INTRODUCTION
In this article the Author has explained comprehensively and in detail about White collar crime such as its meaning, Definition, Kinds, Importance, it’s impacts in the economy and the society, various theories and Landmark cases in the White collar Crime.
Meaning of white collar crime
White-collar crime refers to non-violent crimes committed by individuals of high social status in their occupation, often involving financial fraud or deception for personal or corporate gain.
Definition of White Collar Crime
White-collar crime is a nonviolent and non-criminally charged crime often characterized by deceit or concealment to obtain or avoid losing money or property, or to gain a personal or business advantage by unfair means, i.e. wage theft, fraud, bribery, Ponzi schemes, insider trading, labor racketeering, embezzlement, cybercrime, copyright infringement, money laundering, identity theft, and forgery.
Importance of understanding white collar crime in India
It is crucial to understand the importance of whit-collar crime because it significantly causes huge financial losses, erosion of trust in institution,s and potential destabilization of financial markets, affecting individuals, businesses, and society as a whole.
It can severely damage the reputation of the company, difficulty attracting talent, and potential regulatory scrutiny if not given due attention. A single instance of fraud, embezzlement, or other white-collar crime can open the door for further offenses. The initial success, or even the perceived lack of immediate consequences, can embolden the perpetrator to engage in more extensive or complex schemes.
To conceal the initial crime, perpetrators may resort to further fraudulent activities, such as falsifying records, manipulating accounts, or engaging in money laundering. These actions can create a web of interconnected crimes, making it harder to detect and prosecute the original offense. Thus, a complex white-collar crime takes place.
How it impacts the economy and society-
White-collar crimes, such as fraud, embezzlement, and corruption, can lead to substantial financial losses for businesses, investors, and taxpayers.
These crimes can damage public trust in financial institutions, economic systems, and government, leading to instability and reduced confidence.
Large-scale fraud and corruption can destabilize financial markets and negatively impact economic growth causing economic instability.
Victims of white-collar crimes, including employees, investors, and customers, can experience significant stress, anxiety, and a sense of betrayal.
The financial losses and sense of betrayal associated with these crimes can lead to severe mental health issues, such as depression and anxiety.
Overall morals and ethics of the society will be harmed and harmony will be destroyed with lack of empathy towards one another.
Origin and evolution of White Collar crime – Edwin Sutherland’s definition and theory
“White-collar crime” is a term first coined by sociologist Edwin Sutherland in 1939 who defined it as a crime committed by a person of respectability and high social status during his occupation. He was a criminologist, highlighting that crime wasn’t limited to the lower classes but could also be committed by respectable individuals in their professional roles. Sutherland’s research focused on the criminal activities of major corporations and utility companies, demonstrating that even well-educated and respected individuals could engage in criminal behaviour.
- Differential Association Theory:
Sutherland’s theory of differential association, which posits that criminal behaviour is learned through interactions with others, also contributed to his understanding of white-collar crime. It states that criminals are made by their environment and associates.
The Carrier’s Case (1473) – First Documented White-Collar Crime
Carrier case was the first case of white- collar crimes which was documented in the year 1473 in England. In this particular case, the agent was entrusted with the responsibility of the principal to transport wool from one place to another. The agent was found guilty of stealing some of wool.
The English court after this case adopted the doctrine of “breaking bulk” which means that the bailee who was given the possession of goods tried to break it open and misappropriate the content.
Early Perspectives on Corporate & Financial Crimes-
Albert Morris was the first to discuss the abuses of the Criminal of the upper world in the form of a book.
In his treatise on criminology (1935) he defined criminals of upper class as:
That is a numerous but never clearly defined group of criminals whose social position, intelligence, and criminal technique permit them to move among their fellow citizens virtually immune to recognition and prosecution as criminals
Why the colour white?
Associating colours with crimes can be attributed to a combination of cultural, societal, and psychological factors. colours often carry symbolic meanings deeply rooted in cultural contexts, leading to specific associations. The psychological impact of colours, evoking emotions and reactions, plays a role in their connection to criminal activities. White crimes are non-violent, financial or economic crimes committed by individuals in professional or business settings. Its motives are financial gain, fraud, or abuse of trust in professional roles. Penalties may involve fines, restitution, and imprisonment depending upon the severity.
Key Difference between White Collar Crimes and Blue-Collar Crimes-
| White collar crime | Blue collar crime |
| non-violent, financial crimes committed by individuals in position of power or trust. | Often violative or property related crimes committed by individuals from Lower socio-economic background. |
| Fraud, embezzlement, tax evasion | Burglary, theft, assault |
| Financial gain or power | financial or personal gain |
Common motivations behind such crimes-
Individuals or professionals in a business environment are driven by a financial motive of making profit whether it be for personal gain or for the business. The crimes are often committed in financial pressure or sheer greed. These criminals often exploit their position of trust and power to commit crimes.
The common motives that drive businesses or firms to commit such crimes are financial gain, commercial advantage, personal greed, abuse of trust, abuse of professionalism, unfair profit maximisation, and competitive market forces.
Types of White-Collar Crimes in India
Corporate Fraud and Financial Scams
- Insider Trading and Stock Manipulation-
When someone who has non-public material information about a stock, buys or sells stock of a publicly traded company is referred as an insider trader. Insider trading involves the use of non-public information to gain an unfair advantage in financial transactions.
Market manipulation occurs when a person deliberately spreads false information about facts material to the audit, or omits certain information subject to mandatory reporting requirements, thus influencing the market price by deception. The culprits here are often the company management, speculators or so-called ’stock market gurus’, who, e.g. seek to drive up the price of their own or acquired shares or commodity prices by citing inflated figures.
These crimes distort the playing field and undermine the principle of fair play. This can deter participation in markets, as individuals and businesses lose confidence in the fairness and reliability of market mechanisms. This reduced participation can, in turn, impact the efficiency of financial markets in allocating resources, potentially stiffening innovation and economic growth.
- Embezzlement and Money Laundering-
Embezzlement is a serious white-collar crime that involves the misappropriation of funds that have been entrusted to an individual. This form of theft occurs when someone with access to an organization’s finances diverts funds for their personal use or for the benefit of a third party. To conceal their actions, embezzlers may create false invoices or receipts or work with a consultant or contractor who never performs the services for which they are paid.
Money laundering is a criminal activity that involves disguising the proceeds of illegal activities as legitimate funds. Criminals engaged in money laundering often use a variety of techniques, such as creating shell companies, structuring transactions to avoid detection, and using offshore bank accounts to conceal the true source of their funds. Money laundering can have a significant impact on the global economy by distorting financial markets, facilitating the financing of terrorism, and undermining the integrity of financial institutions.
Tax Evasion and Ponzi Schemes-
Tax evasion or tax fraud is an illegal attempt to defeat the imposition of taxes by individuals, corporations, trusts, and others. A Ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors. Ponzi scheme organizers often promise to invest your money and generate high returns with little or no risk. But in many Ponzi schemes, the fraudsters do not invest the money. Instead, they use it to pay those who invested earlier and may keep some for themselves.
Bank Frauds and Bank Loans-
Bank fraud is the use of potentially illegal means to obtain money, assets, or other property owned or held by a financial institution , or to obtain money from depositors by fraudulently posing as a bank. In many instances, bank fraud is a criminal offence. Types of bank fraud are accounting fraud, demand draft fraud etc, bill discounting fraud and fraudulent loans.
Landmark White-Collar Crime cases in India-
- Harshad Mehta Securities Scam 1992-
Harshad Mehta Securities Scam of 1992 is widely considered a landmark case that brought significant attention to white-collar crime in India.
Details of the case
It involved embezzlement of approximately ₹1,439 crores (equivalent to nearly $3 billion at that time), leading to a drastic crash in the Indian stock market and wiping out life savings worth ₹3,542 crores ($7 billion). He exploited systemic loopholes in the banking system and market manipulation of stock prices for personal gain. Even after three decades, several cases related to the scam are still pending in courts. Banks and investors continue to pursue recovery of funds lost during the fraud.
- Ketan Parekh Stock Market Scam (2001)-
Ketan Parekh is a former stockbroker from Mumbai, who was convicted in 2008 for involvement in the Indian stock market manipulation scam that occurred from late 1998 to 2001. During this period, Parekh artificially rigged prices of certain chosen securities (informally referred to as K-10 stocks), this resulted in steep hikes in share prices (for example: shares of Zee telefilms zoomed up from Rs 127 to a price of Rs 10,000) using large sums of money borrowed from banks including the Madhavpura Mercantile Co-operative Bank, of which he himself was a director.
After many investigations by the Securities and Exchange Board of India, Parekh and his front entities were found guilty of rigging share prices of ten companies called K-10 and SEBI had banned Parekh and associated firms from trading in the market for 14 years. He was referred to as “Pentafour Bull”.
- Satyam Scandal (2009) – India’s Biggest Accounting Fraud
Satyam Scandal: Byrraju Ramalinga Raju, founder and chairman of Satyam Computers Services Limited, wrote a confession letter where he admitted to tampering with his books of accounts by inflating assets and understating liabilities. Accounts books were falsified in order to defraud shareholders and investors. The CBI took over the case and filed three partial charge sheets (dated 7 April 2009, 24 November 2009, and 7 January 2010)
The total cost of the fraud was around 14,000 crore, and it is thought to have played a significant role in the 2009 recession.
In response to this scandal, SEBI responded forcefully, finding Ramalinga Raju and nine significant associates guilty of insider trading as well as engaging in dishonest and unfair business practices. In addition to prohibiting the accused from entering the security markets in any way for a period of 14 years, SEBI ordered the accused to pay approximately 3000 crores within 45 days. In order to ensure that a similar scam never occurred again, SEBI was able to respond strongly.
- Nirav Modi and PNB Scam (2018)-
The Punjab National Bank scam relates to fraudulent letter of undertaking worth Rs 10,000 crore issued by the bank.
The key accused in the case were jeweller and designer Nirav Modi, his maternal uncle Mehul Choksi, and other relatives and some PNB employees. Nirav Modi and his relatives escaped India in early 2018, days before the news of the scam became public. PNB scam has been dubbed as the biggest fraud in India’s banking history.
Bankers used fake Letters of Undertakings (LoUs) at PNB’s Brady House branch in Fort, Mumbai. The LoUs were opened in favour of branches of Indian banks for import of pearls for a period of one year, for which Reserve Bank of India guidelines lay out a total time period of 90 days from the date of shipment. The Enforcement Directorate (ED) recovered bank token devices of the foreign dummy companies used by the fugitive diamond trader to transfer the fraudulent funds.
- IL&IS Financial Fraud (2018)-
IL&FS Ltd, i.e., Infrastructure Leasing & Finance Services, is a core investment company and serves as the holding company of the IL&FS Group. It operates more than 250 subsidiaries including IL&FS Investment Manager, IL&FS Financial Services and IL&FS Transportation Networks India Ltd. IL&FS was incorporated in 1987. Its initial promoters were Central Bank of India (CBI), Housing Development Finance Corporation Limited (HDFC) and Unit Trust of India (UTI).
It all started when IL&FS Ltd. started defaulting the loans which it had taken from the financial institutions and the investors. Suddenly they started defaulting all bonds repayment, loans repayment, and investors deposits. This started pining the eyes of the rating agencies.
Consequent to defaults, rating agency ‘ICRA’ downgraded the ratings of its short-term and long-term borrowing programs. The defaults also endangered hundreds of investors, banks and mutual funds associated with IL&FS. They sparked panic among equity investors even the several non-banking financial companies felt the default scare. The sudden fall moved all the heads to the auditors.
The integrity of Deloitte was hit hard with questions. And when the fire was taking air soon a whistleblower of Deloitte alleged that how Deloitte was helping IL&FS to cook the books. As soon as the things came out SFIO (Serious Fraud Investigation Office) took control over the case. The SFIO claimed Auditors and credit rating agencies to be the part of contributors to the IL&FS failure.
- Legal Framework to Tackle White-Collar Crimes in India
- The Indian Penal Code (IPC), 1860
The Indian Penal Code (IPC) plays a crucial role in addressing white-collar crimes by providing a legal framework to prosecute offenses like fraud, forgery, and financial crimes, with specific sections like 403, 406, 409, and 420 addressing various aspects of these crimes.
- Section 403: Deals with dishonest misappropriation of property.
- Section 406: Pertains to criminal breach of trust.
- Section 409: Addresses criminal breach of trust by various classes of agents.
- Section 420: Covers cheating and dishonestly inducing delivery of property.
- The Prevention of Corruption Act, 1988
The Prevention of Corruption Act of 1988 is a crucial legislation enacted by the Indian Parliament, it came into effect on September 09, 1988, to combat corruption and promote integrity in public administration. In the pre-1988 era, India lacked a comprehensive law specifically targeting corruption.
The Prevention of Corruption Act of 1988 has undergone an amendment to address emerging challenges and strengthen the fight against corruption. The amended Act is known as the Prevention of Corruption (Amendment) Act, 2018. This amendment introduced several crucial changes, including the criminalization of bribe-giving, the protection of public officials from malicious or vexatious complaints, and the establishment of special courts for speedy trials of corruption cases.
- The Companies Act, 2013
The Companies Act, 2013 plays a crucial role in combating white-collar crimes by establishing frameworks for corporate governance, financial reporting, and audit requirements, mandating reporting of suspected frauds, and empowering the Serious Fraud Investigation Office (SFIO) to investigate and prosecute such crimes. In India, there is no law that specifically prohibits bribery in the private sector. However, the same can be done through the Companies Act, 2013 which penalizes ‘Fraud’ in connection with the company affairs.
- The Securities and Exchange Board of India (SEBI) Act, 1992 The Securities and Exchange Board of India (SEBI ) is the regulatory body for the securities and commodity market in India under the administrative domain of the Ministry of Finance within the Government of India.
- It was established on 12 April 1988 as an executive body and was given statutory powers on 30 January 1992 through the SEBI Act, 1992. SEBI enforces stringent regulations, including those outlined in the SEBI (Prohibition of Insider Trading) Regulations, 2015, to prevent market manipulation. SEBI sets disclosure norms for companies to prevent corporate fraud and protect investor interests.
- FUTP (Fraudulent & Unfair Trade Practices) Regulations: SEBI takes action against entities involved in market manipulation, fraudulent or deceptive practices related to securities, and publication of false stock recommendation articles. SEBI has taken significant action against major entities, including Yes Bank, Satyam Computers, and the Sahara Group, for fraudulent practices
- The Benami Transactions (Prohibition) Act, 1988
The Benami Transactions (Prohibition) Act, 1988, and its 2016 amendment, are primarily aimed at combating white-collar crimes by preventing the use of benami transactions to hide assets and evade taxes, by prohibiting the transfer or holding of property in a fictitious name or by someone else’s benefit. By preventing the concealment of assets through benami transactions, the act helps in identifying and recovering tax evaded money.
The act targets the flow of illicit funds by preventing the use of benami transactions to launder money. The act helps in identifying and recovering assets acquired through illegal means and concealed through benami transactions.
Role of SEBI & RBI in Preventing White-Collar Crimes
SEBI’s Regulations & Actions Against Financial Fraud-
SEBI and RBI play crucial roles in preventing white-collar crimes by regulating the financial sector, enforcing regulations, investigating violations, and promoting investor protection. SEBI focuses on the securities market, while RBI oversees banking and financial institutions.
SEBI’s Role-
SEBI regulates stock exchanges, brokers, portfolio managers, and mutual funds, ensuring transparency and fairness in market transactions. SEBI safeguards investors by promoting fair practices, preventing fraudulent and unfair trade practices, and ensuring the availability of accurate and timely information. SEBI works to prevent insider trading, where individuals with access to non-public information use it to gain an unfair advantage.
RBI’s Role-
RBI aims to prevent banking fraud and financial mismanagement through regulations and supervision. RBI plays a crucial role in maintaining price stability and economic growth through monetary policy. The RBI supervises banks and financial institutions, ensuring compliance with regulations and preventing financial misconduct. The RBI manages the country’s currency and ensures its smooth functioning.
RBI’s Policies on Banking Frauds & Financial Governance
RBI has issued Master Direction on Fraud Management for the Regulated Entities viz. Cooperative Banks in 2024, which contain comprehensive guidelines related to reporting of fraud, following of principles of natural justice, governance mechanism, implementation of early warning mechanism, staff accountability, fixation of responsibility of third parties and role of external and internal auditors, among others.
RBI has implemented a financial safety net for the account holders of banks (including cooperative banks) in the form of Deposit Insurance through DICGC.
RBI, through “RBI Kehta Hai,” has issued awareness material / useful information on aspects such as different types of frauds and their modus-operandi.
Recent Reforms & Amendments for Stricter Compliance
The most significant recent development in India’s legal landscape is the replacement of the substantive penal, procedure and evidence laws with three new legislative acts: the BNS, the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS) and the Bharatiya Sakshya Adhiniyam, 2023.
The term ‘economic offences’ is now explicitly defined within the BNS and includes offences such as criminal breach of trust, counterfeiting of banknotes and government stamps, hawala transactions, mass marketing fraud and fraudulent schemes to deceive multiple individuals or banks and financial institutions.
Impact of White-Collar Crimes
Economic Impact – Losses to Investors & Public Money
The Financial Action Task Force (FATF) estimates that around INR 5 trillion worth of illicit funds are laundered in India annually.
Fugitive businessmen have been implicated in bank frauds causing losses exceeding INR 22,585.83 crores.
Tax evasion, embezzlement, and corruption in government institutions lead to the diversion of public funds, impacting essential services and development programs.
Social and Ethical Consequences-
White-collar crimes, especially those involving high-profile figures, undermine public trust in institutions, businesses, and the government. This can lead to social unrest and a decline in civic engagement.
Such crimes often disproportionately benefit the wealthy and powerful, while the victims are often ordinary citizens who lose their savings or jobs. This can exacerbate existing social inequalities and fuel resentment.
Victims of white-collar crimes, including employees, investors, and customers, may experience significant stress, anxiety, and a sense of betrayal. The psychological trauma from financial losses can lead to severe mental health issues.
These crimes often disregard the ethical principles of fairness, honesty, and integrity, which are crucial for a just and equitable society.
The nature of white-collar crimes can sometimes create moral ambiguity, as they may involve complex financial transactions or legal loopholes, making it difficult to determine clear right and wrong.
Effect on Business Trust and Market Stability-
White-collar crimes are inherently a violation of trust, as they involve deceit and manipulation for personal gain.
These crimes can deplete life savings, ruin businesses, increase consumer costs, hamper a business’s access to resources, and even spark recessions.
White-collar crime diminishes investor confidence, creates volatility in the financial system, and increases NPAs (Non-Performing Assets) in banks thus, creating market instability.
Prevention Strategies for White-Collar Crimes
Strengthening Corporate Governance & Transparency-
- Ethical atmosphere-
A culture where ethical behaviour is valued and expected at all levels of the organization should be encouraged. Employees or workers should be trained rightfully and any kind of misconduct should be addressed immediately.
- Regular audits-
Conduct regular internal and external audits to identify discrepancies and ensure compliance with financial regulations and corporate policies.
- Financial monitoring:
Continuously monitor financial transactions, communications, and other business activities for signs of suspicious behaviour. Implementation of Strict Compliance & Auditing Practices
Stringent Due Diligence:
Implement thorough procedures to assess and mitigate risks, including financial misconduct.
Regular Internal Audits:
Conduct periodic audits to identify irregularities and ensure adherence to regulations and internal policies.
AI-Driven Fraud Detection Systems:
Utilize AI and machine learning to identify unusual patterns and anomalies that may indicate fraudulent activities.
Data Analytics:
Employ data analytics to monitor financial transactions, communications, and other business activities for early detection of suspicious behaviour.
Role of Whistleblowers & Protection Laws
A whistleblower is a person, who could be an employee of a company, or a government agency, disclosing information to the public or some higher authority about any wrongdoing, which could be in the form of fraud, corruption, etc.
Whistle Blowers Protection Act, 2011 (renamed as Whistle Blowers Protection Act, 2014 by the second schedule of the Repealing and Amending Act, 2015[1]) is an Act of the Parliament of India which provides a mechanism to investigate alleged corruption and misuse of power by public servants and also protect anyone who exposes alleged wrongdoing in government bodies, projects and offices. The wrongdoing might be in the form of fraud, corruption or mismanagement. The Act will also ensure punishment for false or frivolous complaints.
Often the whistleblower may be entitled to a reward as compensation for reporting illicit activities. Usually, this reward is a percentage of the dollar amount recuperated by the government or regulating agency resulting from the whistleblower’s information. Recovery of a minimum amount may be necessary to qualify, and the information provided must be unique or otherwise not previously reported.
Awareness & Ethical Training in Organizations
The level of public awareness of white-collar crime is often lower compared to violent crimes, due to the complex nature of the offenses. Sophisticated concealment techniques used by offenders. Offenders’ ability to present themselves as respectable individuals often creates confusion and a lack of ability to take action. Therefore, to create awareness in an organisation, it is important to regularly be updated with facts, plans, news, and actions of an organisation.
Ethical Training-
A strong corporate culture minimizes opportunities for white-collar crimes by reinforcing ethical behavior.
Establishing direct and secure communication channels enables employees to report concerns without fear of retaliation.
Prioritizing ethical decision-making over short-term financial gains helps organizations avoid scandals and reputational damage.
Ethical leadership fosters trust, accountability, and integrity throughout the organization. Strict enforcement of anti-misconduct policies serves as a deterrent against unethical behaviour.
Legal Reforms & Stringent Punishments
Laws like the Prevention of Money Laundering Act (PMLA), the Companies Act, and the Prevention of Corruption Act (POCA) are robust and effectively address modern forms of white-collar crime.
Provide law enforcement agencies with the necessary resources and powers to effectively investigate and prosecute white-collar crimes.
Stringent Punishments:
Impose penalties that are severe enough to deter potential offenders, including both financial penalties and imprisonment.
Hold corporations accountable for the actions of their employees and executives, and impose penalties that are commensurate with the scale of the crime.
Under Section 447 of the Companies Act, 2013, a person found guilty of fraud can face imprisonment ranging from 6 months to 10 years, along with a fine that can be up to three times the amount involved in the fraud.
Punishments under the Prevention of Money Laundering Act (PMLA) can include imprisonment ranging from 6 months to 10 years, along with fines.
Under the Prevention of Corruption Act (PCA), individuals involved in bribery can face imprisonment up to 10 years, a fine, or both.
Penalties can include fines (up to INR 250 million) with or without imprisonment (up to 10 years), or penalties up to INR 250 million.
CONCLUSION
White Collar Crime is one of the most important crimes that shall be understood by all of us. Despite being a Non-violent form of Crime, it impacts the general masses as well, and the impact of white collar crime is dangerous and devastating to society.
About Author
Palasha Daga, a class 12th student from Athena World School has her interest in the legal profession moreover white collar crimes and she aspire to pursue her career in the field of white collar crime.