[This blog has been authored by Swayam Shah and Sara Dharwadkar. They are students at Gujarat National Law University, Gandhinagar]

[The authors are the First Runners Up of the 2nd GCRCJS Criminal Law Essay Writing Competition, 2024]

Introduction- When Crime Wears a Suit

The Hon’ble Supreme Court in State of Gujarat v Mansukhbhai Kanjibhai Shah [“Mansukhbhai Case”] rightly stated that a murder may be committed in the heat of the moment; however, an economic offence is committed with cool, deliberate calculation, designed for personal profit, ignoring the consequences to the community. The Apex Court further emphasised the need to protect the financial health of the country and prevent the huge loss of public funds caused by white-collar crimes.

A white-collar crime is that latent thief that slips through society cloaked not in shadows, but in suits and briefcases. It is the kind of crime where the weapon is not a gun but a well-forged contract. It is a non-violent but highly calculated move to gain wrongly while the rest remain blissfully unaware. Coined by Edwin Sutherland in 1939, this crime may encompass security fraud, corporate fraud, embezzlement and money laundering. To highlight its attributes, it is a crime committed by a ‘magna persona’, who enjoys a high social status, commits it in the course of their profession and usually involves a breach of trust.

The evolution of the justice system has witnessed substantial reforms to tackle the growing complexity of white-collar crimes over the years. Primarily, the Indian Criminal Justice System focused mainly on conventional crimes like theft and murder, and a socialist governance system did not prioritise such offences. As the economy grew, so did the need for liberalisation and reforms such as the Prevention of Corruption Act, 1988 [“POCA”], the Securities and Exchange Board of India Act, 1992 [“SEBI Act”], and the empowerment of enforcement agencies. Today, the Bharatiya Nyaya Sanhita, 2023 [“BNS”], seeks to further modernize the system and protect against the shrouded evil that is ‘white collar crime.’

How India’s Growth Gave Rise to Hidden Crimes

The white-collar crime landscape in India has evolved significantly over the century. While traditional versions of the crimes, such as bribery and embezzlement, prevail, the rise of more sophisticated crimes is catalysed by our growing economy and industrialisation. The Indian economy is at the cusp of a business revolution; what was once viewed as a Western phenomenon is now deeply intertwined with the progressing industries of our country. Moreover, the use of digital finance and online transactions has created a fertile ground for the growth of such malfeasance.

Interestingly, references to these types of crimes can be traced back to ancient and medieval literature from India. One such reference is found in the works of Manu, who believed that a shift from ‘dharma’ to ‘adharma’ led to the surge of tendencies like robbery, wrongdoing and fraud.

In modern India, experts often attribute this surge to a growing economy and the flourishing of industries. The Santhanam Committee Report further provided clarity on the motive and perpetrators of the same. Furthermore, the LIC–Mundhra scam, Mallya’s Escape, and the Satyam Scam Scandal exposed the vulnerabilities plaguing the Indian financial system. Despite existing regulations, high-profile convictions continued to flood in cases like the Punjab National Bank Fraud, the 2G Spectrum case, and the CWG Scam.

As Machiavelli astutely exhorted:

“The temptation for greed and ambition leads to the downfall of many.”

If history teaches us anything, it is that white collar crime is bound to rise again, especially after the COVID-19 pandemic, a graveyard of failed businesses. A failed business is not a crime, but the events leading up to insolvency provide a breeding ground for all sorts of financial subterfuge.

The Existing Laws and Agencies Fighting Back Against Financial Deception

That being said, one must ask a pertinent question: Are our laws and law enforcement agencies truly equipped to deal with such violations?

Over the past few years, India introduced some key statutes like the Prevention of Money Laundering Act, 2002 [“PMLA”], the Companies Act, 2013 [“Companies Act”] and the POCA to combat financial crimes. The PMLA targets money laundering, the POCA penalises corruption among public servants, and the CA governs corporate fraud. In addition, the country has also engaged in international cooperation to tackle cross-border financial crimes.

Previously, the IPC was also used to charge these offenders under sections such as cheating and criminal breach of trust. Now, for the first time, the BNS has defined an ‘economic offence’ and included the same within the definition of ‘organised crime’, which did not previously exist under the Indian Penal Code, 1860. These laws continue to evolve rapidly, either as a response to crime or in anticipation of potential risks and concerns.

These statutes do not work in isolation. Enforcement agencies such as the Central Bureau of Investigation [“CBI”], the Serious Fraud Investigation Office [“SFIO”], and the Enforcement Directorate [“ED”] have been armed with investigative and regulatory powers to combat financial fraud and economic offences. Furthermore, these agencies work in tandem with several government departments and financial institutions.

One must also not undermine the judicial expansion of laws through critical judgements such as Central Bureau of Investigation v Ramesh Gelli, where the court held that the managing and executive directors of a private bank operating under a license issued by the RBI will be considered ‘public servants’, or the Mansukhbhai case, where the Supreme Court included trustees and administrators of ‘deemed universities’ under the ambit of the POCA.

The consequences faced by perpetrators include fines, imprisonment, trial, detention, and restitution. For instance, Section 447 of the Companies Act imposes imprisonment ranging from 6 months to 10 years and fines up to three times the fraud amount. Sections 3 and 4 of PMLA define money laundering as involvement in concealing or using proceeds from crime and impose penalties of up to 7 years in prison and fines up to Rs. 5 lakhs.

Beyond the Numbers: The Real-Life Consequences

The significance of the colour white in our Indian flag, as explained by Mahatma Gandhi, stands for the path of purity and truth. However, the menace and distress caused by white-collar criminals ironically shed light on a stark contradiction.

Although these crimes may be committed at an individual level or organisational level, their impact transcends the boundaries of individual wrongdoings.

A well-known consequence of such crime is the emergence of clandestine networks that operate parallel to legitimate channels. The prevalence of black money is another such effect; this latent wealth destabilises resource distribution and results in the concentration of economic power, depriving the community at large. Most importantly, public trust in essential institutions erodes in the face of these transgressions.

Why do people commit White-Collar Crime?

It is pertinent to list the motivations of individuals who fall into the pit of white-collar crime: the lure of quick money, exploitation of financial illiteracy, and an insatiable thirst for power. Money and power are seductive vices. Considering India’s unique socio-political landscape, these vices often lure individuals to escape poverty and overcome social barriers. India’s rapid development, when analysed alongside stark inequalities and a growing digital divide, has enabled top executives to exploit financial illiteracy, complex laws, evolving jurisprudence, and a lack of equitable education.

The experience of absolute power and authority leads to a spiralling effect, pushing individuals to commit more crimes to cover the initial one. This behaviour is not only motivated by self-actualisation needs but is also amplified by political and underworld interests seeking to whitewash their black money.

The media further aggravates the issue. The glamourisation of financial crimes, in the digital age, by movies, web series and social media makes the competition toxic. Comparison is the thief of joy, and modern algorithms thrive on creating groupthink and consumerism, forcing individuals to achieve material success for social validation.

Where Do We Go from Here?

The Apex Court in Tarun Kumar v Assistant Director, Directorate of Enforcement emphasised the need to conclude trials within a reasonable time to ensure the right to a speedy trial under Article 21 of the Constitution. Adopting proactive strategies is essential to address these crimes. First, Machine learning algorithms can filter vast data in seconds to identify suspicious activity. Second, improving safeguards for whistleblowers within organisations will empower insiders to expose misconduct. Third, access to education and financial literacy must be made widespread to prevent such crimes at their initial stage. Fourth, regular audits will allow for increased transparency, though costly, and will protect the stability of the country in the long term. Furthermore, stricter regulatory compliance will not only mitigate legal risks but also foster accountability.

Conclusion

India’s economic story is catapulting itself towards the transition from a developing country to a developed country. However, India right now resembles stagnant water, which, if not treated early, will become a breeding ground for sophisticated white-collar mosquitoes. The need today is a swift, technologically adept and transparent judicial system. Conventional approaches will no longer suffice. Public-private collaboration, whistleblower protections and financial monitoring systems may be a step in the right direction, but the country still has a long way to go. It thus becomes more pertinent now that the judicial system fosters a culture of accountability and technological foresight to ensure that our system evolves in step with the challenges of a modern economy.