White-Collar Crimes in India: Legal Framework and Enforcement Issues

Introduction

White-collar crime refers to financially motivated, non-violent crimes generally committed by individuals, businesses, and government professionals in a position of authority. The term “white-collar crimes” was first coined by sociologist and criminologist Edwin Sutherland in 1939 as “a crime committed by a person of respectability and high social status in the course of their employment.”[1] These crimes do not involve the use of physical force or violence instead they involve deceit, violation of trust, concealment, and fraud. It involves carrying out unethical business practices for personal financial gain. They have more consequences as they affect not only the direct victim but also the economic stability and trust of the society. People engaged in white-collar crimes are often termed meat eaters. The question here is why such seemingly rich professionals betray the trust endowed in them. The reasons for it are endless. Over the years people have come up with various sorts of explanations for it – deviant nature, the bad apple theory, poor self-control, lack of empathy, physical characteristics, and peer pressure. 

During the early 20^th century, with the rise of industrialization and as businesses started expanding and getting more complex, the possibility of financial fraud and other white-collar crimes started increasing. Furthermore, advancements in technology have opened up new dimensions of white-collar crimes. In recent years, it has been observed that there has been an increase in cybercrimes, a new addition to white-collar crimes. Due to its nature, law enforcement agencies have been facing difficulties concerning it. In India, white-collar crimes affect various sectors of banking and economy, insurance, transport, trade and industry, etc. It poses a threat to India’s economic development.

Types of White-Collar Crimes 

White Collar crime comprises numerous illegal activities which have emerged with time. The list is endless but below are the few most common white-collar crimes.

1. Fraud – Fraud is an intentional deception to deprive a person of his or her legal rights or to gain from that person unlawfully or unfairly. Fraud can be further classified into various categories such as insurance fraud, securities fraud, and mortgage fraud.
2. Bribery – It is one of the most common forms of white-collar crime. Bribery is the “act of promising, giving, receiving, or agreeing to receive money or some other item of value with the corrupt aim of influencing a public official in the discharge of his official duties”[2].
3. Insider Trading—This refers to the buying and selling of a company’s securities by an individual who has material information about that company that is not available to the general public. Rakesh Agarwal v. SEBI[3] is a landmark judgment passed by the Securities Appellate Tribunal involving insider trading.
4. Cybercrime – Criminal activities carried out using computers, the internet, and other digital devices with a network. With the advancements in technology, there has been a rise in the number of cybercrime cases. The various types of cybercrime include hacking, phishing, cyberbullying, cyberstalking, identity theft, and many more.
5. Money laundering – The concealment of the source of the funds that have been obtained illegally through drug trafficking, terrorism, corruption, human trafficking, etc., and making it seem like a legitimate source.

Legislations governing white-collar crimes in India

1. Bharatiya Nyaya Sanhita, 2023 (BNS) – The BNS which has recently replaced the Indian Penal Code, 1860 contains various sections dealing to white collar crimes –

• Section 316[4]: It deals with criminal breach of trust by carrier, clerk or servant, public servant, banker, merchant or agent. It lays down the punishment for criminal breach of trust. Earlier this was given in section 405 – 409 of the Indian Penal Code, 1860.
• Section 318[5] – 319[6]: It includes provisions related to cheating, punishment for cheating, cheating for personification, and punishment for the same. It has replaced sections 415-420 of the Indian Penal Code, 1860.
• Section 336[7]: It deals with forgery. It has replaced the sections 463, 465, and 469.

2. Prevention of Corruption Act, 1988 – This act was enacted to prevent and punish corruption in government agencies and public sector businesses in India. It replaces the Prevention of Corruption Act, of 1947.
3. Companies Act, 2013 – It deals with laws relating to the companies in India. It deals with various provisions related to the formation of a company, its incorporation, memorandum, filing of documents and accounting statements, etc. Section 448 of this act prescribes punishment for corporate fraud.
4. Securities and Exchange Board of India Act, 1992 (SEBI) – This act establishes SEBI as a statutory regulatory body. It aims at protecting the interests of investors, regulating the securities market, and preventing malpractices in the stock market. It penalizes offenses such as insider trading, market manipulation, and fraudulent trade practices.
5. Whistle Blowers Protection Act, 2014 – This act provides a mechanism to investigate alleged corruption by public servants and it also protects people who report such crimes in government bodies and offices.

Regulatory and Enforcement Bodies in India 

1. Enforcement Directorate (ED)—The enforcement directorate fundamentally investigates and prosecutes white-collar crimes related to money laundering and violations of foreign exchange laws. It has the authority to conduct searches, seize assets, and investigate suspects to identify the origin of illegal income and assets under the Prevention of Money Laundering Act and the Foreign Exchange Management Act. The court can later confiscate these assets.
2. Central Bureau of Investigation (CBI) – It is responsible for investigating complex financial crimes such as fraud and corruption, involving public servants or large corporations. It carries out a detailed process that encompasses investigation, gathering evidence, interrogations, and filing of charge sheets in court for prosecution. The Delhi Special Police Establishment Act authorizes them to handle such high-profile cases.
3. Reserve Bank of India (RBI) – It is mainly concerned with fraud and financial crimes in the banking sector. The RBI Act and the Prevention of Money Laundering Act (PMLA) grant it the authority to conduct regular inspections and audits, investigate suspected violations of regulations, impose penalties, and initiate legal actions against individuals and institutions found guilty of such crimes.

Challenges in Enforcing White Collar Crimes in India 

Even though India has developed a strong legal framework, still it faces issues regarding the enforcement of such crimes.

• Complex and intricate nature of crimes – Despite having a multitude of regulatory bodies and agencies, it still gets difficult to investigate white-collar crimes as though often involve multiple parties, complex financial transactions, digital networks, and well-planned schemes which makes the process of investigation time consuming and difficult to prove in court.
• Lack of expertise and resources – Often enforcement agencies lack trained personnel who have expertise in financial analysis, forensic accounting, and digital forensics which are essential for conducting a thorough investigation. Apart from that it also faces problems regarding limited manpower, funding, and technological resources.
• Corruption and political influence – White-collar crimes mostly involve high-end professionals, public officers, politicians, or corporations who may easily tamper with the legal process to escape liability, causing people to lose trust in the judicial system and also to undermine the power of the judiciary.
• Judicial delays – There is a massive backlog of cases in the Indian judicial system and the proceedings involving white-collar crimes often take years to come to a judgment, reducing the effect of the punishment. Additionally, in cases compromising cross-border transactions or international entities, it becomes problematic to decide the jurisdiction of the courts.
• Inadequate Whistleblower Protection – Despite the presence of the Whistleblowers Protection Act, of 2014, there remain implementational challenges concerning the protection of whistleblowers in cases of white-collar crimes. They are often threatened and harassed which discourages them from disclosing corruption or fraud within corporations.

Recommendations

• Training of personnel – From time to time, training and development sessions should be conducted for the personnel in law enforcement agencies to help them gain expertise and stay updated about advancements in technology.
• Fast Track Courts – Fast track courts dedicated to such offenses should be established to ensure speedy trial and timely justice. Moreover, more stringent punishments should be awarded to deter people from committing these offenses in the future.
• Providing safeguards for whistleblower protection – Better implementation of the current laws and providing better legal and financial safeguards to whistleblowers to encourage them to report white-collar crimes without any fear.
• Internal system of checks and balances – To prevent white-collar crimes, firms should engage in an internal system of checks and balances where regular audits and inspections are conducted by each department of the firm. Furthermore, firms should encourage employees to report any such instances of white-collar crimes by protecting the identity of the whistleblower and providing financial safeguards.

Conclusion

White-collar crimes in India are on the rise and pose a challenge to the economic growth of the country along with the trust of the public as well as international organizations in institutions. It is high time that the government starts bringing reforms to the present laws concerned with white-collar crimes and starts moving towards rigid enforcement of such laws. Mechanisms like corporate governance, compliance programs, whistleblowing mechanisms, and advanced technology are the need of the hour to promote transparency and accountability and ultimately pave the way for a fair and corruption-free business environment.

References

[1] Sutherland, Edwin Hardin (1950). White Collar Crime. New York: Dryden Press, p. 9.

[2] The Editors of Encyclopaedia Britannica, ‘Bribery’ (britannica.com) https://www.britannica.com/topic/bribery  accessed 10 February 2024

[3] Rakesh Agrawal v. Securities Exchange Board of India, 2003 SCC OnLine SAT 38

[4] Bharatiya Nyaya Sanhita 2023, s 316

[5] Bharatiya Nyaya Sanhita 2023, s 318

[6] Bharatiya Nyaya Sanhita 2023, s 319

[7] Bharatiya Nyaya Sanhita 2023, s 336