Counteracting the rise in White collar criminality

"Who are these white collar criminals? White collar crimes have become synonymous with a full range of frauds committed by business and government professionals. But would you be able to recognize a perpetrator on the street? White collar crime is generally non-violent in nature and can include public corruption, embezzlement, identity theft, health care fraud, securities fraud, money laundering, and cybercrimes to name a few. These crimes can be committed by people with financial backing and /or an inviolable social status, such as famous bureaucrats, venture capitalists, business leaders, celebrities etc. "

Detection developments

Given the recent escalations, especially in technology crimes, India is making a concerted effort to ramp up efforts, improve skills, introduce more robust compliance frameworks and change overall attitudes towards the seriousness of white collar crimes.

Specific developments include investing in forensic skills and founding specialist forensic investigation technology centers of excellence. The National Forensic Sciences University is the world’s first and only university dedicated to forensic, behavioral, cybersecurity, digital forensics, and allied sciences. An Institution of National Importance, it was founded by the Government of India through Act, 2020 (32 of 2020) to help address the acute shortage of forensic experts domestically and globally.

Other proactive steps being taken include driving transactional transparency; introducing partnerships that enable India’s Government to appoint private forensic investigators to support public law enforcement; and helping to increase awareness of and reduce money laundering cases by incentivizing whistleblowers.

Informants exposing fraud or other misdemeanors was legislated by the Indian Companies Act, 2013. Section 177 (Clauses 9 and 10) of the Act states that every listed company (and the classes of companies as prescribed) shall establish a vigil mechanism for directors and employees to report concerns about unethical behavior, actual or suspected fraud or violation of the company’s code of conduct or ethics policy.

Although this legislated whistleblowing framework, also comprising the SEBI regulations, provides clearly defined rules for companies to adhere to, individual policies vary. Most lack defined ethical values, making it harder for organizations to instill and monitor a consistent whistleblowing policy across their entire business.

India’s changing white collar crime landscape

Social awareness, a better understanding of the economic impacts of white collar crimes, combined with stronger governance and government interventions is having a direct impact on risk landscape in India. Still, bribery and corruption remain an ongoing challenge. The most prevalent issues that remain can be grouped into:

• Bank fraud
  Typically using either illegal means to withdraw money or assets from a bank or financial institution, or falsely representing oneself to be a bank or any financial institution to extract money or assets from people.
  
  Bank frauds are punishable in India under various sections of the Indian Penal Code of 1860. Included are:
  o Section 403 - criminal misappropriation of property;
  o Section 405 - criminal breach of trust;
  o Section 415 - cheating;
  o Section 463 - forgery;
  o Section 489A – covering counterfeiting of currency and fraud in banks.
  
  
• Bribery
  This is the practice of paying a large sum of money, sometimes known as a kickback, to a high ranking official or someone in authority, in exchange for a benefit. Bribery in India is punishable under Section 171E of the Indian Penal Code of 1860 which states that anyone who commits such an offense will be imprisoned for a term of up to one year, fined, or both. Additionally, Section 13 of the Prevention of Corruption Act, 1988 penalizes acts committed by public officials that constitute a bribery offense.
  
  
• Cybercrime
  This constitutes one of the most disruptive forces to emerge domestically as well as globally from the digital era. Driven by rapid and sophisticated technological advancements, cyber criminality is far from confined to India. Testament to the extent of the issue, the global cost of cybersecurity breaches is estimated to rise from USD9.22 trillion in 2024 to USD13.82 trillion by 2028.
  
  Endangering both national security and individual financial wellbeing, cybercrimes today can comprise data damage and destruction, stolen money, lost productivity, intellectual property theft, personal and financial data theft, embezzlement, fraud, post-attack disruption to businesses, restoration and deletion of hacked data and systems, and reputational harm.
  
  The IT Act of 2000 was enacted by the Parliament of India and administered by the Indian Computer Emergency Response Team (CERT-In) to guide cybersecurity legislation, institute data protection policies, and govern cybercrime.
  
  
• Money Laundering
  Probably regarded as one of the oldest white collar crimes, perpetrators use illegal methods to conceal or legitimize proceeds derived from illegal activities. Known in India as Hawala transactions, the Financial Action Task Force (FATF) estimates INR 5 trillion worth of illicit funds are laundered in India annually, impacting the economy and national security. Digital transactions and cryptocurrencies have posed a significant challenge in recent years. India introduced a special law in 2002 to tackle money laundering, the Prevention of Money Laundering Act (PMLA) 2002.
  
  Money laundering can cover anything from bank frauds, the siphoning of government funds and Ponzi schemes. The PMLA provides authorities with extensive powers to trace, seize, and confiscate proceeds of crime. The Financial Intelligence Unit of India (FIU-IND) is the organization responsible for the fight against the financial crimes of India under the Ministry of Finance. Businesses with AML obligations report to the Financial Intelligence Unit.
  
  
• Tax Evasion
  Income tax, goods and services tax, import-export tax, state border tax, are some mandatory taxes incurred by individuals and businesses in India. Willful concealment, misreporting and evading the payment of these taxes in India is a fraudulent practice. Methods can range from falsified tax returns to understating income or fake documentation. In 2023/2024 the government in India detected INR 1.51 trillion (approx. USD18 billion) in GST evasion.
  
  Covered by the Income Tax Act, 1961 penalties for evading tax can range from imprisonment to fines.
  
  
• Identity theft
  In 2022, India ranked first among researched countries globally by the number of identity theft cases, with an estimated 27.2 million adult victims during the period. Deepfake identity fraud, whereby fake online profiles are created, is especially prevalent. Identity theft, including phishing, forging electronic signatures, or accessing unique identity features for financial gain, is punishable by Section 66C of the Indian Penal Code.

Initiating an investigation

If a white-collar crime is suspected or discovered within a company, a forensic investigation performed by external auditors or accountants can help. Because white collar crime is usually motivated by personal gain, impartiality and objectivity can be especially helpful when analyzing company records, as it removes, or significantly reduces, bias.

In addition to uncovering the truth and presenting the impact of unusual transactions, a forensic investigation report can help to identify particular organizational vulnerabilities. This helps management teams to proactively identify and address potential risks that may, if left unaddressed, cause reputational damage or financial loss.

The approach taken by CLA Indus Value Consulting commences with identifying the scope, nature and purpose of each investigation. This stage usually involves specifying when third parties, if any, are contractually required to be informed about the investigation.

An investigation itself typically involves assessing the loss suffered and the nature of the offence/s committed. Where practical, a complete review of relevant documents/data (and any other investigation steps) is collated with all direct and circumstantial evidence.

The ultimate goal of a forensic investigation is to build from the base and uncover the complete truth relating to the charges being investigated. One of the major advantages of a private forensic investigation is the fact that it maintains confidentiality of the parties involved, allowing for a company to assess its internal structures. This also means it can also be used as the basis to pursue legal action (or defense).

Although forensic diligence reports are often vital in understanding facts and culpability of a company and its officers/ employees, questions frequently arise regarding the admissibility of independently obtained evidence before a court or legal authority. Independent forensic reports may be admissible as expert evidence.

Sections 45 to 51 of the Indian Evidence Act, 1872 define the provisions relating to forensic expert evidence and third-party witnesses. For instance, Section 45 allows a judge to appoint an expert that has specialist knowledge, experience or skill in foreign law, science, art, handwriting or finger impression to assist the court in reaching a judgment based on the facts presented before it.

Asset tracing is another investigation service that is increasing exponentially. In a forensic process, investigators can verify asset and liability disclosures as part of credit discussions with both companies and individuals. Specifically, asset tracing can help identify misrepresentations and in doing so, mitigate the risk of financial loss.

A blueprint for white collar crime

Given the ever changing white collar crime landscape and the deleterious impact financially motivated fraud can have on any country’s ethics, development and foreign investment, appointing forensic auditors can play a significant role in the wider fight to safeguard financial integrity of organizations. India regards this approach as being a significant step forward towards protecting, rather than hindering, the country’s future economic infrastructure.

In addition to upholding the principles of transparency and accountability in the business world, India’s more robust government-backed framework and stronger enforcement measures can be held up as an example of how actions can start to make a difference. Although many challenges persist, India’s higher vigilance supported by key legislative reforms presents the united effort being adopted to shape and strengthen international cooperation to combat financial fraud and white collar crime.

The FCPA and the UKBA extraterritorial anti-corruption laws are applicable in India. The FCPA prohibits bribery and corrupt practices involving US companies or individuals, even if the acts occur outside US jurisdiction. Indian entities that have US parent companies or form part of a group of companies where the FCPA law apply need to be aware of and comply with the FCPA to avoid legal consequences. Likewise, the UKBA extends its jurisdiction beyond the UK’s borders, making it applicable to Indian companies that have business dealings with UK-based entities or that have their own operations in the UK.

As part of CLA Global, CLA Indus Value Consulting is able to collaborate with member firms in each jurisdiction to ensure organizations adhere to these extraterritorial anti-corruption rules.

Additionally, CLA Indus Value Consulting adheres to the Institute of Chartered Accountants of India (ICAI) and the Forensic Accounting and Investigation Standards (FAIS). These standards improve the quality of forensic accounting and investigation services provided in India. FAIS comprises a set of guidelines and best practices designed by industry experts to ensure that forensic accounting and investigation services are conducted with the highest level of ethics, professionalism, and integrity. The standards cover various aspects of forensic accounting and investigation, including evidence collection, analysis, and reporting.

For further information

Jinal Jatakia
Senior Partner, Forensic and Dispute Advisory
CLA Global Indus Value Consulting
https://claivc.com/directory/jinal/

Dr. Nimish Chodankar
Partner, Forensic and Dispute Advisory
CLA Global Indus Value Consulting
https://claivc.com/directory/nimish/

Twisha Parekh
Manager, Forensic and Dispute Advisory
CLA Global Indus Value Consulting
https://www.linkedin.com/in/twisha-parekh-1a8326b8/

The information contained herein is for general informational purposes only and is not intended, and should not be construed, as legal, auditing, accounting, investment, or tax advice or opinion provided by CLA Global or any of its individual member firms to the reader. No client, advisory, fiduciary, or other professional relationship is established or implied between the reader and CLA Global or any of its member firms through the presentation of the information contained herein. The reader is cautioned that this material may not be applicable to, or suitable for, the reader’s specific circumstances or needs, and may require consideration of a number of other factors if any action is to be contemplated. Accordingly, the information presented herein should not be considered a substitute for the reader’s independent investigation and sound technical business judgment, and the reader is advised to contact his or her CLA Global member firm or other tax or professional advisor prior to taking any action based upon said information. Neither CLA Global nor any of its member firms assume any obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.