Recent Trends In Economic Crimes

RECENT TRENDS IN ECONOMIC CRIMES I begin this paper with the exordium of the article, “Investigation of Economic Crimes” from my recent book on policing, “Policing the Police” published in 2000 (NPA Library 001 Accession No. 65724 & 65725) wherein discussing the impact of liberalisation on Indian economy and economic crimes, I said, “With the liberalisation, the aboideau of scams and financial irregularities is thrown open and the Indian financial market is flooded with all conceivable kinds of frauds, shady transactions and corrupt practices. As long shadows of mixed economy receded from the four-decade-old sky of the Indian republic in 1990s, the Indian economy is sweltering under the heat of economic crimes. Not that economic crimes are new to human generation or India; small fraudulent dealings were born with man and bound to continue as part of his nature till the imbalance of supply and consumption haunts his existence. What manifested are organised frauds to loot the public its money by clever use of the financial environment and the innocence of the hoi polloi; ill-conceived financial rules and laws and slack financial practices and procedures evidently failed to carry the weight of the liberalised economy. The people who were inured to protected economy and state control cannot easily adapt to liberalised economy where all sorts of worms and creatures creep, waiting to make best use of the laissez-faire. Rules and laws being not tightened to meet the challenges of the liberal atmosphere, unscrupulous elements have a field day in playing with the public money either to intentionally defraud or experiment in risky projects. The plans are always mega-schemes running for hundreds or thousands of crores of rupees of the gullible public. Corruption in government and public life ease the process. Bribes play key roles in keeping rules, laws and regulatory authorities shut.” Edwin H. Sutherland, renowned American criminologist in his propaedeutic of white-collar crimes in his celebrated ouvrage “Crime and Business” preconises the special nature of the crimes when he says, “ Since the crimes are generally violations of trust, they create and extend feelings of distrust. Leadership against white-collar crime is generally lacking, since most leaders come from the upper socioeconomic class and since

the persons in this class who do not participate in white-collar crimes are generally reluctant to attack other members of their own class.” Economic crimes as another facet of the white-collar crimes with its nonasuch etat in the caste hierarchy of crimes transcend the lesser crimes in gestalt and content as its raison d’etre in the tapestry of the civil society and ipso facto grow ectogenesis to the normal reach of the societal leadership including the law-enforcing agencies. It is a tragedy of the criminal justice system. DEFINITION AND SCOPE OF ECONOMIC CRIMES

For E.H.Sutherland, white-collar crime is a violation of trust. His view emerges from his definition of the white-collar crime as a violation of criminal law by a person of the upper socioeconomic class in the course of his occupational activities. The trend of economic crimes has seen sea-change since the ancien regime with more and more such violations being committed for the res gestae by individuals or organized groups with or without inside cooperation and raisonne exploitation of the weaknesses of the extant financial laws and procedures, the financial institutions and the people who man them. In the maelstrom, economic crimes can be defined simply as fraudulent financial transactions for financial gain. Popular realms of economic crimes these days include political and policymaking sector, government sector, financial sector, commerce and industry sector and individual entrepreneurs and cover events and activities like deposits fraud, shares and securities fraud, company regulations violation, fraud concerning government funds, counterfeit, import and export fraud, foreign exchange violation, telemarketing fraud, patent infringement, copyright violation and piracy, tax evasion, smuggling, hoarding and black-marketing, adulteration, drug-trafficking, insurance fraud, money laundering, highsea fraud, telecom and electricity fraud, computer manipulation, internet fraud, land deals fraud, bribery, cheating, breach of trust and unauthorized commission to name just a farthing of what actually exist and accrescently expand with the ingenuity of the persons involved. Some of them like deposits fraud, company regulations violation, fraud

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concerning government funds, import and export fraud, foreign exchange violation, tax evasion, smuggling, hoarding and black-marketing, adulteration, drug-trafficking, insurance fraud, high-sea fraud, bribery, breach of trust and unauthorized commission are d’ accord with the definition by Sutherland as committed in the course of occupational activities, while others like telecom and electricity fraud, cheating, patent infringements, copyright violations and piracy and counterfeit are ectogenesis. Commission of these crimes in gargantuan scale sponte sua by individuals and organised groups extra-muros to the occupational activities with or without the cooperation of the invisus insiders constitutes the recent trend in economic crimes. Shares and securities fraud, counterfeit cheques, telemarketing fraud, software piracy and patent infringement, software copyright violation, computer manipulation, Internet fraud and land deals fraud in mammoth scale are relatively recent trend in the field. High sea fraud, insurance fraud and money laundering also continue to be periculous threats to the economic security of the country. RECENT TRENDS

The flagitious security scam of 1992 involving Rs 8000 crores as the avant coureur stirred the national conscience to the issue of the economic security and showed how facilely it can be periclitated by the unscrupulous large-scale inside trading and fraudulent stock manipulation. The supercherie run the corso from the late Harshad Mehta case of 1992 to the ban on the high-profile fund manager, Samir Arora from the capital markets by the SEBI in 2003 on the charge of inside trading in securities. Why the security scam of 1992 failed to shut the aboideau in the Indian security market in the last eleven years and why even successful and high profile fund managers like Samir Arora prefer to resign their lucrative jobs in companies like Alliance Capital Mutual Fund and resort to such violations? The obvious answer is that the exposures are just the prevarications from the zeitgeist and neither the concerned regulations are stringent enough nor the regulating agencies like the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) and the people manning them in their aidos are competent to cleanse the capital market and protect the interests of the investors.

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Jucta est alea. The occasional exposures are just eyewashes. Such frauds are bound to squeeze Indian economy in years ahead. Another facet of the incompetence of the regulating agencies in the capital market is the malengine of floating apocryphal companies to fleece the public in crores by offering shares and disappearing after defrauding the public. There are hundreds of such flagrant cases reported in1990s with almost none booked for the falsi crimen. Another serious fraud of recent origin is the use of counterfeit cheques. The use of stolen cheques and writing cheques on accounts either closed or having insufficient fund to defraud is a vieux jeu in the business world. The computer revolution has added a new dimension to it. Often software that can produce legitimate checks is used to generate counterfeit checks with fictitious names and account numbers to defraud in business dealings. Counterfeit is anadyomene in a different sancy these days in the shape of fake stamps scam of mammoth scale run in interstate level with a highly organized plexus. Telemarketing is another genre of fraud that is in rise that involves the so called boiler rooms or the telemarketing company promoting sales of worthless goods through phone solicitation by promising customers riches and gifts that never come. This form of fraud is already having pollent foothold in big cities of India. Another fraud is floating teakwood or such plantation companies those mobilize funds from the public with the pollicitation of distribution of the gain pro rata only to disappear before the climacteric approaches. However, prompt response from the law-enforcing agencies perficiently controlled the menace and the defalcation of this shape is in degringolade sinsyne. The episode marks that prompt response from the law-enforcing agencies do have desired effect on the spread of the economic crimes. Copyright violations and piracy are major threats to the book publishing, cinema and audio and videocassette industries. Patent infringements are the crimes those threaten new products. The computer revolution has brought software to the ambit of such threats apart from functioning as a facilitator of fraud and economic crimes by other means also. Fraudulent interference with the software or programmes used for financial transactions

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is a convenient tool to defraud companies and establishments in crores in a single stretch or di grado in grado and do away with all evidence to the act. Lack of proper understanding of the intricacies of the computer and its software and absence of due pernoctation at higher levels contribute for such frauds being ascensive. A byproduct of the computer revolution is the Internet fraud that has diverse gestalt and international ramifications. Innovative Internet solicitation to part with money for goods, schemes or services of fraudulent edge is the staple of such frauds. Another aspect of the Internet fraud involves tampering with others’ financial or establishment accounts by breaking into their passwords and copying digital signatures to illegally siphon funds or other valuables to own account. Innovative works of the hackers help the process. A very disturbing fraud these days, concerns prime government or private lands in the heart of big cities left unattended for various reasons. The quiddity of the rite de passage here is the study of the system for weaknesses. Innovative tregetours expiscate in poor laws, procedural loopholes, lack of coordination among and incompetence of concerned government departments like the city development authority, the city corporation, electricity and water supply bodies and the land registration office, and the greed or indifference of the people who man the government bodies an opportunity to gobble prime lands worth of several crores of rupees. The ichnography involves obtaining false power of attorney of the true owner of the land by impersonation from an unvigilant or greedy notary and selling the land using it. In some other cases, the tricksters raise buildings on such unattended lands after paying land taxes for those lands and obtaining sanction for the building plan from the engineering wing of the city corporation with the help of the tax records as proof of their ownership of the lands. Such gross anomalies are possible only because of the lack of coordination, defective procedures and sheer lethargy, incompetence and greed in the government bodies. The swindlers here secundum artem exploit the gross weaknesses and failures of the government bodies to make colossal gains for themselves. The res gestae involved in such frauds and the ease of the method render it a potential mode of the economic crime of the future.

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High-sea fraud involving disappearance of the whole ship or its cargo or carrying false cargo and financial or insurance claims on the basis of mendacious documents may become assez bien a popular means in days ahead to become rich a pas de geant because such crimes seldom draw the avizefull attention of the public and the fraud is limited to the concerned cloistered circles. Insurance fraud on the other hand will re-emerge to the center-stage in the ambience of the privatization of the insurance sector and its consequent proliferation. Money laundering is the cleanser of all economic crimes and the means of salvation to economic criminals; ergo, it is jus naturale that it re-emerges in various avatars from time to time. Hawala transactions will continue to exist in different shapes and forms. The secrecy code of the Swiss banks provides the requisite refuge to the ill-gotten money of the swindlers among politicians, senior government officials, industrialists, businessmen and enterprising individuals. Export and import fraud of the recent origin involves false declaration of the country of the origin to evade anti-dumping duties in addition to over-invoicing of exports to fraudulently avail export incentives. Cheating, breach of trust and embezzlement are common economic crimes all over the world. A survey conducted by Pricewaterhouse Coopers, an accounting firm and Wilmer Cutler & Pickering, a law firm as reported in the New York Times of July 13, 2003 states that more than a third of the American firms surveyed in the last two years were found to be the victims of one or the other kind of economic crimes like asset misappropriation and embezzlement. The survey also suspected doubtful financial disclosures by more than half of the companies surveyed. It is the case in India too. The external auditors tend to take refuge under the plea that they audit only the documents provided to them by the companies and sweep inconvenient facts under the carpet for quid pro quo. The dictum, fraus est celare fraudem, is conveniently forgotten. It is on record that almost no auditor is dealt till now for professional apostasy in independent India and the organization responsible to oversee the auditors condones the professional betrayal and becomes a partaker in the irregularity as per the dictum, chi tace confessa.

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NATURE OF RECENT TRENDS

A careful study of the recent trends in the economic crimes brings out interesting factors common to most of them. The most striking of them is the growth of the economic crimes usaque ad nauseam to the status of an entrepreneurship both in terms of respectability a la its description by Sutherland and concomitant responsibility, its sheer volume, interstate or international spread, highly organized operational plexus, hi-tech tools employed, highly efficient division of labour with minions at the cutting-edge level as front operators far removed from the main characters and the brain behind the operation at concentric circles, resourceful big actors en arriere, detailed planning, study and probouleusis prior to the operation, professional touch to the whole operation and high risks and high profits involved. The recent economic frauds are high-money soigné scams running to multiple crores. The materfamilias of all the scams of modern India namely the security scam of 1992 involved Rs 8000 crores while the recent fake stamp scam allegedly involves Rs 80,000 crores. The Indian Bank scam of the 1990s involved Rs 1300 crores while the fodder scam of Bihar ran to Rs 1500 crores. Other major scams of lesser volume are the Bihar bitumen scandal of Rs 350 crores, Bofors scandal of Rs 64 crores, HDW submarine scandal of Rs 64 crores, Bihar medical bills scandal of Rs 60 crores, ayurved scam of Rs 32 crores, telecom scam of Rs 6 crores inter alia. However, the leading role in such embezzlements must go to the banking sector that gobbled public money to the tune of Rs 1,20,000 crores in three years with the euphemism of non-performing assets or bad loans that in most cases are advances paid to well-to-do favourites for consideration with the understanding that the clause of the non-performing assets take care of that. An important aspect of the modern economic frauds is that the brain behind the operation who normally are the people of procerity remains incognito and far removed from the cutting-edge operations by several levels and ensures that the law-enforcing agencies never reach him under any circumstance and there remains no evidence against him a la mode the Mafia and its leader, Al Capone. This holds good for all recent major

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scams and the veracity of the person identified in them as the el patron should be taken cum grano salis. These crimes au fond are well-plexured conspiracies. These economic crimes are marked by callida junctura. The cooperation of right people inside and outside the target institution is bought a grands frais for use at right time. This brings much needed aex triplex to the process and adds to the plexus of the operation and brings the elements of corruption to the process. Extra muros entrepreneurs mastermind these frauds as opus reticulatum after detailed study of the weaknesses and failures of the laws, procedures, institutions and the men concerned and right and adequate preparations. Free market economy in a poor, unenlightened and developing country like India is like spreading delicious foods around a person dying of hunger with injunctions to open the dishes only after performing an impossible feat. Imagine the consequences. In a country like India where easy life and chaltha hai mindset are the bedrock of life and hard work and commitment are anathema, where merit and brilliance are looked down upon, where character, discipline and integrity are belittled as the dernier ressort of weaklings, where criminals, swindlers and murderers become popular political leaders, where democratic votes are hostages to the riches you throw away, where the hapless hoi polloi is the prisoner of the vagaries of the arriviste along the ladder across the political spectrum, where imported isms rule the mindset in lieu of the genuine and holistic welfare-interests to meet the besoin of the plebeian and the country, where mediocrity and dishonesty reign supreme and the administration and the law-enforcing agencies crawl before the criminal political masters and the mesquin and lowly higherups lest their career interests are harmed, the free market economy turns an apollyon like a pachyderm allowed a free-run in a plantain plantation. Free market economy per se is not bad. It is best suited to the countries where it is born in the ambience of enlightenment, civility and respect to law and societal mores where apolaustic deviants are only exceptions. Otherwhere, economic crimes are bound to grow exponently with the disillusioned cleverer elements as the provenance resorting to exploit the weaknesses of the financial laws, procedures and the institutions and the niaiserie, greed and the lethargy of the

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people around them. In the ambience of the survival of the fittest, it is hard to find fault with such criminals. Necessitas non habet legem. It is the inadequate laws, nonpareil institutions and the mediocre or greedy attercops in charge who inadvertently lure the desperate people to intelligently exploit them for survival. For, survival is the prime principle of life. And everything else is secondary to it. Exitus acta probat. Add to it the fact that money is the blut und ehre that can buy anything from respectability to the friendship of the people who matter, you have the right recipe for the wild choresis of the economic crimes limited only by the limits of the creativity of an original mind thrown to infinite possibilities provided by the inferior laws, procedures and the institutions created by the lesser minds of the post-independent genre and equally poor manning of them. The trend for the future can only be defined as unspeakable varieties of every conceivable hue that is allowed by the financial laws and procedures, financial institutions and their practices. PRAVEEN KUMAR BANGALORE

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