person who uses his (or her) position of trust to deceive, defraud, and profit must be punished quickly and sternly, reasoned these scholars – this concept of a breach of trust as a parallel to the older concept of a breach of the peace influenced the writings of Robert Joseph Pothier and Pierre Étienne Louis Dumont. It led to the concepts of fiduciary duty found in nearly all legal systems today.

Despite admirable work from dozens of scholars, Berman and Cressey included, policymakers enjoy a dubious reputation for deterring, preventing, and prosecuting embezzlement. Despite a solid understanding of the legal framework for embezzlement as a crime (Berman) and a solid case-based anthropological understanding of those who participate in the activity (Cressey), schemes of embezzlement remain unimaginably large in scale, unbelievably high in frequency, and frustratingly complex to detect, decipher, and prosecute. Despite knowing more about the who, what, and why of this crime than ever before in human history, embezzlement is likely larger (in aggregate) relative to the world’s economy than ever before.

Why, then, have policymakers been unable to attack a crime so central to society? Surely the betrayal of the trusting by the trusted burrows into the very core of what society’s rules must prevent.

Perhaps one of the reasons is that few people have today (and few people ever had) any assets to entrust to others. Hence, those who entrust large sums are seen in the media as the anonymous ruling class, as creatures of frolic, or as unworthy of sympathy. Yet, the entirety of society – not just its plutocrats – depends upon the ability to trust one another. Otherwise, society would be composed of raiders and those who cannot move, afraid to leave their meager possessions without garrison (and much of the world has looked, and does now look, precisely this way).

Regardless of one’s political or economic philosophy, trust is central to the society we endeavour to create and enjoy and betrayal of trust is a threat to that society. It is not a question of the upper class, middle class, or lower class, as being able to trust another with something precious is desirable and necessary to all three – trust is the crème pâtissière in the mille-feuille of society.

What does this mean? It means that prosecutions of Madoff ($65B), Cendant ($19B), WorldCom (tens of billions), Tyco (a still-uncalculated sum in the billions), etc. should be tied to a broader question of trust, rather than a narrow question of securities fraud or breach of fiduciary duty. These crimes do not simply harm investors or “market confidence” (an abstract concept if there ever was one), but do concrete, lasting harm to the ties that are needed for a healthy society to function. In the Sixteenth and Seventeenth Centuries, Dutch, English, and German legal scholars debated whether a breach of trust was analogous to a breach of the peace or something much less.

After Madoff and other recent cases, can we afford to ignore that it may be something much more?