APIs of evil: studying fraud as infrastructure

Patrick McKenzie (patio11) reads an essay about "industrial-scale" fraud and why it should be treated as a professional business process rather than a series of isolated accidents. He explains how fraudsters leverage specialized supply chains—shared CPAs, incorporation agents, and "least attentive" banks—to loot public funds. Patrick argues that the government’s "pay-and-chase" model is fundamentally broken and suggests that simple "proof of work" functions, like a 30-second cell phone video of a workspace, could provide the visceral signal that paperwork lacks, and examines the state’s lack of "object permanence" regarding serial fraudsters and how scaled data provides the defense-side advantage needed to catch modern frauds.

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Full transcript available here: www.complexsystemspodcast.com/fraud-as-infrastructure/

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Links:

• Bits about Money: https://www.bitsaboutmoney.com/archive/fraud-investigation/
• Dan Davies on Complex Systems: https://open.spotify.com/episode/5QKxzgumJXSQuaWCmYAoM9
• Jetson Leder-Luis on Complex Systems podcast: https://open.spotify.com/episode/3NiC7x9edoxJXkNW9vRfAT
• Stripe’s Emily Sands on Complex Systems: https://open.spotify.com/episode/64Dyh6Gbg1lg4qUFwId0hc

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Timestamps:

(00:00) Intro
(05:23) In which we briefly return to Minnesota
(09:26) Common signals, methods, and epiphenomena of fraud
(09:30) Fraudsters are playing an iterated game
(11:29) The fraud supply chain is detectable
(14:27) Investigators should expect to find ethnically clustered fraud
(20:11) Sponsor: Mercury
(21:47) High growth rate opportunities attract frauds
(26:04) Fraudsters find the weakest links in the financial system
(32:35) Frauds openly suborn identities
(35:57) Asymmetry in attacker and defender burdens of proof
(40:13) Fraudsters under-paperwork their epiphenomena
(44:22) Machine learning can adaptively identify fraud
(48:14) Frauds have a lifecycle
(50:34) Should we care about fraud investigation, anyway