From PD’s Desk

Economic crimes in India, like else where, are linked to several other offences, or even organised crimes, having bearing on national security. Every day a greater degree of sophistication is being noticed in the activities of the criminals indulging in these activities. There is a growing recognition in the world that the economic offences are, many times, part of other serious crimes posing serious threat to the security of the nation. Problems such as international terrorism, narco-terrorism, money laundering, IPR violations, cyber crimes, import of hazardous substances etc. continue to occupy centre stage as the global threats. A multi-pronged approach by various arms of the Government could help in effectively dealing with this menace.

Besides the investigating agencies, Auditors could play a significant role in their prevention and detection. Through a thorough understanding of the key areas of risk and modus operandi adopted in committing the crimes, Auditors could effectively plan their audit engagements focusing on the identified areas of risk.

In pursuance of the institute’s endeavour to bring out quality reading material on issues related to the subject of its specialization i.e Audit of Fraud and Fraud Detection Techniques and Forensic Audit, this compilation of selected readings on ‘Economic Crimes’ has been brought out. This compilation seeks to provide a broader perspective so as to further enhance the understanding of the subject.

We hope that the readers would find the compilation informative and useful.

7th June 2007 Dr. Sadu Israel

CONTENTS

Sr. No Topic Page No. 1. The Scenario and Impact

i) Dimensions of Economic Crime in India 1 ii) Money Laundering 6 iii) Economic Crimes in a Globalised Society: Its impact on the sound development of the State-An Indian Perspective 12 iv) Report on the Transparency International Global Corruption Barometer 2006 26 2. Prevention and Detection

i) Legislative measures to deal with Economic Crimes in India 50 ii) The set up for detection & Prevention of Economic Crimes in India 57 iii) President’s Address at the Inauguration of Biennial Conference of Anti-Corruption/Vigilance Bureaus of States, UT and Officers of the CBI. 62 iv) PM’s key note address to the conference of CBI and Anti-Corruption Bureau 80 v) Global Integrity-Interview with Mr. David Nussbaum Transparency International’s Chief Executive 83

DIMENSIONS OF ECONOMIC CRIMES IN INDIA.

- Mahendra Kumawat IPS, Addl. D.G.P. &Chairman, SLPRB, A.P.

Since the early 90's India has witnessed crime. While white collar crimes can be said a spate of major economic scams in different to be crimes committed by professionals like sectors of the economy. While millions of chartered accountants, public servants, small investors have lost thousands of crores private employees in the course of their of rupees, the economic crimes have also occupation, economic offences are crimes caused havoc in the government managed committed by intelligent but devious institutions like Banks, Public Sector Under- individuals involving huge sums of public or takings, Telecom Department, Insurance government money. Companies, etc. The magnitude and the new Magnitude of the problem methods of committing economic crimes have been a cause of serious concern to the Economic offenders have exploited Government as well as to the people. weaknesses in almost all areas of economic activity and siphoned off thousands of crores. Economic Crimes are not a new phenom- Their depredations will continue till the law enon in our country. Even one and a half cen- makers plug loopholes in the affected system. tury ago, when the Indian Penal Code was But the economic offenders, as they have the enacted, punishment was provided for Cheat- knack of exploiting weaknesses in any system ing (Sec.420), Criminal Breach of Trust (Sec- either traverse a new territory or subvert the 409), Counterfeiting of Coins (Sec-232), Mak- system which is their specialized field. In the ing and Selling of Adulterated Drugs (Sec.274 recent past alone, scams have cost the & 275), Fraudulent use of Weights and Mea- exchequer and millions of Indians, sures (Sec.265), Counterfeiting Govt. Stamps astronomical sums of money. Some major and their Sale (Sec,255 and 258), Making and scams/ economic offences, which have Selling of Fake Goods (Sec. 481 to 489), Soon adversely affected our national economy in after the introduction of currency notes in our the recent past are: country, counterfeiting of the currency led i) Primary Market Frauds: to addition of Section 489-A and B in the Indian Penal Code in the year 1955. But what The Stock Market Scams of 90's affected has changed in the past few decades is the millions of small investors across the country. magnitude and enormity of economic crimes Fly-by-night operators entered the primary owing to the development in technology markets and through Initial Public Offers and improved means of transport and com- (IPOs), collected hundreds of crores and munication and their use by the perpe- vanished! The irony is that the whereabouts trators of these crimes. of over 100 companies are still not known either to SEBI or to the other investigating The terms 'Economic Crime' and 'White agencies. Even those companies, which did Collar Crimes' are more often than not, used not vanish, used the people's money for as synonyms In fact, both the terms need to purposes other than for which it was be used to define different categories of

1 collected. As a result, the value of their shares iv) Import /Export Frauds: plummeted resulting in heavy losses to the Money laundering operations by under- investors. invoicing imports and over-invoicing of ii) Secondary Market Frauds: exports have been resorted to by unscrupulous traders in a big way and thereby Insider trading has the dangerous converted their black money into white and potential of market manipulation and misuse at the same time, obtained liberal incentives of unpublished price sensitive information by given by the Government in the form of a privileged few insiders who are in exemption of income tax on the earnings, possession of such information. This kind of etc. This is in addition to import/export frauds malpractice defeats the very principle of fair being committed based on forged and and ethical business practices, besides fictitious documents. spelling a doom for the common and small investors. The Capital Markets in India have v) Insurance Frauds: been victims of this malady for years and Insurance companies have been victims more particularly when liberalization attracted of frauds perpetrated by unscrupulous small investors to the markets. Instances of claimants with or without the active artificially jacking up prices of shares and connivance of insurance officials. Instances thereby inducing gullible people to buy them of deliberately setting fire to the insured are also common. People have lost heavily goods, go-down, factory, making more than on account of frauds of this nature committed one claim on the basis of same accident, by unscrupulous market players. inflated claims supported by corrupt iii) Bank Frauds: surveyors, are quite common. Economic offenders have targeted vi) Intellectual Property Crime/ Theft: nationalized and cooperative banks and The Federal Bureau of Investigation (FBI) siphoned off thousands of crores by having of USA has estimated that in 2003 alone, criminal nexus with the managements of the $3 billion (Rs. 13,500 Crores) worth money banks. The big borrowers alone are was lost world wide as a result of criminals responsible for the huge non-performing swiping copyright protected digital copies assets (Rs. 55,000 Crores in 2003) the of music, movies, software and games and nationalized banks are saddled with. distributing them through websites, chat In the 90's, unscrupulous economic of- rooms, mass e-mails. fenders set up large number of UCBs (Urban According to a music and film market Cooperative Banks) in the States of Andhra survey, the Indian Music and Film industry is Pradesh, Maharashtra, Gujarat and collected losing around Rs. 1800 crores because of thousands of crores by offering unsustainable piracy, since some unscrupulous people are high rate of interest and later siphoned off making copies of DVD movies and MP 3 hundreds of crores either by sanctioning loans songs illegally without obtaining permission to themselves, or to the borrowers with and paying royalty to the concerned whom they had criminal nexus. Naturally, producers. Some internet sites are offering such banks collapsed, which caused havoc free of cost latest music from hit movies by to the millions of small investors. 2 uploading to the internet which can then be NBFCs failed to repay the amounts to the downloaded by people anywhere in the depositors and finally they collapsed. And world without paying anything to the original hundreds of NBFCs vanished, leaving producers of the music. Thus, the original investors in financial crisis. Unfortunately, till producers of movies and songs as well as date, non-repayment by NBFCs is still a non- exchequer lose heavily on account of this new cognizable crime. The Financial Companies type of economic crime committed with the Regulations Bill 2000, which seeks to protect help of technology. the interest of investors, introduced in the Parliament on 13th December, 2000, has not vii) Non -Banking Finance Companies yet received the attention it deserves. (NBFCs) Frauds: viii) FAKE CURRENCY : NBFCs engaged in wide range of activities like hire-purchase finance, hiring Large scale circulation of fake currency can finance, equipment leasing finance, loans and undermine the economy, as well as national investments have been performing an security of any country. In India, the problem important role in our financial sector. is age old, but with the development in However, unscrupulous market players technology, high quality fake currency notes targeted NBFCs in a big way in the early 90's have been recovered from terrorists, who had . As a result, the number of NBFCs which come from across the border. Fake currency were 24,009 in 1990,rose to 55,995 in 1995 printed abroad is generally channelised into with deposits of Rs. 45,000 crores. By India through Nepal and Dubai. Besides high offering very high rate of interests and quality fake currency notes being pumped commissions, which were commercially into the country from across the border, unviable in the long run, thousands of crores criminal gangs and individuals within the of rupees were collected from investors country are making use of computers and across the country. However, the bubble burst sophisticated printers in making fake currency sooner than later, when the scamster C.R. notes. Since the problem has national as well Bhansali, who alone floated over 130 as international dimensions, it needs to be companies, was arrested for the frauds tackled effectively by the RBI, CBI and State committed by him, in which the investors Police Forces. and the nationalized banks lost a staggering ix) FAKE STAMPS SCAM: amount of Rs. 1200 crores. A multi crore fake stamps racket operated In the wake of CRB scam, the Reserve Bank by Abdul Karim Telgi throughout the length of India introduced compulsory registration and breadth of the country for many years of NBFCs with the RBI. It is interesting to know with the active collusion of Police, Security that of the 37,880 applications received by Press and officials of banks and insurance the RBI as on 31st March, 1994 for companies exposed vulnerability of the registration, only 9000 were found eligible. system. The extent of the revenue loss As many as 28,500 NBFCs did not have the caused to the exchequer by this gang alone required net owned funds of Rs. 25.00 lakhs, is being estimated to the tune of Rs. 25,000 but they were collecting crores of rupees from crores. Since there are many other gangs the investors. Consequently, many of the also engaged in different parts of the country,

3 the problem needs to be dealt with in a pro- revamped to create necessary deterrence active and holistic manner. as has been done for dealing with the menace of terrorism, smuggling of MEASURES TO BE TAKEN TO CONTAIN psychotropic substances, etc. ECONOMIC OFFENCES: Despite a slew of measures taken by the ii) Deprive Economic Offenders of Governments there is neither decline in the Proceeds of Crime: overall volume of economic crimes, nor Though thousands of crores of rupees are reduction in the number of major scams that siphoned off by economic offenders every are occurring with regular frequency in the year, they continue to enjoy a luxurious life, country. In fact, the menace of economic since the proceeds of crime in most of the crimes has assumed serious proportion, cases continue to remain with them. which needs to be addressed with a holistic Therefore, enforcement agencies dealing with approach. The following measures are the economic crime should make all out recommended: efforts to ensure that the fruits of crime are i) Revamping of Laws Governing taken away from the economic offenders. Economic Offences: Unless this is done, economic crimes will be a paying proposition to criminals. The Laws governing economic offences are soft as compared to the laws enacted to iii) Tightening of Bail Provisions: deal with violent crimes like murders, Economic offenders are able to engage dacoities, etc. Moreover, the laws have not the best legal brains to defend them and kept pace with the time, as a result, they obtain bail, though they would have duped have lost their efficacy. In fact, many of the lakhs of investors causing unimaginable laws seen in the present context have agony to the investors. The State should also become absurd. For instance, frauds in engage prosecutors with sound knowledge telecom sectors are costing exchequers of law and impeccable integrity, to ensure hundreds of crores of rupees annually, but that the economic offenders are not released the action against the culprits has to be taken on bail and thereafter secure strong under the Indian Telegraph Act, 1885 . The conviction. The Ruling of the Supreme Court highest punishment provided under the Act of India in Narenderjeet Singh Sahni v/s Union is three years imprisonment with a maximum of India, needs to be followed by the courts fine of rupees one thousand only! Imagine a in dealing with economic offenders. culprit sentenced to a fine of one thousand rupees for causing loss of a few hundred "The White Collar Crimes are akin to crores! The Drugs & Cosmetics Act too has ECONOMIC GENOCIDE and considering for become anachronistic. The fine provided for bail of such accused, would be misplaced selling spurious drugs (Section 275 IPC) is a sympathy of the Court because accused have meager one thousand rupees, even when the deceived millions of countrymen who had offender would have made crores of rupees invested their entire life's saving in fictitious by making and selling fake and spurious and frivolous companies." drugs. Therefore, all the laws relating to iv) Creation of Exclusive Courts: economic offences need to be reviewed and For a variety of reasons, the courts in India 4 are not able to dispense justice promptly. vii ) Need for Coordinated Action: One of the principal reasons is heavy backlog There are a number of Indian enforcement of cases. Therefore, there is need to create agencies / departments dealing with exclusive courts to bring offenders to book economic offenders, viz., Police, Income Tax, quickly. Customs, DRI, Serious Fraud Investigation v) Need to Simplify Court Procedure: Office, Enforcement Department, Commercial Taxes Department, SEBI, etc., but Economic offenders with their huge ill- there is hardly any coordination among them. gotten wealth are known to have taken the Every economic offence of significance needs criminal justice system in India for a ride. to be examined by all the agencies dealing Either they corrupt it or derail it by with economic offences. procrastination of trial. The end-result is that hardly any economic offender is punished in viii) Make Diversion of funds / loans a reasonable time frame. For instance, the a Specific Offence: cases against late Harshad Mehta the biggest scamster of 90's and his associates, are still The financial institutions including banks pending trial for more than a decade, whereas are saddled with non-performing assets in the case of Lesson, who committed a (NPAs) of over Rs. 1,00,000/- crores. Many similar type of crime in Singapore at the same of the big borrowers use them for the purpose time, was convicted swiftly within a year. other than for which the loans were Hence, there is need to simplify Court sanctioned. Therefore, there is need to make procedure and ensure that economic diversion of funds a specific offence, with a offenders are not allowed to subvert the punishment of over 10 years or more. It is system. They need to be nailed within a year also suggested that the loanees should or two, which will definitely create necessary submit an end-use certificate to the financial deterrence among their fraternity. institutions.

vi) Notify Economic Offenders on the CONCLUSION: Internet: Economic crimes have the propensity to Economic offenders target different cause havoc and undermine not only the financial institutions like banks, etc., and also economy of the country, but the national people at different places in the country and security as well. The enormity of the challenge abroad. Therefore, the known economic posed by economic offenders calls for a offenders along with their photographs need professional and pro-active approach. This to be notified on the internet, which will help multi-headed monster can be controlled financial institutions and the public to take effectively only by coordinated and note of their modus operandi so as not to fall imaginative efforts of all the enforcement and prey to their designs. investigative agencies.

5

MONEY LAUNDERING

(some Frequently Asked Questions) -Financial Action Task Force (FATF)

• What is money laundering? • How much money is laundered per year? • How is money laundered? • Where does money laundering occur? • How does money laundering affect business? • What influence does money laundering have on economic development? • What is the connection with society at large? • How does fighting money laundering help fight crime? • What should individual governments be doing about it? • Should governments with measures in place still be concerned? • What about multilateral initiatives? • Who can I contact if I suspect a case of money laundering?

What is Money Laundering?

The goal of a large number of criminal acts is to generate a profit for the individual or group that carries out the act. Money laundering is the processing of these criminal proceeds to disguise their illegal origin. This process is of critical importance, as it enables the criminal to enjoy these profits without jeopardizing their source.

Illegal arms sales, smuggling, and the activities of organized crime, including for example drug trafficking and prostitution rings, can generate huge amounts of proceeds. Embezzlement, insider trading, bribery and computer fraud schemes can also produce large profits and create the incentive to “legitimize” the ill-gotten gains through money laundering.

When a criminal activity generates substantial profits, the individual or group involved must find a way to control the funds without attracting attention to the underlying activity or the persons involved. Criminals do this by disguising the sources, changing the form, or moving the funds to a place where they are less likely to attract attention.

In response to mounting concern over money laundering, the Financial Action Task Force on money laundering (FATF) was established by the G-7 Summit in Paris in 1989 to develop a co-ordinated international response. One of the first tasks of the FATF was to develop Recommendations, 40 in all, which set out the measures national governments should take to implement effective anti-money laundering programmes.

How much money is laundered per year? By its very nature, money laundering is an illegal activity carried out by criminals which occurs outside of the normal range of economic and financial statistics. Along with some other aspects of underground economic activity, rough estimates have been put forward to give some sense of the scale of the problem.

The International Monetary Fund, for example, has stated in 1996 that the aggregate size of money laundering in the world could be somewhere between two and five percent of the world’s gross domestic product.

Using 1996 statistics, these percentages would indicate that money laundering ranged between US Dollar (USD) 590 billion and USD 1.5 trillion. The lower figure is roughly equivalent to the value of the total output of an economy the size of Spain.

However it must be said that overall it is absolutely impossible to produce a reliable estimate of the amount of money laundered and therefore the FATF does not publish any figures in this regard.

How is money laundered?

In the initial - or placement - stage of money laundering, the launderer introduces his illegal profits into the financial system. This might be done by breaking up large amounts of cash into less conspicuous smaller sums that are then deposited directly into a bank account, or by purchasing a series of monetary instruments (cheques, money orders, etc.) that are then collected and deposited into accounts at another location.

After the funds have entered the financial system, the second – or layering – stage takes place. In this phase, the launderer engages in a series of conversions or movements of the funds to distance them from their source. The funds might be channelled through the purchase and sales of investment instruments, or the launderer might simply wire the funds through a series of accounts at various banks across the globe. This use of widely scattered accounts for laundering is especially prevalent in those jurisdictions that do not co-operate in anti-money laundering investigations. In some instances, the launderer might disguise the transfers as payments for goods or services, thus giving them a legitimate appearance.

Having successfully processed his criminal profits through the first two phases the launderer then moves them to the third stage – integration – in which the funds re-enter the legitimate economy. The launderer might choose to invest the funds into real estate, luxury assets, or business ventures.

Where does money laundering occur?

As money laundering is a consequence of almost all profit generating crime, it can occur practically anywhere in the world. Generally, money launderers tend to seek out countries or sectors in which there is a low risk of detection due to weak or ineffective anti-money laundering programmes. Because the objective of money laundering is to get the illegal funds back to the individual who generated them, launderers usually prefer to move funds through stable financial systems.

Money laundering activity may also be concentrated geographically according to the stage the laundered funds have reached. At the placement stage, for example, the funds are usually processed relatively close to the under-lying activity; often, but not in every case, in the country where the funds originate.

With the layering phase, the launderer might choose an offshore financial centre, a large regional business centre, or a world banking centre – any location that provides an adequate financial or business infrastructure. At this stage, the laundered funds may also only transit bank accounts at various locations where this can be done without leaving traces of their source or ultimate destination.

Finally, at the integration phase, launderers might choose to invest laundered funds in still other locations if they were generated in unstable economies or locations offering limited investment opportunities.

How does money laundering affect business?

The integrity of the banking and financial services marketplace depends heavily on the perception that it functions within a framework of high legal, professional and ethical standards. A reputation for integrity is the one of the most valuable assets of a financial institution.

If funds from criminal activity can be easily processed through a particular institution – either because its employees or directors have been bribed or because the institution turns a blind eye to the criminal nature of such funds – the institution could be drawn into active complicity with criminals and become part of the criminal network itself. Evidence of such complicity will have a damaging effect on the attitudes of other financial intermediaries and of regulatory authorities, as well as ordinary customers.

As for the potential negative macroeconomic consequences of unchecked money laundering, one can cite inexplicable changes in money demand, prudential risks to bank soundness, contamination effects on legal financial transactions, and increased volatility of international capital flows and exchange rates due to unanticipated cross- border asset transfers. Also, as it rewards corruption and crime, successful money laundering damages the integrity of the entire society and undermines democracy and the rule of the law.

What influence does money laundering have on economic development?

Launderers are continuously looking for new routes for laundering their funds. Economies with growing or developing financial centers, but inadequate controls are particularly vulnerable as established financial centre countries implement comprehensive anti-money laundering regimes.

Differences between national anti-money laundering systems will be exploited by launderers, who tend to move their networks to countries and financial systems with weak or ineffective countermeasures.

Some might argue that developing economies cannot afford to be too selective about the sources of capital they attract. But postponing action is dangerous. The more it is deferred, the more entrenched organized crime can become.

As with the damaged integrity of an individual financial institution, there is a damping effect on foreign direct investment when a country’s commercial and financial sectors are perceived to be subject to the control and influence of organized crime. Fighting money laundering and terrorist financing is therefore a part of creating a business friendly environment which is a precondition for lasting economic development.

What is the connection with society at large?

The possible social and political costs of money laundering, if left unchecked or dealt with ineffectively, are serious. Organized crime can infiltrate financial institutions, acquire control of large sectors of the economy through investment, or offer bribes to public officials and indeed governments.

The economic and political influence of criminal organizations can weaken the social fabric, collective ethical standards, and ultimately the democratic institutions of society. In countries transitioning to democratic systems, this criminal influence can undermine the transition. Most fundamentally, money laundering is inextricably linked to the underlying criminal activity that generated it. Laundering enables criminal activity to continue.

How does fighting money laundering help fight crime?

Money laundering is a threat to the good functioning of a financial system; however, it can also be the Achilles heel of criminal activity.

In law enforcement investigations into organized criminal activity, it is often the connections made through financial transaction records that allow hidden assets to be located and that establish the identity of the criminals and the criminal organization responsible.

When criminal funds are derived from robbery, extortion, embezzlement or fraud, a money laundering investigation is frequently the only way to locate the stolen funds

and restore them to the victims.

Most importantly, however, targeting the money laundering aspect of criminal activity and depriving the criminal of his ill-gotten gains means hitting him where he is vulnerable. Without a usable profit, the criminal activity will not continue.

What should individual governments be doing about it?

A great deal can be done to fight money laundering, and, indeed, many governments have already established comprehensive anti-money laundering regimes. These regimes aim to increase awareness of the phenomenon – both within the government and the private business sector – and then to provide the necessary legal or regulatory tools to the authorities charged with combating the problem.

Some of these tools include making the act of money laundering a crime; giving investigative agencies the authority to trace, seize and ultimately confiscate criminally derived assets; and building the necessary framework for permitting the agencies involved to exchange information among themselves and with counterparts in other countries.

It is critically important that governments include all relevant voices in developing a national anti-money laundering programmed. They should, for example, bring law enforcement and financial regulatory authorities together with the private sector to enable financial institutions to play a role in dealing with the problem. This means, among other things, involving the relevant authorities in establishing financial transaction reporting systems, customer identification, record keeping standards and a means for verifying compliance.

Should governments with measures in place still be concerned?

Money launderers have shown themselves through time to be extremely imaginative in creating new schemes to circumvent a particular government’s countermeasures. A national system must be flexible enough to be able to detect and respond to new money laundering schemes.

Anti-money laundering measures often force launderers to move to parts of the economy with weak or ineffective measures to deal with the problem. Again, a national system must be flexible enough to be able to extend countermeasures to new areas of its own economy. Finally, national governments need to work with other jurisdictions to ensure that launderers are not able to continue to operate merely by moving to another location in which money laundering is tolerated.

What about multilateral initiatives?

Large-scale money laundering schemes invariably contain cross-border elements. Since money laundering is an international problem, international co-operation is a critical

necessity in the fight against it. A number of initiatives have been established for dealing with the problem at the international level.

International organizations, such as the United Nations or the Bank for International Settlements, took some initial steps at the end of the 1980s to address the problem. Following the creation of the FATF in 1989, regional groupings – the European Union, Council of Europe, and Organization of American States, to name just a few – established anti-money laundering standards for their member countries. The Caribbean, Asia, Europe and southern Africa have created regional anti-money laundering task force-like organizations, and similar groupings are planned for western Africa and Latin America in the coming years.

Who can I contact if I suspect a case of money laundering?

The FATF is a policy-making body and has no investigative authority. In respect to investigating a company and persons involved in money laundering, individuals need to contact their local investigative authorities.

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126TH INTERNATIONAL SENIOR SEMINAR VISITING EXPERTS’ PAPERS

ECONOMIC CRIME IN A GLOBALIZING SOCIETY: ITS IMPACT ON THE SOUND DEVELOPMENT OF THE STATE - AN INDIAN PERSPECTIVE

Deepa Mehta*

I. INDIA: THE LAND AND THE PEOPLE India is a vast sub-continent covering an area of 3, 287,590 sq. km. It extends from the snow covered Himalayas in the north to the tropical rain forests in the south. It is the seventh largest country in the world. It is surrounded by water on three sides: the Arabian Sea on the west, the Bay of Bengal on its east and the Indian Ocean on the south. Neighbouring countries are Pakistan on the northwest, China, Nepal and Bhutan on the north and Bangladesh and Myanmar on the east. India is a federal republic with its national capital in New Delhi. Administratively, it is divided into 28 states and 7 union territories. It is very densely populated with over 1050 million or 1.05 billion people. The national language is Hindi but there are 14 other official languages. Likewise, about 80% of the population is composed of Hindus and others are Muslims, Christians, Sikhs, Buddhists, Jains, Parsis, etc.

On the economic front, India has traditional village farming as well as modern agriculture, handicrafts as well as a wide range of modern industries and a multitude of support services.

In recent years, government controls have been reduced on imports and foreign investment and the growth rate since 1990 has been 6%. Although, poverty has been reduced considerably, overpopulation is still a major handicap and about a quarter of the population is still too poor to be able to afford an adequate diet. Despite that, India has a large number of well-educated people skilled in the English language and is a major exporter of software services and software workers. In fact, the information technology sector leads the strong growth pattern.

India is a Union of States and is governed by a written Constitution, which came into force on 26th November 1949. As I mentioned earlier, India consists of 28 states and 7 union territories. According to the Constitution Parliament can make laws on certain subjects for the whole or any part of India and this is known as the Union List. Similarly, the Legislature of a State can make laws for the State and this is known as the State list. There is also a third list known as the Concurrent list where both the Parliament and the states can legislate. The ‘Police’ and ‘Public Order’ are both in the State List but ‘Criminal laws’ and ‘Criminal procedure’ are in the Concurrent List. As a result, the Indian Parliament has enacted the basic criminal statutes, namely, the Indian Penal Code, Criminal Procedure Code and Indian Evidence Act but ‘Police’, being a State subject, is raised and maintained by the State government. Each State or Union Te r ritory has a separate police force. In addition to the state police, the Central government has set up certain central investigating agencies, including the Central Bureau of Investigation. Established on 1 April 1963, and evolved from the Special Police Establishment established in 1941, it is a premier investigative agency of the state government and can take up cases falling within the jurisdiction of the States with their consent. Other investigative agencies are the Narcotics Control Bureau, the Enforcement Directorate, the Central Board of Direct Taxes and the Central Board of Customs and Excise, etc. These agencies investigate criminal cases falling in the ambit of special statutes being administered by them and are empowered to launch prosecutions.

Against such a background, the New Year has heralded an even greater increase in the GDP of the country. The headlines in the Hindustan Times on 1st January, 2004 were ‘All sectors on fire, GDP grows 8.4%’. The Times of India stated ‘Economy breaks 8% barrier’. Agriculture has grown at 4.1%, manufacturing has clocked 7.3% and services have grown at 9.6% according to data released by the Central

* Inspector General of Police, Chief Vigilance Officer, Delhi Metro Rail Corporation, India.

71 RESOURCE MATERIAL SERIES No.66

Statistical Organization. Economic liberalization in India, which commenced in 1991 "has come to stay" as benefits of an open economy have started percolating. Economic liberalization and globalization have opened up the prospects of regional economic integration with the extended neighbourhood and the opening up of markets. However, it has also brought in its fold opportunities for white-collar criminals to manipulate and benefit from business expansion, particularly in the field of financial and capital markets. Lack of understanding and expertise in these new spheres of crime has made it more difficult for government and criminal justice agencies to control and suppress such economic crime.

II. CHARACTERISTICS OF ECONOMIC CRIME It is important in the first instance to understand the nature of economic crime. Economic or white-collar crime, as it is generally referred to, is a crime committed by a person of a certain social status in the course of his occupation. The economic crime occurs as a deviation from the violator’s occupational role. Also, most of the laws involved or violated are not part of the traditional criminal code. Such crimes are corruption, corporate fraud, public fraud, tax evasion, goods smuggling, stock manipulation, currencies forgery, credit card fraud, environmental crime, intellectual property infringement and the more recent phenomenon of cyber crime.

These crimes are different from traditional crimes in the characteristics of their objective and modus operandi. The traditional criminal steals small sums of money and often uses brute force and conventional tools to achieve his aim. On the contrary, a criminal committing an economic crime steals large sums of money and employs technology and communications to carry out unlawful commercial transactions, disturb databases or orchestrate massive frauds. His victims are ignorant and naïve and often remain unaware of the fact that they have been cheated.

Another characteristic of economic, commercial, corporate or white-collar crimes is that they are often perceived as ‘good business’: and good business often requires ‘cutting corners’. Legal violations by corporations are often viewed as part of the business system, much like industrial spying or psychologically suggestive marketing techniques. These activities are considered as an extension of the capitalist system based on profit and a technical adherence to the letter rather than the spirit of the law.

Such crimes are, however, very costly for our society. In contrast to conventional crimes, which affect specific individuals, economic crimes affect society as a whole. For instance, false advertising induces the public to invest in products that do not have the desired effect. Unsafe drugs, pesticides and food additives affect the health of thousands. Exposure to industrial hazards such as unsafe equipment and poisonous materials and emissions have an adverse effect on workers’ longevity. That is because many forms of economic crime are relatively invisible, compared with violent crime, for example. The effects on society of economic crime are hidden as public fear and concern are heightened in cases that affect personal security more directly.

A significant proportion of transnational organized crimes assume the nature of global economic crime. Proceeds of transnational crimes such as drug trafficking, extortion, corruption, tax evasion, arms smuggling, terrorism, and fraud have to be laundered. The international economic threat, posed by Global Organized Crime, in an increasingly global economy is among the major "new" threats to national security. Global Economic Crime does not just affect a select group of financial institutions or regional areas; it affects international financial networks and economies at a national level. Laundering billions of dollars in organized crime money worsens national debt problems because the large sums of money are then lost as tax revenue to that country's government. Global Organized Crime can have a damaging effect on political structures, especially fragile democracies and developing economies. As people feel that the government is powerless to stop organized crime, they turn to crime leaders for protection and political institutions begin to deteriorate.

Economic crimes have mushroomed in many countries, especially those that are in the process of economic, social or political development. A number of difficulties arise in the investigation of such offences. The first is that of definition: for instance the characteristics or constituents of ‘illegal monopolies’ or ‘manufacture of unsafe products’. The second is the determination of responsibility: whether it is that of the corporation or the individuals within it. Thirdly, it is often very difficult to prove the intent to commit a crime. Lastly, and perhaps, most importantly, the public, although it is becoming increasingly aware of the

72 126TH INTERNATIONAL SENIOR SEMINAR VISITING EXPERTS’ PAPERS nature of such crimes, is largely apathetic, and even if in some cases it is concerned, is unable to put pressure on the government leaving the issue to a few consumer protection groups.

Cooperation among Global Organized Crime groups has increased as restrictions have lessened between international borders. These foreign havens for criminals and their assets have made it increasingly difficult for Law Enforcement to trace illegal profits; gather evidence on the criminal leaders; and identify and contain criminal groups. These global networks allow organized crime groups to greatly increase the profits of their operations and their methods of evading local governments as they share information, skills, costs, market access and relative strengths.

Financial transactions, while being perfectly legitimate, are extremely complex and involve the financial systems of many countries. Financial markets operate with speed due to modern communications and electronic data processing and create an impression of impropriety. Caution has to be exercised in regulating financial and economic activities in such a way that they foster free competition and do not stifle it through over regulation. In other words, a balance has to be struck between the regulatory and legislative systems.

III. STATE OF ECONOMIC CRIME IN INDIA Against this backdrop, let us now focus on the state of economic crime in India and its effect on the sound development of the State. I have classified economic crime in India into three groups viz.:

(i) Traditional economic crime such as corruption, smuggling, invoice manipulation, bogus imports; (ii) Emerging technological economic crime such as credit card frauds, counterfeiting, cyber crime; (iii) Money laundering and hawala through which proceeds of transnational organized crime are transmitted abroad.

A. Group - I 1. Corruption Corruption is an economic crime that is a primary reason for low achievement in the poverty alleviation efforts of the nation. Greed and poverty are the two basic reasons for corruption. It occurs in many countries but it has increased substantially in India in recent years. Corruption has a very upsetting impact as it increases injustice and violates human rights. Corruption arises due to monopoly, power and discretion without accountability. Too many laws, rules and formalities perpetuate corruption and provide opportunities for corrupt practices among government officials. The demoralizing fact is that many in high places remain untouched. In 2001, 2990 cases were registered by anti-corruption departments in India and property recovered or seized was of the value of 84000 million rupees.

Mr. N. Vittal, former Central Vigilance Commissioner of India has stated that corruption in India is anti- national involving the transfer of money through ‘Hawala’ or underground banking and money laundering; corruption is anti-poor; and corruption is anti-economic development. Measures for combating corruption are simplification of rules and procedures, transparency and creation of public awareness, and an effective prosecution and punishment system.

2. Smuggling Smuggling, which consists of clandestine operations leading to unrecorded trade, is one of the major economic offences affecting India. Though it is not possible to quantify the value of the contraband goods smuggled into this country, it is possible to have some idea of the extent of smuggling from the value of contraband seized which is indicated in the table given below:

Year Value of the Goods Seized 1988 443 Crores 1989 555 Crores 1990 760 Crores 1991 775 Crores 1992 535 Crores 1993 388 Crores 1994 535 Crores 1995 631 Crores

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The high point of smuggling was in 1991 when contrabands worth Rs. 775 crores were seized. Introduction of various liberalization measures such as the gold and silver import policies in 1992-93 have had their impact on customs seizures in that the total value of seizures came down by 30% in 1992.

A look at the seizures of important commodities seized from 1991 to 1996 indicates that gold and silver which accounted for 44% of the total seizures prior to liberalized import policies came down to 21% after liberalization and have been falling further. On the other hand, the seizure of commodities like electronic goods, narcotics, synthetic fabrics, and foreign currency has been rising. In 1990, gold occupied the top position amongst smuggled items followed by silver, electronic items and narcotics. In 1995, however, narcotics occupied the number one position followed by gold, foreign currency, electronics and synthetic fabrics.

Year 1990-91 1991-92 1994-95 1995-96 Gold 198.8 188.5 55.4 50.8 Silver 146.6 147.7 3.6 0.54 Narcotics 25.1 21.8 54.3 77.94 Electronic items 55.5 23.1 51.2 38.0 Foreign currency 7.7 10.8 27.4 40.2 Indian currency 6.5 5.6 6.6 5.6 Synthetic fabrics 4.8 2.0 2.4 12.9 Watches 3.2 6.2 3.3 3.9

Smuggling, in its broader connotation also includes drug trafficking, smuggling of migrants and trafficking in persons.

3. Invoice Manipulation This is another variety of economic crime affecting India. In fact all developing countries are victims of invoice manipulations. The term means invoicing of goods at a price less or more than the price for which they were actually sold or purchased. Such transactions are collusive between the trade partners. Both are guilty of fabrication of false documents and records and violate national laws with a view to cheating customs and tax authorities.

By under-invoicing, the value of the goods is lowered which would mean lesser payment of import duties. By over-invoicing the value of goods is shown higher which would mean higher out-flow of foreign exchange from the country. By these methods, the country is depleted of its revenues and foreign exchange earnings.

The practice of invoice manipulation has international ramification and adversely affects the economy of the victim country. A number of difficulties are experienced in the investigations of invoice manipulations particularly in retrieving information such as documents like “Bills of Entry, “Shipping Bills,” “Bills of Lading,” “Invoices,” “Letters of Credit,” departure schedules of sailing vessels, etc. despite their being public documents. International cooperation is therefore needed to curb this menace.

4. Bogus Imports Several cases have come to notice in the recent past, which indicate that there is leakage of foreign exchange through the device of bogus imports. The modus operandi is quite simple. The operator opens a current account in India in a bank authorized to deal in foreign exchange. He usually poses as a small-scale industrialist and produces forged certificates/ documents to establish his credentials. His partners abroad prepare a set of export documents such as an invoice, bill of lading, and bill of exchange and send them through their foreign bank branches to Indian banks for collection. On receipt of these documents, generally on collection basis, the importer’s agent deposits the amount in Indian rupees in his bank’s current account and the bank remits the foreign exchange. No goods, of course, are ever imported and the country loses valuable foreign exchange.

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B. Group – II 1. Cyber Crime The use of computers has grown exponentially during the last few years. Financial networks, communication systems, power stations, modern automobiles and appliances all depend on computers, and these computers can record withdrawals, deposits, purchases, telephone calls, usage of electricity, medical treatments, driving patterns and a lot more. It is therefore not surprising that computer technology is involved in a growing number of crimes. These are generally taken to include theft of computer services, unauthorized access to protected computers, software piracy and the alteration and theft of electronically stored information, extortion committed with the assistance of computers, obtaining unauthorized access to records from banks, credit card issuers or customer reporting agencies, traffic in stolen passwords and transmission of destructive viruses or commands. With the physical growth of the Internet over the past few years, a number of new generation crimes affecting the LAN, WAN and Internet such as theft of communication services, information piracy, forgery and counterfeiting, dissemination of offensive materials, stalking, extortion, electronic vandalism and terrorism, sales and investment fraud, etc. Hacking, computer network breaches, copyright piracy, software piracy, child pornography, password sniffers, credit card frauds, cyber squatting are some of the new terms in the average criminal investigator’s dictionary. Highly intelligent persons commit these new generation crimes leaving hardly any trace and making investigation highly difficult and complicated.

Computer crimes are now a matter of growing concern. Traditional barriers to crime faced by criminals are being obliterated by digital technologies. In a digital world, there are no state or international borders; customs agents do not exist. Bits of information flow effortlessly around the globe, rendering the traditional concept of distance meaningless. In the past, the culprit had to be physically present to commit a crime. Now cyber crimes can be committed from anywhere in the world as bits are transmitted over wires, by radio waves or over satellite. Similarly, in the past, companies protected their secrets and bank funds in locked file cabinets and vaults in buildings surrounded by electronic fences and armed guards. Now this information is located in one computer service that is connected to thousands of other computers round the world. Anyone of these networks or even a phone line into a company’s main computer is a transnational invitation to crime. Crime in the digital world has another advantage for crooks over “atom-based” crime: electrons and bits have no effective mass or weight. Robbing a bank or an armoured vehicle of cash would pose problems of transportation and storage whereas transfer of money poses no such problems in the digital world.

Information technology is redefining the ways of conducting business and communication, and is shaping the interaction between business and consumers for sale and purchase of goods and services. Traditional commerce has become electronic commerce. It involves selling and purchasing of information, products and services over communication networks. It encompasses a wide array of commercial activities carried out through the use of computers, including online trading of goods and services, electronic fund transfers, online trading of financial instruments and electronic data transfers within and among companies. For purchasing goods or services, a customer is required to pay. While in a traditional business it is done through cash or cheque, in E-business, it is done through digital cash. However, the growth of the electronic mode of conducting business hinges on assuring the consumers and the business that their use of communication network services is secure and reliable, that their transactions are safe, and that they will be able to verify important information about the transacting parties. Security is indispensable to E-commerce. Authentication, integrity and confidentiality are the three issues associated with electronic communications.

Cyber crimes have become a reality in India too. Cyber hackers have broken into and maliciously altered the content of several computer websites, including that of the Ministry of Information Technology and of Parliament. Indian Airlines was subjected to fraud of several millions of rupees by tampering with the computerized booking records. Computer hackers also got into the Bhaba Atomic Research Centre Computer and extracted some data. Some computer professionals, who prepared the software for the M.B.B.S. examination, altered the data and gave an upward revision to some students in return for a hefty fee. A big loss was caused to a bank where the computer records were manipulated to create false debts and credits and in another bank false bank accounts were created. A telephones official manipulated computer terminals by reversing the electronic telephone meter systems, thereby allowing some companies to make overseas calls without charges. In a case of software piracy some of the employees stole a copy of the source code and in another educational software was stolen.

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Law enforcement agencies today face a number of challenges in the investigation of such cases. These can be categorized as technical, legal and operational challenges.

Technical challenges: When a hacker disrupts air traffic control at a local airport or a child pornographer sends computer files over the Internet, or when credit card numbers are stolen from a company engaged in e-commerce, investigators must locate the source of the communication. They have to trace the ‘electronic trail’ leading from the victim to the perpetrator in almost every case. To succeed in identifying and tracing global communications investigators have to work across borders, not only with one’s counterparts but also with industry to preserve critical evidence such as log files, e-mails, etc. before it is altered or deleted. Besides, while less sophisticated cyber criminals may leave electronic ‘fingerprints’ more experienced criminals know how to conceal their tracks in cyber space. Internet telephony, strong encryption, and wireless and satellite communication and other technological advances have made it possible for international criminals and terrorists to target victims in unprecedented ways.

(i) Legal challenges: Deterring and punishing computer criminals requires a legal structure that will support detection and prosecution of offenders yet the laws defining computer offences, and the legal tools needed to investigate criminals using the Internet, often lag behind social and technological changes, creating legal challenges to law enforcement agencies. In India, however, the Information Technology Act, 2000 has been enacted in pursuance to the General Assembly of United Nations resolution A/RES/51/162, dated the 30th January 1997. The Information Technology Act elaborates upon digital signature; electronic governance; attribution, acknowledgement and dispatch of electronic records; secure electronic records and secure digital signatures; regulation of certifying authorities; digital signature certificates; duties of subscribers, penalties and adjudication; the cyber regulations appellate tribunal; offences; and non- liability of network service providers in certain cases, etc. It specifies that Electronic Signatures will be valid and legally enforceable only if the e-transaction is done through “public key cryptography”. The Act delineates two separate types of penal provisions: contraventions and information technology offences. While contravention results in monetary penalty, the IT offences may result in the offender being imprisoned or paying a fine or both. Tampering with computer source codes, obscenity, hacking, unauthorized access to a protected system, misrepresentation before authorities, breach of confidentiality and privacy, publication of false particulars in digital signature certificates, etc. have been listed as criminal offences under this Act. Amendments have also been made to the Indian Penal code, Indian Evidence Act, the Bankers’ Book Evidence Act and Reserve Bank of India Act to facilitate investigation and prosecution of cyber crime.

(ii) Operational challenges: There is a need to have high tech crime units that respond to quick investigation and assist law enforcement agencies faced with computer crimes. The police have to be made cyber sensitive through adequate training and supported by an expert group with specialized knowledge of computer forensics.

Just as investigators followed the trails and physical signs of robbers, modern investigators have to understand and follow a criminal’s paper trail, or cyber trail, in the form of invoices, communications, and other records that leave behind evidence of the criminal’s passing. A cyber trail is both an extension of crime scenes in the real world, and a digital crime scene in itself. If a crime occurs in the physical world and there is a computer with network access at the crime scene, investigators have to search the computer and network for related digital evidence. Similarly, if a crime is first witnessed or recorded on a network, investigators have to collect all relevant digital evidence on the network and, if possible, determine the physical locations of the primary computers involved and treat those locations as crime scenes.

The investigation of computer crime requires a team effort of police, forensic scientists, lawyers and programmers or system administrators. Police are generally expected to know how to oversee an investigation, but may not know much about computers and computing and thus not know what evidence to look for. Programmers and system administrators may know a great deal about computers, networks, and how they work, but nothing about legal procedural requirements regarding the preservation of evidence. Forensic scientists may know how to deal with evidence but, like the police, may not know what to look for

76 126TH INTERNATIONAL SENIOR SEMINAR VISITING EXPERTS’ PAPERS when dealing with digital evidence or how to apply real-world forensic science methods to it. Lawyers may know about the law of evidence but not much else. But today, when cyber crimes are fast increasing, the police have to learn how to handle digital evidence, use it to generate investigative leads, and to know when to call in an expert for assistance. Programmers and system administrators, who handle digital evidence, need to use it to generate investigative leads, and to know when to call in police for assistance. Forensic scientists have to become intimately familiar with every aspect of digital evidence so that they can process it to support an investigation. Finally, lawyers of both prosecution and defence, have to learn to dig up digital evidence, defend it against common arguments, and determine whether it is admissible. Together, this team will then be able to conduct an investigation of a computer crime, look for evidence, find it, and treat it so as to preserve its admissibility once it is found.

The Central Bureau of Investigation has recently created a Cyber Crime Research & Development Unit which maintains close liaison with international agencies like the FBI, Interpol and other foreign police agencies to share skills and techniques in investigating cyber crimes. The officers of the CBI associated in this exercise share their expertise with the State police forces through regional training programmes held periodically.

2. Counterfeiting Currency counterfeiting is an organized white-collar crime, which has assumed serious proportions globally. It not only causes serious setbacks to the world’s economy but also jeopardizes genuine business transactions. These days, counterfeiting of currency notes is done with the help of modern equipment such as colour scanners, colour laser photocopiers and printers, as well as by computer graphics software. Most of the security features such as the use of complex designs, special paper, watermarks, optical fibre, security thread, micro-printing, currency-printing, colour shift, and holography in genuine notes are copied with the help of advanced computer technology, which provides them with sophistication and perfection.

There has been an upsurge in the incidence of supply of counterfeit Indian currency notes from across India’s borders. During the year 1999, counterfeit Indian currency notes valued at Rs. 18.4 million were seized as compared to Rs. 6.5 million during 1998 indicating a threefold increase. Almost half of the total seizures are made from the three states of Uttar Pradesh, Bihar and West Bengal. Counterfeiting of currency is resorted to to gain quick profit, acquire funds for drug trafficking or subversive activities, or mobilize funds for smuggling. Sometimes, external agents in the form of travellers and cross border smugglers are involved. Counterfeit currency can be used for destabilizing economies, provide financial assistance to terrorists and militants for buying arms and ammunition and sponsor religious fundamentalism, etc.

India, as a signatory to the Geneva Convention, 1929, is committed to extend full cooperation to all other countries for eliminating or containing to the furthest extent possible, the counterfeiting of domestic as well as foreign currencies. Indian laws and enforcement measures are in full conformity with the principles laid down in the Convention. The Indian Penal code provides for punishment of varying degrees and up to life imprisonment for counterfeiting any currency or making or possessing instruments or materials for forging or counterfeiting currency notes or for possession of forged or counterfeit currency notes or bank notes.

Counterfeiting, however, goes beyond the production of bogus currency to the counterfeiting of all kinds of manufactured products such as clothing, audio and video equipment, compact discs, watches, liquor, perfumes, etc. In such cases, losses are suffered by the manufacturers of the products, their employees, the economies of the concerned states and the concerned governments that would have received tax revenues.

3. Credit Card Frauds A major form of economic crime is credit card fraud. Here also, the fraudster is one step ahead of law enforcement agencies as technology has facilitated the manufacture of false cards. As financial institutions introduce innovations against counterfeiting and fraud, increasingly sophisticated ways of profiting from or beating those systems are devised. Most of the credit card fraud is committed by using counterfeited cards, which are re-embossed or re-encoded. Nowadays, counterfeiters have reproduced holograms and encoded magnetic stripes on credit cards. New security measures can only be introduced gradually and if measures are taken against fraudulent card users in one part of the world, they quickly move to another part where detection measures are less sophisticated. Thus, problems associated with these kinds of frauds take a long time to overcome and cause losses around the world. In India, credit card frauds also occur by stealing the

77 RESOURCE MATERIAL SERIES No.66 cards and the accompanying information at the time of application or delivery and forging signatures. Sometimes merchants or employees of hotels, restaurants or shops take genuine numbers of cards from sales slips and pass them on to syndicates.

C. Group – III Before we discuss the strategies that have been adopted by money launderers, let us pause to consider the specific kinds of transnational crimes where proceeds are transmitted out of a country’s national borders.

1. Transnational Organized Gangs In the sixties and seventies India had Haji Mastaan (gold smuggling), Yusuf Patel (gold smuggling) and Karim Lala (drug smuggling). In the eighties and nineties other gangs emerged. Dawood Ibrahim, Tiger Memon and Mohammad Dosa are reportedly operating from abroad (Dubai) and are involved in extortion of money from builders and film producers, mediating in monetary disputes, and undertaking contract killings. The other major gangs of Mumbai indulging in organized crime are those of Chota Rajan (Drug Trafficking and Contract Killings), Arun Gawli (Contract Killings and Protection Money), Late Amar Naik (Protection Money), Chota Shakeel and Om Prakash (Babloo) Shrivastava (Kidnappings for ransom and Killings). In the field of terrorism certain transnational organizations such as Lashkar-e-Toiba, Jaish-e-Mohammad, Hizbul Mujahiddin, etc. have been operating. The most essential characteristic of organized crime is making money or “maximisation of profits”.

2. Drug Trafficking Flanked by the Golden Crescent, (South-west Asia) and the Golden Triangle (South-east Asia), India has, due to its geographic location, become the corridor for movement of heroin and hashish to various destinations in Europe, America and Africa. Substances of abuse include alcohol, tobacco and natural and manufactured drugs. A kilogram of heroin, which costs approximately a thousand dollars on the Indo-Pak border, is reportedly sold for 250,000 dollars in Europe or USA.

The global drug trade has grown phenomenally. It is said to fund terrorism and other forms of transnational crime. Legislative measures against drug trafficking include The Narcotic Drug and Psychotropic Substances Act and Rules, 1985 and The Prevention of Illicit Traffic in Narcotic Drugs and Psychotropic Substances Act, 1988. The Narcotics Control Bureau functions as a coordinator between various departments and arranges interagency coordination meetings

International drug trafficking poses a threat to the social fabric of all countries. The increase in the scale of these operations has led to an increase in drug use, addiction, and the general crime level. Drug profits are transferred electronically to dozens of banks around the world in less than 24 hours by using falsified export documents and invoices for goods in order to disguise drug trafficking transactions.

3. Smuggling of Migrants There have recently been many reports of smuggling migrants from India and an industry has emerged which involves Indian agents recruiting migrants, transporting them to Europe or North America, collecting fees from them and sometimes providing them with jobs in the destination areas. India is both a source and a destination country for migrant workers. Skilled workers from India migrate to the U.S.A., Europe, the Middle East and East Asian countries. Similarly, migration into India takes place from neighbouring countries. Sometimes smuggling and trafficking activities are carried out by criminal networks, which are also involved in trafficking of narcotics, document fraud, money laundering, arms smuggling and other transnational crimes

4. Trafficking in Persons Trafficking in human beings is a transnational organized crime that involves the illegal trade of human beings, through abduction, threat of force, deception, fraud or “sale” for the purposes of sexual exploitation or forced labour. A major reason is the search for work abroad due to economic disparity, high unemployment and disruption of traditional livelihoods. Traffickers face few risks and earn huge profits by taking advantage of large numbers of potential immigrants. In many cases, drug traffickers have switched to trafficking human beings because it is more lucrative and relatively risk free.

In cross border trafficking, India is a sending, receiving and transit nation. Receiving women and children from neighbouring countries and sending women and children to Middle Eastern nations is a common

78 126TH INTERNATIONAL SENIOR SEMINAR VISITING EXPERTS’ PAPERS occurrence. The long and porous border between India and its neighbouring countries facilitates trafficking in women and girls.

5. Terrorism Te rrorism has been there for quite a while in India. It is characterized by hijacking and killing of well- known individuals, shoot-outs or bomb attacks in public and religious places and more recently, an attempted attack on the Indian Parliament. There are a number of terrorist outfits operating in India such as Lashkar-e- Toiba, Hizbul Mujahidin, Jaish-e-Mohammad and so on.

There are many causes of terrorism ranging from ideology, religion, fundamentalism, fanaticism, politics to corruption and money-laundering and mercenary ones. Different and varied methods have been adopted to create panic – from the hijack of the Indian Airlines aircraft in Afghanistan in December 1999 to suicide strikes evident in the assassinations of former Prime Minister Rajiv Gandhi in 1991 and Chief Minister Beant Singh in 1995 to ‘Fidayeen’ strikes in Jammu and Kashmir to terrorist attacks such as the attack on the Indian Parliament in 2001, an attack on the American Centre, Kolkata in 2002 and attacks on Akshardham temple and Raghunath temple, also in 2002. . Firm links have also been established between militant outfits in India and the underworld – drug traffickers, border crossers, currency counterfeiters, travel racketeers, mafia syndicates, etc. – which are used not merely as a support mechanism but also to execute actual actions.

6. Trafficking in Arms The Purulia Arms Drop case is the most glaring example of transnational arms smuggling. In December 1996, an Anotov 26 aircraft dropped over 300 AK 47/56 rifles, ammunition, sniper weapons, rocket launchers and night vision devices in Purulia in West Bengal. The aircraft was bought from Latvia, chartered by a company, Carol Airlines, registered in Hong Kong, moved to Bulgaria to pick up the consignment of arms and finally apprehended in Bombay after it had dropped its consignment. There is evidence of smuggling of arms in Jammu and Kashmir, Punjab and the North East where caches of arms have been seized.

7. Money Laundering Crime pays and criminals naturally want to be able to enjoy their profits without worrying about the police or the courts. This is not something new. However, globalization has brought about an increase in the international movement of money. The rapid expansion of international financial activity has gone hand in hand with the development of transnational crime, which takes advantage of political borders and exploits the differences between legal systems in order to maximize profits.

Money laundering cannot be disassociated from other forms of crime. It is a fact that it thrives on corruption. Corrupt people use financial techniques to hide their fraudulently obtained assets and the continued successful application of these techniques depends on the involvement of influential accomplices. Money laundering is therefore at the centre of all criminal activity, because it is the common denominator of all other criminal acts, whether the aim is to make profits or hide them.

Laundering operations are, in fact, intended more to conceal the origin of the money than its criminal nature, in other words to hide the traffic from which it is derived rather than the general criminal activity which actually generated it. It is therefore essential to move the money in order to scramble the route it takes. The operation is wholly successful when the nature of the money is also concealed and it is impossible to establish a link with any criminal activity because the different circuits taken give it the appearance of legitimate income.

8. Hawala The Indian Hawala or Hundi system is the transfer of money through unofficial channels, normally outside the banking channels used by businessmen. The money so transferred often includes the money derived from criminal activities or in violation of the country’s legislation. Underground banking, which conveys a sense of a system, may not strictly cover the misuse of a banking channel. It may refer to, in a restricted manner, a system of rendering services, the most important in this context being the transmission of money. Hawala represents such services. It operates in the following manner.

Someone in the U.S.A., for example, deposits $1,000 to an underground banker for payment to be made to an Indian in India. The U.S.A. underground banker contacts his counterpart in India immediately on the

79 RESOURCE MATERIAL SERIES No.66 phone or by wire and sends some coded message for payment of money to the Indian recipient. As in a bank, there is no physical transfer of money from one country to another; the accounts are settled by a reverse process when an Indian sends $1000 to someone in the U.S.A. The Indian operator contacts his counterpart in U.S.A. and money is paid in U.S.A. without any physical transfer of money. These operators work in a very organized manner and have a well-knit network. They undertake their business under cover of absolute secrecy and no paper trail for audit is kept. The system operates on an ethnic network. The network may include more than three or four countries. The principal operators engage agents and sub-agents in various countries for collection and disbursement of money. Hawala is widespread in India from metropolitan cities to smaller towns. Members of Indian families earning a living abroad are the clients of the system.

Money laundering and Hawala transactions, threaten developing economies and contribute to illicit drug trafficking and terrorist and subversive activities. As mentioned earier, India, for instance, is a transit point for drug traffickers and other criminals from the Golden Crescent and the Golden Triangle. It has become a conduit for the South East, Middle East, and Far East and Latin American countries. Both non-resident Indians and resident Indians use the Indian Hawala system or underground banking extensively for drug trafficking and remittances of money. In the mid-nineties Bombay was attracting huge amounts of Narcotics money from drug cartels in Columbia (London Times, May, 1993). The private sector is also involved in quick transfer of cash across continents. Travel agents and courier companies target Indians living abroad who want to repatriate money. The time taken to transfer money is much less. Money launderers also use such private companies for money transfers.

There are many reasons for the use of underground banking channels instead of the normal banking system. The high tax rate and the Exchange Control Regulations (though now considerably liberalized) have been the major reasons for Hawala and other economic crimes in India. Underground banking is extensively used for drug trafficking and remittances of money. It is here that the economic offenders and the launderers meet. Economic offenders want to remit money and money launderers help in doing so. Another reason for money laundering is due to evasion of taxes by some corporate houses.

Money laundering techniques include smurfing (a large number of small transactions, each transaction being less than the mandatory transaction reporting threshold), establishment of front companies, remittances through Hawala (non-banking channels), over-invoicing and double invoicing legitimate business (ordering goods at inflated prices and depositing the difference between the real and inflated values in an offshore account) and foreign remittances. Non-resident Indians have been given some special banking facilities. These facilities are misused to bring back the money as white money. For example, a portfolio account is opened in a foreign country and the money is laundered back to be invested in the stock markets. Another modus operandi is to launder the money through bogus exports. The conversion of black money is done by over-invoicing the products. Some shell companies are set up to issue bills or invoices accompanied by bogus transport receipts in order to obtain funds against these documents from bank/financial institutions and then divert major parts of such proceeds by issuing cheques in the names of non-existent front companies of cheque discounters. The cheque discounters then hand over cash immediately to the party after deduction of their commission. They file income tax returns in which the commission is shown as taxable income and also issue fake Letters of Credit and false bills. The cheque discounters are generally associated with commodities markets where fake transactions in commodities can largely go unnoticed.

Money laundering has so far been dealt with mainly under the Foreign Exchange Regulation Act, 1973, but with effect from 1999, FERA has been replaced by the Foreign Exchange Maintenance Act. A bill named as ‘The Prevention of Money Laundering Bill’ has been introduced in Parliament by the Government of India and is to be enacted as law. Money laundering has been proposed as a cognizable crime punishable with rigorous imprisonment of 3-7 years which could be extended to 10 years and a fine of up to Rs. 0.5 million. The acquisition, possession or owning of money, movable and immovable assets from crime, especially from drug and narcotic crimes, would be tantamount to money laundering. Concealment of information on proceeds or gains from crime committed within India or abroad is proposed to be an offence. An adjudicating authority is proposed which would have powers to confiscate properties of money launderers. An administrator may be appointed to manage the confiscated assets. An appellate tribunal is proposed to be set up to hear appeals. Financial institutions are expected to maintain transaction records and furnish these to the adjudicating authority. Failure to do so would be punishable too.

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D. Indian Legislation to deal with Money Launderers Presently, legislation to deal with such offenders is specifically intended to deprive offenders of the proceeds and benefits derived from the commission of offences against the laws of the country. It provides for the confiscation or forfeiture of the proceeds or assets used in connection with the commission of certain crimes. The concerned Acts in Indian legislation are:

(i) Criminal Law (Amendment) Ordinance, 1944; (ii) Customs Act, 1962 (Secs. 119 to 122); (iii) Code of Criminal Procedure, 1973 (Sec. 452); (iv) Smugglers & Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976; (v) Narcotic Drugs & Psychotropic Substances Act, 1985 (Sections 68-A to 68-Y); (vi) In addition, Indian statutes also contain provisions for preventive detention of foreign exchange racketeers under the Conservation of foreign Exchange and Prevention of Smuggling Activities (COFEPOSA) Act, 1974, and of the drug traffickers under the Prevention of Illicit Traffic in Narcotic Drugs and Psychotropic substances (PITNDPS) Act, 1988.

For this purpose, the Government of India has set up the following Investigating Agencies that function under the Department of Revenue in union with the Ministry of Finance.

E. The Central Economic Intelligence Bureau An apex intelligence and coordinating body, the Central Economic Intelligence Bureau was set up with the intention of coordinating and strengthening intelligence gathering and investigative efforts of all agencies enforcing economic laws. Accordingly, the Bureau collects intelligence regarding aspects of the black economy that require close watch and investigation as well as the emergence of new types of such offences and evolves counter-measures required for effectively dealing with existing and new types of economic offences. It acts as the nodal agency for cooperation and coordination at the international level with other customs, drugs, law enforcement and other agencies in the area of economic offences. It implements the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1971.

F. The Directorate of Revenue Intelligence The Directorate of Revenue intelligence is concerned with Customs related offences and collects intelligence about smuggling of contraband goods, narcotics, under-invoicing, over-invoicing, etc. through sources. It analyses and disseminates such intelligence to its field formations for action and keeps a watch over important seizures and investigations. It also functions as the liaison authority for exchange of information among ESCAP countries for combating international smuggling and customs frauds and liaisons with foreign countries, Indian Missions and enforcement agencies abroad as well as with the CBI and INTERPOL on anti-smuggling matters. Cases are referred for action to the Income Tax Department.

G. Enforcement Directorate The Directorate of Enforcement is mainly concerned with the enforcement of the provisions of the Foreign Exchange Management Act 1999 to prevent leakage of foreign exchange which generally occurs through remittances of Indians abroad otherwise than through normal banking channels; illegal acquisition of foreign currency; non-repatriation of the proceeds of exported goods; unauthorized maintenance of accounts in foreign countries; under-invoicing and over-invoicing of exports and imports and other types of invoice manipulation; siphoning off of foreign exchange against fictitious and bogus imports; illegal acquisition of foreign exchange through Hawala and obtaining secret commissions abroad.

The main functions of the Directorate are to collect intelligence relating to violation of the provisions of the Foreign Exchange Regulation Act; conduct searches of suspected persons, conveyances and premises and investigate such cases. The Directorate also adjudicates cases of violations for levying penalties and confiscates amounts involved in contraventions.

H. The Directorate General of Anti-Evasion (Central Excise) Due to the growth of the Central Excise revenue and its coverage to almost all manufactured products a specialized intelligence agency, the Directorate of Anti Evasion, was created to target prevention of Central Excise duty evasion. The Directorate collects intelligence relating to evasion of central excise duties, studies their modus operandi and alerts Collectorates. It also studies the price structures, marketing patterns and classification of commodities in respect of which possibilities of evasion are likely in order to

81 RESOURCE MATERIAL SERIES No.66 advise Collectorates for plugging loopholes and co-ordinates with Enforcement agencies like Income tax, Sales tax, etc.

I. The Directorate General(s) of Income Tax (Investigation) The Directorate Generals of Income Tax Investigation deal with all matters connected with investigations under the Income Tax Act of the Central Government. They collect intelligence pertaining to evasion of Direct Taxes and organize searches to unearth black money. They take steps to ensure that persons having information about tax evaders come forward with the same to the Department and disburse rewards.

J. The Narcotics Control Bureau The national policy on Narcotic Drugs and Psychotropic Substances is based on the Directive Principles contained in the Indian Constitution (Article 47), which directs that the State shall endeavour to bring about prohibition of the consumption, except for medicinal purposes, of intoxicating drugs injurious to health. Besides, India is also a signatory to:

• Single Convention on Narcotic Drugs 1961 as amended by the 1972 Protocol. • Conventions on Psychotropic Substances 1971. • United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, 1988.

The broad legislative policy in the matter is contained in the three Central Acts, viz. Drugs and Cosmetics Act, 1940, The Narcotic Drugs and Psychotropic Substances Act, 1985, and The Prevention of Illicit Traffic in Narcotic Drugs and Psychotropic Substances Act, 1988. The Department of Revenue has the nodal co-ordination role as administrator of the Narcotic Drugs and Psychotropic Substances Act, 1985 and the Prevention of Illicit Traffic in Narcotic Drugs and Psychotropic Substances Act, 1988.

The Narcotics Control Bureau was constituted in 1986 to exercise the powers and functions of the Central Government for coordination of action by various authorities under the N.D.P.S. Act, Customs Act, Drugs and Cosmetics Act, etc. and for countermeasures against illicit traffic under various international conventions and protocols presently in force. It is the apex-coordinating agency and collects and analyses data related to seizures of narcotic drugs and psychotropic substances, studies trends, modus operandi, collects and disseminates intelligence and works in close cooperation with the Customs, State Police and other law enforcement agencies.

K. Special Investigative Tools In addition to traditional investigative methods to combat global economic crime, law enforcement agencies utilize special investigative tools such as controlled delivery, undercover operations and electronic surveillance (wiretapping, communications interception, etc.) to effectively fight global economic crime. However, their use is controversial because they may infringe on human rights to privacy or may be misused.

L. Controlled Delivery Controlled delivery techniques have proven an important enforcement tool in identifying the principles involved in drug trafficking and other major smuggling offences especially those who, by the use of couriers, creation of false documents and other deceptive practices, carefully disassociate themselves and try to be remote from the drug trafficking operations. It is the technique of allowing illicit or suspect consignments… to pass out of, through or into the territory of one or more countries, with the knowledge and under the supervision of their competent authorities, with a view to identifying persons involved in the commission of offences (The United Nations Conference for the Adoption of a Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances). Further, according to Article 11 of the Convention, controlled delivery is to be allowed on the basis of mutual agreements or arrangements between nations.

Section 4 of the Indian Narcotic Drugs and Psychotropic Substances Act, 1985 endorses these international obligations. However, before adopting this technique, the originating country and the recipient country should discuss in detail the entire operation, maintain surveillance simultaneously in both the countries, keep close surveillance on the movement of drugs either through cargo or through couriers, and time the final strike operation simultaneously in both the countries to achieve maximum results. In India,

82 126TH INTERNATIONAL SENIOR SEMINAR VISITING EXPERTS’ PAPERS the Narcotics control Bureau, the nodal agency for enforcement of laws concerning narcotic drugs and psychotropic substances, has undertaken controlled delivery operations with a number of countries from time to time.

M. Electronic Surveillance Electronic surveillance covers wiretapping, communications interception, etc. Telephone interception and the monitoring of all electronic communications are controversial aspects of electronic surveillance, yet are useful in assisting law agencies to combat global economic crime. In India, interception of messages is covered under subsection 2 of section 5 of the Indian Telegraphic Act, 1885, when it is necessary or expedient to do so in the public interest. Also, a legal provision has been made in the licensing conditions of cellular companies to provide parallel monitoring facilities for all communications being received and emanating from mobile sets.

N. Survey on Economic Crime in India PriceWaterhouseCoopers Corporation carried out a survey across a sample drawn from the top 1000 Indian companies in the manufacturing, services and financial services sector in 2003. According to the survey, there has been a significant increase in economic crime over the past two years but there has been a reluctance to report it. Corruption and bribery are perceived as the most prevalent economic crimes in India. Reluctance to admit them may be due to fear of adverse implications or acceptance of corruption as an everyday cost of doing business. Other economic crimes having high prevalence include financial misrepresentation, product piracy and counterfeiting. The incidence of low reporting of financial misrepresentation may be attributed to low transparency and poor accountability. Companies appear to be unaware of the extent to which product piracy and counterfeiting are rampant and tend to avoid publicity for fear of adverse implications, particularly their effect on brand image. Perceived prevalence of asset misappropriation and cyber crime in India is also relatively low and suggests the need for tighter internal controls and other deterrents. The reported absence of money laundering is somewhat surprising and seems indicative of poor detection.

Most Indian respondents were unable to quantify their loss arising from economic crime as the financial impact of less tangible economic crimes such as corruption and bribery or product piracy and counterfeiting is difficult to quantify. They are, however, conscious of the collateral cost of economic crime on their business which, apart from financial loss results in undermining of staff morale and impacting business relationships, reputation and brand image.

Audits (external and internal), tip-offs and accident or chance are reported to be the main factors in the detection of economic crime in India. Most organizations are aware that they are required to report frauds but the reporting is low because of a reluctance to initiate recovery proceedings, scepticism about recovery, desire to avoid publicity, concerns regarding implications of disclosure, drawn out litigation process and a propensity to accept certain crimes as a customary business risk. Development of controls in their organization such as organization ethics or a code of conduct will form an effective deterrent in combination with pre-employment screening and fraud detection training. Looking ahead, respondents believe that despite improved controls, vulnerability to corruption and bribery, asset misappropriation and financial misrepresentation continue to be high, despite an expected decline in corruption. However, an increased threat is expected from economic crimes like product piracy and counterfeiting, cyber crime and industrial espionage.

IV. CONCLUSION National strategies are inherently inadequate for responding to challenges that cross multiple borders and involve multiple jurisdictions and a multiplicity of laws. The rapid growth in global economic crime and the complexity of its investigation requires a global response. At present, the measures adopted to counter these crimes are not only predominantly national, but these measures differ from one country to another. It is absolutely imperative to increase cooperation between the world’s law enforcement agencies and to continue to develop the tools, which will help them effectively counter global economic crime.

Tracing the money trail, including the origin of funds, combating money laundering through reduction of bank secrecy and seizure of assets are issues of paramount importance. Putting in place legislation on forfeiture and confiscation of properties acquired through criminal activities and sharing of available

83 RESOURCE MATERIAL SERIES No.66 technology on the subject would be a step in the right direction. Extradition is one of the most important tools used for bringing transnational fugitives to justice and extraditable crimes include unlawful seizure of aircraft; unlawful acts against the safety of civil aviation; crimes against internationally protected persons; common law offences like murder, kidnapping, hostage taking; and offences relating to firearms, weapons, explosives and dangerous substances, etc. when used as a means to perpetrate indiscriminate violence involving death or serious injury, or serious damage to property. However, it is also an area that poses the greatest problems. A large number of countries have not entered into extradition treaties and even where such treaties exist, they are mostly embroiled in complicated procedures leading to undue delay in extradition. There is a need for simplifying procedures and expediting the process.

In India, the Extradition Act, 1962 deals with extradition of fugitive criminals. India has extradition treaties with a number of countries. It has also entered into Mutual Legal Assistance Agreements/Treaties in criminal matters such as the investigation and prosecution of crime and the tracing, restraint and confiscation of the proceeds and instruments of crime, including currency transfer and terrorist funds with a number of countries. India is a signatory to the United Nations Convention against Transnational Organized Crime and to the South Asia Association for Regional Cooperation (SAARC) Convention for Suppression of Te rrorism. Pursuant to the SAARC Convention, India enacted the SAARC Convention (Suppression of Te rrorism) Act.

84

Report on the Transparency International Global Corruption Barometer 2006

Embargoed until Thursday 7 December 2006

at 10:00 GMT; 11:00 CET; 5:00 EST

Release date: 7 December 2006 Policy and Research Department Transparency International – International Secretariat Alt Moabit 96 10559 Berlin, Germany Tel: + 49-30-3438200 Fax: +49-30-34703912 Transparency International Global Corruption Barometer 2006 – Report

Table of contents

SUMMARY OF FINDINGS: TI GLOBAL CORRUPTION BAROMETER 2006 ...... 4 ABOUT THE SURVEY...... 5 EXPERIENCE OF BRIBERY ...... 7

FIGURE 1 WORLDWIDE BRIBERY: RESPONDENTS WHO HAVE HAD CONTACT AND PAID A BRIBE, BY SECTOR (%)...... 7

FIGURE 2 POLICE BRIBERY: RESPONDENTS WHO HAVE HAD CONTACT AND PAID A BRIBE TO THE POLICE, BY REGIONAL GROUPING (%) ...... 8 TABLE 1 COUNTRIES MOST AFFECTED BY BRIBERY...... 8 FIGURE 3 AFRICA: THE AVERAGE COST OF THE LAST BRIBE PAID (€)...... 10 FIGURE 4 LATIN AMERICA: THE AVERAGE COST OF THE LAST BRIBE PAID (€)...... 10

FIGURE 5 COMPARING EXPERT PERCEPTIONS OF CORRUPTION (CPI 2006) WITH EXPERIENCE OF BRIBERY ...... 11 GOVERNMENT PERFORMANCE ON ANTI-CORRUPTION ...... 11

TABLE 2 ASSESSING THE CURRENT GOVERNMENT’S ACTIONS IN THE FIGHT AGAINST CORRUPTION (%) ...... 12 HOW CORRUPTION AFFECTS PUBLIC SECTORS AND INSTITUTIONS...... 13

FIGURE 6 SECTORS AND INSTITUTIONS MOST AFFECTED BY CORRUPTION, GLOBALLY (1 - NOT AT ALL CORRUPT ... 5 - EXTREMELY CORRUPT, MEAN SCORES) ...... 14 HOW CORRUPTION AFFECTS PERSONAL AND POLITICAL LIFE AND THE BUSINESS ENVIRONMENT...... 15 TABLE 3 CORRUPTION AFFECTS POLITICAL LIFE TO A LARGE EXTENT...... 15 CONCLUSION – CORRUPTION AS A WORLDWIDE PROBLEM ...... 16 ANNEX I FULL TABLES ...... 18 TABLE 4 EXPERIENCE OF BRIBERY: BRIBE-PAYING THE PAST YEAR, ALL COUNTRIES ...... 18

TABLE 5 HOW RESPONDENTS ASSESS THEIR GOVERNMENT’S FIGHT AGAINST CORRUPTION, ALL COUNTRIES...... 20 TABLE 6 CORRUPTION’S IMPACT ON DIFFERENT SECTORS AND INSTITUTIONS, ALL COUNTRIES ...... 22

TABLE 7 CORRUPTION’S IMPACT ON POLITICAL LIFE, THE BUSINESS ENVIRONMENT, AND PERSONAL AND FAMILY LIFE – ALL COUNTRIES ...... 24 ANNEX II TI GLOBAL CORRUPTION BAROMETER 2006 – QUESTIONNAIRE...... 26 ANNEX III COUNTRY COVERAGE AND SAMPLE INFORMATION...... 28 ANNEX IV METHODOLOGICAL NOTE...... 30

2 Transparency International Global Corruption Barometer 2006 – Report

3 Transparency International Global Corruption Barometer 2006 – Report

Summary of findings: TI Global Corruption Barometer 2006

Experience of bribery is widespread outside Europe and North America; police are most often bribed ƒ The police are the sector most affected by bribery, with 17 percent of those who have had contact paying a bribe. Police are most commonly bribed in Africa and Latin America. ƒ Bribery for access to services is most common in Africa. The most commonly bribed sectors in Africa are the police, tax revenue and utilities.

Government performance in the fight against corruption is not felt adequate in most countries ƒ People around the world tend to be very negative about their government’s attempt to fight corruption. Only one in five surveyed worldwide think that their government is effective to some degree in fighting corruption; nearly two in five say the government is ‘not effective’ in its anti-corruption work.. ƒ One in six surveyed globally thinks that their government actually encourages corruption rather than fighting it. ƒ Despite relatively good scores on the Corruption Perceptions Index 2006, nearly one in five respondents in the United States and the United Kingdom think that their government encourages corruption rather than fighting it.

The perception remains that political parties and parliament are most corrupt, followed by business and police ƒ The public views political parties as the most corrupt institution, followed by parliament/legislature. ƒ Police are considered to be the sector most affected by corruption in both Africa and the Newly Independent States. ƒ These findings strongly support those of past editions of the Barometer. ƒ The Taiwanese public reports an increase in levels of corruption in most of the institutions and sectors covered by the Barometer 2006 during the last two years. The public in Hong Kong and Croatia also view corruption as worse in a number of sectors, while, in contrast, in India there have been some perceived improvements.

Political and business life are judged more affected by corruption than family life in most countries ƒ Political life is viewed as being most affected by corruption, followed closely by the business environment. ƒ These findings support those of previous editions of the Barometer. ƒ Corruption is reported as affecting family life very little in EU+ countries and the Newly Independent States, but a lot in Africa and South East Europe. ƒ Perceived corruption in political life in the United States has increased in the last two years; perceived corruption in Iceland’s business environment and family life has increased; perceived corruption has increased in Spain and Japan’s political life and business environment.

4 Transparency International Global Corruption Barometer 2006 – Report

About the survey

Transparency International’s (TI) Global Corruption Barometer 2006 (the Barometer) explores how corruption affects ordinary people. It provides an indication of both the form and extent of corruption, from the viewpoint of citizens from around the world. The Barometer is unique in that it gives voice to those affected by corruption – and helps us better understand their concerns and experiences.

The Barometer 2006 explores experience of petty bribery in greater depth than ever before, presenting information on the institutions and public services most affected by bribery, the frequency of bribery, and how much people pay. Also new to the survey is a question to the public about government’s efforts to fight corruption. As in years past, the Barometer asks people about their opinions regarding which sectors of society are the most corrupt and which spheres of life are most affected by corruption.

Information about public perception and experience of corruption, such as the Global Corruption Barometer 2006 offers, is vital to anti-corruption efforts. People’s perceptions are an indicator of the success of anti-corruption policies and initiatives. In addition, establishing which public agencies have the highest level of corruption helps set priorities for reform. Finally, gaining insight into the frequency and cost of bribery helps us understand just how the public is victimised by corruption – and the very high price that corruption exerts on the poorest.

The Global Corruption Barometer 2006, now the fourth in the series, reflects the findings of a survey of 59,661 people in 62 low, middle and high-income countries. The survey was carried out on behalf of TI by Gallup International, as part of its Voice of the People Survey, between July and September 2006. This year’s Barometer covers six countries not included in past editions: Albania, Congo- Brazzaville, Fiji, Gabon, Morocco and Sweden.1

The Global Corruption Barometer 2006 is one of TI’s key global tools for measuring corruption. The public opinion focus complements the Corruption Perceptions Index (CPI) and Bribe Payers Index (BPI). The CPI and BPI reflect the opinions of experts and business leaders, and focus on the perception of public sector and political corruption, and the supply side of bribery, respectively.

For the purposes of analysis, individual countries have been grouped into regions. While regional groupings pose some problems, they can highlight areas that have broadly similar characteristics and challenges. Combining regional data also strengthens the reliability of some findings.

1 Countries that dropped out of the Barometer since the last edition are Bosnia and Herzegovina, Cambodia, Costa Rica, Ecuador, Ethiopia, Georgia, Guatemala, Republic of Ireland, Lithuania, Nicaragua and Togo.

5 Transparency International Global Corruption Barometer 2006 – Report

The groupings used in this report are:2

ƒ EU and other Western European Countries (EU+): Austria, the Czech Republic, Denmark, Finland, France, Germany, Greece, Iceland, Italy, Luxembourg, the Netherlands, Norway, Poland, Portugal, Spain, Sweden, Switzerland and the United Kingdom; ƒ South East Europe: Albania, Bulgaria, Croatia, Kosovo, Macedonia, Romania, Serbia and Turkey; ƒ Newly Independent States (NIS): Moldova, Russia and Ukraine; ƒ Africa: Cameroon, Congo-Brazzaville, Gabon, Kenya, Morocco, Nigeria, Senegal and South Africa; ƒ Latin America: Argentina, Bolivia, Chile, Colombia, Dominican Republic, Mexico, Panama, Paraguay, Peru and Venezuela; ƒ Asia – Pacific: Fiji, Hong Kong, India, Indonesia, Japan, Korea (South), Malaysia, Pakistan, the Philippines, Singapore, Taiwan and Thailand; and ƒ North America: Canada and the United States.

The full tabular results, questionnaire, methodology and list of countries for the TI Global Barometer 2006 can be found in the annexes to this report.

This report has been prepared by Robin Hodess and Tom Lavers of the Policy and Research Department at the Transparency International Secretariat. Professor Richard Rose, University of Aberdeen and a member of TI’s Index Advisory Committee, contributed advice on the Barometer data.

2 Israel is also covered in the Barometer 2006. However, it does not easily fit in any of the regional groupings. As such Israel is not used in the regional analysis although Israeli respondents are included in overall Barometer calculations.

6 Transparency International Global Corruption Barometer 2006 – Report

Experience of bribery

The Global Corruption Barometer 2006 asks respondents whether they or anyone in their household has had contact during the past twelve months with seven familiar public sector agencies, including the police, health services, education and so forth, and whether they have had to pay bribes in their dealings with them. The results point to the public sector institutions, here also referred to as ‘sectors’, most tainted by bribery. The TI Barometer 2006 also asks the public about the amount paid in bribes.

Most people who pay bribes are the victims of corruption – extra ‘speed’ payments or illicit backhanders are often the only way they can gain access to services they are entitled to by law, or the only way to avoid administrative obstacles or legal wrangling with the authorities. By revealing the cost of bribery, the Barometer shows the scale of these ‘extra payments’. Corruption and bribery always hit the poor hardest, extracting an extra tax from those who can least afford it.

Bribery of police worst the world over

According to the Global Corruption Barometer 2006, bribes are most commonly paid around the world to the police, and are substantially more frequent than to other services. This result presents enormous concerns regarding corruption in processes of law enforcement, particularly when viewed alongside the sector identified as the third most common recipient of bribes: the legal system and judiciary.

As Figure 1 shows, registry and permit services are the second most bribe-ridden sector, with nearly one in ten respondents who have had contact with them reporting that they had paid a bribe. In the Africa region, a full 32% indicated they had paid bribes for services in this sector.

Figure 1 Worldwide bribery: respondents who have had contact and paid a bribe, by sector (%)

18%

16%

14%

12%

10% contact that have paid a bribe

8%

6%

4%

Percentage of respondentswith 2%

0% Police Registry and permit Legal system / Medicial services Education system Utilities Tax revenue services judiciary

Source: Transparency International Global Corruption Barometer 2006

The extent of the problem of police bribery varies enormously between regional groupings, as Figure 2 reveals. More than half the respondents in Africa who have had contact with the police in the past 12 months paid a bribe. In Latin America

7 Transparency International Global Corruption Barometer 2006 – Report approximately one in three respondents who have had contact with the police paid a bribe, and in the NIS, Asia-Pacific and South East Europe the figure varies between 15 and 20 percent. Only a very small proportion of respondents from North America and the EU+ regional groupings have paid a bribe to the police, which is in line with the overall low rates of bribe-paying among the general public in these regions.

Figure 2 Police bribery: respondents who have had contact and paid a bribe to the police, by regional grouping (%)

60%

50%

40%

30%

20%

10% Percentage of respondents with contact that have paid a bribe

0% Total Sample Africa Latin America NIS Asia - Pacific SE Europe North America EU+

Source: Transparency International Global Corruption Barometer 2006

Bribery continues to plague people in poorer and transitional countries

Taken together, responses from African, Latin American and NIS countries indicate that frequent bribe-paying is the norm – with a few notable exceptions – as is indicated in Table 1, below. In Asia-Pacific and SE Europe, bribe-paying was moderate while in North America and EU+ countries bribes were seldom paid for services.

Table 1 Countries most affected by bribery More than Albania, Cameroon, Gabon, Morocco 40% Bolivia, Congo, Czech Republic, Dominican Republic, Greece, Indonesia, Kenya, Mexico, Moldova, Nigeria, 16-40% Paraguay, Peru, Philippines, Romania, Senegal, Ukraine, Percentage of Venezuela respondents that have paid a Argentina, Bulgaria, Chile, Colombia, Croatia, Hong Kong, bribe in the last 6 - 15% India, Kosovo, Luxembourg, Macedonia, Pakistan, 12 months Panama, Russia, Serbia, Thailand

Austria, Canada, Denmark, Fiji, Finland, France, Germany, Iceland, Israel, Japan, Malaysia, Netherlands, 5% or Norway, Poland, Portugal, Singapore, South Africa, South less Korea, Spain, Sweden, Switzerland, Taiwan, Turkey, United Kingdom, USA Source: Transparency International Global Corruption Barometer 2006

8 Transparency International Global Corruption Barometer 2006 – Report

Bribery in poor and transitional countries represents a major impediment, one that holds back human development and economic growth. The poorest in society are least able to afford to pay bribes and often must go without basic services as a result. And respondents in several African countries, such as Congo, Nigeria and Senegal, admitted to paying multiple bribes, indicating an even greater burden.

In contrast to the situation in the African countries polled, the reported experience of bribery in the EU+ grouping and North America is relatively low, with less than 2 percent of respondents having paid a bribe. This experience of little or no bribery in daily life activities continues to stand in contrast to the perception of corruption in these regions, where respondents report that corruption severely affects key sectors and spheres of life (see discussion below, pp. 13-16).

In this case, it may be necessary to draw a distinction between the different forms of corruption, such as petty and grand. While in EU+ and North America there may be little need to pay small scale bribes in daily life, the public is familiar with reports on grand corruption affecting both public and private sectors. Therefore, while bribery for services does not seem to be a major problem, the public does remain concerned about large-scale corruption, such as in major government contracts or in political party funding, and its denigrating effect on their societies.

Registrations and permits require the biggest bribes3

Within Africa, Figure 3 shows that the largest bribes are paid to the legal system and judiciary, followed by the police and education system.4 The average bribe to each of these organisations is greater than €50. The amount paid to utilities organisations, which are the second most commonly bribed, is much lower at only €6. For many people in these countries even such an amount is significant; for the poorest it would be prohibitive, with the result that they may be denied basic services due to an inability to pay bribes.

3 Given the vast differences in the cost of living between continents, it is difficult to compare the size of bribes paid in different continents. Although Purchasing Power Parity exchange rates exist, inter- continental comparisons could be misleading. The comparisons here are therefore made between sectors within continents. 4 The relatively large numbers of respondents with experience of paying bribes in Africa and Latin America provides a substantial sub-sample of at least 200 respondents to analyse data relating to the size of the last bribe paid. In the other regional groupings, the number of respondents with experience of bribery is lower.

9 Transparency International Global Corruption Barometer 2006 – Report

Figure 3 Africa: the average cost of the last bribe paid (€)

80

70

60

50

40

30 Cost of last bribe paid (Euros) paid bribe last of Cost

20

10

0 Legal Police Education system Registry and permit Tax revenue Medical services Utilities system/Judiciary services

Source: Transparency International Global Corruption Barometer 2006

Figure 4 shows the cost of bribes paid by respondents in Latin America. By far the largest bribes were paid for medical services, on average more than €450. Bribes paid to the legal system/judiciary and tax revenue are the next largest, both surpassing €200. These amounts would be considerable to most people living in any part of the world; for the regions’ poor they likely provide an insurmountable hurdle to securing basic health and legal services.

Figure 4 Latin America: the average cost of the last bribe paid (€)

500

450

400

350

300

250

200 Cost ofCost lastbribe paid (Euros) 150

100

50

0 Medical services Legal Tax revenue Police Education system Registry and permit Utilities system/Judiciary services

Source: Transparency International Global Corruption Barometer 2006

How does experience of bribery relate to expert perceptions of corruption?

The results of TI’s Corruption Perceptions Index (CPI) 2006, which measures expert perceptions of public sector and political corruption, can be compared with the findings related to the experience of bribery. Figure 5, below, shows that there is a

10 Transparency International Global Corruption Barometer 2006 – Report link between scores on the CPI and the number of bribes paid in the countries polled in the Global Corruption Barometer 2006. The correlation for this is 0.63.

No country with a score of five or more in the CPI (indicating a lower level of perceived corruption) has more than seven percent of respondents who report paying a bribe in the past year; for most countries this figure is substantially less. For those countries whose results are poorer in the CPI 2006, there is far more differentiation in the experience of bribery.

In many countries, there are significant problems both in terms of perceived public sector and political corruption and bribery for services. In Albania, for example, this result is marked: Albania scored 2.6 in the CPI 2006 and two-thirds of respondents who had contact with public services also admitted to paying at least one bribe in the past year.

Figure 5 Comparing expert perceptions of corruption (CPI 2006) with experience of bribery

10

9

8

7

6

5

CPI 2006 score 2006 CPI 4

3

2

1

0 0% 10% 20% 30% 40% 50% 60% 70% Percent of respondents who have paid a bribe

Source: Transparency International Global Corruption Barometer 2006

Government performance on anti-corruption

The TI Global Corruption Barometer 2006 examines how governments are tackling the problem of corruption in the eyes of the general public. Given that the CPI reflects the opinion of experts, some of whom are based outside the country being assessed, the Barometer offers a different perspective on government and its demonstrated ability to reduce corruption. While the Barometer data does not amount to an index of government effort to fight corruption, it does provide some feedback on the power of government to influence the public agenda, its political will to fight corruption and in some cases its power to effect real change in country, in terms of combating corruption.

It can be unfair to lay the entire blame of corruption in a country on governments that have been in power for only a short period of time. However, it is important that governments take firm and effective action to fight corruption, and that the public gain a sense that government efforts (among others’) are taking hold and making a

11 Transparency International Global Corruption Barometer 2006 – Report difference in their lives. This is particularly the case in countries where the need to pay bribes for services ruins livelihoods and can even cost lives.

Governments are underperforming in the fight against corruption

The majority of people around the world have a poor opinion of their government’s anti-corruption efforts. While one in five surveyed find government actions positive, more than half indicate that the government is not doing a good job. Perhaps most worrying is the fact that a full 15 percent of the public worldwide believe that not only is government not effective in its anti-corruption work, but that government is actually a source of the problem in that it encourages corruption. Table 2 shows the opinions on government efforts to fight corruption, by region.

Table 2 Assessing the current government’s actions in the fight against corruption (%) South Government is… Total Latin Asia- North EU+ East NIS Africa Sample America Pacific America Europe Very effective 5 4 6 3 17 7 4 2 Effective 17 18 21 14 27 18 15 17 Not effective 38 42 30 40 24 29 34 50 Not fighting 16 14 19 24 20 19 18 9 corruption at all Not fighting corruption, 15 14 9 15 9 23 15 19 but actually encouraging it DK/NA 8 8 14 5 3 4 15 4 Source: Transparency International Global Corruption Barometer 2006

Only one in five members of the public in the EU+ and North America think that their governments are effective to any extent in fighting corruption. Of additional concern is the one in five in North America and one in seven in the EU+ who thinks that their government actually encourages corruption rather than fighting it.

In contrast to the results in Europe and North America, respondents in Africa and Latin demonstrate a considerable difference in opinion. More than half of respondents in Nigeria, for example, see their government’s efforts as effective or very effective, while only 11 percent in Gabon report the same. In Latin America, 43 percent of Mexicans believe the government actually encourages corruption, while 54 percent of those in the Dominican Republic believe the government is effective or very effective.

Respondents in the NIS paint a picture of governments that make little attempt to fight corruption. The most common response in the region was that governments were ‘not effective’ in the fight against corruption (40 percent), whilst 24 percent answered that the government does not fight corruption at all. The lack of effectiveness of government efforts to fight corruption, as judged by the public in the NIS and elsewhere, is different from the absence of political will to fight corruption, but is nevertheless a concern.

One partial explanation for the results here may be the importance of anti-corruption efforts in different regions. Concerted anti-corruption efforts by governments in Western Europe and North America are relatively limited and might mean the public is less aware of – in addition to being less confident in – government efforts to curb

12 Transparency International Global Corruption Barometer 2006 – Report corruption. Judgement by the public there is likely based on the prosecution of headline cases and not on the work of anti-corruption commissions or the implementation of anti-corruption strategies. In Africa, where corruption is generally considered to present a substantially higher risk, governments tend to address corruption, at least ensuring it is on the political agenda. This may or may not translate into effective action, but it does heighten awareness of government efforts in this regard.

Views on government efforts and public sector corruption do not always align

There is no correlation between a good score in the CPI 2006 and the public endorsement of a government’s anti-corruption efforts. This may be because some governments will have been in power for only a short period of time when polling is done for the Barometer, while a country’s performance in the CPI also reflects the performance of past administrations, not just the present one. In addition, good performance by government in anti-corruption can only come about through sustained change that translates into better quality of life for ordinary citizens.

It is interesting that some governments with good performance in the CPI have the approval of their people, for example Singapore has a CPI 2006 score of 9.4, and 89 percent of respondents believe that their government is effective or very effective in fighting corruption. Other top CPI performers have more mixed results. Denmark has a CPI 2006 score 9.5 and 50 percent of respondents judge their government as effective or very effective in its anti-corruption activities. In Iceland (CPI score 9.6) and Sweden (CPI score 9.2), however, the public does not rate government efforts so highly, with more than 60 percent indicating that government was not effective or did not fight corruption at all.

How corruption affects public sectors and institutions

For the third year the Barometer provides data showing the extent to which people believe corruption affects different public sectors and institutions in their country. This public perception of the levels of corruption is a vital indicator of how corrupt or clean the average citizen finds a number of key institutions. Such perceptions can influence the public’s dealings with these institutions, creating the expectation that graft is necessary to obtain services. Corruption in the system then becomes a self- fulfilling prophecy, as people pay where they assume it is necessary.

Political parties and parliament still viewed around the world as most corrupt

The results of the TI Global Corruption Barometer 2006 show that political parties and parliament/legislature are perceived to be most affected by corruption (see Figure 6). The police are also viewed rather poorly, a result which coincides with the findings presented earlier in this report that the police are the institution most likely to be bribed around the world. Identifying parties, parliaments and police as corrupt throws into question some of the most representative and authoritative institutions in a society, and puts at risk their capacity to perform credibly with any degree of transparency and integrity.

13 Transparency International Global Corruption Barometer 2006 – Report

The results are consistent with those of the Barometers in 2005 and 2004, and the lack of improvement is disappointing. The perception of parties and parliaments as most corrupt reinforces the view that governments are not on the whole acting effectively in fighting corruption. Rather, they themselves are seen to be a part of the problem, creating a dynamic in which they actually encourage corruption in a country.

Figure 6 Sectors and institutions most affected by corruption, globally (1 - not at all corrupt ... 5 - extremely corrupt, mean scores)

Sectors and institutions most affected by corruption (1 - not at all corrupt ... 5 - extremely corrupt)

Political parties 4.0

Parliament/ Legislature 3.7

Business/ private sector 3.6

Police 3.5

Legal system/ Judiciary 3.5

Media 3.3

Tax revenue 3.3

Medical services 3.1

Education system 3.0

The military 3.0

Utilities 3.0

Registry and permit services 2.9

NGOs 2.9

Religious bodies 2.8

Source: Transparency International Global Corruption Barometer 2006

Police rate poorly in Africa and the NIS

Respondents in Africa and the NIS consider the police to be the most corrupt sector (with mean scores of 4.6 and 4.1 respectively). This is in contrast to the results in the EU+ and North America, where the police are considered to be relatively less corrupt compared with most other sectors (2.7 and 3.1, respectively). In the EU+ and North America, political parties were viewed as the most corrupt, followed by business in EU+ and parliament/legislature in North America.

Political parties and the police are judged as equally bad in Latin America. In Eastern Europe, the legal system and medical services are considered the most corrupt.

In Taiwan, the Global Corruption Barometer 2006 highlights a substantial increase in the perceived level of corruption in many sectors: NGOs, religious bodies, police and military all emerged as more corrupt in the eyes of the public. Similarly, a number of sectors in Hong Kong (NGOs, business and media) and Croatia (media, education and business) reveal an increase in perceived corruption.

In contrast, Indians report a substantial reduction in the perceived level of corruption in a number of sectors. Improvements encompass education, the legal

14 Transparency International Global Corruption Barometer 2006 – Report system/judiciary, media, parliament/legislature, and utilities. It should be noted, however, that Indian respondents still indicate that the majority of sectors highlighted are significantly affected by corruption. These improvements should therefore be understood as a positive sign of progress, but not an indication that the problem of corruption has been solved.

How corruption affects personal and political life and the business environment

Each of the four editions of the Global Corruption Barometer has asked respondents to assess to what extent corruption affects different spheres of life, including personal and family life, the business environment and political life on a scale of 1 (not at all) to 4 (to a large extent).

The Barometer 2006 strongly supports the findings of past editions, with political life (mean score 3.4) emerging as the sphere thought to be most affected by corruption, followed by the business environment (3.1), and, of much less concern, personal and family life (2.3). This ordering is the same in all regional groupings covered by the survey.

It is worth noting that respondents’ answers for the three spheres of life align to a great extent. In particular, there is a statistically significant correlation between perceived corruption in business and political life.5 Thus respondents that perceive corruption to be a problem in one sphere are more likely to perceive it to be a problem in the others. Stated differently, if one sphere is judged to be very corrupt, the others are likely to be judged similarly.

Although all regional groupings demonstrate a perception that corruption is a major problem in political life, at the country level there is considerable variation, as Table 3, below, shows. Nevertheless, the public in a majority of the countries covered in the Barometer believe corruption affects political life to a large extent.

In North America, there are very strong opinions about the extent to which corruption affects the business environment and political life. There, more than four out of five respondents think that the business environment and political life are affected by corruption to a moderate or large extent. In addition, corruption in political life in the United States is perceived to have worsened when compared with earlier Barometers.

Table 3 Corruption affects political life to a large extent Corruption More than Bolivia, Cameroon, Greece, South Korea, Taiwan affects 70% political Albania, Argentina, Bulgaria, Chile, Croatia, France, Gabon, Hong Kong, life to a Indonesia, Israel, Italy, Kenya, Macedonia, Mexico, Nigeria, Peru, Paraguay, large 51 – 70% Philippines, Poland, Portugal, Romania, South Africa, Russia, Senegal, Spain, extent Turkey, UK, Ukraine, US

Canada, Colombia, Congo-Brazzaville, Czech Rep., Dominican Rep., Fiji, 31 – 50% Germany, Iceland, India, Japan, Kosovo, Moldova, Morocco, Pakistan, Panama, Serbia, Singapore, Thailand, Venezuela

5 Taking into account the very large sample size of 59,661 respondents, this correlation (.62) can be considered significant.

15 Transparency International Global Corruption Barometer 2006 – Report

Austria, Denmark, Finland, Luxembourg, Malaysia, Netherlands, Norway, 11 – 30% Sweden, Switzerland Source: Transparency International Global Corruption Barometer 2006

Corruption’s impact on family life is less a concern to most people around the world. One could argue that this may be an instance where the public compares real experience -- whether corruption has caused personal hardship – with perceptions of how corruption affects society more broadly, such as in the scandals reported in the media. The latter may often be viewed as more ever-present and pervasive in its influence.

However, respondents’ experience of corruption in their personal and family life differs substantially in different parts of the world. In the EU+ and the NIS, respondents state that corruption affects their lives very little (78 percent and 71 percent of respondents respectively answering ‘to a small extent’ or ‘not at all’). It would therefore seem that these respondents may have answered this question taking into account their direct experience of bribery and its influence on their household.

In contrast, 70 percent of respondents in Africa and 59 percent in South East Europe think that their family lives are affected to a ‘moderate’ or ‘large’ extent. In Africa, this is clearly support by the data on experience of bribery reported above. In South East Europe, however, reported experience of bribery was relatively low.

As compared with previous Barometers, change for the worse has been demonstrated in Iceland, Japan and Spain. Corruption’s impact on in Iceland’s business environment and family life is perceived to have increased over the past two years. In Japan, the business environment is believed to be worse off when compared with the 2005 results. Finally, despite a reduction in the perceived level of corruption in Spanish political life and the business environment between 2004 and 2005, the scores for 2006 show large increases which more than cancel out previous improvements.

Conclusion – corruption as a worldwide problem

Overall, these results show that people everywhere see corruption as a major problem. While there are differences between countries in the extent to which people experience corruption in their everyday lives, there is a widespread perception that the authority vested in institutions that ought to represent the public interest is, in fact, being abused for private gain.

Because bribe-paying is reported most in poorer countries, the burden of corruption falls hardest on those who can least afford it. In these countries, misuse of public funds does the greatest harm to the money available for safe water, schools and health care. The risks to lives are real, and those who can make a difference must act. Yet so far, in too many places in the world, government action to stop corruption has been judged lacklustre and ineffective.

People from all countries polled believe that corruption greatly affects their lives – and above all they express concern at the role of parties and elected politicians in the corruption equation. The challenge remains for political leaders to prove that they are

16 Transparency International Global Corruption Barometer 2006 – Report not actually fuelling corrupt practices, but are a genuine part of efforts to enhance transparency, accountability and integrity in societies around the world.

17 Transparency International Global Corruption Barometer 2006 – Report Annex I Full tables Table 4 Experience of bribery: bribe-paying the past year, all countries6 In the past 12 months have you or anyone living in your household paid a Yes No bribe in any form … Total sample 9% 91% Africa 36% 64% - Cameroon 57% 42% - Congo, Republic of the 40% 59% - Gabon 41% 59% - Kenya 21% 79% - Morocco 60% 40% - Nigeria 38% 62% - Senegal 29% 71% - South Africa 5% 95% Asia - Pacific 7% 93% - Fiji 3% 97% - Hong Kong 6% 94% - India 12% 88% - Indonesia 18% 82% - Japan 3% 97% - Malaysia 3% 97% - Pakistan 15% 85% - Philippines 16% 84% - Singapore 1% 99% - South Korea 2% 98% - Taiwan 2% 98% - Thailand 10% 90% South East Europe 9% 91% - Albania 66% 34% - Bulgaria 8% 92% - Croatia 7% 93% - Kosovo 12% 88% - Macedonia 9% 91% - Romania 20% 80% - Serbia 13% 87% - Turkey 2% 98% EU and other Western Europe 2% 98% - Austria 2% 98% - Czech Republic 17% 83% - Denmark 2% 98% - Finland 1% 99% - France 2% 98% - Germany 2% 98% - Greece 17% 83% - Iceland 2% 98% - Luxembourg 6% 94% - Netherlands 2% 98% - Norway 2% 98% - Poland 5% 94% - Portugal 2% 98% - Spain 2% 98% - Sweden 1% 99% - Switzerland 1% 99% - United Kingdom 2% 98% Latin America 17% 83% - Argentina 6% 94% - Bolivia 28% 72% - Chile 7% 93% - Colombia 7% 93% - Dominican Republic 23% 77% - Mexico 28% 72% - Panama 8% 92% - Paraguay 26% 74% - Peru 21% 79% - Venezuela 21% 79% North America 2% 98% - Canada 3% 97% - USA 2% 98%

6 In the few instances where the responses do not add up to 100%, the remainder of the responses were ‘Don’t Know/No answer’. 18 Transparency International Global Corruption Barometer 2006 – Report In the past 12 months have you or anyone living in your household paid a Yes No bribe in any form … Newly Independent States 12% 88% - Moldova 27% 73% - Russia 8% 92% - Ukraine 23% 77% Other - Israel 4% 96%

19 Transparency International Global Corruption Barometer 2006 – Report Table 5 How respondents assess their government’s fight against corruption, all countries Does not fight but How would you assess your current actually government’s actions in the fight Very Not Does not encourages against corruption? effective Effective effective fight at all it DK/NA Total sample 5% 17% 38% 16% 15% 8% Africa 17% 27% 24% 20% 9% 3% - Cameroon 5% 12% 41% 15% 21% 6% - Congo, Republic of the 10% 10% 25% 15% 19% 20% - Gabon 5% 6% 21% 20% 33% 15% - Kenya 10% 33% 39% 9% 8% 2% - Morocco 3% 17% 39% 23% 15% 3% - Nigeria 23% 29% 16% 22% 7% 3% - Senegal 7% 13% 28% 20% 16% 17% - South Africa 13% 25% 34% 13% 12% 3% Asia - Pacific 4% 15% 34% 18% 15% 15% - Fiji 15% 29% 28% 15% 11% 2% - Hong Kong 10% 73% 15% 1% 0% 0% - India 7% 19% 39% 20% 15% 1% - Indonesia 8% 21% 50% 9% 9% 3% - Japan 2% 6% 35% 15% 11% 32% - Malaysia 9% 36% 35% 5% 4% 11% - Pakistan 4% 19% 23% 27% 10% 17% - Philippines 8% 13% 31% 23% 24% 0% - Singapore 37% 52% 4% 1% 1% 5% - South Korea 2% 12% 45% 24% 17% 0% - Taiwan 2% 21% 33% 15% 25% 4% - Thailand 6% 34% 23% 11% 19% 8% South East Europe 6% 21% 30% 19% 9% 14% - Albania 7% 33% 36% 13% 4% 7% - Bulgaria 1% 12% 36% 15% 12% 25% - Croatia 0% 5% 34% 21% 17% 22% - Kosovo 6% 18% 24% 25% 18% 10% - Macedonia 1% 9% 34% 27% 24% 6% - Romania 0% 16% 39% 19% 11% 15% - Serbia 6% 9% 35% 21% 17% 13% - Turkey 9% 29% 25% 20% 6% 11% EU and other Western Europe 4% 18% 42% 14% 14% 8% - Austria 6% 17% 29% 18% 9% 21% - Czech Republic 1% 9% 40% 21% 21% 8% - Denmark 9% 41% 28% 15% 3% 3% - Finland 4% 21% 23% 18% 4% 29% - France 1% 14% 45% 18% 15% 6% - Germany 0% 12% 51% 12% 19% 5% - Greece 5% 19% 41% 22% 12% 1% - Iceland 3% 11% 27% 34% 11% 15% - Italy 3% 24% 34% 14% 11% 14% - Luxembourg 1% 29% 37% 13% 6% 14% - Netherlands 2% 21% 51% 7% 3% 17% - Norway 1% 22% 50% 9% 2% 16% - Poland 2% 11% 41% 28% 12% 7% - Portugal 4% 26% 39% 13% 10% 8% - Spain 18% 15% 36% 13% 10% 8% - Sweden 2% 25% 51% 12% 4% 6% - Switzerland 4% 33% 36% 12% 8% 7% - United Kingdom 6% 19% 40% 14% 18% 4% Latin America 7% 18% 29% 19% 23% 4% - Argentina 2% 19% 36% 24% 14% 5% - Bolivia 5% 35% 31% 15% 7% 7% - Chile 1% 19% 54% 14% 8% 4% - Colombia 17% 35% 16% 10% 20% 1% - Dominican Republic 10% 44% 23% 11% 9% 3% - Mexico 0% 9% 27% 20% 43% 0% - Panama 14% 10% 35% 18% 21% 2% - Paraguay 0% 4% 29% 27% 40% 1% - Peru 4% 7% 32% 28% 19% 10% - Venezuela 18% 18% 29% 13% 17% 5% North America 2% 17% 50% 9% 19% 4% - Canada 5% 30% 36% 11% 11% 7% - USA 1% 15% 52% 9% 19% 4% Newly Independent States 3% 14% 40% 24% 15% 5% 20 Transparency International Global Corruption Barometer 2006 – Report Does not fight but How would you assess your current actually government’s actions in the fight Very Not Does not encourages against corruption? effective Effective effective fight at all it DK/NA - Moldova 4% 18% 30% 24% 15% 10% - Russia 3% 17% 42% 22% 13% 2% - Ukraine 1% 6% 33% 29% 20% 11% Other - Israel 2% 14% 42% 24% 16% 2%

21 Transparency International Global Corruption Barometer 2006 – Report Table 6 Corruption’s impact on different sectors and institutions, all countries

To what extent do you perceive the following sectors in this country/territory to be affected by sector sector Police Media NGOs Utilities services services

corruption? Judiciary Legislature Legislature Parliament/ Parliament/ The military military The Tax revenue revenue Tax

(1: not at all corrupt, … 5: extremely system/ Legal Political parties parties Political Religious bodies bodies Religious Medical services services Medical Business/ private Education system system Education

corrupt) permit and Registry Total Sample 4.0 3.7 3.6 3.5 3.5 3.3 3.3 3.1 3.0 3.0 3.0 2.9 2.9 2.8 Africa 4.2 3.9 3.5 4.6 4.0 3.0 3.4 3.4 3.8 3.5 3.5 3.4 2.9 2.8 - Cameroon 4.3 4.2 4.2 4.7 4.4 3.6 4.0 4.1 4.1 4.3 3.2 3.8 3.1 2.9 - Congo (Brazzaville) 4.1 3.8 3.8 4.3 3.7 4.1 3.8 3.6 3.5 4.3 3.6 3.6 3.0 2.5 - Gabon 4.2 3.9 3.8 4.3 4.1 3.9 3.7 3.6 3.7 4.0 3.0 3.4 3.1 3.3 - Kenya 3.6 3.5 3.0 4.1 3.5 2.3 3.4 2.9 2.6 3.0 3.0 3.5 2.6 . - Morocco 3.5 3.5 3.2 4.2 4.0 3.0 3.2 4.0 3.2 3.2 2.6 4.1 2.7 2.1 - Nigeria 4.5 4.1 3.7 4.9 4.1 3.2 3.5 3.4 4.3 3.7 3.8 3.3 3.0 3.0 - Senegal 4.2 3.9 3.6 4.3 4.4 3.2 3.6 3.2 3.1 2.3 2.1 4.0 2.2 2.1 - South Africa 3.9 3.6 3.4 3.9 3.2 2.9 2.6 3.0 3.0 2.9 2.9 3.3 2.9 2.5 Asia - Pacific 4.0 3.8 3.5 3.8 3.3 3.1 3.3 3.2 3.1 3.0 2.9 2.9 2.9 3.0 - Fiji 3.6 3.4 3.4 3.2 3.2 2.7 3.3 3.1 3.0 2.9 3.3 3.0 2.2 2.2 - Hong Kong 3.5 2.9 3.9 3.4 2.6 3.7 2.3 2.6 2.6 2.8 2.4 2.2 3.4 2.5 - India 4.2 3.5 3.2 4.3 3.4 2.4 3.0 3.1 3.1 1.9 2.8 3.3 2.9 2.8 - Indonesia 4.1 4.2 3.6 4.2 4.2 2.8 3.4 3.0 3.3 3.3 2.9 3.6 2.9 2.3 - Japan 4.0 3.7 3.6 3.6 3.0 3.4 3.2 3.6 3.1 3.1 3.0 2.7 3.0 3.7 - Malaysia 3.5 3.0 3.3 3.8 2.8 2.4 2.5 2.1 2.2 2.0 2.2 3.1 2.2 1.7 - Pakistan 4.0 3.9 3.6 4.4 3.8 3.6 3.9 3.4 3.1 3.1 3.8 3.9 3.4 2.8 - Philippines 3.8 3.9 3.2 3.9 3.4 2.5 3.7 2.9 3.0 3.4 2.9 3.2 2.6 2.1 - Singapore 2.1 1.8 2.5 1.9 2.0 2.2 1.8 1.8 1.8 1.9 1.8 1.8 2.5 2.1 - South Korea 4.3 4.2 3.7 3.3 3.5 3.5 3.3 3.1 3.3 3.2 2.4 2.4 2.9 3.1 - Taiwan 4.5 4.5 3.7 4.1 3.9 3.3 3.4 3.8 3.5 4.1 3.6 2.4 3.9 3.7 - Thailand 3.7 2.9 3.2 3.6 2.6 2.8 2.8 2.3 2.8 2.6 2.6 2.4 2.7 2.3 South East Europe 4.0 4.0 4.0 3.9 4.1 3.5 3.6 4.1 3.8 3.3 3.4 3.7 3.6 3.3 - Albania 3.2 3.2 3.1 3.8 3.8 2.5 3.4 4.1 2.8 2.7 3.2 3.6 3.0 2.3 - Bulgaria 4.3 4.2 4.1 4.0 4.4 3.2 4.0 4.2 3.7 2.9 3.3 3.8 3.3 3.1 - Croatia 4.1 4.1 4.2 . 4.4 3.3 3.5 4.3 3.6 2.9 3.1 3.7 2.6 2.6 - Kosovo 3.6 3.2 3.2 2.2 3.6 2.4 2.6 3.8 2.8 1.5 3.1 2.8 2.3 1.9 - Macedonia 4.3 4.2 4.0 3.9 4.5 3.4 3.4 4.3 4.0 2.9 2.9 3.2 2.9 2.6 - Romania 4.1 4.0 4.0 3.6 3.9 2.9 2.2 3.8 3.2 2.5 2.3 2.8 2.9 2.3 - Serbia 3.9 3.8 3.7 3.6 3.8 3.5 3.0 3.9 3.4 2.9 2.9 2.9 3.6 2.5 - Turkey 3.9 4.0 4.1 4.0 4.2 3.9 4.2 4.2 4.1 3.9 4.0 4.1 4.0 4.0 EU and other Western Europe 3.7 3.2 3.4 2.7 2.9 3.2 2.7 2.6 2.3 2.5 2.7 2.5 2.5 2.7 - Austria 3.3 2.9 3.0 3.0 2.8 2.8 2.8 2.5 2.4 2.6 2.4 2.7 2.4 2.6 - Czech Republic 3.7 3.4 3.4 3.8 3.5 2.9 2.6 3.2 2.8 2.8 2.6 3.4 2.5 2.2 - Denmark 2.5 2.1 2.7 1.8 1.7 2.5 1.6 2.0 1.8 2.0 2.0 1.9 2.3 2.4 - Finland 3.0 2.6 2.8 1.8 2.1 2.9 2.1 2.1 2.0 1.8 2.3 1.7 2.3 2.4 - France 3.8 3.2 3.6 2.8 2.9 3.3 2.3 2.1 2.0 2.3 2.2 2.2 2.3 2.7 - Germany 3.7 3.1 3.5 2.3 2.5 3.1 2.4 2.6 2.2 2.5 2.8 2.0 2.8 2.6 - Greece 3.9 3.4 3.4 3.4 3.6 3.8 3.7 3.5 2.8 2.6 3.1 2.4 2.7 3.1 -Iceland 3.4 2.7 3.3 2.3 2.5 3.0 1.9 2.3 2.0 . 2.5 1.9 2.3 2.3 - Italy 4.0 3.3 3.5 2.4 3.2 3.3 3.4 3.2 2.3 2.4 2.7 3.2 2.3 2.4 - Luxembourg 3.0 2.6 3.0 2.4 2.5 2.9 2.3 2.0 2.2 2.2 2.1 2.0 2.3 2.7 - Netherlands 3.1 2.9 3.3 2.9 2.7 3.1 2.4 2.4 2.3 2.6 2.9 2.5 2.9 2.7 - Norway 3.0 2.6 3.5 2.3 2.3 3.2 2.0 2.6 2.2 3.1 2.7 1.9 3.0 3.3 - Poland 4.0 3.9 3.9 3.7 3.8 3.3 3.1 3.9 3.1 3.1 2.7 3.2 3.3 3.0 - Portugal 3.9 3.3 3.8 3.3 3.4 3.1 3.6 3.0 2.8 2.7 2.8 2.7 2.9 2.8 - Spain 3.9 3.3 3.7 2.9 3.1 3.4 3.1 2.3 2.3 2.7 2.9 3.4 2.4 3.0 - Sweden 2.8 2.4 2.8 2.2 2.2 2.8 1.8 2.1 1.8 2.1 2.4 1.9 2.1 2.5 22 Transparency International Global Corruption Barometer 2006 – Report

To what extent do you perceive the following sectors in this country/territory to be affected by sector sector Police Media NGOs NGOs Utilities Utilities services services

corruption? Judiciary Legislature Legislature Parliament/ Parliament/ The military The Tax revenue revenue Tax

(1: not at all corrupt, … 5: extremely system/ Legal Political parties parties Political Religious bodies Medical services services Medical Business/ private private Business/ Education system system Education

corrupt) and permit Registry - Switzerland 3.0 2.6 2.9 2.2 2.3 2.9 2.5 2.2 1.9 2.4 2.2 2.0 2.4 2.5 - United Kingdom 3.7 3.4 3.1 3.0 3.2 3.4 2.8 2.4 2.4 2.5 2.7 2.3 2.6 2.8 Latin America 4.2 4.1 3.5 4.2 4.1 3.3 3.5 3.1 3.0 3.5 3.3 3.5 3.1 2.8 - Argentina 4.4 4.3 3.7 4.2 4.2 3.4 3.2 2.8 2.7 3.4 3.1 3.3 2.9 3.1 - Bolivia 4.4 4.0 3.3 4.4 4.3 3.0 3.4 3.3 3.0 3.6 3.0 3.2 2.9 2.1 - Chile 3.9 3.8 3.6 3.4 3.8 3.2 2.8 2.7 2.8 3.3 2.9 2.8 2.6 2.7 - Colombia 3.7 3.7 3.3 3.5 3.4 2.9 3.5 3.1 2.8 3.2 3.3 2.9 2.9 2.6 - Dominican Republic 4.3 4.1 3.1 4.4 4.1 3.1 3.4 3.0 2.7 3.6 3.3 3.3 3.0 2.2 - Mexico 4.4 4.3 3.7 4.5 4.2 3.5 3.8 3.0 3.2 3.2 3.5 3.9 3.2 3.2 - Panama 4.3 4.3 3.4 4.2 4.1 2.9 3.1 2.8 3.3 4.1 3.0 3.5 3.1 2.1 - Paraguay 4.6 4.6 3.1 4.6 4.4 2.9 3.9 3.4 3.2 4.1 3.6 4.2 3.0 2.2 - Peru 4.2 4.3 3.4 4.2 4.5 3.5 3.4 3.4 3.4 3.9 3.3 3.7 3.1 2.4 - Venezuela 4.0 3.7 3.8 4.2 3.9 3.5 3.5 3.4 3.0 3.7 3.1 3.8 3.7 2.8 North America 4.2 3.8 3.6 3.1 3.5 3.6 3.4 3.0 2.9 2.9 3.1 2.5 3.1 3.0 - Canada 3.6 3.2 2.9 2.5 3.0 3.0 2.7 2.3 2.3 2.5 2.7 2.2 2.5 2.7 - USA 4.3 3.9 3.6 3.2 3.6 3.6 3.5 3.1 3.0 2.9 3.1 2.5 3.2 3.0 Newly Independent States 3.9 4.0 3.9 4.1 3.9 3.4 3.6 3.7 3.8 3.4 2.9 3.6 3.1 2.4 - Moldova 3.7 3.7 3.7 4.1 3.9 3.2 2.7 3.8 3.6 3.0 2.3 3.1 2.7 2.2 - Russia 3.8 3.9 3.9 4.0 3.9 3.5 3.5 3.7 3.7 3.5 2.9 3.6 3.1 2.4 - Ukraine 4.2 4.2 4.0 4.2 4.2 3.1 3.9 3.9 3.8 3.1 2.8 3.4 3.0 2.2 Other - Israel 4.2 3.8 3.2 3.3 2.8 3.1 3.0 2.9 2.6 2.2 3.1 3.0 3.2 3.6

23 Transparency International Global Corruption Barometer 2006 – Report Table 7 Corruption’s impact on political life, the business environment, and personal and family life – all countries Some people believe that corruption affects different spheres of life in this The business Your personal and country. In your view does corruption Political life environment family life affect: (1: Not at all … 4: To a large extent) Total sample 3.4 3.1 2.3 Africa 3.4 3.3 3.1 - Cameroon 3.7 3.5 2.6 - Congo, Republic of the 3.1 2.8 2.1 - Gabon 3.1 2.9 2.1 - Kenya 3.3 3.3 3.2 - Morocco 3.1 2.9 2.6 - Nigeria 3.5 3.3 3.3 - Senegal 3.5 3.0 1.5 - South Africa 3.5 3.3 2.6 Asia - Pacific 3.3 3.1 2.5 - Fiji 3.1 3.0 2.5 - Hong Kong 3.4 3.2 2.8 - India 2.9 2.6 2.3 - Indonesia 3.4 3.2 2.9 - Japan 3.1 2.7 1.9 - Malaysia 2.9 2.7 1.6 - Pakistan 3.1 2.9 2.4 - Philippines 3.4 3.4 3.4 - Singapore 2.9 3.0 2.2 - South Korea 3.7 3.6 3.0 - Taiwan 3.8 3.7 2.9 - Thailand 3.0 3.0 2.7 South East Europe 3.4 3.3 2.8 - Albania 3.6 3.3 2.8 - Bulgaria 3.6 3.3 2.2 - Croatia 3.5 3.5 2.3 - Kosovo 3.2 3.0 2.7 - Macedonia 3.4 3.1 2.6 - Romania 3.2 3.0 2.3 - Serbia 3.1 2.9 2.2 - Turkey 3.5 3.5 3.3 EU and other Western European 3.3 2.8 1.7 - Austria 2.7 1.8 1.3 - Czech Republic 3.2 2.9 1.6 - Denmark 2.4 2.4 1.5 - Finland 2.6 2.5 1.4 - France 3.3 2.3 1.3 - Germany 3.3 2.0 1.7 - Greece 3.6 3.5 2.5 - Iceland 3.3 3.4 2.3 - Italy 3.4 3.4 1.5 - Luxembourg 2.9 2.7 1.7 - Netherlands 2.6 2.8 1.6 - Norway 3.0 3.0 1.3 - Poland 3.4 3.3 2.4 - Portugal 3.6 3.6 2.2 - Spain 3.6 3.4 1.9 - Sweden 2.7 2.7 1.6 - Switzerland 2.7 2.9 1.4 - United Kingdom 3.3 3.0 1.9 Latin America 3.3 2.9 2.5 - Argentina 3.4 3.0 2.5 - Bolivia 3.7 2.8 3.1 - Chile 3.5 3.2 1.9 - Colombia 3.0 2.8 2.6 - Dominican Republic 3.0 2.9 2.8 - Mexico 3.4 2.8 2.7 - Panama 3.2 2.9 2.7 - Paraguay 3.6 3.1 2.5 - Peru 3.5 3.0 2.7 - Venezuela 2.8 2.7 2.3 North America 3.6 3.3 2.6 - Canada 3.2 3.0 2.1 - USA 3.6 3.4 2.6 24 Transparency International Global Corruption Barometer 2006 – Report Some people believe that corruption affects different spheres of life in this The business Your personal and country. In your view does corruption Political life environment family life affect: (1: Not at all … 4: To a large extent) Newly Independent States 3.4 3.0 1.9 - Moldova 3.1 2.9 2.4 - Russia 3.3 2.9 1.9 - Ukraine 3.5 3.2 1.9 Other - Israel 3.5 3.3 2.5

25 Transparency International Global Corruption Barometer 2006 – Report Annex II TI Global Corruption Barometer 2006 – Questionnaire

First we would like to ask you a few questions about corruption. In this survey we are using corruption to mean the abuse of entrusted power – by a public official or a businessperson for example – for private gain. This could include material gain or other benefits.

1. Some people believe that corruption affects different spheres of life in this country. In your view, does corruption affect… not at all, to a small extent, to a moderate extent or to a large extent? READ OUT AND ROTATE. SINGLE CODE FOR EACH

Spheres Not at To a To a To a large DK/NA all small moderate extent extent extent Your personal and family life 1 2 3 4 9 The business environment 1 2 3 4 9 Political life 1 2 3 4 9

2. How would you assess your current government’s actions in the fight against corruption? READ OUT AND ROTATE. SINGLE CODE

The government is very effective in the fight against corruption 1 The government is effective in the fight against corruption 2 The government is not effective in the fight against corruption 3 The government does not fight corruption at all 4 Not only does the government not fight against corruption but it encourages it 5 DK/NA 9

3. To what extent do you perceive the following categories in this country to be affected by corruption? Please answer on a scale from 1 to 5 (1 meaning not at all corrupt, 5 meaning extremely corrupt). Of course you can use in-between scores as well. READ OUT AND ROTATE. SINGLE ANSWER FOR EACH Not at all Extremely Sectors corrupt corrupt DK/NA Political parties 1 2 3 4 5 9 Parliament/Legislature 1 2 3 4 5 9 Business/ private sector 1 2 3 4 5 9 Media 1 2 3 4 5 9 The military 1 2 3 4 5 9 NGOs (non governmental 1 2 3 4 5 9 organizations) Religious bodies 1 2 3 4 5 9

4. And to what extent do you perceive the following categories in this country to be affected by corruption? Please answer on a scale from 1 to 5 (1 meaning not at all corrupt, 5 meaning extremely corrupt). Of course you can use in-between scores as well. READ OUT AND ROTATE. SINGLE ANSWER FOR EACH Not at all Extremely DK/NA Sectors corrupt corrupt 1 2 3 4 5 Education system 1 2 3 4 5 9 Legal system/Judiciary 1 2 3 4 5 9 Medical services 1 2 3 4 5 9 Police 1 2 3 4 5 9 Registry and permit services (civil registry 1 2 3 4 5 9 for birth, marriage, licenses, permits) Utilities (telephone, electricity, water, etc.) 1 2 3 4 5 9 Tax revenue 1 2 3 4 5 9

5. In the past 12 months, have you or anyone living in your household had a contact with the following institution/organisation? READ OUT AND ROTATE. SINGLE ANSWER FOR EACH

1.Yes 2.No 8.DK 9.NA

ASK FOR EACH INSTITUTION MENTIONED WITH CODE 1 (YES) IN Q5. IF NONE MENTIONED GO TO Q6

26 Transparency International Global Corruption Barometer 2006 – Report 5.1 In the past 12 months have you or anyone living in your household paid a bribe in any form to each of the following institution/organisation?

INTERVIEWER: Living in household = people included in your house e.g. parents, children, etc 1.Yes 2.No 8.DK 9.NA

ASK FOR EACH INSTITUTION MENTIONED WITH CODE 1 (YES) IN Q 5.1 IF NONE MENTIONED, GO TO Q6.

5.2. How many times in the past 12 months have you or anyone living in your household paid a bribe in any form to each of the following institutions/ organisations? (give a number)

98 DK 99 NA

ASK FOR EACH INSTITUTION MENTIONED WITH CODE 1 (YES) IN Q 5.1

5.3. What was the cost of the last bribe paid?

INTERVIEWER: TO BE ASKED IN LOCAL CURRENCY BUT CODED BY YOU IN EUROS ACCORDING TO THE CURRENCY EXCHANGE SUBIMITTED BY YOUR COMPANY Q5 Q5.1 Q5.2 Q5.3 Had a contact Paid a bribe Number of times cost of last bribe Sectors

Education system 1 2 8 9 1 2 8 9 Legal system/Judiciary 1 2 8 9 1 2 8 9

Medical services 1 2 8 9 1 2 8 9 Police 1 2 89 12 8 9 Registry and permit services (civil registry for 1 2 8 9 1 2 8 9 birth, marriage, licenses, permits) Utilities (telephone, electricity, water, etc.) 1 2 8 9 1 2 8 9 Tax revenue 1 2 8 9 1 2 8 9

27 Transparency International Global Corruption Barometer 2006 – Report Annex III Country coverage and sample information

Sample Fieldwork Country Contact Company Mode Size E-mail Type Dates TNS Index August 7 – Albania Maria Dede [email protected] Face-to-face Urban 800 Albania GIA August 15 Ricardo Hermelo [email protected] TNS Gallup August 18– Argentina Face-to-face National 1010 Constanza Cilley [email protected] Argentina August 22 Karmasin Marktforschung July 27 – Austria Ingrid Lusk [email protected] Face-to-face National 969 Gallup August 20 Österreich Luis Alberto Encuestas & August 1 – Bolivia [email protected] Face-to-face Urban 1319 Quiroga Estudios August 17 TNS BBSS July 25 – Anton Valkovski [email protected] Gallup Face-to-face National 1001 Bulgaria August 8 International RMS August 11 – Cameroon Simplice Ngampou [email protected] Face-to-face Douala & Yaoundé 528 Cameroon August 15 Anne-Marie July 12 – July Canada [email protected] Leger Marketing Telephone National 1000 Marois 16 Sigma Dos Chile July 27 – Chile* Claudio Contardo [email protected] Face-to-face Urban 500 S.A. August 21 Carlos Lemoine [email protected] Centro Nacional August 18 Colombia Telephone Urban 600 Cristina Querubin [email protected] de Consultoría August 25 Brazzaville and July 13- July Congo* Simplice Ngampou [email protected] RMS Cameroon Face-to-face 517 Pointe Noire 18 Sdragan Dumicic [email protected] August 1– Croatia PULS d.o.o. Face-to-face National 1000 Mirna Cvitan [email protected] August 22 July 29 - Czech Republic Jan Trojacek [email protected] Mareco s.r.o. Face-to-face National 1000 August 9 Carina Hogsted [email protected] July 19 – Denmark TNS Gallup Telephone National 500 Helle Damkjær [email protected] August 11 Dominican* Santo Domingo and August 12 - Amalia Peña [email protected] SIGMA DOS Face-to-face 537 Republic Santiago August 20 August 15 Fiji** Tim Wilson [email protected] Tebutt Research Face-to-face Urban 1024 August 22 Sakari Nurmela [email protected] August 18 Finland TNS Gallup Online panel National 1244 Mirva Väyrynen [email protected] August 23 July 26- July France Marc-André Allard [email protected] TNS Sofres Face-to-face National 1012 27 Libreville and Port- July 20- July Gabon* Simplice Ngampou [email protected] RMS Cameroon Face-to-face 515 Gentil 25 Klaus-Peter [email protected] August 8 – Germany Schoeppner TNS Emnid Telephone National 505 [email protected] August 11 Johannes Huxoll July 14 – July Greece Ero Papadopoulou [email protected] TNS ICAP Telephone Urban 1000 26 August 4 – Hong Kong Ellen Tops [email protected] TNS Online National 1001 August 16 Asdis G. August 8– Iceland [email protected] IMG Gallup Net panel National 1018 Ragnarsdottir August 25 July 14 – July India Sharmistha Das [email protected] TNS India Face-to-face National 1058 22 Widya Ria TNS July 24 – Indonesia [email protected] Face-to-face Urban 1000 Kencana Indonesia August 10 Urban (National representative in Jewish and mixed Dori Shadmon [email protected] towns – July 18 – July Israel TNS/Teleseker Telephone 500 Tamar Fuchs [email protected] representative of 19 approximately 90% of total adult population) [email protected] July 26 – July Italy Paolo Colombo Doxa Telephone National 988 31 Self Nippon Research July 27 – Japan Kiyoshi Nishimura [email protected] administered National 1203 Center, Ltd. August 7 questionnaires George Waititu [email protected] Steadman Group July 8 – July Kenya Face-to-face National 2001 Paul Omondi [email protected] International 13 Kosovo* (UN [email protected] BBSS-Index Albanian plus August 11– Assen Blagoev Face-to-face 979 Administration) Kosovo population August 17 Telephone July 20 – July Luxembourg Marc Thiltgen [email protected] TNS ILRES and Online National 528 31 Access Panel Macedonia Elida Medarovska [email protected] BRIMA Face-to-face National 1001 July 14 – July 28 Transparency International Global Corruption Barometer 2006 – Report Sample Fieldwork Country Contact Company Mode Size E-mail Type Dates 20 Mei Yeng Chia [email protected] Peninsula Malaysia July 24 – Malaysia TNS Face-to-face 1250 Bee Yoke Yang [email protected] Urban August 22 August 2 – Mexico Luis Herrera [email protected] TNS Gallup Face-to-face National 700 August 15 August 19 – Moldova* Jigau Ion [email protected] [email protected] CBS Axa Face-to-face National 993 August 26 Ilham Abouchraa [email protected] Leger Marketing August 5 – Morocco* Face-to-face Main cities 516 Rochdi Bakor [email protected] Morocco August 6 August 23 – Netherlands Hanneke Sjerps [email protected] TNS Nipo CASI National 1000 August 28 July 25 – July Nigeria Maslina Mokhtar [email protected] RMS Face-to-face Urban 500 31 Ole Fredrik Ugland [email protected] TNS Gallup Web August 15- Norway National 1008 Roar Hind [email protected] Norway Interviews August 24 Gallup August 21– Pakistan Fatima Idrees [email protected] Face-to-face Urban 796 Pakistan September 4 PSM SIGMA July 21 – Panama* Max Del Cid [email protected] Telephone Urban 498 DOS PANAMA August 15 July 30 – Paraguay* Marlene Heinrich [email protected] CAM Sigma Dos Face-to-face Urban 500 August 18 DATUM July 15 – July Peru Gustavo Yrala [email protected] Internacional Face-to-face National 1123 18 S.A. Asia Research July 10 – Philippines Raymund Pascua [email protected] Face-to-face National 1000 Organization Inc. August 13 Grzegorz July 27 – July Poland [email protected] Mareco Poland Face-to-face Urban 1021 Dabrowzky 31 July 28 - Portugal Hugo Baptista [email protected] TNS Euroteste Telephone National 1000 August 18 Andrei Musetescu [email protected] August 2 – Romania Georgina CSOP Face-to-face National 1081 Georgina.radulescu @csop.ro August 7 Radulescu Victor Romir July 19 – July Russia [email protected] Face-to-face National 1502 Pratusevich Monitoring 26 July 27- July Senegal* Placide Yaptie [email protected] RMS-Senegal Face-to-face Dakar region 511 29 TNS Medium July 14- July Serbia Sladjana Brakus [email protected] Face-to-face National 1000 Gallup 19 TNS Singapore July 13 – Singapore Jasmine Yang [email protected] Telephone National 1002 Pte.Ltd. August 23 August 15– South Africa Mari Harris [email protected] Markinor Telephone National 1001 August 19 July 18- South Korea Hwanhee Lee [email protected] Gallup Korea Face-to-face National 1504 August 11 August 2 – Spain Gines Garrido [email protected] Sigma Dos Telephone National 1000 August 10 Mai Månsson- [email protected] August14– Sweden Hjelm TNS Gallup AB Telephone Urban 1000 [email protected] August 30 Matz Johansson Matthias Kappeler [email protected] July 19 – Switzerland ISOPUBLIC AG Telephone National 1000 Andrea Büchi [email protected] August 15 Opinion July 13 – Taiwan Eric Liu [email protected] Telephone National 1000 Research Taiwan August 2 July 19 – Thailand Kulchat Wuttigate [email protected] TNS Thailand Telephone Urban 1000 August 4 July 13 – Turkey Bengi Ozboyaci [email protected] TNS Piar Face-to-face National 2045 August 15 July 28 – July UK TNS Telephone National 1025 Emma Dolby [email protected] 30 August 2 – Ukraine Alla Vlasyuk [email protected] TNS Ukraine Face-to-face National 1200 August 9 Thomas Daniels [email protected] Online August 7 – USA TNS NA National 1022 Joe Vogt Joe.vogt @tns-global.com Interactive August 15 Sigma Dos August 9 – Venezuela Romel Romero [email protected] Face-to-face Urban 1000 Venezuela August 16 *These are not Members of Gallup International Association but reliable companies that we have worked with in these countries. **Transparency International contact.

29 Transparency International Global Corruption Barometer 2006 – Report Annex IV Methodological note

The TI Global Corruption Barometer 2006 is a worldwide public opinion survey conducted for TI by Gallup International with 59,661 respondents. The Barometer 2006 consists of a set of five questions included in the Voice of the People survey 2006. The TI Global Corruption Barometer has been conducted annually since 2002.

Coverage Overall, the Voice of the People survey was conducted in 63 countries. However, in Italy, question 5 was omitted from the survey.

Timing of fieldwork The fieldwork for the survey was conducted between June and September 2006.

Demographic variables The demographic variables, Age, Education, Household income, Education, Employment, and Religion were recoded from their original form in the survey by Gallup International.

Sampling The sample type is mostly national, but in some countries it is urban only. It should be underlined that in global terms the findings are quite heavily based on urban populations. In most of the countries the sampling method is based on quota sampling, using sex/age/socioeconomic condition/regional/urban balances as variables. In some countries random sampling has been done. The interviews were conducted either face to face, using self-administered questionnaires, by telephone or internet (mostly in developed countries) with male and female respondents, aged 15+ .

Weighting Sample imbalances in the data within a country (e.g. slight corrections to the proportions of age groups, sex, etc.) have been weighted first in order to provide a representative sample of the national population (or a representative sample of the stated universe, if this is not a total population sample). Subsequently, each country has been weighted to its relevant population (universe). For example, countries where only the urban population was interviewed were weighted up to a total urban population.

Data coding, quality check and analysis The data coding and quality check, as well as preliminary analysis, was done by Gallup International. The full report of the TI Global Corruption Barometer 2006 was completed by the Robin Hodess and Tom Lavers of the Policy and Research Department at the International Secretariat of TI. Professor Richard Rose of Aberdeen University, a member of TI’s Index Advisory Committee, also contributed advice on the Barometer data.

A standard margin of error for the survey is +/- 4.

30 LEGISLATIVE MEASURES TO DEAL WITH ECONOMIC CRIMES IN INDIA

Animesh Bharti*

I. INTRODUCTION Economic Offences form a separate category of criminal offences. Economic Offences not only victimize individuals with pecuniary loss but can also have serious repercussions on the national economy. Economic offences, such as counterfeiting of currency, financial scams, fraud, money laundering, etc. are crimes which evoke serious concern and impact on the Nation’s security and governance. This paper seeks to present a perspective on the trend of economic crimes and legislative measures to deal with such crimes in India. The paper is divided into four sections. The first section gives an overview of economic crimes and relevant legislation and the enforcing agency in India. The second section deals with economic crimes covered under the Indian Penal Code. The third section explains the law on money laundering and the fourth section focuses upon cyber crimes, which is expanding rapidly with the growing use of the Internet.

II. ECONOMIC CRIMES: AN OVERVIEW A table listing various economic offences, the relevant legislation and the enforcing authorities in India is given below: Sl.Sl. NNo.o. EconomicEconomic CCrimesrimes AActscts ooff LLegislationegislation EEnforcementnforcement AuthoritiesAuthorities 1. Tax Evasion Income Tax Act Central Board of Direct Taxes 2. Illicit Trafficking in Contraband Customs Act 1962 Collectors of Customs Goods (Smuggling) COFEPOSA, 1974 3. Evasion of Excise Duty Central Excise and Salt Act, 1944 Collectors of Central Excise 4. Cultural Object’s Theft Antiquity and Art Treasures Act, Police/CBI1 1972 5. Money Laundering Foreign Exchange Regulations Act, Directorate of Enforcement 1973 6. Foreign Contribution Foreign Contribution (Regulation) Police/CBI Manipulations Act, 1976 7. Land Hijacking/Real Estate Fraud IPC Police/CBI 8. Trade in Human Body parts Transplantation of Human Organs Police/CBI 9. Illicit Drug Trafficking Narcotics Drugs and Psychotropic NCB2/Police/CBI Substances Act 1985 & NDPS Act, 1988 10. Fraudulent Bankruptcy Banking Regulation Act, 1949 CBI 11. Corruption and Bribery of Public Prevention of Corruption Act, 1988 State/Anti Corruption Servants Bureaux/Vigilance Bureaux/CBI 12. Bank Fraud IPC Police/CBI 13. Insurance Fraud IPC Police/CBI 14. Racketeering in Employment IPC Police/CBI 15. Illegal Foreign Trade Import & Export (Control) Act, Directorate General of Foreign 1947 Trade/CBI 16. Racketeering in False Travel Passport Act, 1920/IPC Police/CBI Documents

* Deputy Secretary (Crime Monitoring), Ministry of Home Affairs, Government of India. 1 Central Bureau of Investigation. 2 Narcotics Control Bureau.

209 RESOURCE MATERIAL SERIES No.67

17. Credit Card Fraud IPC Police/CBI 18. Terrorists Activities POTA-2002 Police/CBI 19. Illicit Trafficking in Arms Arms Act, 1959 Police/CBI 20. Illicit Trafficking in Explosives Explosives Act, 1884 & Explosive Police/CBI Substance Act, 1908 21. Theft of Intellectual Property Copyright Act, 1957 Police/CBI (Amendments 1984 & 1994) 22. Computer Crime/Software Piracy/ Copyright Act, 1957/I.T. Act 2000 Police/CBI Cyber Law 23. Stock Market Manipulations IPC Police/CBI 24. Company Fraud (Contraband) Companies Act, 1956/IPC MRTP Police/CBI Act, 1968

III. ECONOMIC CRIMES UNDER THE INDIAN PENAL CODE (IPC) The Indian Penal Code contains provisions to check economic crimes such as Bank Fraud, Insurance fraud, Credit card fraud, stock market manipulation, etc. The local police deal with the IPC crimes falling under the broad categories of ‘Cheating’ (Section 415-424), ‘Counterfeiting’ (Coins & Stamps Section 230- 263A and Currency Section 489A-489E) and ‘Criminal Breach of Trust’ (Section 405-409).

A. Serious/Major Fraud Statistics on the serious/major frauds reported and registered under the Criminal Breach of Trust (CBT) cases and cheating cases for the years 2000-2002 is given in the table below.

Major Frauds Reported During 2000-2002 Sl.Sl. ValueValue ooff PPropertyroperty 22000000 20012001 20022002 No.No. lost/defraudedlost/defrauded CBTCBT CheatingCheating CBTCBT CheatingCheating CBTCBT CheatingCheating (in(in RRs.s. CCrore)rore) 1. 1-10 430 1192 246 2246 117 550 2. 20-25 2 6 1 3 4 10 3. 25-50 0 0 0 3 2 2 4. 50-100 0 1 0 1 2 1 5. Above 100 1 0 1 0 3 2 TotalTotal 443333 11199199 224848 22253253 112828 565565

The number of serious fraud cases registered under the Criminal Breach of Trust and Cheating cases was lower in 2002 as compared to 2001.

IV. MONEY LAUNDERING Money laundering is the process of cleaning dirty money with the objective of hiding its source and enabling it to be used later in a legal form. This process creates a web to hide the origin/true nature of these funds. Prior to the enactment of the Prevention of Money Laundering Act, 2002 this crime was covered under the violation of foreign exchange rules under the Foreign Exchange Regulation Act (FERA) and later under the Foreign Exchange Management Act (FEMA). Statistics on cases under FERA for the year 1998-2002 are given below.

210 128TH INTERNATIONAL TRAINING COURSE PARTICIPANTS’ PAPERS

Money Laundering (1998-2002) (Cases under FERA) Sl.Sl. YYearear No.No. ooff CurrencyCurrency SSeizedeized CurrencyCurrency cconfiscatedonfiscated FinesFines No.No. (In(In IIndianndian RRs.s. iinn ccrore)rore) (In(In IIndianndian RRs.s. iinn ccrore)rore) (in(in IIndianndian RRs.s. iinn CCrore)rore) Searches/ Seizures/ Indian Foreign Indian Foreign Imposed Realised Raids Recoveries 1. 1998 544 361 7.1 2.3 4.6 1.8 170.2 1.8 2. 1999 387 299 4.9 0.8 4.2 5.8 194.3 46.7 3. 2000 330 262 3.6 2.2 5.7 4.8 318.4 3.0 4. 2001 295 207 1.2 2.7 2.7 4.2 491.1 3.5 5. 2002 417 303 0.8 1.2 1.0 4.0 354.4 3.4

In 2002, 417 searches/raids were conducted in money laundering cases as against 295 in 2001. Though there has been a declining trend in the number of seizures/recoveries during 1998 to 2001, an increase was observed in 2002.

In 2002, the recoveries, seizures made under FERA violations, yielded Rs. 0.8 crore of Indian currency and Rs.1.2 crore Indian equivalent of foreign currency. The value of confiscated currencies i.e. both Indian and foreign had decreased over the previous year.

A. Prevention of Money Laundering Act, 2002 The Prevention of Money Laundering Act (PML), 2002 was passed by the Parliament of India in December 2003. This Act is applicable to all States/Union Territories of India including Jammu & Kashmir and overrides the provisions of any other statue in force. The Legislation is effective from the date the Rules under the PML Act are prescribed.

The PML Act seeks to combat money laundering in India and has three main objectives:

•To prevent, combat and control money laundering

•To confiscate and seize the property obtained from the laundered money; and

•To deal with any other issue connected with money laundering in India.

In brief, the important provisions of the PML Act are as follows: • Any person, who directly/indirectly indulges in any activity/process connected with the proceeds of crime and projects it as untainted property, shall be guilty of money laundering.

• The term ‘ proceeds of crime’ means any property that has been derived, directly/indirectly by a person from a criminal activity relating to a scheduled offence in the Act.

• There is a Schedule annexed to the Act which carries a list of the offences, the proceeds derived from the commission of which can be treated as the proceeds of crime. This list is exhaustive in nature and any property derived from an offence other than these activities cannot be brought under this Statute. The Schedule includes offences under: - The Indian Penal Code - The Narcotic Drugs and Psychotropic Substances Act, 1985 - The Arms Act, 1959 - The Wild Life (Protection) Act, 1972 - The Immoral Traffic (Prevention) Act, 1956 - The Prevention of Corruption Act, 1988

• The term ‘proceeds of crime’ is intrinsically linked with the term ‘property’ since any conversion of the original proceeds that is in monetary form will result in the creation of an asset. Any person who indulges in a criminal activity listed in Para 2.3.3 above shall be liable under the Act and the asset

211 RESOURCE MATERIAL SERIES No.67

derived from this activity shall be treated as the proceeds of crime. All assets of any nature and any description will fall within the ambit of the terms ‘property’.

• The minimum penalty for committing an offence under the Act is rigorous imprisonment for three years along with a fine that may extend to Rs.5 lakh. The maximum imprisonment is 7 years for general offences. However, if the person is convicted of a specific offence under the NDPS Act, he may be imprisoned for a period of 10 years.

•Filling of a criminal complaint is a pre-requisite to the initiation of civil proceedings. Thereafter, the special court will take the complaint into cognizance. If the person is acquitted by the special court, all civil proceeding shall stand vacated.

•Further, the activity of laundering money is a separate crime from the activity from which the money was sourced. For, instance, drug peddling would be a separate crime from the crime of laundering its proceeds.

• The Act provides for provisional attachment/seizure of any property if the adjudicating authority has reason to believe that the said property is involved in money laundering. The property is confiscated when the attachment gets confirmed after conviction of the accused and such property vests in the Central Government.

• The Act prescribes various mandatory procedures to be followed by the banking institutions for maintaining records of all transactions and informing of such transactions within a prescribed time limit. Obligation has also been cast on these institutions to verify and maintain the record of the identity of its clients. These records must be maintained for a period of 10 years.

• When any authority has any reason to believe that any person is in possession of or has acquired any property from a criminal activity under the Act, he has the power to make enquiries/conduct surveys/searches.

• The authorities designated under this Act are authorized to arrest a person if they have reasons to believe that he has committed an act, which constitutes the offence of money laundering under this Act.

• Any person who is aggrieved by the order of the adjudicating authority has the right to appeal before the Appellate Tribunal.

• Special Courts shall be set up by the Central Government to conduct the trial of the offences of money laundering. The authorities under the Act like the Director, Adjudicating Authority and the Appellate Tribunal have been constituted to carry out the proceedings related to attachment and confiscation of any property derived from money laundering.

• In order to enlarge the scope of this Act and to achieve the desired objectives, the Act provides for bilateral agreements between countries to cooperate with each other and curb the menace of money laundering. These agreements are for the purpose of either enforcing the provisions of this Act or the exchange of information that will help in the prevention of the commission of an offence under this Act or the corresponding laws in that foreign state.

• In certain cases the Central Government may seek/provide assistance from/to a contracting State for any investigation or forwarding of evidence collected during the course of such investigation.

• The Act provides for reciprocal arrangements for processes/assistance with regard to accused persons.

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B. Steps Taken by the Government to Curb Money Laundering • Several steps have been taken by the Government of India to tackle the problem of money laundering effectively. The Reserve Bank of India, which is the Central Bank for the country, has issued directions to be strictly followed by the Banks regarding the standard practices under the ‘Know Your Customer’ (KYC) guidelines. The banks are required to obtain all information necessary to establish the identity/legal existence of each new customer. These guidelines are to be scrupulously followed by the overseas branches of Indian banks also.

• The PMLA makes it mandatory for every banking company, financial institution and intermediary to maintain records of transactions for a period of ten years. In case of any violation of this legal obligation, these institutions have to face penal consequences.

• The PMLA also provides for reciprocal arrangements between India and other countries for enforcing the provisions of this Act and for exchange of information for prevention of any offence under this Act or under the corresponding law in force in that country for investigation of cases relating to any offence under this Act.

V. MEASURES TO COMBAT COMPUTER RELATED CRIMES Information Technology has reduced the world into a small village with no respect for geographical boundaries. The advent of information technology has not only introduced new forms of crimes but new variants of already existing criminal action as well. During the last decade, India has faced a new challenge tackling a new and sophisticated form of crime in the form of cyber crime.

The most common forms of computer crimes reported are: • Intrusions/Hacking in computer networks for the purpose of defacing a web site, theft of password to gain an unauthorized access, theft of personal information like credit card numbers, etc. • Espionage •Frauds/cheating

Cases registered in this category of crimes in the year 2002 are given below:

Cyber Crimes/Cases Registered and Persons Arrested Under IT Act, 2000 Sl.Sl. NNoo DescriptionDescription CasesCases RRegisteredegistered PersonsPersons AArrestedrrested 1. Tampering with Source Documents 6 2 2. Hacking of Computer Systems i) Loss/Damage to Computer Resource/Utility 15 9 ii) Hacking 11 12 3. Obscene Publication/Transmission in Electronic Form 33 38 4. Digital Signature Fraud 1 - 5. Breach of Confidentiality/Privacy 3 - 6. Others 1 4 TTotalotal 7700 6655

Of the 70 cases registered under the IT Act 2000, around 47 percent of cases pertain to obscene publication/transmission in electronic form, normally known as cases of cyber pornography. Thirty-eight persons were taken into custody for such offences during 2002. There were 26 cases of Hacking of computer systems wherein 21 persons were arrested in 2002. Of the total (26) Hacking cases, the cases relating to Loss/Damage to computer resource/utility under Sec 66(1) of the IT Act were to the tune of 58 percent and that related to Hacking under Section 66(2) of the IT Act were 42 percent (11 cases).

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Cyber Crimes/Cases Registered and Persons Arrested Under IPC During 2002 Sl.Sl. NNoo DDescriptionescription CasesCases RegisteredRegistered PersonsPersons AArrestedrrested 1. Fake Electronic Evidence 2 6 2. Destruction of Electronic Evidence 0 1 3. Forgery 167 357 4. Criminal Breach of Trust/Fraud 510 785 5. Counterfeiting i) Property Mark 0 0 ii) Tampering 10 37 iii) Currency/Stamps 49 124 TotalTotal 773838 11310310

Of the 738 cases registered for Cyber Crimes under IPC, the majority of the crimes fall under 3 categories viz. Criminal Breach of Trust or Fraud (510), Forgery (167) and Counterfeiting (59). Though these offences fall under the traditional IPC crimes, the cases had cyber undertones wherein computers, the Internet or its related aspects were present in the crime and hence they were categorized as Cyber Crimes under IPC. Interestingly, the number of cases under Cyber Crimes relating to Counterfeiting of currency/stamps stood at 49 wherein 124 persons were arrested during 2002. Of the 46,271 cases reported under cheating, Cyber Forgery (167) accounted for 0.4 percent. Of the total Criminal Breach of Trust cases (14,027), the Cyber Frauds (510) accounted for 3.6 percent while under the Counterfeiting offences (1522), Cyber Counterfeiting (59 out of 1522) offences accounted for 3.9 percent.

In order to tackle the acrimonious relationship between the law and crime caused by information technology, the Government of India has adopted some of the provisions of the Model Law on Electronic Commerce by the United Nations Commission on International Trade Law (UNCITRAL) and enacted the Information Technology Act, 2000. This Act has been enacted for according legal recognition to the authentication of information exchanged in respect of commercial transactions conducted by means of Electronic Communications Technology. The main focus of this Act is on the following areas:

I. Legal recognition of: (a) Digital signatures, which include -Acceptance in lieu of hand written signatures -Authentication - Security (b) Electronic Records, which includes -Retention -Attribution, Acknowledgment and Dispatch - Security •Creation of an infrastructure for issuance and regulation of digital signature certificates. •Creation of a cyber regulations appellate tribunal. • Amendments in existing laws to give recognition to electronic documents. • Offences and penalties for cyber crimes. • This Act defines two kinds of liabilities, civil and criminal, for various cyber crimes. The Civil liabilities are in the form of penalties for example:

Section 43 & 44 of this Act prescribes the penalty for the following offences: • Unauthorised copying of an extract from any data/database. • Unauthorised access and downloading of files. • Introduction of viruses/malicious programmes. • Damage to a computer system and computer network. • Denial of access to an authorised person to a computer system. •Providing assistance to any person to facilitate unauthorised access to a computer. • Charging the service availed by a person to an account of another person by tampering and manipulation of a computer/computer system.

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The criminal liabilities are dealt with in a separate chapter under ‘offences’. Section 65 to 75 of this Act provide for different forms of imprisonment according to the offence, so far as criminal liabilities are concerned. They cover:

•Tempering with computer source documents. • Hacking of computer systems. • Electronic forgery i.e. preparing of false electronic records, affixing of false digital signatures, etc. • Electronic forgery for the purpose of cheating. • Electronic forgery for the purpose of harming reputation. • Using as genuine a forged electronic record. • Publication of digital signature certificate for a fraudulent purpose. • Unauthorised access to protected systems. • Publication of information in an electronic form, which is obscene in nature.

With the amendment of the definition of document by providing authenticity to electronic documents in the existing Indian Penal Code, Indian Evidence Act, Bankers Book of Evidence, etc. the Act has also facilitated use of the existing criminal laws for tackling the conventional crimes committed using computer technology like forgery of documents, cheating, impersonation, stalking, theft, etc.

Actions Proposed at the International Level are as Follows (1) Uniform international model laws may be developed for defining the various facets of crimes committed in a computerized environment. (2) The international law for cooperation between different countries may be standardized in order to enhance the possibilities of tackling trans-national crimes with provisions for a faster mode of cooperation of the existing procedure related to letters of request. (3) The interaction between the law enforcement agencies of different countries at formal and informal levels should be increased in order to increase the flow of information related to the crimes committed and technology developed for anticipating, tackling and enforcement of the law.

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The Set up For Detection & Prevention of Economic Crimes in India under the Ministry of Finance

Crime is much wider than corruption. Crime prevention agencies have to look after prevention of Criminal offences (both physical and white-collar crimes) and Economic offences. The Government of India is determined to fight all economic crimes. For this purpose, the Government of India has setup the following Investigating Agencies which function under the Department of Revenue in Union Ministry of Finance:-

Agencies To Fight Economic Offences (http://www.nic.in/ceib/)

1. The Central Economic Intelligence Bureau (Apex Intelligence & Co- ordination body) 2. Directorate General of Revenue Intelligence (for Customs related offences) 3. Directorate of Enforcement (for Foreign Exchange related offences) 4. Directorate General of Anti-Evasion (for Central Excise related offences) 5. Directorate General of Income Tax (Investigation) [for Income Tax related offences) 6. Narcotics Control Bureau (for Drugs related offences)

In pursuance of its commitment to fight economic crime, the Government of India has been implementing an attractive Reward Scheme for persons (irrespective of their nationality) providing useful information to the Government of India. Interested persons may access Internet site http://www.nic.in/ceib/ and send useful information to the Government of India by providing an Information Submission Form on this site. Information on the reward scheme and a copy of the reward form maybe obtained from the site.

1. Central Economic Intelligence Bureau

It is well recognised that the evasion of one tax usually entails evasion of other taxes as well. For the purpose of effective information gathering, collation and dissemination, a close co-ordination between the Agencies enforcing different tax laws is essential. Hence, the Central Economic Intelligence Bureau was set up with the intention of creating a body, which would coordinate and strengthen the intelligence gathering activities as well as investigative efforts of all the Agencies, which enforce economic laws. Accordingly, the following functions have been entrusted to the Central Economic Intelligence Bureau:-

1. To collect intelligence and information regarding aspects of the black economy which require close watch and investigation. Also, keeping in view the scene of economic offences, the Bureau is required to collect information and provide periodical and special reports to the concerned authorities; 2. To keep a watch on different aspects of economic offences and the emergence of new types of such offences. The Bureau was made responsible for evolving counter -measures required for effectively dealing with existing and new types of economic offences; 3. To act as the nodal agency for cooperation and coordination at the international level with other customs, drugs, law enforcement and other agencies in the area of economic offences.... 4. To implementation of the COFEPOSA(i.e. Conservation of Foreign Exchange & Prevention of Smuggling Activities Act, 1971 which provides for preventive detention of persons involved in smuggling and foreign exchange rackets under certain specified circumstances 5. To act as a Secretariat of the Economic Intelligence Council which acts as the apex body to ensure full co-ordination among the various Agencies including Central Bureau of Investigation, Reserve Bank of India, Intelligence Bureau etc.

2. Directorate of Revenue Intelligence

a. Collection of intelligence about smuggling of contraband goods, narcotics, under- invoicing, over-invoicing etc. through sources of India and abroad, including secret sources; b. Analysis and dissemination of such intelligence to the field formations for action; c. Working out intelligence directly, where necessary; d. Keeping watch over important seizures and investigation cases; e. Associating or taking over the investigations which warrant specialised handling by the Directorate; f. Guiding important investigations/prosecution cases; g. Functioning as the liaison authority for exchange of information among ESCAP countries for combating international smuggling and customs frauds in terms of the recommendations of the ESCAP conference; h. Keeping liaison with foreign countries, Indian Missions and enforcement agencies abroad on anti-smuggling matters i. Keeping liaison with the CBI and through them with the INTERPOL; j. Coordinating, directing and controlling anti-smuggling operations on the Indo- Nepal border; k. Referring cases registered under the Customs Act to the Income Tax Department for action under the Income Tax Act; l. Keeping statistics of seizures and prices/rates etc. for watching trends of smuggling and supplying required material to the Ministry of Finance and other Ministries; and m. Studying and suggesting remedies for loopholes in law and procedures to combat smuggling.

3. Directorate Of Enforcement Foreign Exchange Management Act, 1999 [42 Of 1999]

The Parliament has enacted the Foreign Exchange Management Act, 1999 to replace the Foreign Exchange Regulation Act, 1973. This Act came into force on the 1st day of June, 2000. To investigate provisions of the Act, the Central Govt. have established the Directorate of Enforcement with Director and other officers as officers of the Enforcement.

The object of the Act is to consolidate and amend the law relating to foreign exchange with objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.

This Act extends to the whole of India and will also apply to all branches, offices and agencies outside India owned or controlled by a person resident in India. It will also be applicable to any contravention committed outside India by any person to whom this Act is applicable.

The Directorate of Enforcement is mainly concerned with the enforcement of the provisions of the Foreign Exchange Management Act to prevent leakage of foreign exchange which generally occurs through the following malpractice

1. Remittances of Indians abroad otherwise than through normal banking channels, i.e. through compensatory payments. 2. Acquisition of foreign currency illegally by person in India. 3. Non-repatriation of the proceeds of the exported goods. 4. Unauthorised maintenance of accounts in foreign countries. 5. Under-invoicing of exports and over-invoicing of imports and any other type of invoice manipulation. 6. siphoning off of foreign exchange against fictitious and bogus imports land by 7. Illegal acquisition of foreign exchange through Hawala. 8. Secreting of commission abroad.

Directorate has to detect cases of violation and also perform substantial adjudicatory functions to curb such malpractice.

4. Directorate General of Central Excise Intelligence

The growth of the Central Excise revenue and extension of its coverage to nearly all manufactured products brought home the need for a specialised intelligence agency to target prevention of Central Excise duty evasion. The Directorate of Anti Evasion was created for this purpose with the following functions:(the agency has since been re-named as Directrate General of Central Excise)

a. Collection, collation and dissemination of intelligence relating to evasion of central excise duties on an all India basis; b. Studying the modus operandi of evasion peculiar to excisable commodities and to alert the Collectorates of their possible use; c. Studying the price structures, marketing patterns and classification of commodities in respect of which possibilities of evasion are likely with a view to advising the Collectorates for plugging loopholes; d. Supplementing and co-ordinating the efforts of the field formations in investigation in cases of evasion of duty of Rs.10,000/- and above, wherever necessary; e. Co-ordinating action with Enforcement agencies like Income-tax, Sales-tax etc. In respect of cases in which central excise evasion has come to notice; f. Investigation of offences involving evasion of central excise duties having ramification in more than one Collectorate, including investigation of complicated cases selected by the Directorate or entrusted by the Ministry to it; g. Having at all times, a complete, detailed and up-to-date study of the taxation laws and implementation machinery and to have proper appreciation and assessment of possibilities for evasion; h. Assisting in an advisory capacity in proper deployment of the Central Excise Preventive Staff in the Central Excise Collectorates for effective anti-evasion measures; i. Examining and studying the effect and implementation of various tax concessions, exemptions and relaxation's in controls; and to make recommendations to the Government from time to time to see whether they are sources of evasion; j. Maintaining liaison with other Central and State agencies in all matters pertaining to tax evasion"

5. Directorate General(s) of Income Tax (Investigation)

The Directorate Generals of Income Tax Investigation deal with all matters connected with investigations under the Income Tax Act of the Central Government. Some of the more specific functions entrusted to the Directorate Generals of Income Tax Investigation include :

a. Head the investigation wing of the Income Tax Department at the Regional Level; b. Collection of intelligence pertaining to evasion of Direct Taxes; c. Organise search action to unearth black money- from time to time; d. Dissemination of information and intelligence collected- by passing on the same to the concerned authorities including assessing authorities; e. Keep liaison and hold meetings with other organisations in the region to ensure co-ordination and smooth flow of information; f. Take appropriate steps to ensure that information and other persons having information about tax evaders come forward with the same to the Department. Disbursement of rewards would be one of the measures.

6. Narcotics Control Bureau

Basic Objectives And Functions

National Policy on Narcotic Drugs and Psychotropic Substances is based on the directive principles contained in Article 47 of the Indian Constitution which directs that the State shall endeavour to bring about prohibition of the consumption, except for medicinal purposes, of intoxicating drugs injurious to health. The government's policy on the subject, which flows from the above said constitutional provision, is also guided by the international conventions on the subject. India is a signatory to :

• Single Convention on Narcotic Drugs 1961 as amended by the 1972 Protocol. • Conventions on Psychotropic Substances 1971. • United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, 1988.

The broad legislative policy in the matter is contained in the three Central Acts, viz. Drugs and Cosmetics Act, 1940, The Narcotic Drugs and Psychotropic Substances Act, 1985, and The Prevention of Illicit Traffic in Narcotic Drugs and Psychotropic Substances Act, 1988. The responsibility of drug abuse control, which is a central function, is carried out through a number of Ministries, Departments and Organisations. These include Ministry of Finance, Department of Revenue which is having the nodal co- ordination role as administrator of the Narcotic Drugs and Psychotropic Substances Act, 1985 and the Prevention of Illicit Traffic in Narcotic Drugs and Psychotropic Substances Act, 1988.

Source: http://www.geocities.com/kstability/projects/integrity2/economic.html

Address at the Inauguration of Biennial Conference of Anti-Corruption/Vigilance Bureaus of States, UT and Officers of the CBI. New Delhi 16 November 2006

My nation is my life

“When there is harmony in the home There is order in the nation.”

I have great pleasure in addressing all of you on the occasion of the Biennial Conference of the heads of Anti- corruption/Vigilance Bureaus of the States and UTs and also the officers of the CBI. My pleasure is all the more when I realize that I am addressing those who have been entrusted with the singular task of detecting and rooting out one of the most dreadful maladies afflicting our society, namely corruption. It should pain every citizen’s heart when he reads his country’s name included in the list of those blackened by the existence of this evil. Unfortunately, corruption has permeated all walks of life in our society and what is more disconcerting is the fact it does not seem to abate as years go by and worse still, to a large extent, it has been taken for granted as a fact of life. The society can progress only when it upholds nurtures and enriches eternal values in which honesty and integrity assume a primary position. When

Dr. APJ Abdul Kalam www.presidentofindia.nic.in Page 1/18 dishonesty and corruption cancerously eat out the life of the society.

Honesty, the best policy

Honesty is of course the best policy, but it is unfortunate that apparently many of us seem to seriously think that honesty is the best policy only if money is in it, as Mark Twain once jocularly said in his inimitable style. When I say honesty, let me hasten to clarify that I do not mean uprightness in financial dealings only. Honesty is a word that has a much more comprehensive connotation and content. It encompasses every sphere of life and is characterized by total sincerity, absolute integrity and undiluted efficiency in thought and action. These values have to be engendered and inculcated in individual’s right from childhood and that is why I have been emphasizing the undeniable, primary importance of primary and secondary education. It is at these stages that these values have to be embedded deep into the impressionable minds of children so that when they grow up, they firmly walk along the groove of complete righteousness and rectitude. In such a case nothing untoward would entice them and their functioning would become totally purposeful, efficient and fruitful, and therefore honest.

Page 2/18 Transparency starts from Home

On 21st November 2005, I had visited Adichunchanagiri Math, attended a function of FUREC (Foundation for Unity of Religions and Enlightened Citizenship) and interacted with over 54,000 students of various schools and colleges of Karnataka. There a 10th class student Ms. M. Bhavani studying in Adichunchanagiri Composite High School, Sharavathy Nagar, Shimoga asked me the following question.

“Dear Sir, What is the role of students to stop corruption which is deeply rooted in our county just like cancer?”

Agony of the young mind is reflected in this question. For me it was an important question, since it came from a young mind. I was thinking what type of solutions we could give. My thought process was the following:

I said there are one billion people in the country and nearly 200 million homes. In general there are good citizens everywhere. However, if we find that people in few million houses are not transparent and not amenable to the laws of the country, what can we do? These houses apart from parents have one daughter or one son or both. If the parents in these houses are deviating from the transparent path the children can use the tool of love and affection and correct the parents to come back to the right path. I asked all the Page 3/18 children assembled in that gathering, in case parents of few children get deviated from transparency, will you children boldly tell your parents, father or mother, “You are not doing the right thing that is what we are taught by you and in the school”. Most of the children spontaneously responded, “We will do it”. The confidence comes from them that they have love as a tool. Similarly I have also asked the parents in some other meeting, initially there was a silence, later, many of them hesitantly agreed that they would abide by the children’s suggestion since it is driven by love. They took an oath in front of me. The oath was “I will lead an honest life free from all corruption and will set an example for others to adopt a transparent way of life”. Finally I told the students that they should start a movement starting from their home.

Code of Conduct

Now I am reminded of Tamil classic, which brings out the power of righteousness and provides the code of conduct for the people in high and responsible positions:

It means, people who are in high and responsible positions, if they go against righteousness, the righteousness itself will get transformed into a destroyer. Whoever deviates

Page 4/18 from righteousness, whether they are individual or states, they are responsible for their own actions. This message is brought out very clearly by the Elangovadikal in Silapathikaram. Silapathikaram is one of the five great epics written nearly 2000 years ago in Tamil language. Now I would like to discuss the Governance and delivery mechanism for the people, which is one of the requirements of the democratic system.

Trust and confidence in Governance

As a part of governance, the Government needs to provide multiple facilities and services to the people. Also, these services are required to be constantly upgraded with the use of technology for fulfilling the aspirations of the people. The Government budgets and expends a large amount of funds for fulfilling this goal in the 11th plan period Planning Commission will be spending a million crore for national development. The money for the work comes from people through taxes. It is the money collected from the people, which are being spent for the benefit of all the people and particularly the needy. However, when it comes to reaching of the benefits to the common man, the value of the services, which reaches the citizen, is much below the expected level of satisfaction. This happens in all the services namely education, healthcare, sanitation, water, power, road,

Page 5/18 drainage, tele-communication, seeking of loans from the banks for agriculture and small-scale industries and many other areas of societal importance. Even to make the timely payment for certain services the citizens have to struggle and sometimes pay bribes to make the payment.

The Government is responsible for bringing the smiles on the faces of billion people by enacting appropriate policies, laws and facilitating societal transformation. Management style varies naturally with the policies and procedures. Our people have shown enormous resilience and have achieved phenomenal success when provided with an environment of trust and confidence in the working space. Whenever there has been a programme run on mission mode through a specially conceived management structure we have been realizing very satisfactory results whether in government, quasi-government or private. We have examples that even for governance related items; there are models where a focused mission mode operation has helped. Now, let us look at our national challenges.

Poverty removal Our nation is going through a major challenge of uplifting of 220 million people who are below the poverty line. They need habitat, they need food, they need health care, and they

Page 6/18 need education and employment finally resulting in a good life. Our GDP is growing at more than 8% per annum. Whereas, the economists suggest that to uplift the people below poverty line, our economy has to grow at the rate of 10% per annum consistently, for over a decade.

Integrated Action for Development: To meet the needs of one billion people whose number will further increase, we have a mission of transforming India into a developed nation. We have identified five areas where India has core competencies for integrated action: (1) Agriculture and food processing (2) Reliable and Quality Electric power, Surface transport and Infrastructure for all parts of the country. (3) Education and Healthcare (4) Information and Communication Technology (5) Strategic sectors. These five areas are closely inter-related and when effectively addressed, would lead to food, economic, energy and national security.

Implementation of these programmes in an integrated way and in a time bound manner in a cost effective fashion and also to provide the necessary services to the citizens equitably with ease, it is essential that we use the technologies available today and work out a comprehensive e-governance system for all government to government and government to citizens transactions.

Page 7/18 Cyber crimes: Challenges

Continuing economic growth will also mean that many of the Indians from now will be doing business in the digital world on the web. In this new era, crime, law and justice will be completely different from the present system. In the present law, for example, the jurisdiction will correspond to the location where the crime is committed and where the damage occurs – very often both being the same location. Whereas in the digital world, the crime may originate from a strange place even outside our own shores and may damage organizational wealth which will be in the digital form in multiple locations. In the 20th century, a nation’s business transactions and wealth creation were based on transfer of materials from one place to the other. In the 21st century wealth is created whenever information in the form of electrons is transferred across the networks in a borderless world. Our investigation system has to build its capacity to understand in a way that any crime committed against India or her assets by anyone from anywhere shall be detected. The Government with investigative agencies should formulate progressive and innovative crime prevention methods for the digital economy which is one of the vital components of a developed nation.

Page 8/18 Collective Introspection to meet the challenges

Indian democracy has been functioning effectively for the last six decades. In a vibrant democracy we have accomplished many successful missions by many governments. We have brought down the poverty level to 22% with the growing population and today India is one of the emerging strong economies of the world because of our limited opening up of our economy in the post 1991 period. However, our growth rate is slow. The causes attributed for this slow growth rate are the administrative system, large accumulation of pending cases in our courts, the number of controls exercised by the administrative system and the government running many of economic activities rather than opening it up to the specialists in a competitive environment.

In spite of these severe constraints, our youth have excelled in knowledge domain and have shown a phenomenal growth in ICT sector employing over one million people and have achieved the revenue target of $36 billion in 2005. This gives us an idea that wherever there is an independence to perform we have performed well whereas wherever we have created large amount of dependency through complex policies, procedures and subsidies, our performance has been stunted and transparency diminishes. There is a need to introspect on

Page 9/18 this dependency syndrome, which we have created. We need to remove these dependencies systematically and allow the people to perform in a competitive environment in the global market. This will involve reformulation of policies and procedures prevalent in the legislature, executive and judiciary keeping in mind the changing scenario of the world, challenges to be faced by the economic sector in the global competitive environment and meeting the aspirations of the people in providing a higher quality of life.

All Government programmes must consider citizen as a privileged customer and become accountable for providing all the services needed by him without interruption and hassles. One of the means by which this can be ensured is the incorporation of a sound e-governance system in all the three pillars of the democracy. Keeping this aspect in mind, I would like to share the thoughts on implementation of e-Governance system for providing transparent administration.

E-Governance for transparent administration

Good governance is being recognized as an important goal by many countries across the world. Many nation have taken up specific initiatives for open government. Smart card is the core of e-governance. Freedom of information is being

Page 10/18 redefined and supported by detailed guidelines. The Internet revolution has proved to be a powerful tool for good governance initiatives and the world is moving towards Internet governance. An important dimension of the Internet potential is the possibility of providing services any time anywhere. Along with this there is a conscious effort to put the citizen as the center of focus of the governance. Citizens are being perceived as customers and clients. E-governance has to be citizen friendly. Delivery of services to citizens is considered as a primary function of the government. Particularly in a democratic nation of a billion people like India, e-Governance should enable seamless access to information and seamless flow of information across the state and central government in the federal setup.

Need based Services a. Training and empowerment: Services like police; land administration, special services, municipal services and income tax have been found to be the key problem areas, apart from many more. There is a need to train the personnel working in these services about the importance of providing hassle free services to the citizens. They should be specially trained to be citizen friendly. Personnel working in these departments must be provided with reasonable housing and transportation facilities including

Page 11/18 empowerment in their task. They should become accountable for the services to be provided to the citizens and also be penalized for wrong decision. We can also consider training the personnel at the grass root level in some of the advanced countries so that they can get a first hand feel of how these services are being provided in different countries. These measures will improve the quality of services being provided to the citizens and the perception about these departments. Bureaucrat should become facilitators. b. Law enforcements:

The following are the components that influence transparent society: Corruption detection, Fast police action, Court proceedings with minimal adjournments, fast judgments and there must be provision for punishing the biased allegation bringing the accountability into the system. All these process should be completed with in a prescribed time frame and all the pending cases in the court particularly pertaining to corruption, special crimes and economic offences should be cleared in a time bound manner by setting up more special courts throughout the country.

Page 12/18 New entrants and challenges

In Rashtrapati Bhavan, every year two times, I meet IAS and IPS Probationers. During my interaction with them one common question comes up for discussion. That is when a new officer enters into a system, there are certain possibilities, the higher ups may not be transparent and also the bottom layer. The new officer is jammed. What he should he or she should do? That was the question posed to me. I was thinking about the answer because it is a fact of life, as it can be seen, from the corruption index of the nation. I cheered the officers and told them, there are different situations, which I have come across through my friends and also directly. One situation is the person who stood for the principles in spite of difficult environment all around and even though he experiences many transfers, finally the person emerges as the winner. It is my own experience that I have shared with them based on my experience while holding various responsible positions. If a person is extremely honest, respect comes from all around including from the higher ups. Also, there is a possibility of the higher up being shifted for the advantage of the system.

Page 13/18 An Independent Commission against corruption

Corruption is the concern of our society, our youth and of course government also. I came across about an information through internet, about Hong Kong experience. Hong Kong, 40 years back has been described as though what we witnessed in many areas in Indian scene. But today Hong Kong is free from corruption. I was told that, this has resulted through their one action of establishing a powerful independent commission against the corruption. The independent commission has worked on three pronged approach by strict enforcement of stringent laws, prevention of corruption and community participation against corruption through continuous education. This has resulted in virtual elimination of corruption from Hong Kong in less than 10 years. I am studying this example and its suitability for application in Indian environment.

Research on CBI cases

I am happy to find that the CBI is publishing monthly journal called CBI Bulletin for the exclusive use of police personnel, which gives an analysis of cases, important events and international experiences. There is a need to publish such a bulletin for the use of citizens highlighting certain case

Page 14/18 studies and bringing out the role of citizens in preventing corruption.

Also, it is essential to study 100 important cases which have been investigated and chargesheeted by the CBI and the final judgement would have come either from High Courts or Supreme Court. In some cases it has been seen that they were reopened and reinvestigated and different Judgements came after reopening. The case study must establish through research process, where is the problem. It may lead to corrective action nationally by the agency itself rather than giving opportunity to other agencies to point out the fault.

Oath for the Police Officers

Whenever I meet police officers, including the probationers, I used to give a seven point oath. I thought of sharing with you, since the officers have written to me or send e-mail stating that they found some aspect of the oaths were very relevant.

1. I am proud of being the member of the Central Bureau of Investigation and other anti-corruption agencies of high tradition and credibility.

2. I will always be citizen friendly and promote corruption free environment everywhere.

Page 15/18 3. I will lead an honest life free from all corruption and set an example for others to follow. I will ensure that no one can lead me to the temptation of corruption.

4. I will act as a lightening thunder against all the law breakers.

5. I will protect the elderly, women and children against any type of crime.

6. I will deal with crime against citizens, efficiently with speed.

7. My nation is my life.

You may like to use the oath in all your establishments.

Conclusion

Conscience is the light of the Soul that burns within the chambers of our psychological heart. It is as real as life is. It raises the voice in protest whenever anything is thought of or done contrary to the righteousness. Conscience is a form of truth that has been transferred through our genetic stock in the form of the knowledge of our own acts and feelings as right or wrong.

A virtuous and courageous person can alone use the instrument of conscience. He or she can alone hear the inner voice of the soul clearly. In a wicked person this faculty is dead. The sensitive nature of his / her conscience has been Page 16/18 destroyed by sin or corruption. Hence he or she is unable to discriminate right from wrong. Those who are leading organizations, business enterprises, institutions and governments should develop this virtue of the ability to use their own conscience. This wisdom of using the clean conscience will enable them to enjoy the freedom and remove their anxiety and worries. In this connection, I would like to recall the hymn that I have heard in a spiritual centre. It reads as follows:

Righteousness

Where there is righteousness in the heart, There is beauty in the character. When there is beauty in the character, There is harmony in the home. When there is harmony in the home, There is order in the nation. When there is order in the nation, There is peace in the world.

It is a beautiful connectivity between heart, character, home, nation and the world. In a society we have to build righteousness among all its constituents. For the society as a whole to be righteous we need creation of righteousness in family, righteousness in education, righteousness in service,

Page 17/18 righteousness in career, righteousness in business & industry, righteousness in civil administration, righteousness in politics, righteousness in government, righteousness in law and order, righteousness in justice.

My best wishes for success in your deliberations in the mission of creating a corruption free society.

May God bless you.

Page 18/18 PM’S key note address to the conference of CBI & State Anti- Corruption Bureau at Vigyan Bhawan, New Delhi on November 17, 2006

Following is the text of the Prime Minster’s address on the occasion:

“I am very happy to have this opportunity to address your biennial conference once again. Let me first extend my heartiest greetings to the recipients of the President’s Police Medals for Distinguished Service, the Police Medals for Meritorious Service and the Gold Medal for the Best Investigating Officer. I commend each of the awardees for their dedication, commitment and devotion to duty. You have set a shining example of outstanding work and sincerity. These medals are but a token of the Government’s gratitude for the good work done in the best interests of our people and our country.

I attach great importance to the work you are all charged with. The questions of good governance, of honesty and of transparency in our system of public administration, have been at the centre of our political discourse for a long time. However, what has changed is the level of tolerance of the people for corruption in our public life and administration.

I was, of course, happy to see that according to one global index of corruption India’s ranking has improved in the past two years. There has been some debate on the veracity of such indices, their relevance in inter-country comparison. However, it is heartening to see that global perceptions about corruption in India are on the mend. But I dare say we have a long way to go and we must all work to get rid of this scourge of corruption which permeates some sections of our public administration.

Corruption is not a new challenge for us. Over four decades ago when Gunnar Myrdal wrote his famous book ‘The Asian Drama’, he identified corruption as one of the constraints on development. He argued that corruption in public life had contributed to the Indian state being a “soft state”, as he put it. The scale, the typology and the mechanisms of corruption may have changed, but the problem of corruption has not gone away.

We did make a major dent on it and reduced the scope for corruption when we abolished the Licence-Permit Raj and reduced the extent of discretionary controls. However, I am aware that many controls remain, and need to be either abolished or made transparent and non-discretionary. Reducing Inspector Raj and making necessary inspections transparent and simple will reduce the scope for corruption. This is why we have taken several steps to end the Inspector Raj and replace it with a transparent system of regulation.

Our Government is also intending to bring forward a Public Services Bill before Parliament. The Bill will define a public services code of ethics and management. It will also protect whistleblowers and have the overall objective of developing public services as a professional, politically neutral, merit based, and accountable instrument for promoting good governance and better delivery of services to all our citizens.

When I recently watched the popular hindi movie, Lage Raho Munnabhai, the one incident that touched me most was the ordeal of a senior citizen trying to get his pension without having to pay a bribe. In stripping his clothes, as an act of protest, this pensioner was stripping our system, exposing the ugly nakedness of the self-aggrandisement of those who man our institutions of governance. Any system in which a retired senior citizen is required to pay a bribe to secure his legitimate dues is a most despicable system. Such corruption must be visited by the sternest action to reform, restructure and rejuvenate the system. The very legitimacy of the State and its various institutions is brought into question by such illegal exercise of power and authority.

In helping the Government deal with this cancer from within, all of you, have an important role to play and I commend the good work that all of you are engaged in. The anti-corruption machinery in the country should create a deterrence against corruption by aggressively pursuing cases of high- level corruption to their logical end. Rapid, fair, and accurate investigation of allegations of corruption against public servants at all levels should remain a priority for you.

However, while punishment may be a deterrent it is not a solution to the problem. Moreover, such deterrence should not discourage public officials from exercising their judgement, taking initiative and showing our ability to take risks at work. Our system of investigation and punishment should not be abrasive and not become an alibi for people to avoid taking initiative in performing their duties. We must learn to make a distinction between an “honest mistake” and deliberate malfeasance. In dealing with a “mistake”, rather than a “wrong-doing”, we should not discourage individual initiative. This is the point I made last time also and I re-emphasise the great importance of evolving systems and procedures whereby those who make honest mistake will not be penalised and we need a system which protects honest mistakes because life in the World that we live in is full of uncertainties. Those who have to take decisions are often not provided with all the data that needs to be made available to them and in this environment honest mistakes are unavoidable and our system of curbing corruption must protect these honest mistakes. We must, therefore, devise a comprehensive strategy to reduce the scope for corruption, while at the same time providing space for individual initiative and action. I submit to you that such a comprehensive strategy against corruption in public life must address what I consider as the following major issues:

First and foremost, we must recognize the need for an integrated approach to dealing with corruption. Agencies like yours cannot operate in isolation. You must have the resources to take a broader view of individual cases and be able to make a distinction between a “bonafide mistake” and deliberate “wrong-doing”.

Second, we must eliminate all discretionary controls and minimize the scope for discretion in the control and regulatory systems we cannot dispense with.

Third, we must reform our tax system, make it simple and transparent, and ensure moderate rates of taxation that enable widest possible compliance. This remains an area where most citizens encounter corruption.

Fourth, the justice delivery system has to be modernized and made more efficient and speedy. Not only must the guilty be brought to book more speedily, but the innocent must be spared the trauma of delayed justice. The assurance of integrity within the judiciary is itself a deterrent against corruption in public life. Hence, prompt action against corruption in the judiciary, at all levels, is also a necessary element of the battle against corruption in other institutions of the State.

Fifth, the reform of public procurement systems both civil as well as defence, with complete transparency in the tendering processes at all stages with publicly recorded discussions is also an integral element of a comprehensive strategy to fight corruption.

Sixth, the Right to Information Act has to be effectively utilized so that it will not only act as a deterrent but also empower citizens to bring to light any acts of corruption. In fact, non- governmental organizations and concerned groups of citizens can and should use the RTI Act to combat corruption in public life.

I also think that Public Services Users Associations can also play an active role in ensuring delivery of such services without corruption. We need a Citizen’s Charter that states explicitly the Rights of tax payers and consumers of public services. A citizen holding a ration card should be able to secure his entitlement without recourse or resort to corruption.

Seventh, the decentralization of administration and the delivery of justice can help in reducing corruption by making the system more accountable to the people they have to serve. Be it municipal authorities or public utilities, be it school teachers or doctors, whatever the service provider, greater community scrutiny and decentralization of administrative control can act as a deterrent against corruption.

In the final analysis, however, there is no better protection against corruption in public life and in public services than an alert civil society. Our Government has empowered civil society through the Right to Information Act. However, it is public minded individuals, NGOs, and the media who have to take the initiative to mobilize people against corruption.

I hope your conference can come forward with ideas that the Government can pursue in dealing with the cancer of corruption. I wish your conference all success”.

Source: http://cbi.nic.in