The term was first coined by a sociologist from America named Edwin H. Sutherland. Such crimes when analyzed, proved to be those in which there is a great amount of financial loss as there is damage to public morals and are hence more severe as compared to other offenses.
These socio-economic crimes are not at all violent in most of the cases as there is no use of physical force like the ones including forgery, fraud, bribery, cybercrime, corruption, copyright infringement, etc. The reason these offenses are known as crimes of privilege is that the people involved in them belong to educated backgrounds or families, bearing professional qualities to gain in monetary terms.
Reasons for its growth in various professions
When we get to know about what such crimes are and who are the individuals committing it, the first question which arises is how they grew or how it rooted. The foremost reason for its outgrowth is the increasing greed among people. Individuals nowadays have assumed monetary gain as a competition or a race that must be won anyhow. People across sometimes don’t even care about its consequences or the losses they might have to bear. The only objective or purpose to achieve is currency.
The next big reason for its growth is political support and lack of implementation of laws. These individuals pump up even more when the administration around them supports them and the legal structure around them is full of loopholes. This is nothing but the peer support provided to them and is somewhere a kind of spoon-feeding to these individuals for encouraging such offenses. Socio-Economic crimes are committed not only in the Indian subcontinent but also across the globe.
In all the subject areas, there is an essence of corruption, fraud, bribery, and other related practices. Some of them have been discussed in the medical profession, preparation of false medical certificates, fake and intended prolonged treatment in order to increase expenses, illegal abortion, and selling sample drugs to patients or chemists, all these practices are followed and they are nothing but white-collar crimes.
The same goes with the legal profession where malpractices like fabrication of false evidences, threatening of witnesses of the opposite party, engagement of professional witnesses, violation of ethical standards of the legal profession, and arrangement of professional alibi’s are most frequently observed. In the profession of engineering, dealing underhand with suppliers, passing substandard works, and maintaining bogus reports of labour works are such false practices.
When we talk about turning illegitimate currency into a legitimate one, how can we not about those practiced in the educational sector, which paves the path for the easiest way to earn loads. Collection of huge sums of money for the sake of donations by students to admit them, replacing merit-based admissions by donation-based admissions, and collecting huge amounts of currency for the sake of government grants are seen in almost each and every educational institution. It is sometimes paid as a bribe to such institutes by individuals in return of a favor.
Classification of white-collar crimes
Though the list goes on but still these socio-economic offenses or white-collar offenses have been broadly classified into 8 major categories as illustrated:
- Fraud: The most common kind of crime under white collar is fraud. This crime is committed by individuals with an intent to deceive and gain undue advantage of someone. Bank fraud is frequently committed by fraudulent companies by making fake representations. It is also related to the manipulation of negotiable instruments like cheque bouncing, securities, bank deposits, etc. Bank fraud is majorly concerned with the public at large as there is a relationship of trust maintained between banks and private individuals.
- Bribery: Bribery is also a very common white-collar crime where money, goods or any other proposal is offered to an individual holding a reputed position in return of a favor. Most of the individuals in our country offer bribe and accept bribe. For many of them like the public officials, it is even a source of income.
- Insider Trading: This term is somewhat new as not everyone is aware about it. It is an offense in which an individual or a group of them pass any confidential information regarding the securities transactions to make the company suffer huge losses.
- Embezzlement: This is an offense where an individual who has been entrusted with the currency or property or any asset, appropriates it for his personal use.
- Cybercrime: In an era of modernity where mobile phones, computers and internet are being used for every one out of two purposes, the rates of hacking, bullying and fake resemblance are also hyping. Cybercrime is the term given to such offense which is related to internet networks. As the technology advances, so does the crimes relate to it. It involves the individuals who are expert in computer related technology and it is committed against the victim directly or indirectly to cause harm to his reputation, body or mind using technological or internet resources.
- Money Laundering: This is an offense in which the criminals disguise the identity of the money. Offenders try to hide the original ownership of the money and place from where it is obtained. Laundering is done with the intention of turning illegitimate currency into legitimate one.
- Tax Evasion: It means concealing one’s original income to deduct the liability of paying tax. It has a negative impact on the social values as it demoralizes honest tax payers and they get encouraged to commit tax evasion too.
- Ad hoc Crimes: These white-collar offenses are committed by most of the fraudulent bank companies. Here, the individuals do not interact physically but through phone call, sms, links, etc. Credit card frauds and hacking of id’s are some common examples of ad hoc crimes.
Landmark judgments on white-collar crimes
Certain landmark judgements have been illustrated which shook the entire subcontinent in terms of finance like:
Harshad Mehta securities fraud
Whenever we hear the name Harshad Mehta, the first thing which flashes in front of our eyes is a scam. We will be discussing further about his scam in detail as it is one of the largest stock-market scam that ever took place in India. Harshad completed his B.Com from Lala Lajpat Rai College, Mumbai and for few years, he worked at various companies.
During this time, Harshad developed an interest in the stock market. He left his job and joined the broker B-Ambala. He later became a broker of J S Shah and Nand Lal Shah. He started a company with his brother by the name of Grow More Research and Asset Management. In 1984 he became the broker of BSE and started his own career. Harshad used Ready Forward Deal in his scam.
Basically, the government issue securities in a few of its projects to cover its expenses. These are known as Government Securities like government bonds through which the government raise funds to cover its expenses. In return, the government provides interest to all its investors. All the banks were bound to invest a certain amount on these securities.
Whenever a bank needed funds, it used to sell its government securities to the other bank and it used to avail loans for short term. After a few days, the bank would have its government securities back after returning the loan at the agreed interest rate. In simpler terms, it is like going to the jeweler and borrowing money in return of your jewellery and then after few days, you get your jewellery back from the jeweler after returning the money with interest.
The Ready Forward is somewhat similar to this. One bank used to provide short term loan to the other bank. In RFD, brokers used to work as a mediator for the banks. Their job was to find buyers for those who want to buy and sellers for the who want to sell. Harshad was also a broker and hence, worked as a mediator for the banks. There were some loopholes in the RFD, one could have made money with the help of these.
Harshad was very much aware of these loopholes, and so he started using them for his personal benefit. Harshad used to look for buyers to sell the securities of bank ‘A’. He then used to go to bank ‘B’, take the money of the securities and ask for some time to get the seller. He used to keep the security given from bank ‘A’ as well as the ash from bank ‘B’. as per the guidelines of RBI, no bank was supposed to issue a direct cheque on the name of the broker.
However, in this case, the banks were issuing cheques on the name of the broker directly. Surprisingly most of the banks were not even aware that they were making transactions with which bank because banks directly dealt with Harshad. This is the reason why Harshad used to ask banks to issue cheques on his name. as a broker, Harshad has been doing quite well in the stock market for market for some years.
Besides, Harshad was quite popular in the stock market those days. Harshad took disadvantage of this opportunity. He used this money received from the bank to manipulate the stock-market by raising the stock’s prices. When bank ‘A’ used to ask for the securities, then Harshad used to look for another bank seeking to buy government securities.
Supposedly, if bank ‘C’ was also looking for securities then Harshad used to go to bank ‘C’ and ask them for money. He then asked for some time to return the money. In the meanwhile, he returned the same money to bank ‘A’. to complete the deals of bank ‘B’ and ‘C’, he used to adopt the same deals. When these banks used to ask for their money, he used to deal with other banks.
Harshad used the RFD as a chain system which helped him collect loads of money in his hands. But whenever a bank used to sell bank securities to other banks for the short term, then the bank used to give them a receipt instead of the actual bank securities. This receipt clearly meant that government security has been sold out and the bank has got its money.
Harshad took one more step in his scam when he needed more money. He crossed all the limits and started making fake bank receipts with the help of a few banks. Banks which wanted to buy government securities, Harshad used to give them the fake receipts and banks used to handover the money to Harshad thinking that the receipts were original.
Harshad used this money to manipulate more stocks and took them to higher level. He managed to raise the ACC stock from Rs.200 to Rs.9000. After seeing the sudden growth in the share market, a lot of people started investing in stocks. This led to the rise in the price of the stocks in the share market.
When stock markets used to go up, Harshad used to sell his stocks, return the banks’ fund, and get back its fake receipt. This went on till the price of the shares were rising. Suddenly the prices of the shares started falling and Harshad started facing losses as he as not able to return the money of the banks.
Then on 23rd April 1992, journalist Sucheta Dalal exposed the scam of Harshad Mehta in Times of India’s article after which his scam got exposed. Banking system then had to suffer a loss of 3000-4000 crores. When this scam was exposed, the stock-market was crashed badly and a lot of investors suffered huge losses.
The Chairman of Vijaya Bank committed suicide right after the scam as exposed. Banks now started asking Harshad for their money, but Harshad was not able to return the money due to the market crash. Before the scam as exposed, no one had any idea of Harshad’s technique or motive.
On 9th November 1992, CBI arrested Harshad and he was charged with 600 civil action suits and 70 criminal cases. SEBI had banned him from investing in the stock-market forever. He was kept in Thane Jail and suddenly he felt pain in the chest and breathed for the last time around 12:30 with 27 cases still pending against him.
Sarada Chit fund scam
This scam held its roots from the state of West Bengal which not only made the richer section and middle class suffer loss but also the poor people were made to suffer. In India there are loads of Ponzi schemes which are made to fraud the innocent public. One such scheme was Sarada Chit Fund.
The person chiefly related to this scam is Sudipta Sen who was the chairman of Sarada Group of Companies. He started issuing debentures and bonds for gathering currency for his company at low interest rates. When he started this work with a keen sense of planning, he assured the public in general that there will be some huge amount of return if investors invest in his company.
Whenever a company wants to raise invests from more than 50 investors, it has to get the approval of SEBI. But this was not what Sen did as he knew this very well that the bonds and debentures which he was going to issue were nor for genuine use but was just a scam. The foremost thing he did was hiring agents who would be entitled to commission if they bring customers to invest in such bonds and debentures.
Agents were given a commission of 20-25% but they were also told that company will return the amount at certain interest rates. These agents used to convince the members around them to invest and earn profit. In India, most of the people have no knowledge about the financial awareness. They are unaware about when an individual or a company provides more returns, what are the risks behind it.
This way Sudipta Sen collected 4000 crores of currency from 17 lakh individuals. This scam was even marketed very well like the name of the company itself states a group of several other companies and the name Sarada has been chosen to generate good will. He then started endorsing sports players and film stars. In Bengal, there is a huge craze for football and Durga Puja and hence this company started investing on sports clubs and sponsoring Durga Puja.
They even started distributing free ambulances for public. These acts made the public invest more in Sarada group as they started believing that this company works for the welfare of public and is trustworthy. Now, not only Bengal but other states surrounding Bengal also got affected by this scam. In around 2009, SEBI came to know that there is some false tactic used by Sarada group.
So, SEBI notified the Bengal government, Sudipta Sen and Sarada Group of Companies about the false tactics. The Bengal government took no action even after being notified and the scam further kept on influencing the public. Sudipta made another plan to cope up with this situation where he formed many other companies like around 300 under Sarada Group.
Then he started adding investors to those companies so that SEBI also gets confused about where the actual problem lies. Sudipta formed a very complex network of the companies which made it difficult for SEBI to investigate the root cause.
After investigation, SEBI raised questions regarding this where the administration answered that the company doesn’t collect currency through bonds and debentures instead raises chit funds which does not come under SEBI but the state government. This scam was going very well until loads of money was coming through this scheme as it was easy to pay the investors who joined the earliest.
Slowly the fund’s inflow started declining and the company was not able to pay to its investors at times. People waited for their turn but then a point arrived where they started raising complaints and in 2013, this scam got completely exposed. Sudipta Sen and some other flew away and in April 2002, all of them were arrested. Film celebs and politicians were also connected to this scam and when it got exposed, around 200 people committed suicide as they lost all their money.
Satyam Scandal: Biggest ever corporate accounting fraud
In 1987, B. Ramalinga Raju started Satyam Computer with his brother-in-law which was Hyderabad-based IT company. Before starting Satyam Computer, B. Ramalinga Raju had a cotton business. In 1991-1992, Satyam Computer got listed in the BSE and in 2001, it got listed on the New York Stock Exchange. Satyam Computer was one of India’s fastest-growing companies, for which Satyam Computer and B. Ramalinga Raju had received many awards.
Satyam was on a good growth track but, there was a boom in Real Estate and Raju’s focus shifted towards that. Real Estate rates were going up fast in Hyderabad, so Raju quickly started buying land properties in Hyderabad and areas around it. Maytas Infra and Maytas Properties were the two holdings that Raju started in 1998 to buy properties in the name of these companies, his family members and himself. Raju started buying properties aggressively and, when he needed more money, he started to manipulate the financial statements of Satyam Computers.
That means he began foul play. With Satyam Computer’s constant growth and strong financials, its share price went up. On that high share B. Ramalinga Raju and his brother B. Rama Raju, began to sell their shares and kept their other shares as collateral and took a loan to use that money to buy properties. To buy properties, Raju had opened nearly 365 companies.
Raju used to buy land in the name of his family, friends and relatives. The people working on his farm whose salary was Rs.4000-Rs.5000, Raju had made some of them the directors of a few companies out of 365 and bought land in their names. He made a lot of his friends’ the director of some companies too. Metro Man Sreedharan said Raju had some confidential information about Hyderabad’s proposed metro route.
That means Raju already knew the route of that metro line. Raju aggressively started to buy land near the proposed metro route, assuming when the metro comes, the prices of those lands will go up. He planned that the profit he gets from Real Estate, some of it could go into Satyam, so that Raju could easily fill the gap between the actual sales and profits Satyam made.
To show more sales in Satyam Computers, Raju started making fake sales invoices. Raju made 7500 fake sales invoices. Using them, he showed fake sales, but what about the profit? Where is the profit made out of the fake sales? So for that, Raju made bank statements to show that the money from profits is in the bank. That meant he showed a lot of cash reserve that did not exist.
For many years, Raju kept faking the sales, profits and other figures. Showing good growth in the company, Raju kept attracting investors because of which Satyam Computer’s share price kept on increasing, and its promoters kept selling their shares at higher prices.
In 1999, the promoter’s shareholding in Satyam as 24%. It dropped to 2% by the end of 2008 and he used this money to buy properties. The more Satyam grew, the gap between Raju’s fake figure and actual figure increased which became a really huge amount. In 2008, Real Estate slowed down because of the recession and Raju’s plan of selling properties and fixing the gap between the figures failed.
After this, Raju made a new plan to fill this gap. As per his plan, Satyam Computer would buy a 51% stake in Maytas Infra and Maytas Properties. And Raju said this money goes to the promoters of Maytas. Maytas were owned by Raju’s family. Satyam spelt backwards becomes Maytas. Raju thought this deal would help him show that the companies have been bought using the gap between the figures.
But in reality, there was no cash transaction because it was Raju’s family business. This way, the gap between the figures would get filled. On 16th December 2008, Satyam Computer’s Board of Directors approved this plan. Raju sanctioned this deal without taking permission from the shareholders. But Satyam’s investors didn’t like this decision, especially Satyam’s institutional investors.
After this decision, Satyam’s stock fell rapidly. A US investor even filed a lawsuit against Satyam and there was a drop in Satyam’s stock in NYSE. Due to this pressure, Satyam decided to cancel the plan of acquiring Maytas. As soon as this pan failed, the 4 independent directors of Satyam resigned.
Watching this plan fail for filling the gap, on 7th January 2009, Raju confessed that Satyam Computer has been manipulating financial statements for years now. Raju revealed that there is a difference of Rs.7000 crores between the figures. After this, along with Raju, the independent directors and auditors of Satyam were being questioned, that the company has been manipulating the financial statements for so long and the independent directors and auditors were not aware of this.
How is it possible? Satyam’s auditor was Price Waterhouse Cooper. So figures kept inflating and, PWC didn’t bother to check the invoices and statements for so many years? An auditor’s job is to check a company’s financial statement and their reliability and accuracy. In a way, an auditor is a representative of the shareholder but here, the auditor cheated them too.
SEBI banned PWC for 2 years and the US stock-market regulator too. SEC has fined PWC $6 million. Later, it was revealed that Satyam used to pay PWC double the fee as any other IT company paid their auditor. On 9th January 2009, Raju and his brother B. Rama Raju got arrested. After this scam, the government immediately appointed new Board members in Satyam, and began preparing to save Satyam from collapsing.
Finally, Tech Mahindra bought Satyam as per government’s plan. Tech Mahindra in April 2009, bought 51% stakes in Satyam and changed the company’s name to Mahindra Satyam. Later in June 201, Mahindra Satyam merged with Tech Mahindra. As per CBI report, Raju was into money laundering and he first used to send money to Europe and would then reroute it to India.
With this money, Raju would buy lots of anonymous buildings. The Enforcement Directorate pressed charges on Raju and 47 people along with him, and on his 166 companies for money laundering and seized Raju and his family’s property. SEBI charged Raju and his family with insider trading and ordered them to return Rs.1850 crores of profit they made through insider trading, with an interest of 12%. They also banned them from dealing in the securities market for 14 years.
On 10th April 2015, the special CBI court sentenced Raju, his brother B. Rama Raju, the then CFO Srinivas Vadlamani, 2 PWC partners and 5 other people, to 7 years of imprisonment. Raju and his brother were fined Rs.5.5 crores. Before this scam got exposed, Satyam had a big name. It was India’s 4th largest IT company. Satyam’s stock was in NIFTY and Sensex too.
On 9th January 2009, Satyam Computer’s stock got removed from NIFTY and Sensex. In September 2008, the World Council for Corporate Governance presented Satyam with the global peacock award and just 4 months later, Satyam’s accounting fraud got exposed. Satyam’s then CFO and some executives, few months before Raju confessed, had sold their Satyam shares. The investors of Satyam after this scam, incurred a loss of Rs.14, 162 crores and LIC, which was an institutional investor of Satyam, faced a loss of Rs.950 crores.
Though there is no limitation to the number of white-collar offenses committed everyday, still there are certain legislations formulated by the Parliament to punish the offenders. Some of them include the Companies Act, 1960, Income Tax Act, 1961, Indian Penal Code, 1860, Commodities Act, 1955, Prevention of Corruption Act, 1988, Negotiable Instruments Act, Prevention of Money Laundering Act, 2002, IT Act, 2005, Imports and Exports Act, 1950 and several other.
But the problem is that these acts and laws can only be implemented or made to implement if the public becomes aware and stand united to punish such offenders. White collar criminals already are treated leniently as almost everyone is involved in it and if we get to calculate the data, the number is so huge that even the legislation framing it, the execution implementing it, and the judiciary interpreting it, all will be surrounded.
This article has been authored by Astha Thapliyal, a student at Uttarakhand Technical University, Dehradun.