White Collar Crimes in India

One of the theoretical challenges faced by scholars is to develop an accepted definition of white collar crimes. The main characteristic is that it is the economic crime committed by a person of respectability and high social status during an occupation. While Edwin Sutherland’s concept of white-collar crime has been enlightened sociologists, criminologists, and management researchers, the concept may have confused many attorneys, judges, and lawmakers. One reason for this confusion is that the white-collar crime in Sutherland’s research is both a crime committed by a specific type of person, and it is a specific type of crime. Later research has been indicated, as applied in this book, that white-collar crime is no specific type of crime, it is only a crime committed by a specific type of person.

Ever since Sutherland (1939) coined the term “white-collar crime”, there has been extensive research and debate on what to include and what to exclude from this offense category (e.g., Piquero and Benson 2004; Pontell et al. 2014; Stadler et al. 2013). In accordance with Sutherland’s original work, convenience theory emphasizes the position and trust enjoyed by the offender in an occupational setting (Shapiro 1987). Therefore, the organizational dimension is the core of convenience theory where the offender has access to resources to commit and conceal financial crime. The typical profile of a white-collar criminal includes the following attributes (Piquero and Benson 2004; Pontell et al. 2014; Stadler et al. 2013)

Introduction

White-collar crime (or corporate crime, more accurately) refers to financially motivated, crime by businesses and government professionals. It was firstly defined by the sociologist Edwin Sutherland in 1939 as “a crime committed by a person of respectability and high social statuses in the course of their occupation. Typical white-collar crimes could include wage theft, fraud, bribery, Ponzi schemes, insider trading, labor racketeering, embezzlement, cybercrime, copyright infringement, money laundering, identity theft, and forgery and many other criminal activities.

White-collar crime has been associated with the educated and affluent ever since the term which was first coined in 1949 by sociologist Edwin Sutherland, who defined it as “crime committed by a person of respectability and high social status with the course of their occupation.”

In the decades since, the range of white-collar crimes has vastly expanded as new technology and new financial products and arrangements have inspired a host of new offenses. High-profile individuals convicted of white-collar crimes in recent decades include Ivan Boesky, Bernard Ebbers, Michael Millken and Bernie Madoff. And rampant new white-collar crimes facilitated by the internet include so-called Nigerian scam, in which fraudulent e-mails request help in sending a substantial amount of money.

History of White Collar Crime

White-collar crime had been going on prior to the Sutherland’s definition and his research done in 1939. Sutherland wanted to find a general way  theory of the typical criminal and by reading other researchers work, getting the idea that all the criminals were stereotyped as impoverished or of low social standing he found that hard to believe that considering people of high social standing committed crime as well . In his book Sutherland said that “White collar crime may be given definition as approximately as a crime committed by a person of respectability and high social status in the course of his occupations. “There were many factors going into the establishment of White-collar crimes, but the main issue was industrialization. There is a White-collar crime registry identifying those who have committed white-collar crime to the public trying to determine possible victims from being victimized. The White-Collar Crime established themselves in Utah in 2016.

Sutherland was rather casual in his conceptualization of the white-collar crimes, at times stressing social status, at times behavior carried out in an occupational role, and at times crime committed by organizations or by individuals acting in organizational capacities. The confusion is mostly reflected in his frequently cited definition: “White collar crime may be defined approximately as the crime committed by a person of respectability and high social status in the course of his occupation”. His book was devoted, however, as to the crimes of organizations, not of persons: seventy large corporations and fifteen other public utilities. Thus, a firm basis for ambiguity had been laid. Those following Sutherland sometimes focused on persons of high status, sometimes on occupations, and sometimes on corporate bodies.

Sutherland’s book described the illegalities committed by those corporations which were arguing that the corporations share most of the characteristics of professional thieves: their offenses are deliberate and organized, they are often recidivists, and they show disdain for law. With these conclusions the book had a controversial reception. Many in the social sciences hailed it as a landmark, whereas many in law and business attacked it as misleading and distorted. The principal basis for disagreement concerned the underlying concept of crime. The “crimes” of the corporations Sutherland examined were rarely prosecuted in criminal court: they were violations of administrative rules or simply contract cases to be processed, if at all, in civil court. Many in the legal community insisted these were not crimes at all. Sutherland’s answer was that businessmen were more able to influence the course of legislation; it was only their greater power (relative to the lower-class criminal) that kept their offenses out of the traditional criminal law.

Cases of White-Collar Crimes in India

1.     Harshad Mehta Securities Fraud (1988-1995):

Harshad Mehta was a stockbroker, and he established his security firm in 1990, “Grow More Research & Asset Management Limited”. He was a reputed name in the stock market and is considered the ‘Sultan of Dalal Street’, investors blindly followed Mehta’s footsteps. 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 then renowned journalist Sucheta Dalal exposed this scam. This unabated selling caused the market to lose ₹ 0.1 million in a day. This was the biggest ever crash which the Indian stock market had ever experienced. To curtail such transaction various changes were brought in SEBI rules and regulations.

2.     WorldCom Accounting Scandal:

Enron’s impressive collapse was followed by the implosion of WorldCom, which was the doing of CEO Bernard Ebbers. His plan to compensate for the downturn of the telecommunications industry in 2000 and WorldCom’s declining stock included the use of fraudulent accounting methods to deceive investors into thinking the company was in good health. The underreporting of line costs and inflation of revenues accumulated $3.8 billion in fraud and ended with the company’s bankruptcy, then the largest in U.S. history. Ebbers, who resigned from the WorldCom in April 2002, was sentenced to 25 years in prison for a conspiracy and securities fraud and filing false statements with the securities regulators.

3.     Satyam Scandal: Biggest Ever Corporate Accounting Fraud

This scam came into light on 7th January, 20009 by way of confession letter written by B. Ramalingam Raju (Founder and chairman of Satyam Computers Services Limited) published in Times of India. The letter confessed about manipulating his books of account by overstating the assets and understating liabilities.

The books of accounts are the reflection of the company’s financial standing. They act as an important tool on which investors can rely on before investing their money. Accounts books were manipulated to cheat investors and shareholders.

The whole scam cost approximately ₹14,000 crore and is an important factor which contributed to the recession of 2009.

In this scandal, SEBI hit back strongly, holding Ramalinga Raju and nine major associates and guilty of insider trading, indulging in fraudulent and unfair trade practices. SEBI directed accused to pay approximately ₹3000 crore within 45 days and debarred them from accessing the security markets in any way for 14 years. SEBI managed to lash back strongly to ensure such a scam never happened again.

4.     Ketan Parekh Security Scam

Parekh was involved in circular trading and stock manipulation through 1999-2001. He borrowed from banks like Global trust Bank and Madhavpura Mercantile Co-operative bank and manipulated a host of stocks known as K-10 stocks. The scandal amount was approximately ₹ 1,250 Crore. He has spent only one year in jail, but he has been debarred from trading in the Indian Stock market till 2017.

Although his name continues to haunt the street as he has been accused of playing from backstage. An Intelligence Bureau Report alleged Parekh and his associates to be engaged in circular and insider trading through front entities.

5. Punjab National Bank Fraud:

Nirav Modi is a diamantaire, elite jewelry designer and India’s 85th richest person.

Bank said that Modi and the companies linked to him colluded with its officials to get guarantees or Letter of Undertaking to help fund buyer’s credit from other overseas banks.

PNB’s preliminary investigation showed that two officials of the bank had fraudulently issued Lou’s to the said firms without following the due procedure. These Los were then transmitted across the SWIFT messaging system, based on which the credit was offered to the said firms.

PNB alleged that the funds ostensibly so raised for the purchase and sale of diamonds were not used for the purpose.

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

Reasons

Each time one reads a report on the white-collar crime, and there always is a newer and bigger one getting exposed, one is forced to ask the question – why do they do it? Why do individuals engage in such of self-destructive misbehaviors? Nonviolent crime committed by employees during their occupation is defined as “white collar” crime. Such crimes include fraud, bribery, Ponzi schemes, embezzlement, insider trading, cybercrime, intellectual property infringement, racketeering, money laundering, identity theft, and forgery, etc.

According to the FBI, the annual cost of white-collar crimes is over $500 billion, which far exceeds the estimated cost of $15 billion from personal property crimes.

Individuals have various degrees of tolerance towards conscientious and ethical behavior. Academic research shows that environmental signals and cues can nudge individuals to behave differently when faced with ethical choices. Most white-collar misbehaviors occur due to the perceived ambiguity in the environmental signals and cues. Work environments can elicit good or bad behavior out of individuals. Ambiguous cues subtly nudge individuals towards the slippery path of compounding ethical transgressions, leading to criminal acts. Certain individuals succumb to temptations and compromise their ethical values in this grey area. Rarely, is there a direct order to break the law.

Major Forms of White-Collar Crimes

White collar crimes also tend to involve the sophisticated methods to accomplish the crimes. White collar crimes may involve the counterfeit currency, complex accounting practices that are implemented for cause embezzlement, identity theft based on phishing and other crimes which require the use of the technology, expertise or inside information. There are a wide variety of the white-collar crimes, including the following:

1.     Fraud:

Fraud is one of the most common types of the white-collar crimes. Fraud cases often involve the perpetrator imitating someone else to take funds out of the real owner’s bank account. Fraud may help a perpetrator to commit identity theft.

2.     Bribery:

Another common form of the white-collar crime is bribery. In bribery cases, the perpetrator pays someone in a power position to make arrangements that financially benefit the perpetrator or others. For example, a perpetrator may pay a government official. It is often hard for federal regulators to prove and prosecute.

3.     Insider Trading:

Another common white-collar crime is that is the insider trading. Insider trading involves the person using connections that they have on the inside to buy or sell for the stock before the relevant information is made public. For example, someone who knows that a company may be facing a lawsuit, or a layoff may decide to sell stock before the information is released to sell at a higher rate. Conversely, a person may wait to buy until the bad news hits to get purchased at a lower price. In contrast to some other white-collar crimes, regulators have become increasingly savvy ate detecting certain trades that seemed to be get based on tipped off information. It may be difficult for a person to hold onto the stock knowing that this may ultimately mean losing money when they have the confidential information.

4.     Cyber Crime:

Due to the internet, an increasing cause of the white-collar crimes is due to cyber crime. This type of crime involves collecting credit card numbers and personal identifying information using computers. Some nations even use sophisticated attacks to discover classified information that other countries are attempting to hide. Some individuals or nations may make viruses that infect vulnerable computers and send spam or perform other tasks that may help generate funds.

5.     Legal Assistance:

If a person is convicted of the white-collar crime, he or she may face the serious penalties including years behind bars. Federal prosecutors may spearhead for such cases, who often have extensive resources at their disposal. To provide an effective defense against such of allegations, a suspect may decide to contact a criminal defense lawyer of their choice. A criminal defense lawyer can help a defendant avoid doing things that may adversely affecting their case, such as talking to prosecutors voluntarily without legal representation. Hiring a criminal defense lawyer can help individuals get ahead of aggressive government enforcement often experienced by individuals under scrutiny by federal regulators.

Laws Related to White Collar Crime

The government of India has introduced various regulatory legislations against the breach of which will amount to white-collar criminality. Some of these legislations are Essential Commodities Act 1955, the Industrial (Development and Regulation) Act, 1951.,The Import and Exports (Control) Act, 1947, the Foreign Exchange (Regulation) Act, 1974, Companies Act, 1956, Prevention of Money Laundering Act, 2002.

The Indian Penal Code contains provisions to check crimes such as Bank Fraud, Insurance fraud, credit card fraud etc. In case of money laundering several steps have been taken by the government of India to tackle this problem. The Reserve Bank of India has issued directions to be strictly followed by the banks under KYC (Know Your Customer) guidelines. The banks and financial institutions are required to maintain the records of transactions for a period of ten years.

To tackle with computer-related crimes, Information Technology Act, 2000 has been enacted to provide legal recognition to the authentication of information exchanged in respect of commercial transactions.

Section 43 and 44 of Information Technology Act prescribes the penalty for the following offences:

  • Unauthorized copying of an extract from any data.
  • Unauthorized access and downloading files.
  • Introduction of viruses or malicious programmers.
  • Damage to computer system or computer network.
  • Denial of access to an authorized person to a computer system.
  • Helping any person to facilitate unauthorized access to a computer.

Though the focus of Information Technology Act is not on cybercrime as such as this Act has certain provisions that deal with the white-collar crimes. Chapter XI deals with the offence of the cyber crimes and chapter IX deals with penalties and adjudication of crime. Apart from this, many issues are unresolved due to lack of focus. Some of them are:

  • Inapplicability
  • Qualification for appointment as adjudicating officer not prescribed
  • Definition of hacking
  • No steps to curb internet piracy
  • Lack of international cooperation
  • Power of police to enter and search limited to public places
  • Absence of guidelines for investigation of cyber crime.

There are some measures to deal with the white-collar crimes. Some of them are, creating public awareness of the crimes through media or press and other audio-visual aids and legal literacy program. Special tribunals should be constituted with the powers to sentence the offenders for at least 5 years and conviction should result in heavy fines rather than the arrest and detention of criminals. Unless the people will strongly detest such crimes, it is not possible to control this growing menace.

Present Scenario of White-Collar Crimes in India

White Collar Crimes are rapidly increasing in our country with the advancement of the commerce and technology. The recent developments in the technology have given the new dimensions to computer related crimes known as the cyber crimes. As such, the white-collar crimes are increasing with the development in new websites. The areas affected by these crimes are as banking and financial institutions, industry, business etc.

Thus, crime is an act or omission which constitutes an offence and is punishable under the law of India. As the white collar crimes are increasing on the daily basis, it injures the society on a large scale purpose because the laws are not properly administered and therefore there is a need to be curb the factors that are helping in the commission of such crimes.

White collar criminality has become a global phenomenon with the advance of commerce and technology. Like any other country, India is equally in the grip of white-collar criminality. The recent developments in information technology, particularly during the closing years of the twentieth century, have added new dimensions to white collar criminality. There has been unprecedented growth of a new variety of computer dominated white collar crimes which are commonly called as cyber crimes.

These crimes have become a matter of global concern and a challenge for the law enforcement agencies in the new millennium. Because of the specific nature of these crimes, they can be committed anonymously and far away from the victims without physical presence. Further, cyber-criminals have a major advantage: they can use computer technology to inflict damage without the risk of being apprehended or caught. It has been predicted that there would be simultaneous increase in cyber crimes with the increase in new internet web sites. The areas affected by cyber crimes are banking and financial institutions, energy and telecommunication services, transportation, business, industries etc. in India.

Conclusion

Due to advancement of the science and technology newer form of criminality known as white-collar crime has arisen. The term “white-collar crime” has not been defined in the penal code. But the dimensions of white-collar crime are so wide that after analyzing the provisions of Indian Penal Code 1860, we may get concluded that certain offence under the Indian Penal Code is closely linked with the white collar crimes such as bribery, corruption and adulteration of food, forgery etc. The provisions of the Indian Penal Code dealing with the white-collar crimes should be amended to enhance punishment particularly fine in the tune with changed socio-economic conditions. The special Acts dealing with the white-collar crimes and the provisions of Indian Penal Code should be harmoniously interpreted to control the problem of the white-collar crimes.

Frequently asked questions (FAQs)

Q1. What is the most common white-collar crime?

There are many types of white-collar crimes, but the following are the most common:

• Corporate Fraud

• Embezzlement

• Ponzi Schemes

• Extortion

• Bankruptcy Fraud

Q2. What is white collar crime?

Reportedly coined in 1939, the term white-collar crime is now synonymous with the full range of frauds committed by business and government professionals. These crimes are characterized by deceit, concealment, or violation of trust and are not dependent on the application or threat of physical force or violence. 

Q.3. What is the history of white-collar crime?

White-collar crime had been going on prior to Sutherland’s definition and his research done in 1939.

Q.4. What is Occupational Crime?

Occupational crime which occurs when crimes are committed to promote personal interests, say, by altering records and overcharging, or by the cheating of clients by professionals.

Q.5. What is Corporate Crime?

Organizational or corporate crime which occurs when corporate executives commit criminal acts to benefit their company by overcharging or price fixing, false advertising etc.

References

https://www.google.com/amp/s/blog.ipleaders.in/analysis-white-collar-crimes-India/amp/

https://www.hg.org/legal-articles/different-types-of-white-collar-crimes-40438

https://www.google.com/amp/s/www.forbes.com/sites/roomykhan/2018/02/22/white-collar-crimes-motivations-and-triggers/amp/

https://www.criminaljusticeusa.com/blog/2011/10-white-collar-crime-cases-that-made-headlines/

https://law.jrank.org/pages/2312/White-Collar-Crime-History-an-Idea-evolution-white-collar-crime.html

https://www.researchgate.net/publication/323939569_White-Collar_Crime_Research/link/5ab3acafa6fdcc1bc0c2f1e2/download

https://en.m.wikipedia.org/wiki/White-collar_crime

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