The Trust Loophole

“It’s not against the law to lie.”

When a parliamentary peer under investigation for a PPE-related fraud case justified a falsehood told to the press by saying, “It’s not against the law to lie,” the words landed with startling clarity with me. On one level, the statement is technically accurate. On another, it’s an indictment of something deeper: a society where legality has displaced morality as the benchmark for acceptable behaviour.

This wasn’t just a throwaway line, it was a declaration of a worldview. One in which deception is permissible so long as it stays on the right side of the law. One where truth, trust, and the social contract are downgraded beneath a checklist of what’s procedurally defensible.

In that moment, we gain a glimpse at what Michael Sandel might call the shift from a moral economy to a market society, where decisions are no longer governed by "Is this right?" but by "Is this allowed?" The alleged fraudster’s comment is less about personal corruption than it is about cultural drift, a recalibration of conscience where law becomes the floor, and the ceiling, of our moral imagination.

As we explored in a recent Moral Universe article looking at trust’s dependence on a web of unspoken expectations (Trust Everybody, but Shuffle The Cards yourself), Break those, and you undermine more than a rule. You undermine the framework underlining just how dangerous the “it’s not illegal to lie” mindset can be. Trust is not built on what’s merely legal. It rests on a shared sense of what’s fair, honest, and right. When actors in positions of influence or access (as many PPE contractors were) begin to justify dishonesty because it isn’t illegal, they erode the connective tissue that holds democratic societies together. Law becomes a loophole manual, and integrity becomes optional. That one sentence settled with me as a warning, not a shrug. It’s the kind of statement that reveals the slow corrosion of civic norms, the monetisation of truth, and a worrying redefinition of what it means to be accountable; a quiet recalibration in how we think about wrongdoing.

In all my time working in the area of risk, at its essence, fraud has been defined as a deception. How could that be over-looked or misunderstood? This was said as a defence. But what it revealed was something deeper. It was not just whether someone broke the law, but rather a normative configuration of the moral compass. Over the past two decades working in banking, I’ve watched this shift with growing unease. And during the early stages of my PhD, a conversation with one of my supervisors brought this tension into sharp focus. I made the comment, perhaps a little too confidently that “Fraud has never been worse than it is today.” She responded with a question that has stayed with me ever since. “Has it really worsened, or have our definitions just changed?”

 Looking Back to See Clearly Now

In a previous Moral Universe article (see Deepfake Democracy) I referred to how that question about current perceptions of fraud severity prompted me to dig deep into the UK’s Hansard parliamentary archive, tracing how fraud has been talked about in political discourse from the 1800s to today.

Earlier debates saw fraud often discussed in moral terms. It was about honour, shame, betrayal of public trust. There was an assumption that certain forms of behaviour were unacceptable, not because they violated a statute, but because they violated a sense of integrity. In the 19th century, when MPs debated scandals ranging from adulterated foodstuffs to corrupt commissions in the army, the focus was not just on what was illegal, but on what was dishonourable. The public trust was something to be upheld, not just managed.

Contrast that with recent scandals. The entrepreneur striving to democratize financial tools like crypto, the university dropout seeking to revolutionize healthcare by making blood testing faster, cheaper and more accessible or the “VIP fast-track” lanes for the awarding of PPE contracts during the pandemic. Across those sectors, be it finance, health or public procurement, these cases all demonstrated that the stated good intentions do not justify deception, corner cutting or self-interest masked as a service. Each situation involved systemic failures of due diligence, exploitation of trust and harm caused to those who were meant to be protected. Sam Bankman-Fried viewed truth as flexible and ethics as a “dumb game” played by “woke westerners”. At the height of the Theranos hype Elizabeth Holmes claimed that her devices were fully operational, knowing that they weren’t. The PPE VIP Lane’s official defence was a need to act fast against the backdrop of a pandemic and the use of “trusted contacts”. Those involved all asserted technical legality as a shield “No rules were broken.” But that isn’t the point. When moral judgement is stripped away, all that’s left is compliance, and compliance, as we’ve seen, is often negotiable.

 Lessons from Across the Atlantic

In the United States, those recent high-profile cases like Elizabeth Holmes (Theranos) and Sam Bankman-Fried (FTX) have shown what happens when fraud is treated not just as a legal offence, but as a betrayal of public and investor trust. Their convictions, however complex the legal arguments, sent a clear societal message, that deception has consequences.

What’s notable is the public narrative that accompanied those trials. These weren’t just about balance sheets or technical breaches. They were about ethics. About misleading people. About the human cost of fraudulent optimism, market manipulation, and trust broken at scale. In the FTX case, Attorney General Merrick Garland summed up the mood when he stated “There are serious consequences for defrauding customers and investors. Anyone who believes they can hide their financial crimes behind wealth and power, or behind a shiny new thing they claim no one else is smart enough to understand, should think twice."(https://www.bbc.co.uk/news/live/world-us-canada-68656415accessed 31 July 2025) In his closing arguments of United States vs Holmes, of Holmes, Assistant U.S Attorney General Jeffrey Schenk stated that her choices with investors and patients were “not only callous, but criminal”. (Paul, K: The Guardian, December 16, 2021, https://www.theguardian.com/technology/2021/dec/16/elizabeth-holmes-trial-closing-arguments).

In the UK, by contrast, despite high-profile investigations, no criminal charges have been formally brought. Multi-million-pound contracts were awarded during the pandemic through the now-infamous “VIP lane” to politically connected individuals and companies, some with no prior experience in medical procurement. Investigations have uncovered unusable PPE, questionable lobbying, and vast sums of public money wasted or unaccounted for. In the case of PPE Medpro, linked to Conservative peer Baroness Mone, £75 million in assets have been frozen and fraud investigations are ongoing. Yet still, no one has stood in the dock.

This absence of legal resolution creates a different public mood. A murky fog, not a reckoning. While courts have ruled that the VIP lane breached the principle of equal treatment, the findings have remained administrative rather than criminal. The National Audit Office, the Public Accounts Committee, even the High Court, have all documented significant concerns, yet the narrative remains one of regulatory failure, not of personal accountability.

So why, as with so many UK scandals, does the reaction to this seem to stop short of moral clarity? Why is there such reluctance to name this as fraud, not just as failed procurement, or poor governance, but as a betrayal of public trust? In part, the answer may lie in the UK’s institutional instinct to frame systemic failure as technocratic error, not an ethical breach. There’s a cultural tendency to smooth scandal into silence through inquiries, committees, and quietly shelved reports. But the consequence is corrosive. When deception is dressed as diligence, and no one is held to account, the boundary between unethical and illegal grows ever fuzzier. And in that space, public trust erodes, not with a bang, but with a snivel.

 The Compliance Trap

Fraud today has been professionalised into abstraction. We judge it less by moral instinct and more by whether it fits within a policy or regulation. That shift is necessary for governance, but it strips away the shared sense that some actions are wrong even if they’re allowed.

Michael Sandel describes this as the drift from a moral economy to a market society, where we ask “Is it allowed?”instead of “Is it right?” Zygmunt Bauman warns that in complex systems, responsibility fragments, each person’s role is so small they feel no real accountability. Fraud becomes a compliance problem, not an ethical breach.

In the digital realm, Shoshana Zuboff shows how personal data has been monetised without consent, justified by technical legality rather than moral legitimacy. Similarly, institutions often treat dubious conduct as fine so long as it passes the framework test.

Albert Hirschman noted long ago that systems can defuse moral objections by reframing them as inefficiencies or personal opinions. The same thing happens in corporate reporting: if a practice doesn’t explicitly violate a rule, it disappears from view, even if it’s dishonest or exploitative.

Across these perspectives runs the same thread: a shift from judgement to justification, from moral language to procedural checklists. When fraud is reduced to a risk to be managed, the public gets the message. Only the illegal matters, and everything else is negotiable. No wonder trust feels so fragile.

Where to From Here?

Many lies are perfectly legal. Outside contracts or courtrooms, much of our social life rests on unspoken expectations that law cannot enforce but civilisation depends on. Paul Seabright, in The Company of Strangers, reminds us that modern life works only because we trust people we don’t know, boarding planes built by strangers, eating food handled by others, investing in systems we can’t fully inspect. This trust rests on norms, signals, and institutional credibility. When someone says, “It’s not illegal to lie,” the real question is: which part of that trust did the lie erode?

Our ancestors trusted only kin. Scaling trust required markets, courts, reputations, mechanisms where deceit carried consequences. In historical trade networks studied by Elinor Ostrom and Avner Greif, lies could be legal yet ruinous, costing the liar their place in the network. Today, digital anonymity and scale weaken those costs. Platforms reward attention over truth, identities are easily faked, and the institutions meant to enforce honesty struggle to keep up.

We rely on heuristics; uniforms, logos, confident tones to judge who to trust. As Joseph Henrich and Ken Binmore note, these shortcuts only work where deception is costly and truth more efficient than fraud. But synthetic media, deepfakes, and spoofed credentials have slashed the price of lying. The trust economy Seabright described now faces a “signal liquidity crisis,” where convincing falsehoods are cheap and abundant.

Legally, lying may be harmless. Socially, it’s a systemic risk. As Francis Fukuyama warns, high-trust societies are more prosperous, but not invulnerable. Every legal-but-deceptive act chips away at the reserves that keep strangers cooperating.

The “it’s not illegal to lie” defence is legally true but socially toxic, a declaration of bad faith. Countering it requires more than laws or firewalls; it demands a revival of the moral language of trust and public duty. Sometimes the real damage isn’t that someone lied. It’s that the truth no longer seemed to matter.

Reclaiming Moral Clarity

So, what does this mean for those of us working in fraud prevention, governance, or public service?

Here are a few questions I think we urgently need to ask:

• Are we too focused on legality and not enough on integrity?

• Do our frameworks encourage accountability, or excuse avoidance?

• What would it look like to reintroduce moral reasoning into our compliance cultures?

• Can we reframe trust not as naïveté but as a collective asset. Slow to earn, fast to lose?

And perhaps most importantly:

• When public trust is breached, should we be content with legal absolution? Or should we demand ethical reckoning, too?

References

• Bauman, Zygmunt: 2000: Liquid Modernity

• Binmore, Ken: 1994: Playing Fair - Game Theory and the Social Contract

• Binmore, Ken: 2005: Natural Justice

• Fukuyama, Francis: 1995: Trust: The Social Virtues and the Creation of Prosperity

• Greif, Avner:2006: Institutions and the Path to the Modern Economy

• Henrich, Joeseph:2020: The WEIRDest People in the World: How the West Became Psychologically Peculiar and Particularly Prosperous

• Hirschman, Albert: 1991: The Rhetoric of Reaction

• Ostrom, Elinor: 1990: Governing the Commons

• Paul, Kari: “Elizabeth Holmes ‘Chose Fraud over Business Failure’, Prosecutors Say in Closing Arguments.” The Guardian, December 16, 2021. https://www.theguardian.com/technology/2021/dec/16/elizabeth-holmes-trial-closing-arguments.

• Sandel, Michael: 2012: What Money Can’t Buy: The Moral Limits of Markets:

• Seabright, Paul: 2010: The Company of Strangers

• Zuboff, Shoshana: 2019: The Age of Surveillance Capitalism