What is White-Collar Crime and What is the Penalty?
14 November 2022
White shirts, black coats and well-ironed ties are typical stereotypes representing the rich and elite – crimes perpetrated by these kinds of people are known as white-collar crime. While such crimes tend to be non-violent, the harm they can do to society cannot be undermined.
Why do people commit white-collar crimes? What are a few popular white-collar crimes in India? What is the punishment for committing a white-collar crime? Read on to find out!
What is White Collar Crime?
The term “white collar crime” was coined by the American criminologist and sociologist Edwin Hardin Sutherland during the 1930s.
Crimes to fulfil a financial motive, although non-violent, fall under white-collar crimes. Miscreants who commit this crime are usually rich, educated and belong to high social status.
The most common cases of white-collar crimes are money laundering, tax evasion, embezzlement, insurance fraud, identity theft and securities fraud. Such criminal activities feature the use of concealment and deceit to commit fraud or gain a corporate advantage.
White-collar crimes are frequently growing in third-world countries due to the disparity in economic standings. Although non-violent, white-collar criminals do more harm to society than most other forms of crime.
Why is White Collar Crimes in India on the Rise?
White-collar crime cases are rampantly growing in India because of the major disparity between social classes. Also, poverty, lack of awareness and gullibility play factors promoting white-collar crimes in India in many instances.
The following are a few reasons contributing to the growth of white-collar crime in India.
•Lack of Strict Laws
It would be wrong to state that India has no laws to monitor financial fraud. However, due to the lack of amendments, many perpetrators can successfully exploit the loopholes in these laws.
Secondly, as the internet is the most popular medium of monetary transactions today, many white-collar crimes happen through it. However, due to weak cyber laws, it becomes tough to track down these perpetrators. This contributes to an advantage for the criminals to exploit.
The fact that a person of high social standing commits a white-collar crime implies how greed drives a man.
The want for more wealth to shine better than their competitors or escape taxes tempts a person more than anything.
Most often, commoners who fall prey to scams do not know where to report them. Also, they choose silence over taking action whenever a big corporation or bank is involved in such cases.
This boosts the confidence of these scammers, and they go on innovating new ways to fool the general mass.
Thus, we can say the lack of knowledge amongst the general masses plays a vital role in the high increase of white-collar crimes.
•Rush for Power
In today’s rat race world, we tend to materialise Charles Darwin’s survival of the fittest theory. We try to beat our peers and competitors in our daily endeavours. This competition escalates as we move up the social ladder of wealth and hierarchy.
White-collar crimes become a shortcut to winning more power and wealth over their competitors in no time.
Very often, we hear cases about white-collar criminals easily escaping Indian laws. This happens mostly with influential people like political leaders or business tycoons. They tend to tweak rules to their favour with corrupt means.
The police also, under their influence, allegedly put less pressure on investigations and protected them from the general mass. This influence over law and order is an upper hand to escape white-collar crime easily.
This is also the very reason why many people hesitate to report a complaint against such large organisations. This also reflects the citizens’ loss of faith in law and order today.
What are the Types of White Collar Crime?
The prevalent types of white-collar crimeare given below:
When a perpetrator of good social standing tries to evade taxes by illegal means, tax evasion takes place. For example, they can conceal owning properties, illegally transfer money or avoid the proper filing of tax forms to avoid taxes.
•Counterfeiting of Currency
The Rupee needs to be safeguarded from fake/counterfeit money, which many criminals tend to circulate. Therefore, most currencies have an elaborate and detailed design to combat counterfeiting. The main goal is to make these original currencies hard to copy, even with the most advanced laser technology.
Money laundering is one of the most common white-collar crimes. It involves the funnelling of illicit money to legitimate businesses. Affluent criminals who deal with bundles of cash often go for money laundering. This is because cash is hard to track and easy to conceal. Moreover, money laundering is one of the nefarious means to avoid taxes.
Embezzlement is a type of theft under which an employee tends to misuse assets that an employer entrusts. Unlike larceny, an embezzler owns the asset legally but uses them for unlawful purposes.
This is trading a company’s securities by any individual who has access to non-public information about the company.
Examples of White Collar Crime
Given below are some famous examples of white-collar crimes in India:
1. Harshad Mehta Scam
Also called The Bull, Harshad Mehta was a popular figure in the Bombay Stock Exchange during the 1990s. He used to take huge loans from banks and buy scrips paying very high prices. This led to the creation of a false market.
By misusing his reputation as the Bull to manipulate stock prices, he caused a rise in share prices. He also misused money from banks to invest in the stock market. This act became his nemesis as it fell under money laundering. In this way, he made Rs.5000 crore until journalist Sucheta Dalal exposed his scam.
After the Harshad Mehta Scam came to light, the Indian stock market experienced its worst crash. After this incident, SEBI brought in various changes in their rules and regulations to prevent such scams.
2. Saradha Chit Fund
The Ponzi scheme by Saradha Group, an umbrella group of 200+ companies, resulted in the Sharada scam, a major financial scandal. The group of companies ran a Chit fund scheme, which collected Rs. 200 billion from depositors, many of whom belonged to low-income families.
They further promised to return their investment in the form of cash or real estate. CBI took over this case from the Supreme Court as its narrative included international money laundering and the involvement of major political parties.
3. Ketan Parekh Security Scam
Parekh was a trainee in Harshad Mehta’s GrowMore Company when he started his career. Ketan Parekh was accused of stock manipulation and circular trading during 1999-2001. He used to borrow lump sum money from banks like Madhavpura Mercantile Cooperative Bank and Global Trust Bank.
Furthermore, he invested this amount in a host of K-10 stocks. When this scandal came to light, the scandal amount was reported to be Rs. 1520 crore. He stayed in prison for a year. The Bombay Stock Exchange banned him till 2017.
After the Harshad Mehta Scandal, the Ketan Parekh scam continues to haunt the Bombay Stock Exchange. Parekh was not just a backstage player. He was also engaged in insider and circular trading.
4. Punjab National Bank Scam
The head of this scandal was Nirav Modi, India’s 85th richest man and a renowned jewellery maker.
Nirav Modi and companies conspired with Punjab National Bank’s officials to get letters of undertakings to help fund buyers with credit from an overseas bank. Investigators discovered two officials of PNB issued these financial instruments illegally to Modi’s firms.
As a result, Punjab National Bank faced a loss of $1.8 billion. The PNB Scam is still one of the biggest frauds in the history of India’s banking sector.
How to Identify a White Collar Crime?
It is hard to tell when the next white-collar criminal activity will occur. However, you can keep yourself alert by knowing the signs. Here are a few tips to help you identify white-collar crime and save your assets.
Monitoring audits and account records will help you find and manage loopholes in the data on time. Errors like missing data or incorrect entries must be taken seriously by firms.
•Monitor the Signs
Management must keep a note of frequent incorrect data entries, missing reports or changing the behaviour of personnel. Missing entries or other accounting flaws can signify fraud in action.
Top and middle-tier management must be fully aware of the company policies to monitor signs of white-collar crimes. They can be held responsible if their subordinates commit a heinous crime.
What are the Punishments for White-Collar Crime in India?
The Constitution of India provides the following provisions for sentencing white-collar criminals.
•Punishment for a False Statement
Section 448 of the Companies Act 2013 mentions that an individual who deliberately makes a false statement or knowingly confides in any fact will be held liable.
•Punishment for Fraud
Section 447 of the Companies Act 2013 penalises the act of fraud. If a person is found guilty of committing fraud, he will face imprisonment from 6 months to 10 years. The fraudulent party must also pay a fine equal to or three times more than the fraud amount.
In case of fraud committed against the general public, imprisonment shall not be less than three years.
•Punishment for Repetition of Crimes
Section 451 of the Companies Act 2013 penalises the repetition of a particular crime. This section highlights defaulters who committed the same offence within 3 years after being punished. The accused firm or officials must pay a fine twice the involved amount and shall face imprisonment.
However, this rule applies if the crime is committed within 3 years of the first penalisation.
What is the Difference between Blue Collar Crime and White Collar Crime?
The basic difference between white and blue-collar crime stems from the impact that it leaves.
As stated earlier, white-collar crime is non-violent and financially driven. On the other hand, blue-collar crime is much more violent. Criminal activities like sexual assault, robbery, murder, illicit gambling and prostitution are blue-collar crimes.
There are no physical impacts or explicitly available evidence, so white-collar crimes are hard to track. In contrast, police find it easy to track blue-collar criminals. Unlike white-collar criminals who belong to the affluent class, blue-collar criminals usually belong to the low social strata.
As they belong to the influential class, white-collar criminals can easily evade the laws binding society. They tend to use their power to escape. Feeding on the economic flow of a nation, white-collar criminals disrupt society more than their blue-collar counterparts.
White-collar crime is a serious issue that impacts society deeply to the core. As it includes financial damage, white-collar crimes tend to increase social class divisions. This results in more people making harmful decisions to earn more power and money, thereby resulting in an increase in corruption.
Q1. What is a pink-collar crime?
Ans: Embezzlement-related crimes that office-going women commit are referred to as pink-collar crimes.
Q2. What are the most common forms of white-collar crime?
Ans: Money laundering, fraud and tax evasions are common forms of white-collar crime.
Q3. Whom do white-collar crimes affect?
Ans: White-collar crimes majorly affect financial institutions and businesses.
Q4. What is the scope of white-collar crime?
Ans: White-collar criminals can exploit their social, political, and economic powers for personal gain.
Q5. Who investigates white-collar crimes in India?
Ans: The Central Bureau of Investigation (CBI) has been looking into cases of white-collar crimes for the past 10 years.
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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