Franchise Fraud is Bureaucratic Corruption

Franchise fraud is bureaucratic corruption.

In their 2017 book Corruption: What Everyone Needs to Know, Ray Fisman and Miram A. Golden write:

In any setting, there can be the occasional bad apple — the unemployment officer who takes bribes, the public works inspector who doesn’t inspect, the dirty cop involved in extorting drug dealers. Occasional bad apples tend to get caught, however, because their peers and colleagues are not taking bribes and won’t shield their dishonest coworkers from punishment. For bureaucratic corruption to become common, bureaucrats have to shield rather than denounce one another. Likewise, bureaucratic corruption becomes common only if politicians are also routinely disregarding or even encouraging it. Corruption thus develops into a system that unites bureaucrats and politicians in defrauding the public when many culprits collude in the process. And when bureaucratic and political corruption become deeply intertwined.

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Franchise fraud is systemic. It’s bureaucratic. It unites bureaucrats and politicians and defrauds the public. The Federal Trade Commission, Offices of Attorneys General, the Small Business Administration, the Office of the Inspector General, and Congress all know what is going on.

But the public doesn’t. The public is being defrauded. And the newspapers can’t do their job and inform the public without losing franchiSOR advertising dollars.

Franchise fraud isn’t about occasional bad apples. It’s an incestuous integrated network of bureaucracies and individuals who are allowing the system to continue despite the incredible harm that comes to its victims and the impact illegitimate business expansion has on the economy and the legitimate mom and pop shops struggling to survive.

“Occasional bad apples get caught.” Yet endemic franchise fraud is happening right under the public’s noses. As Fisman and Golden assert, for this kind of corruption to have become common, politicians must be “routinely disregarding or even encouraging” the fraud and bureaucrats have to be shielding each other.

Over time, “corruption develops into a system.” There are many many people who know this is happening and who are turning a blind eye to the extreme harm that comes to victims. Remember, victims of franchise fraud face difficult lawsuits or fruitless forced arbitration. Contracts aren’t written fairly and franchiSORS are able to use the homes and life savings of their victims to illegitimately expand their businesses without taking any personal risk.

The magnitude of the harm that comes to investors should not be understated. They lose everything in a corrupt system that is rigged against them.

All of this, to me, doesn’t also mean that all the aware politicians and bureaucrats have “bad hearts.” Yes, they’re involved in corruption, no doubt about it. But I assume that the bureaucrats who are shielding franchise fraud today aren’t the same bureaucrats who shielded it in the past. They inherited the system of corruption that the victims are stuck in. The franchise system has long been fraught with unspoken and hidden injustice and an extreme influx of franchiSOR lobbying dollars. The likelihood that any one of today’s bureaucrats could alone expose and stop the fraud just by choosing to have integrity and speak up is negligible. There’s too much power and too much money behind the fraud for such an easy solution to be effective.

But no doubt there are some politicians and bureaucrats who have superb integrity who may be willing to speak up about the truth and help fight to end the corruption to protect the victims and the economy. Even if the problem is one they inherited, silence is complicity. Innocent people are being harmed. The problem is known by the people at the top and bureaucrats and politicians have voices to speak.

The public should know about the corruption, too.

When politicians and bureaucrats turn a blind eye, shield each other and even encourage the corruption, they are part of the problem even if it is a problem they inherited rather than a problem they created. And, of course, in cases when they take bribes or participate in writing rules that support corruption and allow them more campaign dollars, they are guilty. The fraud victims pay for their gain.

Yet despite their complicity, the bureaucrats and the politicians aren’t the ones who should ultimately face full accountability for the harm that defrauded franchiSEES experience. The people who should face full accountability are the ones making money off of the fraud: the banks, the franchiSORS, and anyone who brings in bucks after deceptive franchise sales. Attorneys who knowingly help their franchiSOR clients maliciously use civil process to perpetuate the fraud belong in that category, too. The fact that deceptive, bureaucratic corruption exists and is endemic doesn’t justify further tormenting fraud victims and assisting fraudsters in their work.

Depending on the extent of fraudulent behaviors, individual complicity, and professional ethical standards, some should face jail time. This is corrupt, systematic and extreme white collar crime. Many innocent people are losing everything they own and years of their time.

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