What Is Commercial Fraud?

Commercial fraud is a legal term that describes deceptive practices or legal violations committed by corporate executives for financial gain. There are many different kinds of commercial fraud. Some involve misrepresentative statements to the public about corporate performance in order to boost sales or inflate stock value. Failing to disclose certain income on business tax returns can also constitute fraud, as can colluding or self-dealing, insider trading, executive kick-backs, and the misuse of corporate goods for personal gain. Most countries impose criminal fines and sanctions on corporate executives found guilty of commercial fraud.

Fraud laws — that is, laws prohibiting and punishing fraud — are nearly ubiquitous in legal systems throughout the world. In its most basic sense, fraud is any misrepresentation or deception that is (1) intentional and (2) designed for some tangible gain. Commercial fraud is simply a kind of fraud that happens in a corporate setting, usually by and through the actions of corporate executives.

In most cases, commercial fraud involves some kind of misrepresentation that ends with corporate executives making more money or earning more in bonuses than they otherwise would. This includes stock and securities manipulations as well as false testimony, tax return inaccuracies, and schemes to shield money and profits off-shore. Even something as simple as using a corporate account for a family vacation can be seen as company fraud, particularly if the executive writes off that vacation as a business expense. In so doing, he is taking something that is not his, claiming it as his own, and then lying about it.

It can be tempting to think of commercial fraud as somewhat insular: how a company wants to handle its affairs is largely that company’s concern, or so the sentiment goes. To a certain extent, this is true. Most corporations are publicly funded, however. Investors from the private sector often own a significant portion of many businesses in the form of stock shares and futures interests. Fraud and fiscal mismanagement amongst executives defrauds not only the company as an entity, but also every individual investor who owns an interest.

Commercial fraud is also bad for the economy more generally, as it sends a signal that big businesses are unchecked and not to be trusted. This can discourage investments, which can stymie growth. It is for this reasons that governments set and enforce corporate fraud law.

Identifying commercial fraud is usually a job for government enforcement agencies. Individuals can also report corporate fraud. Many governments have established laws that protect employees and others who wish to reporting fraudulent corporate conduct. These laws are often called “whistle-blower” statutes. The main goal of whistle-blower statutes is to encourage people to report questionable practices and incidents of potential business fraud in exchange for immunity and insulation from retaliatory action.