Introduction
Over the past decade, We have seen thousands of scams go by like the wind, from Vijay Mallya to Nirav Modi, and Harshad Mehta, all these people committed crimes that didn’t involve getting into a brawl, Assault, or violence. The crimes they committed were done with a certain level of finesse, sinking into people's psyche, knowing what ticks people, and then robbing them blind.
These crimes are not committed on the spur of the moment like a street fight, nor they are physically brutal as an assault, Hurt, or grievous hurt. These are a branch of normal activities leading to fancy schemes giving people the high of money, power, and prestige.
Definition
The Term White Collar Crimes was coined by the American criminologist Edwin H Sutherland. He was the first one to differentiate between Blue Collar Crimes (Theft, Murder, assault, Rape, Kidnapping, Dacoity, robbery, etc.) and White-Collar Crimes. He first used this word in an address to the American Sociological Society, He defined White collar crimes as “the crime in the upper or white‐collar class, composed of respectable or at least respected business and professional men”. He went on to categorize these crimes into two branches, first, the Misrepresentation of Asset Values, and second, the Duplicity in the Manipulation of Power. The core difference between the two is that misrepresentation corresponds to fraud, or swindling whereas manipulation of Power, is to prey on the vulnerable and double-cross them for your benefit. Alber Morris, Marshall B Clifford, and Frank H were other jurists who defined White Collar Crimes. Their definitions lined up as an “ Anti-Social Activity, committed in the violation of the law, by businessmen, firms, politicians, and their agents.
Looking at all these definitions, we can define White Collar Crimes are crimes committed that are non-violent in nature, motivated by financial gain. It can be more elaborately defined as “White-collar crime is a nonviolent crime often characterized by deceit or concealment to obtain or avoid losing money or property, or to gain a personal or business advantage”
Different Types of White-Collar Crimes and Their Provisions in India.
TAX EVASION
Tax Evasion is one of the most popular forms of white-collar crimes. Tax Evasion is an illegal practice where a person or entity intentionally doesn’t pay or avoids paying due taxes or tax liability or wilfully fails to pay the tax penalty under the Income Tax Act. IT includes both non-payment and underpayment of taxes. Tax Evasion can also be in the form of using methods to minimize the amount of income tax by claiming extra deductions or credit allowance or through charities or trusts by underreporting income, concealing financial and personal assets, or claiming more dependents than you have.
Section 276C of the Income Tax Act of 1961 deals with the Willful Attempt to evade tax. This section outlines the penalties for willfully evading taxes or penalties or interest chargeable or imposable under the act. It states that in case of evasion of these aforementioned securities exceeding the amount of 2.5 Lakh rupees shall be punished with rigorous imprisonment for a term between six months and seven years with a fine, in any other case, it may be punishable with a rigorous imprisonment for a term between three months and 2 years. The Section also explains that for this section includes, any person who is in the possession or control of any books of accounts or other documents containing a false entry, any person who makes or causes to make a false entry or statement in such books, or any person who omits or causes to omit any relevant entry or statement in such books of account or other documents. Two of the famous cases of Tax Evasion are
Make My Trip (India) Pvt. Ltd. v. Union of India
Make My Trip was alleged for a evasion of tax amounting to Rs. 75 Crores. The DGCEI registered the case against make my trip for no longer depositing service tax which it had incurred from the customers. The commission stated that when the customers booked hotels and flights, that a certain amount is transferred to the respective governments but majority of amount is kept with the company. Upon Investigation it was found out of 440 Hotels that were in agreement with make my trio, 212 were not even registered in the books. Income Tax Department arrested the Make My Trip Officials, and ordered the funds to be collected. The Delhi High Court indicted the Service Tax Department for wrongfully arresting the officials while also ordering to refund the amount collected, a fine of 1 Lakh rupees was also imposed on the Department. The Bench also observed that the power of arrest shall be exercised with care and not carelessness, such wrongful arrests violate the Article 21 of the Constitution. The Supreme Court also disapproved of the arrest and stayed consistent with decision of Delhi High Court.
Vodaphone International Holdings BV v. Government of India
A Bilateral Agreement between a Hong Kong entity Hutchinson Telecommunications International Limited (HTIL) and a Netherlands entity Vodaphone International Holdings BV (VIHBV) was signed in 2007. HTIL sold its stake to VIHBV through a series of subsidiaries for a consideration of 11.1 billion USD, and VIHBV gained substantial capital gains of the sale. The Indian Revenue authorities demanded that on the acquisition of the stake, VIHBV is liable for tax payment under section 195 of the Income Tax Act. The Supreme Court supported VIHBV and quashed the order concerning the Demand for payment/ Tax Liability by the Income Tax Department. The Supreme Court held that the sale of shares to VIHBV does not amount to transfer of capital assets within the meaning of Section 24(1) of the Income Tax Act. This Decision led to a retrospective amendment by the government in the Taxation Law. Consequently, making it is necessary for VIHBV to pay the tax liability. The Dispute went on for 13 Years, Finally, the decision was in the favor of VIHBV, stating that the tax is not payable as per the bilateral treaty. The treaty aimed for a fair and equitable standard and stated that it could not be revoked in any manner that would bring loss to the parties.
2. ILLEGAL TRAFFICKING IN CONTRABAND GOODS AND SMUGGLING
Illegal Trafficking means any illegal activity that involves the transportation and the distribution of contraband goods such as drugs, firearms, counterfeit products, or, an illicit trade that contributes to a rise in organized crime or funding terrorism, or which has a destabilizing effect on national or international security.
Illegal Trafficking in Contrabands goods means the illegal trade or movement of goods that are prohibited by law i.e. import, export, or possession of items that are restricted or forbidden. These particularly include but are not limited to illegal drugs, weapons, counterfeit goods, and items that pose a threat to public safety. Such trafficking leads to the loss of revenue for the government as well as the loss of effectiveness of formal economic institutions.
Smuggling means illegal transportation of goods. According to the Oxford Dictionary smuggling refers to the crime of taking, sending, or bringing goods secretly and illegally into or out of the country.
Smuggling of Contrabands goods means the transportation of goods without sufficient permission or authority including under-billing of the prices to avoid customs fees: under-billing of the quantity of the goods and/or over-billing to get tax-exemption. It also includes the Shuttle Trade which involves the purchase of goods at a lower and cheaper price and then selling them in the local market without a comparatively higher price to get high profit.
Trade of Illegal Goods includes the smuggling of drugs and narcotics, arms, Wildlife, fuel, tobacco, goods (commodities), natural heritage, livestock, etc.
Section 135(1) of the Customs Act, 1962, outlines the penalties for individuals involved in fraudulent activities related to customs duties or goods. If a person knowingly engages in misdeclaration of goods, evades customs duties, deals with goods liable for confiscation, or fraudulently avails of duty exemptions or drawbacks, they may face imprisonment up to seven years and a fine, particularly if the market value of the goods exceeds one crore rupees or the evasion exceeds thirty lakhs. In less severe cases, imprisonment may extend to three years or be accompanied by a fine. Repeat offenders face harsher penalties, with imprisonment up to seven years and a minimum of one year, unless special reasons are recorded by the court.
3. Other Provisions against White Collar Crimes in India
Sections 447 and 448 of the Companies Act,2013 deal with a person found guilty of Fraud and False Claim respectively.
The Prevention of Money Laundering Act,2002, and Prevention of Corruption Act.1988 deals with offenses relating to money laundering and corruption.
Sections 43 and 44 Information Technology Act,2000 deal with the provision relating to Cyber Crimes, Computer Crime/ Software Piracy
Fraudulent bankruptcy is covered under the Banking Regulation Act of 1949.
Stock Market Manipulations covered under the Companies Act, 2013 Indian Penal Code and Company Frauds (Contraband) under the Competition Act,2002.
4. POPULAR SCANDALS
PNB Scam
The Punjab National Bank also known as the Nirav Modi Scam was one of the biggest scams in 2017. In 2017, in the Sandy House PND, Fort, Mumbai Branch issued false bank guarantees worth 11000 Crores to Nirav Modi in an unethical manner. Nirav Modi approached PNB for buyer’s credit to import diamonds from foreign countries. According to the guidelines issued by the Reserve Bank of India, the banks (in this case the foreign subsidiary of the Indian Bank) should ask the borrower for collateral securities against the buyer’s credit. Collateral Securities can also be the Letters of Understanding issued by the median Banks, to the foreign banks which states that if the borrower fails to pay the loan amount, the bank which issued the LOUs shall pay the loaned amount. Usually, the Letters of Understanding (LOUs) through a SWIFT system are linked and recorded in the Core Banking System (CBS). In this case, 2 employees manipulated the data and issued fake LOUs to foreign banks which means that the loan was issued without any collateral. The fraud was exposed in 2019 when PNB lodged an FIR with the CBI against Nirav Modi.
Harshad Mehta Scam
The 1992 Stock Market Scam namesake after its fraudster Harshad Mehta dealt with the Embezzlement of Rs. 1439 Crores (3 billion USD). The stockbroker from Mumbai found loopholes in the Indian banking and stock market systems and manipulated them in a way to gain maximum profits and wealth. His scam led to the loss of money and wealth of his investors and the Indian stock market resulting in the loss of revenue and drastic fall in the market. Mehta first found a way to execute Ready Forward Deals or RF Deals without giving collateral. Usually, an RF Deal is a secured short-term loan, usually for 15 days, from one bank to another, roping a maximum of two banks. The banks take collateral in the form of government bonds for the banks. In practice, the banks instead of government bonds issue a Bank Receipt as a “I Owe You”. The borrowing banks at the end of 15 days purchase these bank receipts at a higher price. Mehta as the broker, acts as the intermediary between these banks and found a way to secure these RF Deals without actually giving securities. He roped in a web of Banks to issue these bank receipts to each other.
Mehta then used the money acquired from these RFDs to invest in the stock Market. He gave the money to Bear Cartels who aimed at driving the prices of the stock low which led to the undervaluation of various market securities. They then purchased these securities at cheap and lower prices and sold them when the prices returned to normal.
Mehta further scammed the investors by collaborating with 2 Banks i.e. Bank of Karod (BOK) and Metropolitan Co-operative Bank (MCB), forged false Bank Receipts, and availed loans without any collateral. The scam was exposed by the journalist Suchita Dalal who was surprised by the various cars, wealth, and the luxury lifestyle of Mehta. However, it is speculated that Mehta was a scapegoat to protect the politicians and higher-up officials that were involved and benefitted form the scams.
Satyam Scam
Satyam Scam was one of the most notable corporate scams in India. It came to light in 2009 when Ramalinga Raju, the company's founder, confessed that he had falsified financial statements, inflated revenues, and overstated the company’s cash reserves by 1.5 billion USD. He admitted that for years Satyam Computer Services, the well-known IT company, had been fabricating bank accounts, assets, and income statements to exaggerate profits. He revealed that the company had reported non-existent revenues, fictitious assets, and understating liabilities. The company showed inflated bank balances, bogus interest receipts, and fake invoices. This allowed Satyam to project a strong financial position and attract investments, while in reality, the company was struggling with liquidity. This scam also highlighted the need for stronger corporate ethics and regulatory oversight in India.
Conclusion
Conclusively, White-collar crimes represent a sophisticated and often insidious form of criminal activity that can have long and lasting consequences on economies, governance, and society at large. Unlike violent crimes, these offenses are carried out with calculated finesse, often exploiting legal loopholes and manipulating trust to achieve financial gain. The cases of tax evasion, smuggling, and high-profile scandals like the PNB scam, Harshad Mehta scam, and Satyam scandal, underscore the significant damage these crimes can inflict.
In India, while there are legal provisions to combat such crimes, the lack of effectiveness of enforcement and the complexity of these crimes often allow perpetrators to escape with minimal punishment. This highlights the need for stronger regulatory frameworks, stricter penalties, and more vigilant enforcement agencies to deter future occurrences. A concerted effort by lawmakers, law enforcement, businesses, and the public can we hope to mitigate the impact of these sophisticated criminal activities and safeguard the integrity of our economic and social systems.
References
“White‐collar criminality” (Sutherland 1940)
Federal Bureau of Investigation. White Collar Crimes
Tax Evasion: A Critical Analysis with Respect to The Case of Make My Trip (India) Pvt. Ltd. V. Union of India & Others.
Vodafone Holdings BV Versus Republic of India - Nishith ... Available at: https://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research_Papers/Vodafone-Holdings-B.V.-versus-Republic-of-India.pdf
Standard, B. (no date) Who is Nirav Modi?: PNB scam case: Nirav Modi Case, Business Standard. Available at https://www.business-standard.com/about/who-is-nirav-modi (Accessed: 18 August 2024).
AlmeidaAron, A. (2024) Harshad Mehta scam - how one man deceived entire dalal street?, Trade Brains. Available at: https://tradebrains.in/harshad-mehta-scam/ (Accessed: 18 August 2024).
Author:
Khushi Khanna
Guru Nanak University, Amritsar
BA. LLB, 4th year.
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