ARTICLE

http://agartala2008.blogspot.com/2008/08/article-1.htmlWHITE

WHITE COLLAR BUSINESS CRIME:IS INDIA READY TO TACKLE IT

By Prof. P K Haldar and Amlanbrata Chakraborty

The spotlight of media in the last few years has been the incidents of white-collar crime . Media’s enormous attention is due to a number of business failures and security scams committed by white-collar people throughout the world. Thousands of criminal activity in different form and in different shape are taking place in different spheres of our life . But the number of white-collar prosecution is very less than that of blue collar or street crime or conventional crime. Though the impact and harm caused by the white-collar crime is very serious and huge. Many times white-collar crime incidents are not reported to investigating agencies. Even those are reported are not left worthy to be prosecuted. Reason is insufficient evidence and other various limitations.

The white-collar crime has attained great significance because white-collar crime incidents are now involving huge cost, and are spoiling financial resources and harming business interest . The public interest in general and corporate survival in particular has become a matter of big problem. According to FBI (Federal Bureau of investigation) of USA , White-collar crimes cost the United States more than $300 billion annually . The problem of white-collar crime is severe in United Kingdom also. In Britain More than 60% of people surveyed in England and Wales admitted they had exaggerated an insurance claim, paid cash to avoid tax or kept money when given too much change. Even In Germany White-collar crime is a serious problem for 86 percent of the firms which responded in recent surveys.
It is estimated that economic losses caused by white collar crime are as high as 100 billion euros. More than 90 percent of the companies in Germany believe that the level of white-collar crime will remain as high as it is, 58 percent even expect it to increase. So there is no noubt that white crime is everywhere in the world an ther is a upward trend.
BBC Business News Reporter Guy Robarts wrote that a study by risk management firm Protiviti and top criminologist Professor Martin Gill of Perpetuity Group of UK found that the amount of money being siphoned off by individual white collar staff in UK ranged from thousands to millions of pounds. Mike Adlem, managing director of Protiviti said “It is a fact that most incidents of White Collar Crime go unreported as most companies choose to deal with the problem internally. Mr Adlem also said, the total cost of employee fraud( one kind of white collar crime) to UK listed companies alone amounted to about £2bn.”

As we know that the term 'white collar' was first used by Upton Sinclair in relation to modern clerical, administrative and management workers in the 1930s and the term white-collar crime has been first explained by Edwin Sutherland in 1949 as a crime committed by a person of respectability and high social status in the course of his occupation. Although Sutherland was not the first one to talk about crimes committed by a person of respectability and high social status. Before Sutherland scholars like Lincoln stiffens (1903), Upton Sinclair(1906), W A Bonger (1916) wrote about variety of misdeeds by businessmen and elites. Before Sutherland, crimes committed by elites were simply treated like other conventional crimes.That means the investigation of white collar crime ,prosecution and conviction were done in the same way as investigation, prosecution and conviction of conventional offence such as Murder,Theft etc. But it is the Sutherland who gave a specific term about crimes committed by elites and he asked for differential treatment for the this new crime problem. Sutherland also argued that criminologists have used the case histories and criminal statistics derived from agencies those believe that the causes of crime are poverty and social backwardness. But Sutherland said that there are crimes committed by elites, which do not have any link with poverty and social backwardness.
The way in which Sutherland spoke it reflected that his argument has Strong basis. A simple example may be given in support of Sutherland's view is that the cases of traffic rule violations. It is a considered view that poor people hardly can afford car in comparison to people of upper and high status class . So the majority of traffic rule violators are from high social class. But if we see the crime statistics then we will surprisingly realise that the incidents of traffic rule violations by people of high social class is a very less. In fact there is no clear-cut division as to what percentage of traffic rule violations has been committed by people of high social class. The number is often mixed up with conventional traffic rule violators. The problem is the traffic rule violations by people of high social class in major cases are not treated seriously. The reason of less prosecution of traffic rule violations is the traffic rule violators are influential and there is no specific treatment of the crime committed by these influential people. It is rare that an incident of traffic rule violations by a person of high social status is a registered and later on prosecuted and punished.The most important point here is in such a way the statistics relating to commission of white-collar crimes are suppressed through out the world. Sutherland also said that if anyone ask person, who is in a certain occupation, regarding offences committed by influential people in his or her profession then the list will be end less. But very surprisingly very less of those offences are reported to investigating agencies.
White-collar crime is a very much part of our social scene today and the issue before us is how we can tackle this? The first point to recognise is that while the blue-collar crime is gruesome, well known and has an immediate impact, it is the white-collar crime which has greater anti-social impact. Take for example corruption. Probably that is the most widespread white-collar crime in the world today. Even in India corruption is more in existence. We are rated by the Transparency International as the 66th country in the level of honesty among 85 countries. Viewed in another way, we are the 19th most corrupt country in the world. Another recent survey suggests that in the South East Asian region, India ranks next to China so far as corruption is concerned. So, with our high rank in corruption, we can say India probably is a country where the white-collar crime is high.
It is not necessary that the white-collar crime and the blue-collar crime are mutually exclusive. Many a time they can combine very dangerously resulting in a social disaster. Take for example the Bombay blast of 1993. Because of the white-collar crime of corruption indulged in by one of the Customs officials who was allegedly given a bribe of Rs.20 lakhs, RDX was permitted to be smuggled in by the criminals and they set off the Bombay blasts resulting in the death of 300 people. Checking white-collar crime may be also one method of indirectly checking blue-collar crime. Therefore, focussing of white-collar crime becomes even more important in today's context. Many a time white-collar crime is facilitated because of lack of transparency and awareness. Legislative and administrative actions are not appropriate enough so that criminals can be detected ,prosecuted convicted and punished.
However there are a lot of conflicting opinion relating to the use of the term white-collar crime since its inception. Sutherland in his speech remarked that white-collar crimes are those crimes which are committed by people of respectability and high social status. But crime statistics does not reflect properly about the crime committed by high social status people.
We all know about Harshad Mehta .Hareshad Mehta was not a man of respectability and high social status when he started alleged criminal activities relating to trading of shares in Mumbai(Earlier Bombay). He became a man of high social status long after .
Statistics reveals white collar crime also be committed in a sphere which is not considerably said a sphere of occupation. This point can be emphasised by giving examples of cyber crime. Majority of Cyber personnels in developed countries as well as in developing countries are people of high level in job and getting handsome salary. They indulge themselves in various criminal activity when there are in office and even when they are off the job. Some times many cyber criminals are found who left his or her job and are doing illegal things .Such as cyber terrorists. In such context as said Sutherland’s view does not stands.
Some criminologists suggests Mr Edwin Sutherland was a sociologist, so he saw according to his sociologist view. This is why the term white-collar crime has much more connection with sociology. Because in law every aspect should be specific not hypothetical .Critics of Sutherland think that social deviance is the appropriate term rather than white-collar crime. It is surprising that despite ambiguity in the term white-collar crime, this term has been used in last 80 years with huge popularity and enormity. Still now there is no universally acclaimed definition of white-collar crime. Due to that fact the term white-collar crime could not take place in statutes of different countries through the world due to absence of very clear definition of the term white collar crime.
Another most important logic behind the reason of absence of the term white collar crime is that no country should have different punishment for same crime .That means one punishment for rich offender and another punishment for poor offender. It is not possible too as everybody is equal before eye of law.
If it is said poverty and social backwardness are the causes of crime incidents then in opposition of such view , Edwin Sutherland’s view is much more solid and strong. According to his opinion rich do not commit crime due to those causes in which’s influence poor commits crime.
Three critical issues that have arisen in the battle over the meaning of white collar crime, are as follows.(1) Should the term refer only to activity that is actually criminal, or also to other forms of non- criminal deviance.
To explain this issue we need to put in the meaning of the term "crime" first. Crime is an act deemed by law to be harmful to society in general and to individual or group of individuals in particular. But for each type of crime there may be or may not be punishment. But for every offence there is punishment. As Example we can say in India those are non vegetarian kills fish for food. Killing fish for food is violent activity ,and it may be crime but not offence. Because there is no punishment prescribed for killing of fish. But when any one kills a man then it will be an offence. Because IPC prescribes punishment for it.
According to black's Law dictionary crime is a " positive or negative act in violation of penal law....." In other words crime is a breach of legal rule which renders the offender punishable by the state. . Criminal conduct is conduct which the state chooses to deter by the machinery of criminal punishment.
To call a wrong as a crime most important element which is needed to be associated with the wrong is guilty mind or mens rea. Where there is no guilty mind there is no crime. So white-collar crime is indeed is a crime because whoever commits white-collar crime does not commit it for benefit of mankind and there he has the guilty mind. So commission of white-collar offence is not at all non-criminal deviance.
In crime the offender has to have the guilty mind and the offender is needed to prepare himself to commit the crime and then the offender has to attempt to commit the crime . When offence is attempted by the offender then stages of crime are finished. It may be possible that the offender fails to complete the offence or misses the target till then the offender is liable to be prosecuted. In India Attempt to commit offence is punishable under specific section of offence in IPC and if the specific section related to the offence is silent as to the attempt then it will come under the purview of Section 511 of IPC.
Now here it is relevant to mention that a crime cannot be called as an offence untill there is a clear-cut definition in any penal law. The penal law gives the definition of the offence which includes the acts which constitute the offence, the punishment of the offence and the direction as to where the offence is triable.
For clarification we can say Section 477-A on the Indian Penal Code, 1860, gives the definition of the offence, which is "falsification of accounts". It is described in this section that"whoever being a clerk, officer or servant or employed or acting in the capacity of a clerk, officer or servant will fully and with intent to defraud, destroys, alters, mutilates or falsifies any book, electronic record, paper, writing, valuable security or account which belongs to order is in the possession of his employer, or has been received by him for or on behalf of his employer or will fully, and with intent to defraud, makes or abets the making of any false entry in, or omits or alters or abets the ommission or alteration of any material particular from or in, any such valuable security or account shall be punished with imprisonment of either description for a term which may extend to seven years or with fine or both". The offence under this section is non cognizable(police cannot arrest without warrant of Magistrate), bailable, non-compoundable and triable by magistrate of 1st class.
So to claim an crime to be an offence there should be provision regarding the offence as stated above. In India there is no law which relates to white collar crime unlike United states. In USA there is Sarbanes and Oxly Act. Title IX of the Act increases the criminal penalties associated with white Collar Crimes and Conspiracies. All Sections from 901 to 906 of this Act are called white Collar Crime penalty Enhancement Act 2002. In simple words we can say the existence of the term “White Collar Crime” in sarbanes and Oxly Act indicates white Collar crimes are crimes not non criminal deviance. Criminal deviance is a aspect of theory not a aspect of practice so long there is no clear and specific definition as to the term deviance by established law of the respective countries.

(2) Should the term refer to behavior engaged in exclusively or primarily by particular kinds of wrong doers, such as those who occupy certain jobs or have a high socio-economic status; or should it refer instead to some particular kinds of wrong ?;
The meaning of behaviour here to be dealt with first. According to Black's Law Dictionary, behaviour is the manner of having, holding, or keeping one’s self ......". Behaviour also includes learning, motivation, personality, emotion, perception and Training and so on.
When we say "white-collar criminal behaviour" the term indicates the behaviour of white-collar people. Such white-collar people often holds high-level posts in various organisations. The term white-collar crime does not necessarily refer to some particular kinds of wrong. Because the dynamic charecter of business and financial transaction will create breeding ground of completely new type of wrong and no one cant be certain in that . So it will be not wise to narrow down the wrongs to some limited numbers. As example we can say thirty years before no one imagined that use of computer and its popularity will create breeding ground of cyber crime. But recently FBI estimated that in the year 2007, the financial loss in United States caused by cyber crime was 239.09 million dollar. FBI report also stated that in the year 2001 the loss caused by cyber crime in USA was only 17.80 million dollar.
In fact the focal point here should be the effort to know who are the people who commits certain type of white collar crime and who are the people who will commit certain crime in near future or in remote future and why people commits crime despite being rich and respectable .
Law directs what to do and what not to do. Law of the particular nation proclaim certain acts of people to be legal and some other acts to be illegal. But why a person commits wrong is a question which has to be answered exploring the external environment of a person . If lope holes of laws are creating scope for commission of offences then it also has to be explained how strong legal framework be made. Man is rational .Every act he or she does is the reflection of interaction of internal and external elements of environment of an individual where he resides.

(3) what factors should determine as the causes of white collar crime incidents.
From recent incidents of white collar crime it seems any study relating white collar crime should not be limited to some specific category. Because business and financial transaction are dynamic so every day new types of white collar crimes are emerging and with new types reason. So limiting a study to some specific crime is not possible and otherwise it is not wise too.
It is also difficult to know as to what factors should determine as the cause of deviant behaviour of the people without analyzing the statistics of crimes committed by people employed in high level jobs. But the problem is in developing countries like ours there was never any systematic record of crimes so that analyzing those crime records any conclusive statement could be made out.Who has considerably no cause to commit any crime they are surprisingly committing white collar crimes. Why they are doing this is the real question we need to know. .
People perform deviant behaviour which is criminal and opposed to social values and moral conduct because they get the scope to do it .So to stop the performance of deviant behaviour there should be provision of strict punishment in statutes. Without statutory framework no crime can be stopped.
Here it is relevant to mention that deviant behaviour is such a behaviour which is contrary to social ethics and and moral conduct . But a crime is a act which is contrary to law and principles of natural justice. Unless a strong statutory framework is made regarding investigation , prosecution and conviction of white-collar offences then it is not possible to stop such crime.
White-collar crimes are of various types such as Corporate crime, fraud, bribery, insider trading, embezzlement, computer crime, and forgery. Each type of crime also has different mode of conduct in different circumstances and in different context. To know the problem of white collar crime we need to all elements which are resulting the white collar crimes to happen.
Very significantly white Collar crime causes huge financial losses to a nation, state, and local governments, to private organizations, and to individuals. Prosecutors of developed countries are aware about the ill affects of white collar crime.In 1988 the United States Supreme Court acknowledged the enormity of the white collar crime , stating that white collar crime “is one of the most serious problems confronting law enforcement authorities.” During 1980s, USA was rocked by insider trading scandals. Subsequent investigations revealed that corporate insiders made huge profits by trading on secret information, to the detriment of ordinary investors who did not have that information when trading. It is not only USA but whole world is facing the problem of insider trading. Further, insider trading threatened public confidence in the securities markets . In the late 1980s and early 1990s, the savings and loan industry of USA collapsed. This occurred in some substantial part because executives of those institutions engaged in wide-scale fraudulent practices. Thousands of persons lost their life savings as a result. Finally, in 2002, Wall Street of USA was rocked by corporate accounting scandals.
To curve Corporate and Accounting scandals ,US government on July 30,2002 enacted Sarbanes Oxly Act. The Legislation establishes new or enhanced standards for all United States public company boards, management and public accounting firms .But it is surprising that this Act does not apply to privately held companies.
Incidents of white collar crime are are happening in Australia too. Employee fraud costs Australian businesses $18 billion a year and the trend is towards growth. This is why the Australian government felt the need and passed CLERP 9( Australian Corporate Reporting and Disclosure law).In Japan There is J-SOX .It is the Jpanese version of Sarbanes –Oxly Act. In france there is LSF that is “Loi sur la securite financiere” .

One reason white collar crime remains widespread is that it is often very difficult to detect. Unlike street and common property crimes, white collar crimes are usually committed in the privacy of an office or home; usually there is no eyewitness. Instead, the government’s proof is more likely to depend upon circumstantial evidence. Moreover, the government’s ability to identify white collar crimes is sometimes hampered by lack of resources and expertise. Particularly with respect to financial crimes such as tax fraud and money laundering, prosecutors may require technical assistance from government . Finally, the sheer scope of many white collar crimes provides good earning scope to the Attorneys’ offices. Apart from investigations ,trials often last for many years.
The problem for investigators is that incidents of white-collar crime are not leaving strong evidences so that the violators may be prosecuted. So the investigation starts on basis circumstantial evidence and ends with surmise and conjectures. But rule of criminal law is that the crime has to be proved beyond all reasonable doubt. So outcomes of surmise and conjectures never be a good ground of conviction and punishment.There is no doubt that the financial cost of white-collar crime is much higher than that of financial cost of blue-collar crime. That means the ill affect of white-collar crime is many fold higher and huge than conventional crime. We have seen the financial fall out after scams like Enron and Worldcom over US economy and the fallout is still in existence.
In his speech in 34th presidential address delivered at Philadelphia in 1939 Edwin Sutherland also even gave instances. He said "an officer of the chain grocery store in one year embezzled $ 600 000, which was six times as much as the annual losses from 500 burglaries and robberies, of the stores in that chain. The New York Times in 1931 reported four cases of embezzlement in United States with the loss of more than one million dollar each and a combined loss of nine million dollars.Even many years after Sutherland's 34th annual presidential address of 1939, the white-collar crime incidents are ever-increasing and these incidents are alarmingly affecting the society, the economy and the business environment.
As we know Enron creditors recovery Corporation (formerly Enron Corporation) was founded in Nebraska in the year 1985. In the year 2000 its revenue stood up to $111billion dollar . It had 22,000 employees in the year 2000. This Corporation was one of the leading players in the area of electricity, natural gas, pulp and paper and communication. Even Fortune magazine named Enron as "America's most innovative company "for six consecutive years.But after a series of revelations involving irregular accounting procedures based on fraud perpetrated throughout 1990's involving Enron and its accounting firm Arthur Andersen, Enron stood on the verge of undergoing the largest bankruptcy in history of United States by mid November of 2001.
Meanwhile In a recent report issued by FBI it has appeared that major white-collar crime will impact the US economy over the next five years. Money-laundering poses a great threat to US economy. FBI also anticipates that healthcare fraud is expected to increase dramatically over the next decade, as the aging of the US population drives increase private healthcare and madicine spending.As from the above discussion it is clear that all crimes are related to business and financial transactions. So there remains no doubt that the concept of white-collar crime relates mainly to business crime. That means the accomplishment of business or financial objective is main in case of white collar business crime.
White Collar Crime in IndiaIt is surprising that despite ever increasing number of publicity of white-collar crime incidents in western media, Indian corporate houses ,Indian businessmen ,Indian Legislators, Indian Administrators and Indian people are hardly serious to this issue of white-collar crime. If any scam like Worldcom or Enron takes place in India, the outcome will be disastrous . It is considered view that Indian investigating agencies are not well equipped like FBI of United States. In other hand the awareness relating to white-collar crime among people is not adequate.


In a recent survey on white-collar crime conducted by Ernest and young, it has been revealed that there is a substantial spurt in corporate crimes. The survey further stated that in the opinion of 24 percent of respondents who took part in the survey have attained alarming indications of white-collar criminal behaviour in their respective spheres. The survey report also stated that 36 percent of respondents said that internal fraud in collusion with third party was the highest risk to their business. Accounting fraud is another area which continuously giving alarming indications according to 14 percent of the respondents of the survey.
In another study by the consulting firm "KPMG India" put India at risk of white collar crimes in corporate sectors in the next three years. The respondents in the KPMG survey opined that ever increasing business boom will create such a situation that part by part creating such atmosphere where ethical behaviour will be rare and Indian legislators reluctance in taking appropriate legislative step will make the situation worst. Deepankar Sanwalka, head, forensic services, KPMG India, thinks that, to the extent business transaction will increase the effective monitoring will not be there and so why frauds will be real time threats for most corporates in India. It is surprising that majority of large Indian companies do not have adequate risk management strategies. The KPMG survey pointed a 54 % rise in the number of fraud victims from the last survey in 2006(39%). This time more than 80% respondents of KPMG study termed fraud as a crisis and 70% of respondents believe that it will increase in coming two year.
In India prevention of crime is very tough job. This is partly for ever increasing number of criminal incidents but majorly for absence of appropriate method of criminal investigation. In India crime statistics are also not readily available. But developed countries are much more advanced in this area. In United States there is Uniform Crime Report (U C R ).The Uniform Crime Reporting (UCR) Program was conceived in 1929 by the International Association of Chiefs of Police to meet a need for reliable, uniform crime statistics for the nation. In 1930, the FBI was tasked with collecting, publishing, and archiving those statistics. Today, several annual statistical publications, such as the comprehensive Crime in the United States, are produced from data provided by nearly 17,000 law enforcement agencies across the United States.
White Collar criminal behaviour is different from conventional criminal behaviour. So the laws for tackling white collar crime should be different .In India there is no special law which will tackle the growing menace of "white collar" crime. When there is no special Act then there is no special courts to try such kind of cases. Since the corporate crime, economic crimes and bank frauds are increasing day by day, there is a need to have a different legal procedure to deal with economic offences as they have a different kind of procedure besides being serious in nature.
But despite so many incidents of white collar crime and corporate scandals ,the law of India was reluctant to impose criminal liability upon corporations for a long time. Instances of this are:
1. Sections. 45, 63, 68, 70(5), 203, etc of the Indian Companies Act wherein only the officials of the company are held liable and not the company itself.2. The various sections of the IPC that direct compulsory imprisonment does not take a corporate into account since such a sanction cannot work against the corporation.
On other hand under the present Indian law it is difficult to impose fine in lieu of imprisonment though the definition of 'person' in the Indian Penal Code Includes 'company'. Till now, the Courts have been able to impose only fine as a form of punishment because of statutory inadequacy and lack of new forms of punishments which could be imposed upon corporates. It is also worthwhile to mention that our Parliament has also understood this problem and proposed to amend the IPC in this regard by including fine as an alternate to imprisonment where corporations are involved in 1972. However, the Bill was not passed but lapsed. Such a fundamental change in the criminal jurisprudence is a legislative function and hence the Parliament should perform it as soon as possible .
The imposition of fines may be made in four different ways as provided in the IPC. It is the sole punishment for certain offences and the limit of maximum fine has been laid down; in certain cases it is an alternative punishment but the amount is limited; in certain offences it is imperative to impose fine in addition to some other punishment and in some it is obligatory to impose fine but no pecuniary limit is laid down.
Fines can be an effective punishment in cases of traffic offences or offences against property. But where the offence is grave , in the sense of cyber crime, fraud, insider trading and other major corporate crimes like accounting fraud etc., it is questionable whether fine can achieve the object of punishment. Another shortcoming of this form of punishment is that it pins the poor and eases the rich. The rich can easily get away by paying a huge fine while the poor may have to toil hard even to get a hundred rupees.
This shows that biggest drawback of Indian law in restricting fine as the sole form of punishment to corporates since with their massive bank accounts, it is easy for them to get away with the criminal liability and it also does not solve the purpose of punishment since neither the corporates would be deterred nor would they be retributed for the crimes like white collar crime that they have committed .Looking into the above drawbacks, there is a need to evolve new forms of punishments which could effectively deter the corporates from engaging into any criminal activity.
Presently, all the sections include only fine as a form of punishment that can be imposed on a company. So is the case with judicial pronouncements on the aspect of sentencing. In addition to this, the Law Commission in its 41st Report also speaks of introducing only fine as an additional punishment to be imposed upon corporations in lieu of fines. This restrictive thinking, according to Courts is based on the maxim lex non cogit ad impossibilia, which tells us that law does not contemplate something which cannot be done. But the problem is what is impossible tomorrow it may be possible . Then what to do ?