P a g e | 1

DETAILS OF THE AUTHORS

PRAKRITI PARASHAR The ICFAI University, Dehradun

TANISHA YADAV The ICFAI University, Dehradun

RIA SRIVASTAVA The ICFAI University, Dehradun

P a g e | 2

ABSTRACT: The evil of corruption reaches to every corner of the world. It lies at the heart of the most urgent problems, we face. Corruption is one of the many parts of a more complex and a more comprehensive criminal phenomenon which is economic crime. We often confuse economic crime with corruption, but economic crime does more social damage than corruption. Economic crime covers a wide range of offenses, from financial crimes by banks, tax evasion, money laundering, and crimes committed by public officials (like bribery, embezzlement, traffic of influences, etc.) among many others. In such crimes, offender’s principle motive is economic gain. Economic crime is generated from a hidden power that defines a relationship between economy and polity. The famous Panama Paper Leak has not been hidden from us. In 11.5 millions secret files are 140 politicians from more than 50 countries connected to offshore companies in 21 tax havens. From the involvement of the President of Argentina, Mauricio Macri to famous footballers like Lionel Messi, blew our minds. Corruption has existed in every country in some form or the other since time immemorial and India has been no exception. Earlier, was confined to small sectors but later on there was a drastic change in the entire scenario and corruption became widespread in all government sectors. Talking about the present scenario, Nirav Modi, Mehul Chuaksi, Lalit Modi, Vijay Malya are some famous economic offenders of India, who has caused extensive damage to the Indian economy. The central government in India has introduced the Prevention of Money Laundering Act, 2002 (PMLA), to prevent the circulation of laundered money. The sharp mindedness of Indian Youth has contributed to the economic growth. There can be no faith in the government if our highest officers are excused from scrutiny. However, we still have a long way to go. KEYWORDS- Panama Paper Leak, Corruption, Money Laundering, Economy.

P a g e | 3

ECONOMIC CRIMES

1. INTRODUCTION This article integrates research on what exactly economic crime is. This is an attempt articulately the edge of economic crimes and how our country should act upon protecting and securing economy act upon protecting and securing economy of our country. An economy is a system of organizations and institutions that either facilitate or play a role in the production and distribution of goods and services in a society. The prosperity of a country depends upon alarming rate of increase in economic crimes is leading our country to a phase of low GDP, poor economic growth and the state of poverty. We often confuse economic crime with corruption, but economic crime does more social damage than corruption. Economic crime covers a wide range of offenses, from financial crimes by banks, tax evasion, money laundering, and crimes committed by public officials (like bribery, embezzlement, traffic of influences, etc.) among many others. In such crimes, offender’s principle motive is economic gain. Economic crime is generated from a hidden power that defines a relationship between economy and polity. This article provides unparalleled analysis and insight into perception, awareness, and the impact of economic crime on business of India.

2. ECONOMY, ECONOMIC CRIME, ECONOMIC OFFENDERS The word economy is derived from the Greek word ‘oikos’ meaning an extended family unit that consists of the house, members of the family, slaves, farmland, and all the property. Economic crime is one of the most insidious and predatory of offences. Economic crime continues to be an expensive proposition for companies, both in terms of losses due to such crimes and the cost of managing frauds. Economic crime remains as intractable problem for companies globally and India is no exception. As India goes global, economic crime is emerging as a bigger threat than before. “Economic offenders - a serious threat!” Economic offenders are those people who commit economic crimes for their personal benefits and directly affecting the economy of a country or a state. Economic offenders by engaging in various trade practices and by way of scams, have swindled off millions and billions of money and have exploited all the areas of economic activity. Economic offenders are inversely proportional to the decline in economic growth of a country or a state.

P a g e | 4

3. MOTIVE OF ECONOMIC CRIMES

Economic crimes refer to illegal acts committed by an individual or a group of individuals to obtain financial or professional advantage. In such crimes, the offender’s principle motive is economic gain. The general perception is that such crimes are committed because of economic instability. But these crimes are also committed due to situational pressure or the thinking of getting more than others. Cyber crimes, tax evasion, robbery, selling of controlled substances and abuses of economic aid are all examples of economic crimes.

3.1 LOW RISK, HIGH PROFITS Low risk and high profits associated with economic crime makes it a very attractive activity among organized criminal groups. The complexity of investigation required, decreases the probability to detect the fraud. Such kind of cases of fraud can only be uncovered through international cooperation and from internet offences for which jurisdiction needs to be established. Organized criminal groups of international level take benefits from differences in national legislation. Individual and organizational vulnerabilities such as lack of awareness of the victims and low risk factors by target groups are enabling factors for most types of fraud.

3.2 NOT VICTIMLESS It has been noticed that the acts within the financial sectors which were once considered as merely poor business practice are now possibly taking place as criminal activities. Reckless investment in huge amount, false representation of financial statement and manipulating inter-bank rates comes under the definition of serious and organized crime. Huge losses associated with high-level financial fraud clearly indicate a failure in social- security systems and destabilize economic systems.

3.3 CURRENT THREATS The 2017 Serious and Organized Crime Threat Assessment (SOCTA) highlight a number of crime areas, which are as follows:  INVESTMENT FRAUD: Investment fraud involves the illegal safe or purported sale of financial instruments. The typical investment fraud schemes are characterized by offers of low- or no-risk investments, guaranteed returns, overly- consistent returns, complex strategies, or unregistered securities. Examples of investment fraud include advance fee fraud, Ponzi schemes, pyramid schemes, and market manipulation fraud.

P a g e | 5

 MASS MARKETING FRAUD: Mass-marketing fraud (or mass market fraud) is a scheme that uses mass- communication media- including telephones, the Internet, mass mailings, television, radio, and personal contact- to contact, solicit, and obtain money, funds, or other items of value from multiple victims in one or more jurisdictions. The frauds where victims part with their money by promising cash, prizes, and services and high returns on investments are part of mass market fraud.

 PAYMENT ORDER FRAUD: Payment fraud is any type of false or illegal transaction completed by a cybercriminal. The perpetrator deprives the victim of funds, personal property, interest or sensitive information via the Internet. Payment fraud can be characterized as fraudulent or unauthorized transactions, lost or stolen merchandise, false requests for a refund, return or bounced checks.

 INSURANCE FRAUD: It describes the defrauding of private and public insurance providers. Organized crime groups are increasingly involved in fraud schemes targeting healthcare systems.

 BENEFIT FRAUD: involves the targeting of social and labour benefit schemes and is strongly linked to trafficking in human beings and migrant smuggling.

 EU SUBSIDY FRAUD: It is where criminals submit fraudulent applications for EU grants or tenders. Typically, these applications are based on false declarations, progress reports and invoices.

 PROCUREMENT RIGGING: It is where criminal groups use bribes to elicit information or directly influence the evaluation of bids in order to win public service tenders in competition with legal businesses. This type of manipulation is particularly notable in the energy, construction, information technology and waste management sectors.

 LOAN AND MORTGAGE FRAUD: It involves fraudsters using fraudulent documents to obtain bank loans, which are never paid back.

P a g e | 6

 MONEY LAUNDERING: Money laundering is the process of making large amounts of money generated by a criminal activity, such as drug trafficking or terrorist funding, appear to have come from a legitimate source. The money from the criminal activity is considered dirty, and the process "launders" it to make it look clean. Money laundering is itself a crime.

4. IMPACT OF ECONOMIC CRIMES

Economic crime continues to be an expensive proposition for companies, both in terms of losses due to such crimes and the cost of managing frauds. It has such high financial impact on business and society that it becomes more widespread. Activities such as corruption and misappropriation of funds from banks affect the economic well-being of the people. The consequences are much beyond financial loss and economic well being of society. It is a non-violent crime that results in a financial loss.

4.1 IMPACT ON NATIONAL ECONOMY

Economic crimes cause significant damage to the Indian economy, adversely affecting the growth and development of the nation. Some of the major impacts are:-  Inflationary pressure  Uneven distribution of resources  Generation of abundant black money  Creation of parallel economy

Resources of financial and commercial institution are diverted and distorted, weakens morale and commitment of citizens, poor continue to be at risk, country, economic equilibrium is at stake. Economic offenses such as money laundering, financial scams, counterfeiting of currency, fraud etc. are crimes which evoke serious concern and impact on the Nation’s security and governance. Giving an Indian perspective of the findings emerging from the PWC Global Economic Crime Survey 2016, the global consultancy said asset misappropriation was the most common type of economic crime, followed by procurement fraud and bribery and corruption. An area requiring particular attention is money laundering.  Money laundering is an expression that has recent origin. It has become a worldwide threat. There are many dangerous impact of money laundering on country as well as the whole world.  Loss of control of economic policy. Reports of IMF(2003) signified that the size of the funds being laundered and the food that money launderers would want to launder their funds through developing

P a g e | 7

economies to reduce possible detection of their schemes can affect the inflow and outflow of funds in these countries.  It also leads to economic distortion and inability. Money laundering may also misrepresent capital flows and thus destabilize the effective functioning of the world wide economy.

Understanding the impact of economic and financial crime in the current global content, and on developing countries in particular is complicated by the difficulty of determining on all encompassing definition of the concept and by the fact that both the extent and costs of such crimes are difficult to measure. There is growing evidence, however, that economic and financial crimes are increasing mostly in sectors affected by rapid advances in technology.

5. INCIDENCE OF RATES OF ECONOMIC CRIMES

The rule in economic crime is a reflection of increasing consumerism in our society. A person desires to earn money irrespective of the means. This is leading to a general decline in our value system.

In a study, on economic crimes it was revealed that 35% of companies in India were victims of economics crimes during the past two years as compared 39% and 43% of the companies surveyed in Asia and Pacific region respectively.

However, in India, there has been a frequency of economic crimes since time immemorial. It is spreading like a wild fire in our society. The Indian Penal Code, 18601, is the earliest comprehensive and codified law of India. It peculiarly does not mention the word “economic crimes” but deals with many offenses related to economic crimes such as corruption2, counterfeiting of coins, and government stamps3, offenses related to weights and measures4, offenses related to adultering of food stuffs and drugs5, misappropriation of public property and criminal breach of trust6, cheating7, fuogery and offences relating to documents8 and counterfeiting of currency9.

1 Act no.45 of 1860 2 IPC,1860- Section 168, 169, 171B, 171C, 171E, 171H 3 Ibid Section 230-263 4 Ibid Section 264-267 5 Ibid Section 272-276 6 Ibid Section 403-409 7 Ibid Section 415-420 8 Ibid Section 463-489 9 Ibid Section 489A-489D

P a g e | 8

Like any other country, India is equally under the shackles of economic crime. The fast developing country is the reason behind the extensive growth in economic crimes in recent decades. In a report it was found that such crimes are committed by persons belonging to higher social strata. It includes businessmen, industrialists, contractors, supplies as well as corrupt public officials.

5.1 SCAMS

Some famous scams which have the folded the Indian Economy are:-

 SATYAM SCAM, 2009 : Satyam scam was a big corporate scam that occurred in India in 2009 and is also regarded as “Debacle of the Indian Financial System” the fraud shows how disastrously investors can lose money by simply misstating the figures in the balance sheets. Mr. B R Ramalinga Raju, founder – chairman of the $2 billion Satyam Computer Services, dramatically stepped down after admitting of faking financial figures of the company to the tune of Rs 7,136 crore, including Rs 5,040 crore of non-existent cash and bank balance.

FODDER SCAM10: The fodder scam was a corruption scandal that involved the embezzlement of about Rs 9.4 billion from the government treasury of the eastern Indian state of Bihar. The, then, of Bihar, , as well as former Chief Minister, were arrested. It involved the fabrication of “vast herds of livestock” for which fodder for animal husbandry was about to be produced to help farmers or other people associated with the occupation of agriculture or animal husbandry.

: This case was basically a telecommunication and a political scandal. Many politicians and government were involved. It was a scam of $40 billion. The scam was about the allocation of unified access services license. The formal telecom Minister, A Raja, has evaded norms at every level and carried out the dubious to 2G Scam in the year, 2008.

 THE ‘COAL-GATE’ SCAM: September 2012, unearthed a scam that involved Bureaucrats, political leaders and several Ministers from the ruling political party. The Comptroller and Auditor

10 Lalu Prasad Yadav vs State of Bihar

P a g e | 9

General, India’s audit watch dog, reported inefficient and possibly illegal allocation of coal blocks between 2004 -2009. Comptroller and Auditor General noted that both the private and public sector enterprises paid less resulting in less revenue for the government.

5.2 PRESENT SCENARIO  PUNJAB NATIONAL BANK SCAM: Punjab National Bank, India’s second biggest state run leader, stunned the country’s financial sector recently, when it announced that it had discovered an alleged fraud worth Rs 11,400 crore ($1.8 billion) at a single branch in Mumbai. On January 29, PNB filed a criminal complained with India’s federal investigative agency against three companies and four people, including billionaire jeweller Nirav Modi and his uncle Mehul Chowksi, the Managing Director of Gitanjali Gems, saing they had defrauded PNB and cause a loss of $43 million. Since then, both Nirav Modi and Mehul Chowksi are on a run.

5.3 INTERNATIONAL LEVEL  PANAMA PAPER LEAK: The famous Panama Paper Leak has not been hidden from us. In 11.5 millions secret files are 140 priticians from more than 50 countries connected to offshore companies in 21 tax havens. The documents11 contain personal financial information about wealthy individuals and public officials that was previously kept private12. Reporters found that some of the Mossack Fonseca13 shell corporations were used for illegal purposes, including frauds, tax evasion and evading international sanctions14. One of the immediate consequences of the revelations was the April 4, 2016, resignation of Iceland’s Prime Minister Sigmundur David Gunnlaugsson. The files which went back as far as the 1970s, exposed a network of 214,000 tax involving wealthy people, public officials, and entities from 200 nations.

6. JUDICIAL RESPONSE Some famous responses taken by the judiciary of India are mentioned in the following cases:

11 Panama Law Firm, leaked files detail offshore accounts tied towards leaders 12 International consortium of investigative journalists 13 Vasilyeva, Natalya; Anderson,Mae (April 3,2016) 14 Giant leak of offshore financial Records exposes Global Array of Crime and Corruption

P a g e | 10

 VINEET NARAIN VS UNION OF INDIA15: Supreme Court observed that the corruption cases against public servant were offended delayed due to refusal or delayed sanction by the competent authority despite the investigation agency having disclosed a prima facie against the public servant. The Court held that sanction to prosecute not being a quasi-judicial function, the competent authority must give sanction if it is satisfied that material placed before it is sufficient for prosecution of the public servant.

 JAYLALITHA VS UNION OF INDIA16: In this case, Supreme Court admitted that corruption is rampant among the public servants. Court further stated that corruption corrodes the moral fabric of the society and is harmful to the national economy. Corruption by persons occupying high posts in government, by misusing their powers can cause considerable damage to the national economy, national interest and image of the country.

 STATE OF GUJARAT VS MOHANLAL JITAMALJI PORWAL and ANR17: In this case, the Supreme Court has differentiated between the general crimes and white collar crimes. In the above mentioned judgement, Justice Thakker has stated that murder can be committed in the heat of moment but these economic offenses are committed with a cool calculation and planned strategy to gain personal profits.

7. ACTS PREVENTING ECONOMIC CRIMES

 PREVENTION OF MONEY LAUNDERING ACT, 2002 From last few decades, in India black money is generated in large scale from various socio- economic crimes and this black money is converted into white money so that the offenders can easily escape and the money can be used in the economy with the notice of government authorities. The process of converting tainted money into untainted money is called money laundering. Thus, the main objective and motto of the mentioned act is to prevent money laundering.

Money laundering is an international concept and menace and for the same reason United Nations adopted a political declaration in June 1998 and asked its members to enact the national legislation for the prevention of money laundering 18. The present act has been passed to implement the resolution of United Nations.

15 (1998)1 SCC 226 16 (1999)5 SCC 138 17 AIR 1987 SC 1321 18 Snangeet Kedia’s economic and commercial laws, June 2011

P a g e | 11

 PREVENTION OF CORRUPTION ACT, 1988 Corruption has been prevalent in India since time in memorial and is a threat to our country. The Santhanam Committee Report of 1964 defines the problem of corruption as a complex problem having its root and ramification in the society itself as a whole. The act came into force due to the increasing cases of bribery and gambling among the public authorities. The act consolidated the provisions of IPC, CrPC and criminal act, 1952. The act has provided the definition of “public duty”,”public authority”,”public servant”. The provided definitions are very important in determining the criminal liability of a public officer.

 FUGITIVE ECONOMIC OFFENDER’S BILL, 2017 The famous case of Vijay Mallya has forced the Indian government and legislature to make laws on economic offenders who commit economic crimes for their personal gain in India and flee to other country in order to escape from their criminal liability and jurisdiction of Indian courts. The proposed bill will be applicable on all those economic offenders who have a criminal liability of Rs 100 crore or more. The bill provides a list of offences in its Scheduled List which can be termed as “economic offences”.

The bill provides provisions to an established special court under The Prevention of Money Laundering Act, 2002 to declare a person as Fugitive Economic Offender. The special feature of this bill is that it provides the definition of Fugitive Economic Offenders and talks about the procedure of Special Court and applicability of the act. The bill also provide that the Central government may enter into any treaty with any nation through any means inter alia devising a mechanism to extradite the Fugitive Economic Offender of India which is present in their country or allowing the government or any respective authority to confiscate any foreign property of such offender.

8. CONCLUSION

The world has become a dangerous place to live in. The most important lesson to be learned is that the real criminal justice challenge lies in understanding the twilight zone that crime and business come in touch with each other often to their mutual benefits. Economic crime is a complex area to deal with. In order to maintain its growth story, India, needs to take serious measures to reduce frauds, scams and corruption in government and private sector. It’s high time that our Indian government

P a g e | 12

must improve governance and take strict actions against such economic offenders. The need of the hour is for political parties to have the spirit to clean up the mess. Also, the private sectors must take preventive measures to control fraud and focus on ethics to reduce corruption. Both the sectors should come together and minimize fraud, scam, and corruption risks in India. However, government of India has taken many measures to prevent such type of crimes in India. The Prevention of Corruption Act, 1988, Prevention of Money Laundering Act, 2002, The Economic Offender’s Bill, 2017 helps the government to penalize such offences. Last but not the least, the sharp mindedness of Indian Youth has contributed to the economic growth. There can be no faith in the government if our highest officers are excused from scrutiny. However, we still have a long way to go.