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A Detailed Analysis of 'White Collar Crimes' with Special Emphasis on India

Author: Ayush Dwivedi, Sanket Jamuar

Hidayatullah National Law University, Raipur


1. Introduction

In the 20th Century, Edwin Sutherland a sociologist and professor was the first in his generation to deal with the study of white collar crimes. His career was majorly prioritised in developing theories and concept of criminal behaviour.

He broadened the scope for the study of issues related to crime. He published an article based on the functioning of 70 major American corporations and 15 utility companies. His study talked about crimes committed by persons of respectability and of high social status. He stressed on the fact that the cause of crime cannot be restricted on the factors such as poverty and other psychological factors but also to crimes committed by corporations, employees which hampers economically. He even increases the scope of study of criminals which are not only confined to lower class offenders.

He defined White Collar Crime as “a crime committed by person of high respectability and high social status in the course of his occupation”. In 1930s, Industrialisation which emerged during this period encompasses with all kinds of criminal activity such as fraud, corruption, influencing stock exchanges and buying fraudulent stocks.

1.1 Meaning of ‘White Collar Crimes

White Collar Crimes are the crimes which are committed for financial gains by a way of deceit, concealment of facts which tend to influence or rather say, hamper the other party’s interests and violation of trusts. These crimes are tedious to prosecute as they include sophisticated and various people. It also overlaps today’s present day corporate crimes such as fraud, bribery, embezzlement, money laundering and copyright infringement. Herbert Edelhertz proposed to define white-collar crime as "an illegal act or series of illegal acts committed by nonphysical means and by concealment and guile, to obtain money or property, to avoid payment or loss of money or property, or to obtain business or personal advantage" Here we very specifically see that it talks about non-violent act done with deceit in order to obtain financial gains.

If we talk about fraud in corporate field, it involves deceptive accounting schemes by concealing the fact from the investors, auditors, and analysts about the true financial state of a corporation or business entity. In these circumstances manipulation of financial data, the share price, or other steps taken to show a better picture of their performance in economic terms. Money laundering is the process of converting cash earned from illegal activities, such as drug trafficking and sex trafficking; into earnings obtained from a legal business entity. The process of channelizing black money into legally earned money. Here, the illicit activities involved are terrorism, drug traffickers, healthcare fraud etc.

2. White Collar Crimes in India

White collar crimes have a large impact on the society. They are sometimes even termed as ‘socio-economic’ crimes because whenever a white collar crime is committed there is a direct impact on the society as well as the economy at large[i]. Unfortunately, the white collar crimes which have been exposed in India during the past 2 decades viz. 2g Scam, banking scams, havala scams etc., Indian economy has broken into shambles. The general forms of white collar crimes in India includes-

Ø Bank Frauds

Ø Bribery

Ø Cybercrime

Ø Money Laundering

Ø Tax related crimes

Ø Data theft

Bank Frauds- It is a fraud which aims at gaining undue advantage of the banks by exploiting their credit lending arrangements generally with the help of an insider (Employee of the Bank). A report of Reserve Bank of India on Indian Banking system has revealed that a total of 71,500 crores rupees frauds have been done in the Financial year 2018-19. Interestingly, government banks contribute to 90% of that 71,500 crores.[ii] Recently, ‘Fugitive Economic Offenders Bill, 2018’ was passed to tackle the growing cases of Banking Frauds.

Bribery- Bribery is giving away of something to a person sitting on an important position to get favours in return. Public officials in India have been quite infamous for their indulgence in bribery.

Cybercrime- Growing digitization in the banking system has been witnessing ever growing increase of cybercrime in India. However, Cyber crimes also includes the cases of Child pornography, circulation of defamatory contents etc. apart from monetary crimes. The ‘Information Technology Act, 2000’ is the most pertinent legislations dealing with cyber crimes.

Money Laundering- This is a famous type of white collar crimes in which the criminals disguise the identity of the money i.e., they try to show illegitimate money as white money. The ‘Prevention of Money Laundering Act, 2002’ is the primary legislation which covers the issues pertinent to Money Laundering.

Tax Evasion- Tax Evasion is the active concealment of one’s taxable income with any intention to reduce the tax liability in the eyes of the taxation authorities viz, Income Tax Dept., CBDT etc.

Data Theft- This is a type of crime in which the criminals steal the personal information of a person with an intention of using those information to earn money. Recently, Supreme Court has included Right to Privacy under Right to life in the case of Navtej Singh Johar v. Union of India.[iii]

3. Legislations on White Collar Crimes in India

White Collar Crimes do not have a dedicated legislation on them rather they have been covered under various legislations dealing with different types of crimes. These legislations generally identify and define white collar crime and also lays provisions of the punishment for the same. These are the famous legislations covering White Collar crimes[iv]-

Ø Companies Act, 2013

Ø Income Tax Act, 1961

Ø Indian Penal Code, 1860

Ø Commodities Act, 1955

Ø Prevention of Corruption Act, 1988

Ø Negotiable Instrument Act, 1881

Ø Prevention of Money Laundering Act, 2002

Ø Information Technology Act, 2000

Ø Import and Export (Control) Act, 1950

Companies Act, 2013- This Act exhaustively deals with the provisions of White Collar Crimes undertaken in working of a company viz., Sec. 36- Punishment for fraudulently inducing persons to invest money, Sec. 38- Punishment of Personation for Acquisition etc. Companies are many a times involved in fraudulent practice of manipulating market conditions as well as attracting investments.

Indian Penal Code, 1860- Section 405 of Penal Code, 1860 defines ‘Criminal Breach of Trust’. Cases related to Embezzlements are covered under this provision. Some examples of embezzlement which constitute White Collar Crimes are “Bankers directly dealing with the customer and giving them access to the funds of the banks, using the assets of the company viz., car, laptops etc. for personal use etc.” There are many other sections of this Act which also deals with White Collar Crimes.

Prevention of Corruption Act, 1988- Section 13 of this Act criminalizes the act of accepting bribe in any form. It has been seen that a lot of public officials demand money in lieu of the positional favors which they forward. The objective of this Act was to consolidate and amend the laws relating to the prevention of corruption and matters connected therewith.

Information Technology Act, 2000- Section 43-A of IT Act lays a provision of compensation for failure to protect data. It has been seen in many cases that an online submitted personal information is leaked or fraudulently used for deceptive purposes and they are sometimes even used in Credit Card Scams and Online Payment Scams. Thus, ‘Data’ has now become the most valuable asset of humans in today’s digitalized world. Many other white collar crimes of digital nature are covered under this Act.

4. Famous White Collar Crimes of all time

4.1 Bernard Madoff Case

Here, in this case Madoff encouraged investment from businessmen and various companies around the world and further used their investments rather than paying off their profits, he kept the difference. During recession period all his sources of liquidity were over and when the investors demanded their money back, it was found that around $64.8 billion was the size of fraud that was committed. He was sentenced to 150 years of jail and was ordered to pay $170 million.[v]

4.2 Harshad Mehta Case

An Indian stock broker brought shares in heavy numbers of Associated Cement Company and increased its price from Rs.200 to 9000. Mehta firm also brokered under the deception of collateralised bank receipts. He regained his trust from the buyers by using the advantage of various loopholes in banking market and inter-bank transactions. He was charged with 72 criminal offences and 600 civil law suits. Bombay High Court found him guilty of the criminal offence and total amount of scandal was accounted to INR 4999 crores. This forced Bombay Stock Exchange and SEBI to act upon and formulate new rules to eradicate inadequacy of law.

4.3 Kenneth Lay Case

The owner of the company Enron which was formed by following merger between Houston Natural Gas Company and Omaha-based InterNorth incorporated. Due to lack of laws on energy market allowed Enron to place bets on future prices. It started working with fake holdings and off- the-record accounting practices. It also made similar company as other business entity to conceal debts and toxic assets (called as Special Vehicle Purpose). Enron used to transfer its shares to SPV and was majorly capitalized with Enron stock and also leads to conflict of interest as inability to hedge its shares when Enron share prices fell. $74 billion amount was lost to shareholders caused by company’s bankruptcy. Various executives were also charged with insider trading, conspiracy and securities fraud.

5. Conclusion

In the last recent scenario there is a gradual shift in the perception of the public of doing business in India. Now people are more aware and also amendments in regulatory policies have led to counter white-collar crimes in India. Transparency has become an essential tool to function and manage business transactions in an ethical manner, eradicate white-collar crime and to restore the nation’s image globally. New steps as well as policies to ameliorate the ease of doing business in India are persuading corporates to build stringent internal controls, framework for anti-fraud cell. Various regulations have been subjected to amendments so as to fight against bribery, fraud, corruption and various other white-collar crimes. These steps led to inclusion of confidence among shareholders as well as the general public at large. Still various steps or measurements have to be taken to counter white collar crimes at its nascent stage. As Indian government empowered enforcement agencies such as Serious Fraud Investigation Office, Central Bureau of Investigation the Enforcement Directorate, The Directorate of Revenue Intelligence, Economic Offences Wing and others are able to govern corporate transaction more stringently including prosecution along with punishments. To control the increased number related to white-collar crimes and protect various stakeholders’ economic interests, enforcement agencies are also exploring in various technological aspect and implanting forensic techniques to expedite the process of catching fraudsters. We can conclude that lately Indian Government has empowered enforcement authorities empowered by new and stringent regulatory mechanisms that will create deterrence to corrupt practices. It is through these enforcement that will set a standard for future steps or efforts in the country.

6. Authors’ Suggestion

It is very important for the society to understand that a crime is a crime, whether it is ‘Theft’ or a ‘Bank Fraud’. The way Indian society is perceiving the white collar crimes is one of the most alarming symptoms of ‘acceptance’ towards a crime. Many psychological surveys have revealed that person who is tried for a white collar crime does not faces the same hardship as that of a person tried for a normal crime. They carry a sense of pride even if they are convicted. Thus, they have somewhat become ‘morally just crimes’.

Solution to these problems can be found in the very roots of the education i.e. the elementary education. They should be shaped in such a way that a crime done for economic advances are not accepted anymore by the society. Furthermore, quantum of punishment awarded or penalty levied for a White Collar Crime should be made very stringent as they victimize no single person but the society and country at large.

[i] Khan, A. (2013).White Collar Crime-Study of Emerging India.2013.M.D University. [ii] Rs 71,500 crore worth of bank fraud detected in FY19: RBI Report, Finance, (2019), https://economictimes.indiatimes.com/news/economy/finance/bank-fraud-touches-rs-71543-crore-in-2018-19-rbi-annual-report/articleshow/70895326.cms?from=mdr [iii] SC, writ petition (criminal) no. 76 of 2016 [iv] Prakash’ “White Collar Crimes: A Detailed Study”, (2018), http://www.legalserviceindia.com/legal/article-530-white-collar-crime-detail-study.html [v] Bernard Madoff, Crime and Fraud, (2019), https://www.investopedia.com/terms/b/bernard-madoff.asp

©2020 by Center For Policy And Legal Research In India.