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INVESTIGATION OF

ECONOMIC CRIMES

With liberalization, the aboideau of scams and financial irregularities is thrown


open and 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 six-decade-old sky of the Indian Republic, the Indian economy
is sweltering under the heat of economic crimes. Not those 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 organized 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 liberalized economy.
The people who were inured to protected economy and state control cannot
easily adapt to liberalized 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. The sounding of finance minister,
Mr.P.Chaidambaram in June, 1977 after CRB scam came to light that law
enforcers must ruthlessly deal with economic offenders is too small coming too
late to have any meaning or impact on the atrophy already set-in, in Indian
economic labyrinth. The problem lies in the liberalization process having taken-
off without adequate infrastructure of checks and counterbalances to sustain it.
Educating the public about the nuances of a liberal economy and preparing them
for the risks immanent in the system as well as strengthening the reticulation of
rules, laws and law enforcing system to handle and control economic crimes go

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a long way in keeping away the extant maelstrom and making liberalization a
more relevant and meaningful direction to Indian economy to pursue.
On closer scrutiny, it is obvious that Indian democracy and administration are
over-weighed with myraid rules, regulations, laws and controls. The problem of
India is their enforcement. What India needs is efficient enforcement, and not
more and more rules and laws. This is true of Indian economy also. The need
is desperately felt in the atmosphere of liberalization. Enforcement has two faces:
preventive and investigative. As far as preventive measures are concerned, the
present rules and laws are adequate to bring any financial operation to a standstill.
Slack, inefficient and casual enforcement process laced with corruption makes
economic activities possible in India. In the atmosphere of liberalization where
economy is less regulated and controlled with fewer rules and laws to tie the
hands and legs of the market forces, illegal activities find avenues to surface to
the detriment of the open market. Stringent enforcement of relevant rules and
laws to prevent illegal activities is the need of the hour. When preventive
machinery fails in its activities is the need of the hour. When preventive machinery
fails in its task, the investigation agency comes to the force. When preventive
measures collapse, the demands on the investigating machinery increase to bring
the hors la loi to book. Demands per se do not meet the needs of efficient
investigation. Commitment to the job is one side of the need. The other side is
the skill of investigating economic offences.
Investigation of economic offences is a specialized job requiring special skills
far removed from the needs of investigating bodily crimes. An investigator of
economic offences has to be well versed in the intricacies of financial transactions,
the dynamics of the market forces, rules and laws regulating and controlling the
financial market and the finer aspects of auditing and accounting apart from a
sound analytical disposition to interpret the data and evidences during the
process of investigation. He should command indefatigable patience to
scrutinize and interpret stacks of bills, vouchers, minutes, contracts, balance
sheets, audit reports, correspondences, records, registers and other documents.
It is a time consuming drudgery far removed from the glamour attached to it.
A point central to both economic crimes and their investigation is the willing
cooperation and participation of several related agencies and individuals in the
operation. They call for group-work involving meeting of mind and synergy
towards the main goal. Symbiosis is the sacred hymn of the operations. Indeed,
there is a main player to whose initiative and plan, all others contribute as and
when required. Other constituents in the play necessarily include key government
agencies responsible for regulating financial activities in the country and its key

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officials. Large-scale economic crimes need their cooperation in shutting eyes to


willful violation of inconvenient norms and regulations of financial discipline and
active connivance in issuing official favors against rules to ease the passage of
defrauding the public. Such constituents may include commercial banks, the
SEBI, The RBI, the Ministry of Finance, any of the three credit rating agencies
of the country, the auditors who audit the company or all of them in synergy as
in the CRB scam. Other ministries and agencies involved in activities related to
financial matters may also form part of such fraudulent operations. As CRB
scam made explicit, non-banking finance companies form the spine of such
frauds on the gullible public.
Investigation of an economic crime must cover the role of these agencies, the
key officials involved and the mens rea, the quid pro quo involved etc and support
each fact with sound evidences. The work necessarily requires willing
cooperation of the agencies concerned to provide related documents as
evidence, interpret the meaning and significance of these documents, explain the
related practices, procedures, rules and laws and provide inside information
pertaining to the commission of the fraud au reste volunteering to be witnesses
to the crime. The investigators require guidance from these experts about
evidences and the course of further investigation to build up the case. This is a
formidable job that cannot be handled by one investigator and a handful of his
assistants. An essential feature for the successful investigation of an economic
crime of large dimension is constitution of a team of experts drawn from all
related agencies to assist the investigator.
Investigation of any economic crime cannot be fair and square unless the
investigation covers all aspects of the crime. Localized investigation leads to
unfair and partial justice. The aspect is popularly forgotten in the investigation of
scams and scandals in Indian environment. Localized investigation limited to the
main front man of the fraud is a simple job that can be completed in a short
duration to everybody’s satisfaction including the clever criminals and the gullible
public with only a paid front man sacrificed in requital to the gain of hundreds
or thousands of crores of rupees. Such unfair investigation suffers justice and
financial discipline and encourages financial institutions to connive in such frauds.
The crux of the investigation of economic crimes in tracing the end-users of the
fraud and reaching the persons responsible for planning and organizing them.
Rarely these investigations in Indian environment reach the depth, nor touch the
government agencies and its key officers who willingly contributed to the fraud
for gain by commissions and omissions. It is a grave Achilles’ heel of the
investigation of economic crimes in India.

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In an intelligently planned, organized and executed mega fraud, the big fish
always remains inconnu. It is only the little or sometimes middle-sized fishes that
act as the front for the main-players are caught. It is so arranged in such frauds
that all books and records point only to the front-players; public contacts and
media exposures are designed to play up the roles of the front-players. The real
players remain at the background harmless even while the fraud comes to open.
It is only a few daring players who venture into risky financial operation with
honest intensions, do so in their own names and get caught while their venture
with the public money dooms. An investigator should be familiar with these
nuances of the crime. Another aspect is the possibility of the grists made from
the fraud being tucked away or invested in some far away foreign countries.
Swiss banks are only a tip of the iceberg. An investigation into economic crimes
is incomplete without a probe to this possibility. A corollary of this aspect is
violation of Foreign Exchange Regulations; thus FERA comes to picture,
Offences under Income-tax provisions is another side of the crime. A mega-
economic crime spreads it tentacles over myraid financial enactments to involve
independent investigations to the same crime by different agencies au reste the
investigation by the police. This leads to gratuitous waste of time, manpower and
energy by duplication of works apart from creating problems of inter-agency
coordination and inter-agency rivalry. The fear of impinging on the limits of
other agencies prevents free and concerted investigation. The result is shallow
and piecemeal investigations by several agencies leading nowhere. Solution to this
problem lies in integrated single investigation with the cooperation and active
participation of the concerned financial institutions as expert advisors in the
investigation team. Only such a holistic investigation can delve deep into the roots
of the crime and unearth the truth in its entirety as a means of deterring recurrence
of mega-frauds. No investigation into economic offences is complete without
the impresario of the fraud, however deep be his cover, is brought to book and
his gains, wherever it be stacked, is unearthed. This is seld done in extant Indian
investigation situation.
Investigation of mega-economic crimes cannot be handled by all and sundry
investigators. Apart from investigation skill, they required special attributes to
lead that investigation to a successful end. For one, they must have basic
knowledge and familiarity of the goings on in the financial world to help them
understand the interpretations and the explanations of the experts in the team
about the complexities and intricacies of the financial transactions of the crime.
In the absence of this basic familiarity, the investigators may appear like fishes out
of water in the maze of financial transactions leading to the crime. These datas

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being often encoded and computerised for safety by clever criminals, a splatter
of knowledge of computer and software are helpful to manage control over the
process of the investigation. An essential feature for an investigator of economic
crimes is leadership qualities, an ability to delegate and decentralize work, ability
to trust right people, inspire confidence, draw cooperation and ability to
coordinate the works of myraid agencies involved in the investigation to guide
to the desired end. Commitment to lead the investigation to successful end and
ability to work hard are other characteristics sine qua non for the investigator.
A serious handicap of the investigation of economic offences is its slow
process. The reason is mental fatigue. Examination of loads of documents,
records and papers per se is a tiresome and time-consuming labor. To crown it,
the mental processes involved in sifting right and relevant documents from the
heap of papers, interpreting them, placing in right perspective to the commission
of the crime, assessing its value in the overall process of the commission of the
crime etc., are extremely exhausting and tiresome job. It naturally retards the pace
of the investigation and the process taking years for completion is a common
spectacle. On the other side, time is central to the investigation of economic
crimes. Money rapidly multiplies with time in form of profits of investments or
interests on deposits. Delay of investigation is in the interests of the criminals with
this ill-gotten money. Delay in investigation process helps criminals to multiply
their res gestae several times with the passage of time, ipso facto rendering them
huge gainers in terms of monetary benefits that easily offset the pains of trial and
conviction in court, if any. Early completion of investigation is vital for the cause
of justice. Constitution of a team of investigators including experts from various
financial institutions should be able to overcome the natural handicap of
inordinate delays in the investigation of economic offences.
A need of common sense in investigation of economic crimes is the initiative
of the investigator to make up the losses of the victims of the fraud to possible
extent by luring the criminals to a deal. Here comes to picture the discreetness
of the investigator in striking a deal with the criminals selon les regles without
jeopardizing the process of the investigation in any way. Investigation per se does
not bring any relief to the victims of the fraud as its value lies only as an instrument
of deterrence. Safeguarding the interests of the hapless victims is the cardinal need
in the circumstances au reste bringing criminals to the book.
Huge money running to hundreds and thousands of crores of rupees is at the
centre of the investigation of scams and criminals are those who are clever,
influential and stacked with easy money. In the circumstances, attempts to lure
the investigator from the rightful path of investigation are a natural phenomenon.

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For the investigation to be successful, the investigator should have immense inner
strength to resist the lures and stick to his professional path. It is said that every
person has a price; and meeting whatever price is no problem in the efforts to
distract investigators of mega-economic crimes from their commitment. In the
circumstances, selection of right people as investigators becomes a key decision
in the success or otherwise of the investigation.
The tendency of soft-pedalling the role of financial institutions in the
commission of economic crimes for whatever reason is a serious Achilles heel
in the investigation of such crimes for the simple reason that lapses by these
agencies create a framework for the crimes. No large scale frauds against the
general public is possible without these agencies responsible for the financial
discipline of the country willingly ignore violations of financial norms and
regulations and offer favors against rules and laws of the financial discipline to
the criminals engaged in the frauds. The role of theses institutions in the
commission of the crimes is as grave as that of the main-players and the
impresarios of the fraud. The fact is forgotten in the investigation of economic
crimes in India. The result is lopsided and unfair investigation that satisfies none
let alone acting as a deterrent against recurrence of such frauds. CRB scam is an
example. Unless many agencies responsible for financial discipline helped the the
commission of the fraud by the CRB capital markets by blatantly ignoring
violations of norms and regulations by the latter and unlawful favors, the
swindling of the public to that extent would not have been an easy feat. The SEBI
tolerated CRB managing scores of shady share issues and permitted to start a
mutual fund and a share custodial service. The SBI opened its banking services
to the company to encash interest warrants and refund orders of the company
from the public without adequate security. Credit Rating Agency and IDBI’s
subsidiary CARE gifted the company’s fixed deposit programme, CRB caps an
“A+” rating in spite of the full knowledge of the liquidity problems and
deteriorating asset quality of the company after ICRA and CRISIL failed to
oblige the company. The auditors of the company ignored irregularities in the
company’s operations in the audit report. To top it all, the RBI turned blind eye
to massive irregularities noticed during inspection and issued an in-principle
banking license as favour and even tolerated the company raising money for its
bank after the license was withdrawn. In absence of the synergy by various
financial institutions of the country. CRB Capital Markets just could not befool
and defraud thousands of investors to the extent it did, and struck gold. The key
figures in these financial institutions who helped CRB scam are as much
responsible for the scam as was Mr.C.R.Bhansail, the head of CRB capital

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Markets. Their involvement gives an added dimension of conspiracy to the case.


Law that provides for the investigation of the case treats all these players of the
conspiracy on equal footing. The exclusive attention of the investigation agency
on the CRB chief and his close associates to the exclusion of other conspirators
cannot be called en regle and bound to shake the confidence of the public in the
investigation.
This is not an isolated case of financial institutions prevaricating from their
raison d’ etre. Another top credit rating agency of the country CRISIL failed to
warn investors in advance about the poor showing of ITC Classic Finance on
the eve of the issue of NCD and fixed deposit schemes of the company. For
CRISIL, this was the second instance within the short duration of a year after
similar failure regarding Mideast Shoes. The role of commercial banks infamous
security scam is too well known to be repeated here. Indian Bank scam is waiting
on the side-wings to blow up to a major scam. Ignoring the part of financial
institutions and other government agencies in mega-economic crimes is a sure
way of ringing the death-knell of the financial discipline of the country. An
investigation true to its profession must give primus to fix these institutions for
their irresponsible roles and connivance in the scam. The responsibility of the
main-player of a scam reduces to insignificance before the failures, lapses and
impacts of the connivance of the players of these institutions on the financial
market and public life of the country. No honest investigation can afford to leave
the key figures of these institutions out of the field of investigation. Distractions
like strikes and protests by the colleagues of the offenders in the institutions as
in the case of suspension of the officials of the Bombay Branch of the State Bank
of India for complicity in CRB scam should not deter a professional investigator
from his commitment. Corrupt colleagues flocking together to go on agitation
to protect one of them while caught is becoming a popular strategy of scaring
away the hands of law reaching them. A few years back, central customs and
excise staff of Delhi international airport resorted to agitation to protect a few
corrupt colleagues from the CBI net, Recently, air traffic control staff went on
agitation while some inefficient of them were suspended from service for grave
dereliction of duty. The CBI deferred arrest of public servants in Bihar fodder
scam some years back for the fear of creating law and order problems. A truly
professional investigator should not be deterred by such extraneous
developments in his resolve to unearth the truth. This is ore so in case of the
investigation of economic crimes for the simple reason that the money involved
in such crimes in capable of buying anything under the sun and creating any
situation to the advantage of the criminals.

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PRAVEEN KUMAR

Crimes are committed out of passion or for gain, if not by accident or


negligence. Economic crimes constitute a major and important block of the
crimes for gain. Economic crimes against the gullible public and the financial
system of the country assume dangerous dimensions because of the magnitude
of the crimes, their impact on the financial discipline of the country, the losses and
grief come with it to the gullible public and the sense of the loss of credibility it
brings to the financial market. Professional and in depth investigation to these
scams is sine qua non for the growth and stability of the economy of the country.

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