Bank Fraud: Using Technology to Combat Losses

CHAPTER 1

Bank Fraud: Then and Now

Perhaps the earliest recorded case of fraud in the Western world was that of Hegestratos and Xenothemis in 300 B.C.¹ The story goes that Hegestratos took out an insurance policy on a boat for a large sum, with the deliberate intention of sinking it. At this time, ships were going down at a very high frequency, so this was not necessarily a bad idea (from the point of view of the fraudster), provided one managed to pull it off. Hegestratos was supposed to carry a large amount of grain from Syracuse to Athens on his boat. His idea was to not carry any grain but sink the boat halfway through the voyage and collect the insurance money. He would get the price of the boat reimbursed, and since there was no grain on the boat, he wouldn't incur the loss of the value of the grain. What ended up happening was something else altogether. The people on the boat got wind of Hegestratos's plan to drown them and confronted him. Unable to face the opposition, Hegestratos jumped overboard and drowned himself. His partner, Xenothemis, had to sail the boat to the port, and things didn't go well for him either. A legal battle followed between the buyer, Protos, who was waiting in Athens, and Xenothemis, when Protos, who thought he was getting grain, found out that there was no grain on the boat.

Even though the exact details of the verdict in this legal battle are lost to history, we know that Hegestratos and Xenothemis were unable to carry out their plan, and things ...