THE RISING MENACE OF WHITE-COLLAR CRIMES

 “Prisons are fascinating places, especially when the inmates are educated white-collar types.”

                   —-John Grisham

WHITE COLLAR CRIMES- INTRODUCTION

Corporate crimes are referred to as ‘white collar crimes’ which mainly reflects financially motivated, non-violent crime committed by various business and government professionals. The concept of white-collar crime was first perceived by Edward Ross and later white-collar crime got recognition in the ideas of Edward H. Sutherland. The most eminent American sociologist and criminologist, Edwin Sutherland defined white-collar crime as ‘a crime committed by a person belonging to upper class, has high social status and reputation within the course of their occupation.’ The main attributes of white-collar crime derived from Sutherland’s definition are-

• It is a crime.
• It is committed by a business professional or any other important person of a company.
• That person enjoys a high social status and may be a reputed one.
• He should have committed it in the course of his occupation.

According to the Federal Bureau of Investigation, white-collar crimes are ‘illegal acts which are characterised by deceit, concealment or Violation of trust and which are not dependent upon the application or threat of physical force or violence.’

According to Geral N. Hill and Kathleen T. Hill, ‘white-collar crime is a generic term for crime involving commercial fraud, cheating consumer, swindles, inside trading on the Stock market embezzlement and other forms of dishonest business schemes.’

Most common white-collar crime includes identity theft, mortgage broker fraud, bribery, and tax evasion. These crimes are also common in relation to medical, engineering and even legal profession.

HISTORICAL BACKGROUND

In 1934, Morris drew attention to the necessity of a change in emphasis regarding crime. He said that anti-Social activities committed by persons of high status and professions must be brought within the category of crime and should be made punishable.

So, finally Edwin Sutherland came with the concept of ‘white collar crime’ (crime committed by high professionals) in order to distinguish it from the prevailing ‘blue collar crime’ (traditional crime). The prominent sociologist and president of American Sociological Society, Edwin Hardin Sutherland first coined the term in 1939. He mainly hinted to the fact- how enforcements of various legal provisions focus on the crimes committed by the lower classes and largely ignores and overlooks that of elite class.

The concept of ‘white-collar crime’ found its place in criminal field for the first time in 1941.

WHITE-COLLAR CRIMES IN INDIA

White-collar crime is widespread not only in the developed countries but is also emerging in developing economies like India as well. ‘The business standard’ published a report on October 22, 2016 named ‘The changing dynamics of white-collar crimes in India.’ The report shows that over the past 10 years, the Central Bureau of Investigation (CBI) has prepared nearly 6,533 corruption cases, of which 517 have come up in the past two years (2014-15). In 2015, India ranked 76th on Transparency International’s corruption perception index (CPI), up from 85th in 2014. The improvement in rank is due to receiving of less corruption complaints. But still India is not at a good stage with respect to CPI.

White collar crimes emerged in India with the arrival of the British colonisation during the period of industrial capitalism. Some men working with the District treasury misused with the money kept under his safe custody. Therefore, the white-collar crimes were restricted to this limit. In today’s day, with the emerging number of white-collar crimes, the people have turned to real ’meat-eaters’ from mere ‘grass-eaters.’

The list of white-collar criminals in India mainly includes perpetrators of lottery fraud, fake recruitment racketeers, ATM fraudsters, travel agents, property dealers, agents making fake court affidavits and death certificates and many others.

The trend of white-collar crimes in India is a threat to the economic development of the country. These crimes require immediate intervention by the government by not only making strict laws but also ensuring its proper implementation. White Collar Crime is pervasive in almost all the professions and occupations in the society.

COMMON TYPES OF WHITE-COLLAR CRIMES IN INDIA

1. Bank Fraud

Bank fraud is a type of criminal act that arises when an individual uses illegal means to receive money or assets from a bank or other financial organization. The term bank fraud also refers to attempts by an individual to get money from a bank’s depositors by falsely pretending to be a bank or other financial organization. Various types of Bank Frauds include imitating a bank or other financial institution, defrauding by means of cheque, approving loans by fraudulent means, bank frauds using cyber technology. According to a 2019 report by ‘The Hindu’ the bank frauds has risen by 45% in the past 10 years.

Laws regulating cases of bank frauds–

Perpetrators of frauds in banking transactions are liable to be prosecuted under various provisions of the Indian Penal Code, 1860.

• Section 403 of IPC deals with Dishonest misappropriation of property.
• Section 405 of IPC deals with Criminal breach of trust.
• Section 415of IPC deals with cheating.
• Section 463deals with forgery.
• Section 489Adeals with counterfeiting of currency, deals with the crime of fraud in banks.

2. Bribery

According to the Black’s Law Dictionary, Bribery is the offering, giving, receiving, or soliciting of any item of worth to influence the actions of an official, or other person, in control of a public or legal duty. Bribery is a white-collar crime where a person asks for money, or a favour, or something of value in order to get the other person’s work done. The act of bribery is much prevalent in the Indian scenario. According to Transparency International India Report, the percentage of bribery in 2017 was 45%, whereas in 2018 it increased to 56%. However, the report shows a declining trend in the year 2019. Bribery rate in 2019 was 51%. Most common methods of bribery include bribing legal witness, bribing foreign officials and bribing persons involved in banking sectors.

Laws regulating cases of Bribery-

• Under Section 171B of the IPC, if any public official accepts either for himself or for any other person any gratification as a reward for showing undue favour to any person and commits the offence of bribery, he will be liable for imprisonment.
• Under Section 169 of IPC, if a public servant unlawfully bids for any property, he shall be punished with imprisonment up to 2 years or fine or both.
• Section 13 of the Prevention of Corruption Act, 1988 has also penalised acts constituting an offence related to bribery, being engaged in by public officials.

3. Money Laundering

Money Laundering refers to converting illegally earned money into legitimate money. The government does not get any tax on this illegitimate money because this money is not counted. So, Money Laundering is a way to hide the illegally acquired money. Money is invested in such a way that even the investigating agencies can’t trace the main source of generation of wealth. The person who manipulates this money is called ‘launderer.’ The activities of money laundering mostly prevail through the shell companies. The three main steps involved in laundering are placement, layering and integration. This causes a huge distortion in the economy of the country.

Laws regulating cases of Money Laundering-

• The Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974
• The Benami Transactions (Prohibition) Act, 1988
• The Prevention of Money Laundering Act, 2002 is enacted to prevent money laundering and to provide for confiscation of property derived from money-laundering.

4. Extortion

Extortion is the act of trying to urge money, goods, property, or any other things of worth from another person by posing threats, or using violence, fear, humiliation, or any other unlawful threat.  Assault and battery may occur in the process of extorting the victim. Depending on the circumstances, the criminal may indulge in robbery or another illegal act when attempting to extort the victim.  Section 383 of the IPC gives the definition of extortion. It is included under white-collar crime because an officer may use his official right and make use of his higher position in the company to threaten another person for giving money, or transferring property, or for providing services. The two most plausible types of extortion are bribery and blackmail.

Laws regulating cases of Extortion–

• Section 384 of the IPC provides for the punishment in cases of extortion.

5. Tax Evasion

Tax evasion occurs when a person or an association illegally takes purposeful steps to avoid paying tax liabilities. In simpler words, it is the act of reducing the amount of tax that one has to pay by using various illegal methods. Tax evasion is a criminal offence in our country. Tax evasion may be done by an individual, corporation or even by a trust. Mathematically, tax evasion is nothing but the difference between actual amount of income that has to be reported and the amount reported/disclosed. Chapter 22 of the Income-tax Act,1961 states that consequences of tax evasion include heavy penalties and even jail in few cases. Some acts which can be classified under tax evasion are-

• Failure in filing income tax returns
• Providing fake PAN cards to customers
• Not providing correct details of income
• Using fake documents to claim exemption
• Unreported income/Black money

Laws regulating cases of Tax Evasion-

• Section 139, sub section (1) of Income Tax Act, 1961 deals with failure in filing oncome tax returns.
• Section 221(1) of the Income Tax Act, 1961 provides for imposition of penalty in not paying tax properly.
• Section 271(c)of the Income Tax Act, 1961 deals with the aspects of not providing correct income details.
• Prevention of Money Laundering Act, 2002
  

MAIN CAUSES OF WHITE-COLLAR CRIMES IN INDIA

India is a developing nation. The major drawbacks behind the slow economic development in India are unemployment problems, poverty, illiteracy, and health issues. Our country does have strict laws, but barely those are implemented. These scenarios provide an ample opportunity toward the flourishment of white-collar crimes. Various factors which can lead to white-collar crimes. The factors can be economical, social, or even political. Globalization and liberalization may also be responsible for the commission of the white-collar crimes. The changing socio-economic scenario of the society in today’s times along with the increase in wealth and prosperity of some people has exaggerated the opportunities for such kind of crimes. The general opinion is that the white-collar crimes are committed because of greed and economic instability. Some of the causes of white-collar crimes are as follows-

• The problem of white-collar criminality has its origins in the competitive business community. Such crimes may be committed simply and purely for the sake of retaining existence in the competitive business.
• The white-collar crimes are committed by people who are financially stable and belong to high class in the society. They perform such illegal acts only for satisfying their wants out of greedy nature.
• Technology is advancing day by day. Many individuals rely on electronic mode of payments. Various big transactions are done through electronic mode. This provides the criminals an ample incentive to commit more crimes and hide anywhere in the world.
• Poverty is a cause for financial and physical threat among the major portion of population. Since people are so much in need of money, they easily get attracted by the false representations made to them. They forget to look into the genuineness of the representations being made to them.
• Another cause for the increasing number of white-collar crimes is the relatively high socio-economic status of white-collar criminals. They have various connections to certain influential groups and political persons and are powerful enough to handle their occupation delicately. The persons affected can hardly figure out that they are being cheated.
• The public in our wide-ranging nation is also fairly indifferent towards such crimes which thereby causes an barrier in the prosecution and punishment of the white-collar criminals.

LEGISLATION AGAINST WHITE COLLAR CRIME IN INDIA 

The government of India has introduced various regulatory legislations, the breach of which will amount to white-collar crime. Various legal provisions help in the identification of white-collar crimes. Some of the legislations are-

• Essential Commodities Act, 1955
• Industrial (Development and Regulation) Act, 1951
• The Import and Exports (Control) Act, 1947
• Foreign Exchange (Regulation) Act, 1974
• Prevention of Money Laundering Act, 2002.
• The Information Technology Act, 2005
• Income Tax Act, 1961
• The Companies Act, 2013
• Indian Penal Code, 1860
• Prevention of Corruption Act, 1988
• The Central Vigilance Commission Act, 2003
• The Custom Act, 1962
• The Anti-corruption Laws (Amendment) Act, 1961
• The Anti-corruption Laws (Amendment) Act, 1967
• Emblems and Names (Prevention of improper use) Act, 1950
• OECD Anti Bribery Convention
• The Benami transactions (prohibition) Act, 1988
• The Special Court (Trial of offences relation to Transactions in Securities) Act, 1992

HOW EFFECTIVELY OUR JUDICIARY IS DEALING WITH THESE CRIMES

Corruption in our country not only poses a crucial danger to the concept of constitutional authority, it also threatens the very foundation of Indian Democracy and the Rule of Law. The magnitude of corruption in our public life is incompatible with the concept of socialist, secular, democratic republic. The white-collar crimes have not been specifically defined anywhere in the statute, but there exist various legislations which imply the existence of such crimes.

In the recent years with the emergence of new technologies and advancement in different sectors, like the industrial sector, business sector, etc., these crimes have experienced a rapid growth. According to a report of Business Standard of December 2019, there is a 15% surge in the number of white-collar crimes from the previous year (2018) and the amount of losses incurred from those frauds increased up to 80%. The report depicts that the financial sector is the worst affected by these crimes.

Detection of criminality is a tough task in white-collar crimes committed as these are committed by well-trained minds who hold high status in the society. In spite of having various legislations to deal with white-collar crimes, but most often these offenders go unpunished. The law implementers belong to the same group or class to which these criminals belong, moreover insufficient effort of the police are the main reasons due to which these criminals go unpunished. There are nearly 3 crores cases of white-collar crime pending before the Indian Judiciary. A definite law dealing with such crimes is indeed the need of the hour. The courts need to put better emphasis on these crimes. The way these crimes are rising day by day is really alarming. It will stand as a great obstacle in the path of economic development of India.

SIGNIFICANT WHITE-COLLAR CRIME CASES IN INDIA

1. Sarada chit fund case

Sarada Group financial Scandal was a serious financial scam and alleged political scandal caused by the collapse of Ponzi scheme which was being run by Sarada Group. This group collected around ₹200 to ₹300 billion from over 1.7 million depositors, promising to provide a multiplied heavy sum in return in the form of cash or real estate and other assets. Nearly 10 Sarada group entities were alleged for committing fraud through public money-laundering activities. Continuing public protest against the group’s suspected fraudulent activities, SEBI banded Sarada Realty India and its manager Sudipta Sen from the stock exchange.

The central government launched a multi-agency probe to inquire about the Sarada Scam and similar Ponzi scheme. Later, in May 2014 Supreme Court of India referred this case to CBI, India’s federal investigation agency. Many prominent personalities were arrested for their involvement within the scam.

2. Punjab National Bank Fraud

The protagonist of this case is India’s 85th richest person, Nirav Modi. The Modis and their relative Mehul Choksi and other companies linked with them schemed with Shetty to tug off the heist. The bank claims they used fake PNB guarantees worth Rs 11,000 crore in order to get loans from overseas branches of Indian banks. PNB’s preliminary investigation showed that two officials of the bank had fraudulently issued LoUs (Letters of Undertaking) to the said firms without following the due procedure. These LoUs were then transmitted across the swift messaging system, basing on which the credit was offered to the said firms. PNB alleged that the funds allegedly so raised for the acquisition and sale of diamonds were not used for the said purpose.

PNB issued to the stock exchange, about the detection of the fraudulent and unauthorized transaction. PNB has incurred $1.8 billion fraud, one amongst the most important to be detected in Indian Banking Sector.

3. SEBI v. Burman Plantation and Others

Before the High Court of Allahabad, the learned counsel on behalf of SEBI claimed that the corporate is being wrongly accused as the company was not in a position to pay its debts at the particular time, including payments to its investors. When the advertisement by the company was put to question, the council said that the advertisement was given in 2003 while the order was passed in 2004, when the company was not in a position to payback its debts.

Moreover, the amount of money which the investors were claiming was nowhere cited. The assertion of the counsel made the legislatures raise the punishment from 1 year to 10 years and also increased the fine which can now extend to 25 crores by amending the laws under section 24(1) of the SEBI Act. At last, Ravi Arora, the accused, was held liable.

4. Harshad Mehta Securities Fraud (1988-1995)

Harshad Mehta, who was going through immense poverty, rose meteorically over the years to become one of the most influential and powerful brokers on the Bombay Stock Exchange. He was a reputed name in the stock market and is considered the ‘Sultan of Dalal Street.’ He took a loan of huge amount from the bank and purchased the scrips at high prices, thereby creating a false market. He misused his status and manipulated the stock prices of certain scrips for his gain. This resulted in unnatural pumping of money in the stock markets causing an abnormal rise in the price of these shares. This act of Harshad Mehta though being immoral was not illegal. The problem arose when Mehta obtained capital to invest in the stock market by misappropriating bank’s money. This misappropriation of money falls in the purview of money laundering. He earned approximately ₹ 5000 crores. The renowned journalist Sucheta Dalal exposed this scam. This unrestricted selling caused the market to lose ₹ 0.1 million in a single day. This was the biggest ever crash faced by the Indian stock market. To curb such illegal transaction, various changes were brought in SEBI rules and regulations.

5. The Satyam scandal

This is one of corporate India’s worst recounting chapters.  Mr. B. Ramalinga Raju, Founder and Chairman of Satyam Computer Services dramatically stepped down after admitting of faking financial figures of the company amounting to Rs 7,136 crore, including Rs 5,040 crore of non-existent cash and bank balance. This scam is considered to be an important contributory factor towards the recession of 2009. In this scandal, SEBI investigated strongly and held Ramalinga Raju and nine major associates guilty of insider trading, indulging in fraudulent and unfair trade practices. SEBI directed accused to pay approximately ₹3000 crore within 45 days and also debarred them from accessing the security markets in any way for 14 years. This scam is well known as ‘the biggest ever corporate accounting fraud.’

REMEDIAL MEASURES TO CURB WHITE-COLLAR CRIMES IN INDIA

In a country like India where large-scale starvation, mass illiteracy and ignorance affect the life of majority of the people, white collar crimes are inevitable to multiply in large proportion. Control of these crimes is a crucial problem for the criminal justice administration in this country. However, some of the remedial measures for combating white-collar crime may be stated as follows-

• Creating public awareness against these crimes through the help of press, and other audio-visual aids. Intensive legal literacy programmes may help in reducing the incidence of white-collar criminality to a considerable extent.
• To uproot the existence of such crimes, it is very important to include strict laws into the system. Less amount of fine and shorter period of imprisonment makes it very casual for the offenders to commit such crimes.
• The government must ensure to use powerful software to perform exception monitoring in real time. This software can flag anomalous activity as it happens, providing an invaluable early-warning system.
• The government may establish a separate body which would look into the matter of crimes and criminality prevailing in the country. Since their entire work would be related only to the crimes and would be an independent body, it could work more efficiently towards reducing criminality in the country.
• Special tribunals should be constituted with power to award sentence of imprisonment up to a definite period for white collar criminals.

CONCLUSION

The financial loss to our Indian society from these crimes is far superior compared to those voracious crimes committed by persons of lower socioeconomic status. They violate the trust which results in the lowering of social morale and social inadequacy to a very large extent. White-collar crimes are non-violent in nature, so the chances of the criminals getting caught is very low. Since the acts involved deceiving public faith and belief, public as a whole mass should come forward to protect the whole society from these greedy people who are destroying the ethics and morality of the society slowly and slowly for their sole aim of pursuing narrow self. It is true that eliminating white-collar crimes is indeed not easy. There’s a famous legal maxim ‘Fraus Omnia Vitiate’ meaning ‘Fraud violates everything.’ The media can play an important role in reducing the rate of increasing white-collar crimes. If the media becomes more active towards publishing frauds and scams at higher levels and revealing how do the people at higher position in a company use their powers illogically, then this would certainly help in reducing the rate at which the white-collar crimes are being committed.

Author: SHINJINEE NAMHATA,
IFIM LAW SCHOOL, BENGALURU, 1st Year BBA-LLB