White Collar Crimes in India: Regulatory Framework and Enforcement Challenges

INTRODUCTION

White collar crimes, unlike traditional crimes, involve deceit, breach of trust, and manipulation. These types of crimes are generally committed by upper-class individuals or people with authority and power. The primary motivation behind such crimes is often to chase professional or financial gains earned by such people in their businesses but this sometimes may not be the sole reason, personal motives of those people can also drive it. These crimes are of non- violent nature such as insider trading, fraud, forgery, tax evasion, money laundering etc and therefore difficult to prove due to the accused’s high level of knowledge and education.

This article attempts to cover the spectrum of laws and regulatory framework to curb such crimes. It also covers the weaknesses and vulnerabilities faced by such framework due to which time and again frauds and deceit has been committed against the innocent public.

UNDERSTANDING WHITE COLLAR CRIMES: AN INDIAN CONTEXT

The term white collar crime was given by sociologist Edwin Sutherland in 1939 as “crime committed by a person of respectability and high social status in the course of his occupation”. During previous years, the scope of such crimes has been expanded to a great extent. These crimes can be traced back to the time of the industrial era, when the British government started to emerge, as there were instances of bribery and embezzlement of money that was in their custody.

There are various factors contributing to such crimes, such as

• The liberalisation policy that was enacted by the Indian government in the 1990s opened new opportunities, along with an increase in financial malpractices.
• Technological advancements have made financial services more susceptible to digital fraud.

TYPES OF WHITE-COLLAR CRIMES IN INDIA

1. Corporate Fraud: it presupposes the voluntary or systematically false account of the financial workings of the company to deceive every shareholder, creditor, or any related person. Another such practice that also prescribes a measure similar to window-dressing is not unlawful. It enforces making the financial statements more eye-catching than they are to attract new investors or customers.
2. Banking fraud: It is a crime directed at financial institutions or banks and uses illegal, fraudulent means to obtain assets, such as money or property, owned by the institutions and-sharing the assets of the general public as well. This can be done by using forged documents, making fictitious or false accounts, or carrying out fraudulent loan practices. In 2018 a mire fiasco just opened the casket of Punjab National Bank.
3. Tax-Evasion: The deliberate and intentional failure to pay; or under-payment in respect of tax owed rightfully to the government, mostly, failure attached to concealing the actual income or assets. The probable penalty for committing such an act could be criminal charges.
4. Insider trading: refers to buying and selling of securities by specific individuals who have accessed non-public-internal or private-information about a company or its securities. Specific examples of that information would be information about financial performance or strategic plans that can significantly impact the prices of the company’s securities.
5. Bribery and Corruption: It is the payment or acceptance of the gifts, money, or other valuable items in return for official action. It gets the actions of the receiver affected and then favors the person giving that bribe. Earlier, the scope was limited to judges but, over the years, it increased to include all persons in charge of an official duty.
6. Money Laundering: An illegal activity that makes the source of money change. Making a huge amount of money from illegal criminal activity such as terrorist funding and trafficking and presenting it as the money earned from a genuine source. Dirty money is utilized for such acts, but it is laundered clean by the launderers.
7. Digital Fraud: Phishing and cyber frauds are forms of online fraud that hackers employ to attempt obtaining private information of individuals, such as banking passwords, credit card details, Aadhaar details, etc, by sending false messages or calling the individuals. These hackers set the bait for the fish(people) to trap them.
8. Commercial Governance issues: These are sets of rules and guidelines for all businesses or organizations to comply with to run their operations efficiently. It includes all the setups of organization with respect to how to control and communicate with stakeholders at large. Noncompliance in commercial governance can be disastrous for the future reputation of the business.
9. Stock Market Manipulation: It is voluntary or artificial control of the prices of share markets to defraud the investors and people and get an illegal profit or advantage from it. This leads ultimately to the distortion of people’s faith and integrity in the financial market.

REGULATORY AND LEGAL FRAMEWORK

India has established an intricate framework and several laws, agencies, and regulatory bodies for combating white collar crimes and fraud. The following are the laws taken by our legislature to curb the above issues:

1. Bhartiya Nyaya Sanhita 2023

India’s foundational criminal law, the BNS, looks at white-collar crimes concretely through several provisions, the most notable being as follows:

Section 316(1): Criminal breach of trust.

Section 316(5): Criminal breach of trust by public servants or agents.

Section 318(4): Cheating and dishonestly inducing delivery of property.

Section 336(3): Forgery for cheating.

The BNS deals with the prosecution of basic frauds; however, this code, framed in the days of colonial rule as the IPC, did not provide for modern white-collar crimes; hence, these drawbacks raise the need of special laws for fighting against such crimes.

2. Prevention of Corruption Act, 1988

The Act is aimed at curbing corruption in public services and covers several offenses such as:

• Bribery – both offering and accepting bribes.
• Criminal misconduct by public servants, including the acquisition of properties disproportionate to their assets.
• Influencing or abusing one’s official position.

Notwithstanding all these, the act has put in place many obstacles in terms of lengthy procedures, no protection for whistleblowers, and misuse of the element of prior sanction in some cases.

3. The Companies Act, 2013

This very Act concerns corporate governance, transparency, and financial accountability. It has some special provisions to detect and punish fraud:

• Section 447 – Defines and punishes fraud, including imprisonment for up to 10 years with hefty fines.
• Section 212- The section empowers the Serious Fraud Investigation Office (SFIO) to investigate corporate fraud.

Companies are mandated to conduct internal audits, appoint independent directors, and set up vigil mechanisms. The Act imposes an increased burden on the company directors, auditors, and top-level management to ensure the financial integrity of the entire organization after the Satyam scandal.

4. Prevention of Money Laundering Act, 2002 (PMLA)-The PMLA is the prime law relating to money laundering in India, which is a prime instrument to curb whitecollar crime.

• It defines money laundering as actions directly or indirectly taken to conceal, possess, acquire, or use the proceeds of crime.
• It empowers the ED to investigate, attach properties, and arrest in cases of money laundering.
• It establishes a requirement for financial institutions, real estate agents, and professionals to report suspicious transactions.

5. Securities and Exchange Board of India (SEBI) Regulations

The SEBI Act, 1992, established the “Securities and Exchange Board of India” as the chief regulatory authority for the securities market. SEBI works for the protection of the interests of investors and the prevention of white-collar crimes

For any kind of breach, SEBI has the power to impose fines, suspend the accused from trading for a stipulated time, and initiate charges in courts.

6. The Reserve Bank of India (RBI)

It is the apex regulator for banks and NBFCs. It lays down the rules with regard to anti-money laundering, KYC norms, and fraud detection systems. It plays Prevention role by monitoring NPAs and mandating the reporting of high-value transactions.

7. Central Vigilance Commission (CVC)

An Independent Authority that is entrusted with the responsibility to carry out oversight and Vigilance of the Central Government and Public Sector Undertakings. It coordinates with CBI and other enforcement bodies. It also enhances integrity and transparency through preventive vigilance.

8. Serious Fraud Investigation Office (SFIO):-Establishment is regulated by Companies Act, 2013.

It investigates complex financial frauds that involve multi-entity and cross-border dimensions. A team of professionals made up of law and financial experts, accountants, and investigators comprises of SFIO.

9. Financial Intelligence Unit – India (FIU-IND)

It collects, checks, analyses and disseminates to the public on data related to suspicious financial transactions. Operates under the Ministry of Finance and coordinates with RBI, SEBI, ED, and other agencies. It plays a very significant role in international cooperation under the Egmont Group and FATF.

ENFORCEMENT CHALLENGES IN TACKLING WHITE COLLAR CRIMES

Irrespective of the availability of a spectrum of statutes and institutions, the enforcement development has been slow and inconsistent due to several factors that are systemic:

1. Multiplicity of Agencies and Jurisdictional Overlaps

Due to the increased number of Regulatory bodies such as the CBI, ED, SEBI, and SFIO, there is considerable jurisdictional overlap on a given issue. This fragmentation leads to confusion, duplication of effort, and turf wars, adversely affecting coordinated responses.

2. Complexity of Crimes

White-collar crimes are cross-border, technology-driven, and involve intrinsic layers of financial transactions through various shell companies. A complex network like this requires skill and modern forensic tools, which are in short supply.

3. Delays in Prosecution

Since Indian courts are already overburdened, white-collar crime cases take years or even decades to reach a conclusive verdict. The Satyam case, for one, has had a prolonged trial even amongst the most atrocious corporate frauds.

4. Not Enough Skilled Personnel and Training

The mechanism of law enforcement usually lacks extra specialized skills concerning forensic accounting, financial analytics, and cyber investigations. The absence of this kind of knowledge impedes building an airtight charge against sophisticated offenders.

5. Political and Bureaucratic Interference

Political influences and connections in high-profile cases cannot conduct investigations and prosecutions without impartiality. Regulatory capture-the regulators serving the interest of a corporation or the political actors are also putting barriers in place against institutional autonomy.

6. Low Conviction Rates

Evidence complications, extending investigations, and procedural irregularities mostly result in a low conviction rate of white-collar crimes. Such scenarios raise public distrust in the justice delivery system and embolden perpetrators.

CASE STUDIES

1. The Satyam Computer Services scandal (2009) The founder-chairman, Ramalinga Raju, confessed to having committed gross asset and earnings inflation activities worth nearly $1 billion. This controversy eroded the confidence of investors in Indian IT companies, leading to a resultant crash in the stock market. After the acquisition of Satyam by Tech Mahindra, Raju and other executives were prosecuted.
2. In default of payments since 2012, liquor baron Vijay Mallya’s Kingfisher Airlines continues to accumulate debts. Mallya was accused of diverting funds meant for the airline for his expenses. After shutting down the airline, Mallya absconded from India to the UK, where extradition proceedings were initiated against him. It raised issues concerning promoter accountability and corporate governance.
3. Nirav Modi-PNB Scam of 2018: One of the largest scams involving Punjab National Bank (PNB) and jeweller Nirav Modi. Modi and his accomplices could raise credit abroad from other banks without collateral on account of fraudulent letters of undertaking (LoUs) issued by PNB. The situation made it necessary to bring new regulations into effect and increase scrutiny in the risk management procedures adopted by the banking industry. Post-arrest in the UK, Modi was under extradition procedures.
4. The IL&FS Financial Crisis of 2018 Infrastructure Leasing & Financial Services (IL&FS) fell into a serious liquidity crisis. The loss of credibility came for this large, significant non-banking financial company (NBFC) because of poor management and failure to disclose financial woes, resulting in payment defaults by lenders and bondholders. The fallout from this crisis raised questions regarding NBFC regulations and had broader effects across the Indian financial sector. After taking over IL&FS, the government initiated the process of restructuring.

REFORMING THE REGULATORY AND ENFORCEMENT FRAMEWORK

Here is the public system good mechanism for white-collar crime prevention, which requires multi-pronged solutions in India:

1. Agency Streamlining

A centralized white-collar crime authority should be established with inter-agency coordination on a shared digital platform to ensure better information sharing and eliminate duplication.

2. Forensics and Analytics Improvement

Increased Investment in forensic accounting, data mining tools, and AI-led analytics will help quicker detection of financial misconduct anomalies or patterns.

3. Fast-Track Courts

Physical courts for economic offenses would disperse a burden of cases and carry out faster adjudication. Time-bound trials, in turn, would ensure deterrence.

4. Corporate Governance Enhancement

Mandatory independent audits, oversight of board members, and harsher penalties for auditors and directors in cases of fraud have the potential to up corporate governance.

5. Public Awareness and Whistleblower Incentives

Creating awareness about the issue and establishing mechanisms through which crimes can be reported anonymously, perhaps with the potential for rewards, is vital to reveal hidden crimes.

6. Training and Capacity Building

Investigators, prosecutors, and judges should undergo regular training in digital forensics, accounting fraud, and its legal ramifications.

CONCLUSIONS

White-collar crimes silently yet profoundly threaten the economic integrity and institutional credibility of India. Although a legal mechanism exists, the confusion of jurisdiction, procrastination, and technical lacunae mar its enforcement. A comprehensive reform strategy- founded on transparency, inter-agency cooperation, modern consciousness, and innovation in law – is a necessity to curb the malady. To further strengthen the regulatory and enforcement mechanisms so that India could move toward a more digitized and global economy would, thus, serve not only to guard national interest wealth but also to regain public confidence in its institutions.