‘Influx of White-Collar Crime’, alarming Corporate India

Introduction

As per the World GDP Ranking List 2023, India seems to have bagged the 5^th position and is emerging as a leading contributor in traditional and modern agriculture, technology services, the handicraft industry, and business outsourcing. Despite India’s economic expansion, modernization, and global influence, the issue of white collar crime such as money laundering, corruption, corporate or securities frauds, etc. occurs at a higher value in crores of rupees.

Significance

White collar offences are financially motivated; non-violent offences committed by individuals, businessmen, professionals, or high-ranking government officials can become more prevalent as economic activities intensify. They are perilous for society and the nation because their impact is more severe than that of ordinary offenses, as they condense the confidence and moral standards of people. It is difficult to underscore delinquency in such offenders, as they enjoy high status in society and commit offences in a premeditated manner with meticulous planning.

Evaluation Report of Various Indian Agencies

The number of cases recorded under the PMLA in 2020–21 was 981; during 2021–22, it rose to 1,180; and there were 949 cases during 2022–23. The total number of money laundering cases registered in these three years stands at 3,110. Similarly, the federal agency booked 2,747 cases under the FEMA during 2020–21; 5,313 during 2021–22; and 4,173 cases in 2022–23. So a total of 12,233 FEMA cases were registered by the ED in the last three years.

KEY DETAILS OF PMLA CASES UPTO 31.01.2023

The Central Bureau of Investigation (CBI) has found a total of 6,533 cases of corruption over the last 10 years, of which 517 cases have been recorded over the last two years. Statistics showed a trading value of 4,000 crore using fake or duplicate PAN cards.

Also, as per the NCRB Report 2022 of MHA (Ministry of Home Affairs), a total of 4,139 cases were registered in 2022 by the State Anti-Corruption Bureau (ACBs) as compared to 3,745 cases in 2021, showing an increase of 10.5% under the Prevention of Corruption Act. A total of 24,420 cases have been registered under cybercrime, showing an increase of 42.7% over 2021 (17,115 cases). The cybercrime rate has increased from 15.0 in 2021 to 21.4 in 2022. Crime head-wise cases revealed that computer-related offenses (section 66 of the IT Act) (12,213 cases) formed the highest number of cybercrimes, accounting for 50.0% of all crimes during 2022. There are several big cases, such as the Vijay Mallya case, Nirav Modi's 2G scam, Satyam scam, GST frauds, and tax evasion cases, that result in huge economic losses of thousands of crore rupees. Recovery of the amount is a tedious task for authorities because of several complexities in the legal and technical structure. Let’s see some recent fraud cases in two different industries.

Recent Case Analysis

Amrapali housing Fraud Case

Amrapali Group, a prominent builder in the real estate industry, was charged by ED with money laundering and fraud. On conducting a forensic audit, it was found that:

• Homebuyers were deceived through fraudulent practices of making fake promises such as selling of flats which were not even part of the master plan of projects or unapproved in the master plan, and double booking of the same flat by different consumers. The money so generated was not entirely invested into projects but to increase the director’s ‘own personal assets’.
• It also found that the group had not maintained any accounts from 2015 to 2018, and that all the money earned during that period was diverted to other companies created by Amrapali and its directors for paying ‘professional fees’ or generating ‘bogus bills’ to the tune of Rs 837 crore including amount earned by selling flats at ‘undervalued prices’ or cheaper than market rates.
• The investigation began with the fact that Amrapali was due to pay a colossal amount of Rs 5,500 crore to Noida Authority and Greater Noida Authority. This is a serious kind of fraud played upon the homebuyers in active connivance with the officials of the Noida and Greater Noida Authorities to dupe homebuyers.’
• It was also revealed that the ‘Bank of Baroda, Syndicate Bank, Bank of India, Corporation Bank did not monitor utilization of funds and acted as a mute spectator to divert, happening evidently in all banking transactions’. The authorities, banks officials, unfortunately, acted in collusion with builders, found violating the doctrine of public trust.

The court in its verdict, directed the authorities and banks to recover money from ‘other attached properties of Amrapali’, has disallowed any kind of recovery from homebuyers. Real estate business would become to flourish if case of breach of trust would continue to prevail. Different Bankers, authorities in connivance and builders cannot be permitted to take away money of the innocent homebuyers without being accountable to their action/inaction.

Bhushan Steel Fraud Case

According to the ED, Bhushan Steel Limited's former managing director Neeraj Singal, alleged Rs 56,000 crore bank loan fraud linked money laundering case filed by SFIO, an investigative agency under MCA. The report of ED highlighted following facts:

•  He formed an array of dummy/shell companies, moving funds from one company to another via a chain of multiple entries to layer and integrates the funds. ‘The funds were circulated to infuse capital, acquire property and other personal gains.’
• It was revealed that the promoters/directors and officials of BSL prepared forged documents and made fraudulent representations before the banks to discount Letters of Credit and rerouting the funds back into their intricate network of companies, resulting to substantial loss to SBI and PNB.
• Investigators suspect that funds were "misappropriated" against the fabricated letters of credit created in favor of JSW Steel limited and Hindustan Zinc Limited and such misappropriated funds were diverted to other group or associated companies, causing unjust financial loss to the State Bank of India and the Punjab National Bank.
• In 2017, Bhushan Steel went bankrupt, escalating debt and financial irregularities. In May 2018, Tata Steel had acquired Bhushan Steel and its subsidiary under insolvency proceedings and underwent a name change to Tata Steel BSL. The Tata Group Company successfully resolved nearly two-thirds of Rs 35,200 crore the steel company owned to various banks.

The ED seeking custodial interrogation 2023 in connection with the Bank fraud of Rs. 56000 crore and attaching the personal assets under the investigation.

Key Developments

• The issue of "cyber security and rising incidence of cyber/white collar crimes" was at the central theme of a key parliamentary panel as experts from the industry were quizzed by lawmakers about various facets of unlawful activities, including fraud loan apps, which have been fraud lending with rising complaints of people being swindled or forced to disburse exorbitant interest rates, also a point for discussion at the meeting.

• The Jan Vishwas (Amendment of Provisions) Bill, 2023was passed in Lok Sabha, aims at giving a boost to Ease of Living and Ease of doing business. It proposes to amend 183 provisions in 42 Central Acts administered by 19 Ministries, covering various domains such as environment, agriculture, media, industry, trade, information technology, copyright, motor vehicles, cinematography, food safety, etc. The central purpose is to decriminalize minor offences that do not involve any harm to the public interest or national security and replace them with civil penalties or administrative actions, introducing compounding of offences in some provisions, periodic revision of fines and penalties every three years, with an increase of 10% of the minimum amount for various offences in the specified Acts.

• In 2023, 9thedition of ‘MASCRADE 2023’, organized by FICCI CASCADE,  Sanjay Kumar Agarwal, Chairman, Central Board of Indirect Taxes and Customs (CBIC), addressed his concern over “Illicit trade undermines national security, risks legitimate manufacturing, leaks government revenue, jeopardizes public health and safety and erodes the trust of consumers and investors.

For transforming Indian economy into a $5 trillion powerhouse in the coming years, the current trade composition at 30 percent would make the trade value at $1.5 trillion. The FICCI CASCADE-TARI report recommends adopting 6 Cs as a policy playbook to negate the threats: 

1. Cognizance of Terrorism and Organized Crime Under Regulatory Framework
2. Continuous and Critical Evaluation of Illicit Financial Flows
3. Central Nodal Agency for Greater Coordination
4. Creating Awareness and Changing Consumer Preferences 
5. Combating Trade Based Money Laundering 
6. Cooperation and Coordination at International Level 

India's budding global trade prominence raises the risk of trade-based illicit financial flows, potentially affecting economic progress concurrently battling against terror funding, so to counter these risks, India should espouse a comprehensive approach addressing illegal markets, terrorism, and organized crime, tailored to its unique circumstances and challenges.

Conclusion and Suggestions

Judicial leniency and Public Perception

Law commission is attentive of this lacuna of courts showing leniency in white collar crimes and raised in its 47th report states that It is important for all State instrumentalities involved in the investigation, prosecution and trial of these offenses must be oriented to treats these economic offenses as a source of grave challenge to the material wealth of the nation.

In contemporary society, public perception plays a critical role even in delivering justice. White-collar crimes, which encompass various financial and economic transgressions, tend to transpire discreetly and their consequences are typically less obvious or overt. The huge harm inflicted on the society, but it is less apparent to the general public. Even the sheer number of people that get affected is quite high in these types of offenses, especially economic offenses. But we rarely see major outcry or uproar in such cases when compared rapes or murder where the crime and its impact is directly visible.

The Manpower Shortage Conundrum

In 2016, Director of the CBI, Anil Sinha, highlighted the issue of manpower crunch and stated CBI will collapse without manpower. At that time CBI had 1531 vacancies in the organization. Such high vacancies reveal the huge gap between sanctioned strength of investigating officers and the number of vacancies. In 2023, the CBI still grapples with a shortage of expert personnel, with 1,709 vacancies against its sanctioned strength of 7,295. This persistent shortage of personnel significantly impedes the CBI's ability to provide prompt and efficient responses to cases of financial misconduct and other white collar crimes.

Gap with Technology

As per Cybercrime survey Report, 2017, 58% of organizations believe they are exposed corporate espionage, 32% are venerable to cyber attacks. Technology can be potentially be used for digital financial transactions and online banking has made to launder money and shift funds between accounts. Similarly, the rise of digital currencies such as Bitcoin, offers wrongdoers an unprecedented opportunity to engage in illicit activities without being traced.

Thus, it is necessitate increasing investment in technology and research techniques such as data analytics and digital forensics to improve the capabilities of law enforcement agencies to detect and investigate white collar crime and to provide training of law enforcement personnel in these areas.

References

NCRB Report 2017

The Hindu, Times of India, Economics times, the print

Article from Bar and bench

FICCI CASCADE-TARI report

Law Commission Report

PMLA Record 2023

Cybercrime survey Report, 2017 by KPMG