“It has become appallingly obvious that our technology has exceeded our humanity.” – Albert Einstein
The world went through various phases of transformation after the Industrial Revolution in the eighteenth century. Technology has made our lives easier since its invention but who’s to say if humans run the world or the technology? Now, we are in yet another transformation, forced to depend on technology more than ever. Who would have thought of complete deprivation of human intimacy and reliability on video calls for personal or public interaction of any sort?
The ease of doing business is usually followed by the ease of committing a crime. Everything comes at a price they say, but the question is what price are you willing to pay? There is a reason that Economic crimes are considered a more complex and distinct criminal phenomenon. The Supreme Court has made an important distinction between economic crimes and other crimes: P. Chidambaram vs Directorate Of Enforcement, (2019) 9 SCC 5
“Power under Section 438 CrPc (direction for anticipatory bail) being an extraordinary remedy has to be exercised sparingly; more so, in cases of economic offenses. Economic offenses stand as a different class as they affect the economic fabric of society”
The reason the bench referred to economic offenses as a different class is worth noting. So before we dwell on questions like what are economic crimes, how can we classify them, and what legislation is doing to prevent crimes of this nature, let us understand that not only does the rise in economic crimes pose a threat to the social and economic development of a country but the social damage caused by it is usually invisible. Economic crimes tend to divert the much- needed resources for boosting the country’s public services. In the context of India, where social welfare is required in every aspect of governance, the surge of economic crimes puts the welfare of the poor and, marginalized at stake. India is sadly infamous for corruption activities and since independence, we have had our share of big scams in the economic sphere. One reason for the selective judicial action and inefficient prosecution of this type of crime is the link of various powerful actors backed with political and economic influence.
WHAT ARE FINANCIAL CRIMES?
Economic Crimes known as financial crimes involve crimes committed through deceit and are usually motivated by financial gain. It often involves the unlawful conversion of the ownership of the property to one’s own personal use. What separates them from common theft or robbery is the abuse of a position of trust.
Financial crime can be committed by
An institution (public/private) like the banks through tax evasion, money laundering, insurance fraud, market manipulation, etc.
An individual (including public officials) through bribery, embezzlement, identity theft, forgery, etc.
TYPES OF FINANCIAL CRIMES
With every second, the global economy gets more complex and the scope of financial crimes increases with it. This section gives an overview of some of the types/forms of financial crimes and their relevant legislation in India.
FRAUD
. ‘Fraus Omnia Vitiate’ – Fraud vitiates everything.
Fraud in the broadest sense is an intentional deception made for personal gain or to damage another person/ entity. Section 17 of the Indian Contract Act defines fraud as
“17. ‘Fraud’ defined.—’Fraud’ means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent1, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract:—”
But what motivates fraudulent activities one may ask?
Fraud is truly motivated by greed. Moreover, opportunities to commit such a deceitful act may arise because of a weak control environment in an organization.
A corporate fraud occurs when a company or an entity deliberately changes and conceals sensitive information. Companies adopt various modus-operandi to commit such corporate frauds, which may include misinformation in the prospectus, manipulation of accounting records, debt hiding, etc.
RELEVANT PROVISIONS
The main statute governing criminal offenses in India is The Indian Penal Code, 1860 and the related offenses concerning fraud are dishonest misappropriation of property(S.403), criminal breach of trustS.405), forgery(S.463), falsification of accounts(S.477A) and cheating(S.415). (The Indian Penal Code, 1860)
Punishment for fraud concerning affairs of a company or anybody corporate is defined under Section 447 of the Companies Act as
“Without prejudice to any liability including repayment of any debt under this Act or any other law for the time being in force, any person who is found to be guilty of fraud involving an amount of at least ten lakh rupees or one percent…”
Moreover, Serious Fraud Investigation Office (SFIO) has been set up by the Ministry of Corporate Affairs (MCA) and has the power to detect, investigate and prosecute white-collar crimes and frauds with multi-disciplinary ramifications or involve public interest.
BRIBERY AND CORRUPTION
Corruption has seeped into every institution of India, there is no denying it. A fear that the system is so corrupt that it is nearly impossible to remain honest in the face of it. India is ‘Most Corrupt Country in Asia-Pacific Region’, according to a recent study by Transparency International, a Berlin-based NGO working against corruption. Seven out of 10 people in India, the study stated, had to pay a bribe to access public services. (Your story, 2017)
RELEVANT PROVISIONS
The Prevention of Corruption Act 1988 (PCA) is the primary legislation relating to the prevention of corruption.
Some of the acts criminalized under The Prevention of Corruption Act 1988 (PCA) are:
Taking of gratification by a public servant in respect of an official act other than legal remuneration.
For a public servant, obtaining anything of value, without consideration from any person concerned in any proceeding or business transacted or about to be transacted by such public servant.
Criminal misconduct by a public servant. The offense of abetment under the PCA is also an independent, distinct, and substantive offense. Whether or not the offense is committed in consequence of the abetment is irrelevant.
Central Vigilance Commission (CVC), Central Bureau of Investigation (CBI), and State Anti-Corruption Bureau (ACB) are the authorities responsible for prosecution, investigation, and enforcement in cases of bribery and corruption.
CBI investigates corruption cases under the Prevention of Corruption Act, 1988 (PCA), and the Indian Penal Code 1860, while ACBs of the respective states investigate corruption cases of the concerned states.
MONEY LAUNDERING
Under the Prevention of Money Laundering Act 2002 (PMLA), the offense of money laundering is defined as directly or indirectly, attempt to indulge, knowingly assist, knowingly becoming a party or being involved in any process or activity connected with the proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property.
Money laundering which is popularly known as Hawala transactions in India is the act of hiding the true origins of “dirty” money. Before the enactment of the Prevention of Money Laundering Act, 2002 this offense was covered under the violation of foreign exchange rules under the Foreign Exchange Regulation Act (FERA) and later under the Foreign Exchange Management Act (FEMA)
The Directorate of Enforcement (ED), and the director of the Financial Intelligence Unit of India (FIU), can exercise exclusive powers granted under the PMLA to prosecute and investigate in matters related to money laundering. The FIU is an independent body, which reports directly to the Economic Intelligence Council, and is responsible for coordinating national and international investigation and enforcement agencies in pursuing global efforts against money laundering and related crimes.
The Income Tax Act 1961 also prescribes certain requirements for certain professionals to maintain books of accounts and other supporting documents for general requirements of financial record keeping and disclosure.
TERRORIST FINANCING
As the name suggests, Terrorist financing is the illegal transfer of cash to terrorist organizations. One of the vital aspects of combating terrorism for any country is to choke the flow of funds to the terrorist. In India, more and more resources and efforts need to be devoted to launching a financial war against terrorism. It is a far more distinct and secretive activity as the terrorist financiers deliberately do not spend large amounts of money at once to avoid the attention of both the government as well as the financial institutions.
RELEVANT PROVISIONS
The Unlawful Activities Prevention Act 1967 (UAPA) covers offenses such as conspiracy and commission of an act which is considered to be a terrorist activity (that is, acts that threaten the economic security of India) through the illegal circulation of counterfeit currency and harboring of a terrorist
The National Investigation Agency (NIA) is India’s counter-terrorism task force. It was set up after the 2008 Mumbai terror attack as the central counter-terrorism investigation organization and was given the mandate to investigate serious offenses related to terrorist activities affecting the sovereignty, security, and integrity of the country. (The Economic Times, 2018)
RECENT INITIATIVES
Fugitive Economic Offenders Act, 2018
This act seeks to confiscate the properties of economic offenders who have left the country to avoid facing criminal prosecution or refuse to return to the country to face prosecution. The Act allows for a person to be declared as a fugitive economic offender (FEO) if:
(i) an arrest warrant has been issued against him for any specified offenses where the value involved is over Rs 100 crore, and
(ii) He has left the country and refuses to return to face prosecution.
To declare a person an FEO, an application should be filed in a Special Court (designated under the Prevention of Money-Laundering Act, 2002) containing details of the properties to be confiscated, and any information about the person’s whereabouts. The Special Court will require the person to appear at a specified place at least six weeks from the issue of notice. (PRS INDIA)
CONCLUDING REMARKS: REFORMS AND THE ROAD AHEAD
The 1992 Indian stock market scam that shook India and immediately highlighted the loopholes in the banking sector which benefited the corrupt stockholders and brought the collapse of the Indian stock market is one of the many lessons in history that we should keep revisiting. It called for fundamental restructuring and preventive reforms in the economic sector (Harshad S. Mehta & Ors vs The State Of Maharashtra, 2001). Presently we have the legislation, what we lack is the proactiveness of the financial sector and the implementation of these laws. Our judicial system is burdened with thousands of cases and the delivery of justice is rather slow so people have lost faith in the legal mechanism. An alternative can be Internal Investigation, it allows the company to properly assess the allegations and find out the reality accompanied by carrying out a forensic investigation into the affairs of the company.
Forensic Accounting is a new and upcoming field that can be explained as the culmination of investigative and accounting skills. It aims to cross-checks the various financial records of a business to find any indication of fraud being committed and also provides an in-depth analysis of the financial books which could be presented in the court of law as evidence
The evolution of technology can be used to curb financial crimes and promote safety infrastructure. Artificial Intelligence (AI), Machine Learning (ML), and Data analytics (DA) can be used to distinguish fraudulent transactions from real transactions.
The Financial Action Task Force (FATF) is a global money laundering and terrorist financing watchdog that sets international standards to prevent illegal activities in the economic and financial channels of a country and its inter-connected linkages across the world. The same was going to review India’s anti-money laundering and terrorist financing regime this year as part of a regular review cycle after 10 years, but with a pandemic on everyone’s mind that has been postponed. One can only hope that India takes into account the necessary recommendations and moves towards a robust financial system. (Technical Report on Market Integrity – Issues and Status, 2002)
References:
The Indian Penal Code. (1860).
Harshad S. Mehta & Ors vs The State Of Maharashtra, 319-320 of 1996 (2001).
(2002). Technical Report on Market Integrity – Issues and Status. Reserve Bank of India.
(2007). Economic crime: people,culture & controls. India: PricewaterhouseCoopers.
The Companies Act. (2013).
Your story. (2017). Retrieved from https://yourstory.com/2017/12/8-scams-india
The Economic Times. (2018). Retrieved from https://economictimes.indiatimes.com/news/defence/nia-to-have-new-hq-complex-on-tuesday/articleshow/60993539.cms
P. Chidambaram vs Directorate Of Enforcement, 1831 (The Supreme Court of India December 2019).
The print. (2020). Retrieved from https://theprint.in/india/fatf-review-of-indias-anti-money-laundering-regime-postponed-to-early-2021-due-to-covid/468581/
Bharti, A. (n.d.). LEGISLATIVE MEASURES TO DEAL WITH ECONOMIC CRIMES IN INDIA. Retrieved from https://www.unafei.or.jp/publications/pdf/RS_No67/No67_22PA_Bharti.pdf
Indian Kanoon. (n.d.). Retrieved from https://indiankanoon.org/
PRS INDIA. (n.d.). Retrieved from https://www.prsindia.org/billtrack/fugitive-economic-offenders-bill-2018
The times of India. (n.d.). Retrieved from 2019: https://timesofindia.indiatimes.com/india/bail-in-economic-offences-will-hamper-probe-supreme-court/articleshow/71001667.cms
