October 10, 2018

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The World Of White-Collar Crime & Its Impact On The Economy

- Vikas Chadha, Executive Director & Chief Financial Officer [ KEYS Hotels (Berggruen Hotels Pvt. Ltd) ]


The laws concerning white-collar crimes vary, depending on the exact nature of the crimes committed, though many fall under federal authority (US)...

White-collar crime refers to non-violent crimes committed through deceptive practices for the purpose of financial gain. Following is the white-collar crime dictionary definition. The actual term “white-collar crime” was coined by Edwin Sutherland, Professor of Sociology and 29th President of American Sociological Society. Sutherland described such crimes as “a crime committed by a person of respectability and high social status in the course of his occupation.”

White-collar crimes cover a wide range of activities, but generally, the crimes are committed by people who are involved in otherwise lawful businesses. The perpetrators often hold respectable positions in their communities or businesses, until their illegal activities are discovered. The laws concerning white-collar crimes vary, depending on the exact nature of the crimes committed, though many fall under federal authority.

Types of White-Collar Crimes and the relevant acts regulating the same

The common examples of white-collar crime include fraud, insider trading, and bribery, etc. White-collar crimes can often be difficult to prosecute, as the perpetrators take sophisticated steps to ensure that their illegal activities are difficult to detect. The most common types of white-collar crimes are explained below:

Governments have accepted and ignored white-collar crime for too long. It is time the nations woke up and realized that it’s not the armed robbers or drug dealers who cause the most economic harm, it’s the white collar criminals who steal pensions, bankrupt companies, and destroy thousands of jobs

Fraud: Fraud is committed by misrepresenting facts in order to gain something in return. Fraud under the Indian Penal Code is defined as “any behavior by which one person intends to gain a dishonest advantage over another”. In other words, fraud is an act or omission which is intended to cause wrongful gain to one person and wrongful loss to the other, either by way of concealment of facts or otherwise. Fraud is defined u/s 421 of the Indian Penal Code and u/s 17 of the Indian Contract Act. There is no separate legislation dealing with fraud as in the United Kingdom or the USA. The expression fraudulently occurs in Sections 206, 207, 208, 242, 246, 247, 252, 253, 261, 262, 263 and Sections 421 to 424. Sections 24 and 23 define expressions ‘dishonestly’ and ‘wrongful gain and wrongful loss. ‘Wrongful gain’ is gain by unlawful means of property to which the person gaining it is not legally entitled. ‘Wrongful loss’ is the loss by unlawful means of property to which the person losing it is legally entitled. Whoever does anything with the intention of causing wrongful gain to one person or wrongful loss to another person is said to do that thing ‘dishonestly’. Indian Penal Code recognizes the following acts as fraud:

• Impersonation
• Counterfeiting
• Wrong weighing and measurement
• Misappropriation
• Criminal breach of trust
• Cheating
• Dishonest dealing in property
• Mischief
• Forgery
• Falsification
• Possessing stolen property
• Concealment

Some examples of recent banking frauds in India are:

  • On 14th February 2018, PNB noticed fraudulent transactions worth `11,346 crore at one of its branches in Mumbai. Apparently, the branch staff issued fake LoUs (Letters of Undertaking) for buyer’s credit to companies of Nirav Modi and Gitanjali Group. Companies like Gitanjali Gems, Gili India, Nakshatra and Nirav Modi are said to be involved in this scam.
  • On 13th June 2017, the promoters of a mining company, Abhijeet Group, were arrested for being defaulters in loan payment of over `11,000-15,000 crore from 20 banks and financial institutions through 132 shell companies of the group. Abhijeet Group created vehicle company Jas Infrastructure to provide contract for erection, procurement and construction of a power plant at Bihar to its group company Abhijeet Projects and misusing loan amounts worth `790 crore from Canara Bank and Vijaya Bank.

Insider Trading: In India, SEBI (Insider Trading) Regulations, 1992 framed under Section 11 of the SEBI Act, 1992 are intended to prevent and curb the menace of insider trading in securities. Insider trading is against the law if a securities transaction, which is the sale or purchase of stocks, is engaged in by a person, or small group of people, inside the company, who have special knowledge not available to others. The aim of insider trading laws and regulations is to assure that no one would gain by trading on ‘insider’ or ‘unpublished’ information - information that is not available to all market participants. The ultimate goal is to create a level playing field by making information accessible to all market participants.

Duties and Obligations of the Company

Every listed company has the following obligations under the SEBI (Prohibition of Insider Trading) Regulations, 1992:

  • To appoint a senior-level employee, generally the Company Secretary, as the Compliance Officer;
  • To set up an appropriate mechanism and to frame and enforce a code of conduct for internal procedures;
  • To abide by the Code of Corporate Disclosure practices as specified in Schedule ii to the SEBI (Prohibition of Insider Trading) Regulations, 1992;
  • To initiate the information received under the initial and continual disclosures to the Stock Exchange within 5 days of their receipts;
  • To specify the close period;
  • To identify the Price-Sensitive Information;
  • To ensure adequate data security of confidential information stored on the computer;
  • To prescribe the procedure for the pre-clearance of trade and entrust the Compliance Officers with the responsibility of strict adherence of the same.


The following penalties/punishments can be imposed in case of violation of SEBI (Prohibition of Insider Trading) Regulations, 1992:

  • SEBI may impose a penalty of up to `25 Crores or three times the amount of profits made out of insider trading, whichever is higher
  • SEBI may initiate criminal prosecution
  • SEBI may issue orders declaring transactions in securities based on unpublished price-sensitive information
  • SEBI may issue orders prohibiting an insider or refraining an insider from dealing in the securities of the company


Bribery is the practice of offering, giving, receiving, or soliciting something of value for the purpose of influencing the action of an official in discharge of his/her public or legal duties. Bribery is a gain to an illicit advantage.

The Parliament on July 24, 2018 passed the Prevention of Corruption (Amendment) Bill 2018 to enhance transparency and accountability of the government. The Bill amends various provisions of Prevention of Corruption Act (PCA), 1988. The Provisions of the Bill included:

  • The introduction that the offense of giving a bribe is a direct offense. However, a person who is compelled to give a bribe will not be charged with the offense, if he reports the matter to law enforcement authorities within seven days
  • The Bill makes specific provisions related to giving a bribe to a public servant and giving a bribe by a commercial organization
  • The Bill redefines criminal misconduct to only cover misappropriation of property and possession of disproportionate assets. It does not cover circumstances where the public official uses illegal means, abuses his position, or disregards public interest and obtains a valuable thing or reward for himself or another person
  • The Bill modifies the definitions and penalties for offenses related to taking a bribe, being a habitual offender and abetting an offense
  • It introduces the powers and procedures for the attachment and forfeiture of property of public servants accused of corruption


The altering, making, possession, or use of a falsified document, such as a check, contract, or other document, with the intent to defraud or injure the recipient of the document. This includes such crimes as passing forged checks and creating, possession, or selling falsified art.

Other Types of White-Collar Crimes include

Telemarketing scams, Tax evasion, Ponzi schemes, Pyramid schemes, Bank fraud, Racketeering, Healthcare fraud. The Indian Government over the last few years has been implementing changes in various acts to bring these crimes under scrutiny. Some examples of the changes are:

  • Prevention of Money Laundering Act, 2002
  • Central Vigilance Commission Act, 2003
  • Right to Information Act, 2005
  • Companies Act, 2013
  • Lokpal and Lokayuktas Act, 2013
  • Whistle Blowers Protection Act, 2011
  • Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015
  • Insolvency and Bankruptcy Code

Penalties for White-Collar Crime

The criminal penalties for white-collar crimes vary greatly, depending on the type of crime committed and the circumstances surrounding the case. Most individuals facing criminal charges for a white-collar crime have never faced the criminal justice system, and the process is frightening. Typically, penalties for white-collar crimes include any combination of imprisonment, restitution, fines, probation, and community service. Such crimes that are serious enough to face prison time may place the perpetrators behind bars for many years. In fact, US Congress passed the Sarbanes- Oxley Act of 2002, which increased oversight in corporate responsibility and mandated financial disclosures, in an attempt to stem large-scale white-collar crimes. As a result of the Act, penalties for white-collar crimes involving wire or mail fraud increased.

In addition to any criminal penalties imposed on a perpetrator, civil penalties may be imposed for white-collar crimes, as the victims can file a civil lawsuit against the perpetrator.

Disclaimer - The views expressed in this article are the personal views of the author and are purely informative in nature.

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