Economic Crimes: Legal Dimensions and Enforcement Mechanisms

Introduction

Economic crimes are generally frauds and breaches of trust involving huge amounts of monetary transactions which jeopardize the growth of the organization, business relations between the organization, stakeholder trust and hold and to some extent destabilizes the government also.

Economic crimes are as old as commerce and economics itself.

Economic Crimes are also coined with the term White Collar Crimes. These economic crimes are usually done by the person during the course of occupation as all the sensitive and critical monetary data relating to breach of trust is available during the course of the occupation itself. And there have been significant developments in the regulations along with the occurrence of the economic offenses.

The major difference between White Collar and Blue Collar Crime is that white-collar crimes are committed by people who are privileged, upper class and are at a position of power in any organization, whereas, Blue Collar Crimes are performed by people who are of the underprivileged section, are of lower social standards and usually fall at the bottom line management of the organization, but, both the offences lead to the significant financial loss of high values, loss of securities and commodities.[1]

Economic offences have a very deep-rooted impact on society which penetrates as deep as causing inflation if not curbed by proper regulatory and enforcement mechanisms.

Definitions and Concept of Economic Crimes

Economic Crimes are usually in the form of Embezzlement, Bribery, Forgery, Misappropriation of accounts, fraudulent presentation reports, funding money for narcotics and drugs, rackets, etc.

Every occupation and profession has its own economic crimes but is reduced in two forms first being misappropriation of funds, assets and the second being manipulation and abuse of a position of power.[2]

Economic Crime is a crime of deceit motivated by financial gain.

Economic Crimes are committed by a person of high social status and respectability. It doesn’t involve physical violence, but the aftermath of its greed is devastating. Examples of white-collar crime include fraud, embezzlement, and money laundering[3].

Economic Crimes usually have the following characteristics

1. Element of mens rea and actus reus,
2. Intention to cheat, deceit, and act in a fraudulent manner,
3. Generally committed by people who are power-hungry, are in a position of power, have a privileged background or are even greedy people living in poverty.
4. Usually no physical loss or physical harm

Kinds of Economic Crimes

The superior motive behind committing an economic crime is huge amounts of tainted profit but these crimes are done in various ways and have various forms. A few examples of Economic Crimes are as follows:

I. Economic Crimes in Business

Economic Crimes in business cause a huge loss to the wealth in the economy of the nation as the amount of stake involved and the amount of stakeholders money involved is usually very high. Some of the common forms of Economic Crimes in business are:-

1. Bank Frauds- Bank frauds usually involve manipulation of negotiable instruments like cheque bouncing, misrepresentation, manipulation of account deposits, forging signatures on cheques.
2. Insurance Frauds- Insurance frauds are committed to obtaining an undue advantage and wrongful title to a claim. It can be committed by policyholders or even by the insurance companies themselves. Policyholders commit fraud by faking death, accident, or illness to get the unmatured deposit, and insurance companies commit fraud by diverting premiums, overcharging premiums, etc.
3. Pump and Dump Schemes- The fraudulent practice of encouraging investors to buy shares on false promises of double returns and increase the share price to gain undue profit from such a scheme.
4. Ponzi Scheme– The scheme came under the public eyes after the scam by Charles Ponzi. The scheme promises extremely high and attractive returns to lure investors. When this money is collected then the money is used to pay off the original investors.[4]
5. Wire Fraud-Offense is committed using analog or digital communications and obtain money through digital modes by making false representations
6. Insider Trading- Fraudulent practice by the connected persons of the company or persons who hold certain key roles or managerial responsibilities. These persons have all relevant and price-sensitive information and then they use it to gain undue advantage or profit from such undisclosed information to fluctuate the price of securities.
7. Money Laundering- Practice did to make tainted money appear white and untainted. Offenders under this practice layer the tainted money/ proceeds of crime through multiple transactions and cover the illegal source of money through legitimate means.

II. Economic Crimes in Medical Profession

Economic crimes under this profession violate all ethical practices that a medical professional owes, as a duty to the patients. Some of the offenses done for undue monetary gain are:-

1. Making false birth/death certificate
2. Falsely Prescribing drugs
3. Sex determination and termination of pregnancy after determination
4. Selling sample drugs and medicines
5. Prescribing tests and check-ups which are not required
6. Overcharging money by claiming it as an emergency procedure.

III. Economic Crimes in Education

Economic crimes prevalent in the education system have quite a deep-rooted impact in the system since it acts detrimental to the unprivileged sections of the society and a non-deserving candidate has a better chance against a deserving yet aspiring candidate.

Some of the economic crimes which shake the very foundation of the education system are:-

1. Donation-based admission
2. Reservations for bureaucrats in the cream institutions
3. Overcharging of fees for non-facilitated services.
4. Huge spikes in fee

IV. Economic Crimes against women

Women have suffered under the patriarchal system since time immemorial and uncountable violations have been done against them in the name of tradition and culture and offenses against them for monetary gains are no exception.

Dowry practice is a very deeply disturbing practice and is believed to save the honor of the woman’s father in the husband’s family.[5] There have been uncountable cases reported where women have been killed or have been subjected to cruelty in return for money.

The Indian Penal Code, 1860 punishes anyone guilty of causing Dowry death with imprisonment of 7 years[6]. Section 4 of the Dowry Prohibition Act,1961 makes the demand for dowry an offense.

Laws to Prevent Escaping of Economic Offenders

The Extradition Act,1962, and The Fugitive Offenders Act, 2018 deal with the identification and detection of economic offenders as well as return and extradition of fugitive offenders seeking asylum in other countries.

The notable Vijay Mallaya Scam, as well as the Nirav Modi Scam, led to the enactment of the Fugitive Offenders Act,2018. The two scams involved crores of money and abscondment of these offenders to other countries

The Fugitive Offenders Act, 2018 act gives power of extra-territorial jurisdiction to the Indian Courts and special courts and the power to seize, confiscate the assets and properties of these offenders if the value of the economic crime is more than 100 crores.

The Extradition Act,1962 was enacted with the objective to extradite/ bring back the fugitives who have committed frauds and scams and have escaped to other nations to ensure justice to all the stakeholders of the justice.

Landmark Cases of Economic Crimes

1. Harshad Mehta Scam

The 1988 scam is a classic example of the pump and dump scheme. Harshad Mehta manipulated and misappropriated the stock-sensitive information to pump up the prices of the scrips and shares.

There was an unusual rise in the price of the shares and the market went down by Rs. 0.1 million per day when the scam came into the limelight and the stock market suffered its biggest crash in history.

2. Nirav Modi Punjab National Bank Scam

This scam was a typical bank fraud where Nirav Modi, a well-known jewelry designer was successful in obtaining fake Letters of Undertakings (LOU) to fund credit from overseas financial institutions.

The bank officials had issued the LoU’s without any required due diligence and had transferred the Lou through a SWIFT system to the financial institutions overseas. This 1.8 billion dollar fraud was one of the biggest banking frauds to date.

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Reference

[1] White-Collar vs. Blue-Collar Crime, Available Here

[2]Sutherland, E. (1940). White-Collar Criminality. American Sociological Review, 5(1), 1-12. Retrieved November 26, 2020, Available Here

[3] White Collar Crimes: Detailed Study, Available Here

[4] Ponzi Scheme – Overview, How It Works, How to Protect Yourself, 2020, Available Here

[5] Crimes Against Women, Available Here

[6] Section 304B, Indian Penal Code, 1860

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