White-Collar Crimes – India

India's tryst with white-collar crimes dates back to several decades with several legislations having been enacted to counter it

Edwin Sutherland, a sociologist and criminologist, coined the term "white-collar crime" in 1939. It is a crime committed for financial gain and includes money laundering, tax evasion, bribery, insider trading etc. under the legal regime in India.

India has made strides to achieve the status of a global player yet appears to not have made substantial efforts in improving its ranking in the Corruption Perception Index, recently being ranked at 85. Particularly, these rankings show no drastic change even in the aftermath of amended provisions concerning corruption and other reporting regulations.

In a recent judgement rendered in relation to grant of bail to a top officer of group companies, the Court remarked, "white-collar crimes are particularly harmful to society as they are committed by not just literate, but well educated and influential persons, who are expected to set a moral example and behave responsibly".

India's tryst with white-collar crimes dates back to several decades with several legislations having been enacted to counter it. Some of the key legislations are:

Indian Penal Code, 1860 (IPC) - is the primary penal statute dealing with a host of offences and guides the criminal law machinery. Several provisions in the IPC could be termed as falling under category of white-collar crimes. Primary provisions invoked in case of white-collar crimes are, dishonest misappropriation of property, criminal breach of trust, cheating, dishonestly inducing delivery of property, forgery, falsification of accounts and criminal conspiracy.

Prevention of Corruption Act, 1988 (POCA) - penalises giving or taking of any type of illegal gratification. The scope of POCA however, is restricted to the public sector, that is provisions get attracted only with respect to a public servant and not to acts of private bribery.

The amendment of 2018 has brought sweeping changes to POCA. For instance, bribe givers are now expressly punished under the amended regime, as opposed to, being treated as abettors in the unamended statute. Furthermore, abetment of any offence under POCA has, also been made punishable.

Amended provisions of POCA specifically provide for offences committed by commercial organisations and also deals with offence committed with consent or connivance of any director or official of the company. This amendment and, insertion of provision for attachment or confiscation of money/property, procured by means of an offence under POCA, be lauded, as it may act as a deterrent.

Prevention of Money Laundering Act (PMLA)– seeks to prevent money laundering and provides for confiscation of property derived from or involved in, money laundering. PMLA also seeks to recover proceeds of crime vis-à-vis offences of cross-border implications. The level of meticulous planning and attention to detail, coupled with large networks involved in commission of money laundering, makes it one of the most nuanced white-collar crimes.

Recently, the apex Court has rendered a landmark judgement, upholding the constitutional validity of the PMLA. This judgement though subsequently is sub judice under a review, is rather significant for on-going and future investigations triggered under the PMLA. There is no gain saying that the judgement, impacts right of the accused persons. It upholds the wide investigative powers including powers of arrest and attachment as necessary means in combatting the menace of money laundering. Further, safety valve for aggrieved persons has also been recognised by the Court, in cases where authorities initiate action without a nexus between predicate offence and proceeds of crime.

Companies Act, 2013 – deals with aspects related to financial irregularities, fraud, fraud reporting, related party transactions, corporate criminal liability, and penalises such offences.

Apart from the above, other statutes in the sphere of white-collar crimes are, Fugitive Economic Offenders Act, 2018, Essential Commodities Act 1955, Import and Export Act, 1947, Benami Transactions (Prohibition) Act, 1988, Whistle Blower Protection Act, 2014 etc.

Key regulations – amendments to SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 extends requirement of constitution of Risk Management Committee to a larger number of listed entities. Further, all Stock Exchanges, Clearing Corporations and Depositories, now require formulation of a code of conduct to regulate, monitor and report trading by designated persons and their immediate relatives. Such bodies are required to establish an institutional mechanism for prevention of fraud or market abuse, system of internal controls and effective whistle-blower policy. Recently, a notification regarding delisting of inactive companies and de-registering them has also been issued. This process may also, aid in curbing financial fraud and other white-collar crimes.

While the India economy is resilient post the pandemic, increasing instances of white-collar crimes is a cause for alarm. Historically, a crisis is often followed by a rise in the number of financial crimes, which may be attributed to stimulus packages, subsidies, grants, and other ways and means of boosting cash flow. India is seeing a huge spike in cases relating to cybercrime, employee fraud, illegal profiteering, accounting malpractices, money laundering, corruption in the grant of government contracts, bailouts etc which are expected to grow in the next few months and years.

Even amidst the unprecedented pandemic, Indian enforcement and investigative agencies continued to be active and clamped down heavily on high profile cases, cybercrimes and made significant arrests. This has come at the cost of enforcement agencies garnering criticism from political quarters and constitutional experts including questions on impartiality and due process. Even though the arrests made and actions taken were in the realm of prevalent statutes, it has often been labelled and perceived as politico-social vendetta.

The trend of white-collar crimes in India poses a threat to the economic development of the country and has the potential of tarnishing its image and credibility as a favoured investment destination. It, therefore, requires immediate and serious intervention by the government, by not only making stricter laws, but also in ensuring its proper and strict implementation.

Current times not only require enforcement agencies to be stricter, but also warrants that corporate entities put in place adequate checks and balances while being vigilant to restrict white-collar crimes. These procedures would commonly include:

(i) frequent checks and training/hygiene drives - exercises for identification of risks coupled with assessment of controls/checks and balances

(ii) proper vigil mechanism incentivising whistle-blowers to raise their concerns

(iii) rules regarding maintenance of proper documentation to curb illegal practices

(iv) prompt internal investigations and enquiries, of suspected instances, of illegality with a view to fix liability of individuals concerned

(v) monitoring of high-risk areas with the help of data analytics

(vi) creation of hotlines for an anonymous, safe and easy reporting mechanism

(vii) data backups and cybersecurity

Entities engaged in business having government interface, cash flow and areas which are regulated and traditionally considered high-risk, as well as, organisations dealing with sensitive personal data, must look at swift implementation of such procedures.

Fast-paced technological advancements without adequate legal checks and balances are often seen to lead to newer and more devious ways adopted by offenders in committing crimes of a financial nature. Though there have been changes in governance norms, regulatory and reporting requirements, these changes may not be enough to counter the complexities for rising white-collar crimes. The Indian legislature is required to address these issues with advanced mechanisms and laws.

Disclaimer – The views expressed in this article are the personal views of the authors and are purely informative in nature.