RECENT TRENDS

IN ECONOMIC CRIMES

With the liberalization, 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 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.
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

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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 policy-
making 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, high-sea 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 increasingly expand with the ingenuity of the
persons involved. Some of them like deposits fraud, company regulations
violation, fraud 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 organized 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

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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. 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 wide spread
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

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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 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

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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.
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 favorites 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, who remain 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 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

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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 higher-ups
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. Other where, 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 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 chorisis 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.

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