The 2001 Dutch Construction Fraud Scandal Case Study

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When it comes to any crime or series of crimes, there are three main components that are typically present when it comes to the people involved. Those three parts would be the opportunity, the financial pressure involved and the rationalization.

Opportunity

In the case of the 2001 Dutch construction fraud episode, the opportunity would be created by the fact that the regulation and control of the Dutch construction market was not pressing or present enough to stop the fraud from starting of perpetuating. As will be explained later in this section, the opportunity for crime in the Dutch construction industry from 1992 to 2001 was substantial due to the lack of clarity the law and the even lesser enforcement quality that underpinned the same (Vulperhorst, 2005).

Financial Pressure

The financial pressure involved in that scandal would be to create and extend profits and money stores more so than is typically allowed for by the Dutch construction market, the government limitations involved and so forth. One intriguing facet of the 2001 construction scandal in the Netherlands is that even those directly involved in the crime itself lamented the fact that the crime was going on. Indeed, they noted how it was made easy to be doing the actions involved but that it was also a negative for them because they felt that the behavior was “crippling the renewal of entrepreneurship in the building trade”. In other words, the actors involved were not necessarily fond of what they were doing to create and perpetuate the fraud. At the same time, they apparently felt financial or other pressure to engage in the fraud because the opportunity was there and there was money to be made from the same. This was apparently enough to get them to pounce on what they felt they could take (Vulperhorst, 2005).

Rationalization

The rationalizations involved from such a scandal like the Dutch scandal in 2001 would obviously vary. However, the point is that the rationalization would somehow deign to justify why the cheating or bad ethics are acceptable. A few examples did or would include that the regulations are too strict, that the profit margins are not high enough, that there is more value to the work being done than is being created, that the people involved deserve the extra money as part of their service to the construction company and/or the public and so forth. When it comes to public sector employees involved in the fraud like the 2001 scandal, there is the concept of them warping and otherwise changing what is permissible and what is allowable under the law. Further, the consent and involvement of such government officials is often necessary to even allow the fraud to begin with as the scandal would not be possible were it not for their cooperation in such a crime (Vulperhorst, 2005).

A specific example of rationalization that can be directly attributed to what was revealed during the 2001 Dutch construction fraud scandal can be seen with the ostensible wrongness of the pre-planning and improper negotiations that were going on as juxtaposed with what the construction directors said about the same. Indeed, they looked back at the clandestine deal-making and negotiations that are otherwise mentioned in this report and said that while they felt the system of collusion should be stopped, there was “scarcely a single contractor has argued that doing business illegally was totally inappropriate in itself”. As for how these construction leaders could justify known and continued violation of the law, they felt that the Dutch laws circa 1992 were lacking in clarity. Beyond that lack of clarity, the enforcement of those same rules was basically absent. Thus, the construction leaders involved had little incentive to comply with the law because there was money to be made from engaging in the behavior and there was seemingly little to no negative consequence for doing so (Vulperhorst, 2005).

The Crime - Fraud Activity Triangle

When it comes to any crime, whether it be a smaller crime or a rather large systemic one, there are three major components. Those parts are the act itself, the concealment of the act and the conversion.

The Act

The first two parts of the fraud activity triangle are fairly obvious to explain and recount while the latter might not be as obvious. The first part is the act itself. The act alone is not enough to “get away” with the crime. However, it is the genesis and onset of the malfeasance that is going on. Just a few examples that can be pulled directly from the 2001 Dutch constructions scandal include bid-rigging, collusion and so forth.

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One of the acts that was part of the 2001 fraud revelations was supposedly dealt with in the earlier part of the 1990’s. Apparently, it was not dealt with firmly enough. At issue is when the parties involved in a project are allowed to consult and work with each other. There is a defined period of consultation and working together that is expected and allowed for. Coordination in addition to or prior to that is not generally allowed. There was apparently knowledge of this pattern as far back as 1992 but the proper reactions and enforcement mechanisms were not put in place. Fast forward to the 2001 kerfuffle and the seventy million in euros that were i9mproperly handled or charged and it was clear that the same tricks and acts were still in place (Vulperhorst, 2005).

Concealment

No matter how small or large the crime that is committed, it has to be done in a way that is not obvious and/or that can be concealed. When it comes to collusion and bid rigging, among other things, along the lines of what was seen with the 2001 Dutch construction scandal, this can be easier said than done. They would tend to include using methods and options that lend themselves to not get getting caught as well as getting others to “play along” and otherwise facilitate the fraud or crime that is going on. Participation and cooperation of government officials or the silence of people that know better but say nothing, both of which were very present during the 2001 Dutch construction fraud scandal, would be good examples. A more specific example would be the “clandestine” pre-planning and pre-coordination that was happening up to 2001 that was addition to what was allowed for, not to mention it was against the relevant laws of the country. Even with the knowledge and reactions from earlier events in the 1990’s, it took the fuller and swift action of the Dutch Parliament in 2001 and beyond to truly get to the root of what was going on in the industry. Despite being revealed in part before 2001, the concealment of back-room deals and negotiation was still going on with no end in sight (Vulperhorst, 2005).

Conversion

The conversion would be the synthesis and filtering of any given act to make it appear to be genuine and legal. Money laundering is a good example. In the case of money laundering, the illegal source and genesis of some funds is concealed and “washed” so as to help to not reveal the fraud or other crime. In the case of the 2001 Dutch construction fraud scandal, this would refer to portraying that the extra funds from inflated bids, kickbacks and subsidies that were not applicable or earned were actually legitimate in nature. The cycle in its totality as it pertains to the 2001 scandal would be the illegal or unethical acts themselves, the concealment of the same and then the conversion of the funds or other activity to make it appear as if the entire process was proper and legal. The illegal subsidies that were procured by the three big construction firms that were later caught and fined would be a great example of the fraud triangle. A more specific example is the padding of profits in general. Indeed, it was found as a result of the Dutch scandal coming to light that customers typically suffered a “detriment” of about 8.8 percent. What this would mean is that they generally paid almost nine percent more than they normally would or should under normal market conditions and proper government oversight. The padding of bids, the collusion between parties and the acquiescence or cooperation of government officials is what all leads to these bids and amounts going higher than they should and thus “converting” them to appear to be normal costs of doing business and part of the legal and normal process of allocating construction projects. In the case of the Dutch construction fraud scandal, some of the names that came to light as being participatory and aiding in the cost inflation were Benk Kothals of the Ministry of Justice and Annemarie Jorritsma, the former Ministry of Transport. It was noted that both of them aided and abetted the fraud on some level. Jorritsma apparently….....

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