INVESTIGATION OF ECONOMIC CRIMES

With liberalisation, the aboideau of scams and financial irregularities is thrown

open and Indian financial market is flooded with all conceivable kinds of frauds, shady

transactions and corrupt practices. As long shadows of mixed economy receded from the

four decade old sky of the Indian Republic, the Indian economy is sweltering under the

heat of economic crimes. Not that economic crimes are new to human generation or

India; small fraudulent dealings were born with man and bound to continue as part of his

nature till the imbalance of supply and consumption haunts his existence. What

manifested is organised frauds to loot the public its money by clever use of the financial

environment and the innocence of the hoi polloi; ill-conceived financial rules and laws

and slack financial practices and procedures evidently failed to carry the weight of the

liberalised economy. The people who were inured to protected economy and state control

cannot easily adapt to liberalised economy where all sorts of worms and creatures creep,

waiting to make best use of the laissez-faire. Rules and laws being not tightened to meet

the challenges of the liberal atmosphere, unscrupulous elements have a field day in

playing with the public money either to intentionally defraud or experiment in risky

projects. The plans are always mega-schemes running for hundreds or thousands of

crores of rupees of the gullible public. Corruption in government and public life ease the

process. Bribes play key roles in keeping rules, laws and regulatory authorities shut. The

sounding of finance minister, Mr.P.Chaidambaram in June, 1977 after CRB scam came
to light that law enforcers must ruthlessly deal with economic offenders is too small

coming too late to have any meaning or impact on the atrophy already set-in, in Indian

economic labyrinth. The problem lies in the liberalisation process having taken-off

without adequate infrastructure of checks and counterbalances to sustain it. Educating

the public about the nuances of a liberal economy and preparing them for the risks

immanent in the system as well as strengthening the reticulation of rules, laws and law

enforcing system to handle and control economic crimes go a long way in keeping away

the extant maelstrom and making liberalisation a more relevant and meaningful direction

to Indian economy to pursue.

On closer scrutiny, it is obvious that Indian democracy and administration are

over-weighed with myraid rules, regulations, laws and controls. The problem of India is

their enforcement. What India needs is efficient enforcement, and not more and more

rules and laws. This is true of Indian economy also. The need is desperately felt in the

atmosphere of liberalisation. Enforcement has two faces: preventive and investigative.

As far as preventive measures are concerned, the present rules and laws are adequate to

bring any financial operation to a standstill. Slack, inefficient and casual enforcement

process laced with corruption makes economic activities possible in India. In the

atmosphere of liberalisation where economy is less regulated and controlled with fewer

rules and laws to tie the hands and legs of the market forces, illegal activities find

avenues to surface to the detriment of the open market. Stringent enforcement of relevant

rules and laws to prevent illegal activities is the need of the hour. When preventive

machinery fails in its activities is the need of the hour. When preventive machinery fails
in its task, the investigation agency comes to the force. When preventive measures

collapse, the demands on the investigating machinery increases to bring the hors la loi to

book. Demands per se do not meet the needs of efficient investigation. Commitment to

the job is one side of the need. The other side is the skill of investigating economic

offences.

Investigation of economic offences is a specialised job requiring special skills far

removed from the needs of investigating bodily crimes. An investigator of economic

offences has to be well versed in the intricacies of financial transactions, the dynamics of

the market forces, rules and laws regulating and controlling the financial market and the

finer aspects of auditing and accounting apart from a sound analytical disposition to

interpret the data and evidences during the process of investigation. He should

command indefatigable patience to scrutinise and interpret stacks of bills, vouchers,

minutes, contracts, balance sheets, audit reports, correspondences, records, registers and

other documents. It is a time consuming drudgery far removed from the glamour

attached to it.

A point central to both economic crimes and their investigation is the willing

cooperation and participation of several related agencies and individuals in the operation.

They call for group-work involving meeting of mind and synergy towards the main goal.

Symbiosis is the sacred hymn of the operations. Indeed, there is a main player to whose

initiative and plan, all others contribute as and when required. Other constituents in the

play necessarily include key government agencies responsible for regulating financial
activities in the country and its key officials. Large scale economic crimes need their

cooperation in shutting eyes to willful violation of inconvenient norms and regulations of

financial discipline and active connivance in issuing official favours against rules to ease

the passage of defrauding the public. Such constituents may include commercial banks,

the SEBI, The RBI, the Ministry of Finance, any of the three credit rating agencies of the

country, the auditors who audit the company or all of them in synergy as in the CRB

scam. Other ministries and agencies involved in activities related to financial matters

may also form part of such fraudulent operations. As CRB scam made explicit, non-

banking finance companies form the spine of such frauds on the gullible public.

Investigation of an economic crime must cover the role of these agencies, the key

officials involved and the mens rea, the quid pro quo involved etc and support each fact

with sound evidences. The work necessarily requires willing cooperation of the agencies

concerned to provide related documents as evidence, interpret the meaning and

significance of these documents, explain the related practices, procedures, rules and laws

and provide inside information pertaining to the commission of the fraud au reste

volunteering to be witnesses to the crime. The investigators require guidance from these

experts about evidences and the course of further investigation to build up the case. This

is a formidable job that cannot be handled by one investigator and a handful of his

assistants. An essential feature for the successful investigation of an economic crime of

large dimension is constitution of a team of experts drawn from all related agencies to

assist the investigator.

 Investigation of any economic crime cannot be fair and square unless the

investigation covers all aspects of the crime. Localised investigation leads to unfair and

partial justice. The aspect is popularly forgotten in the investigation of scams and

scandals in Indian environment. Localised investigation limited to the main front-man of

the fraud is a simple job that can be completed in a short duration to everybody’s

satisfaction including the clever criminals and the guillible public with only a paid front-

man sacrificed in requital to the gain of hundreds or thousands of crores of rupees. Such

unfair investigation suffers justice and financial discipline and encourage financial

institutions to connive in such frauds. The crux of the investigation of economic crimes

in tracing the end-users of the fraud and reaching the persons responsible for planning

and organising them. Rarely these investigations in Indian environment reach the depth,

nor touch the government agencies and its key officers who willingly contributed to the

fraud for gain by commissions and omissions. It is a grave Achilles’ heel of the

investigation of economic crimes in India.

In an intelligently planned, organised and executed megafraud, the big fish always

remains inconnu. It is only the little or sometimes middle-sized fishes who act as the

front for the main-players are caught. It is so arranged in such frauds that all books and

records point only to the front-players; public contacts and media exposures are designed

to play up the roles of the front-players. The real players remain at the background

harmless even while the fraud comes to open. It is only a few daring players who venture

into risky financial operation with honest intensions, do so in their own names and get

caught while their venture with the public money dooms. An investigator should be
familiar with these nuances of the crime. Another aspect is the possibility of the grists

made from the fraud being tucked away or invested in some far away foreign countries.

Swiss banks are only a tip of the ice-berg. An investigation into economic crimes is

incomplete without a probe to this possibility. A corollary of this aspect is violation of

Foreign Exchange Regulations; thus FERA comes to picture, Offences under Income-tax

provisions is another side of the crime. A mega-economic crime spreads it tentacles over

myraid financial enactments to involve independent investigations to the same crime by

different agencies au reste the investigation by the police. This leads to gratuitous waste

of time, manpower and energy by duplication of works apart from creating problems of

inter-agency coordination and inter-agency rivarly. The fear of impinging on the limits

of other agencies prevents free and concerted investigation. The result is shallow and

peicemeal investigations by several agencies leading nowhere. Solution to this problem

lies in integrated single investigation with the cooperation and active participation of the

concerned financial institutions as expert advisors in the investigation team. Only such a

holistic investigation can delve deep into the roots of the crime and unearth the truth in its

entirety as a means of deterring recurrence of mega-frauds. No investigation into

economic offences is complete without the impresario of the fraud, however deep be his

cover, is brought to book and his gains, wherever it be stacked, is unearthed. This is seld

done in extant Indian investigation situation.

Investigation of mega-economic crimes cannot be handled by all and sundry

investigators. Apart from investigation skill, they required special attributes to lead that

investigation to a successful end. For one, they must have basic knowledge and
familiarity of the goings on in the financial world to help them understand the

interpretations and the explanations of the experts in the team about the complexities and

intricacies of the financial transactions of the crime. In the absence of this basic

familiarity, the investigators may appear like fishes out of water in the maze of financial

transactions leading to the crime. These datas being often encoded and computerised for

safety by clever criminals, a splatter of knowledge of computer and software are helpful

to manage control over the process of the investigation. An essential feature for a

investigator of economic crimes is leadership qualities, an ability to delegate and

decentralise work, ability to trust right people, inspire confidence, draw cooperation and

ability to coordinate the works of myraid agencies involved in the investigation to guide

to the desired end. Commitment to lead the investigation to successful end and ability to

work hard are other characteristics sine qua non for the investigator.

A serious handicap of the investigation of economic offences is its slow process.

The reason is mental fatigue. Examination of loads of documents, records and papers per

se is a tiresome and time-consuming labor. To crown it, the mental processes involved in

sifting right and relevant documents from the heap of papers, interpreting them, placing

in right perspective to the commission of the crime, assessing its value in the overall

process of the commission of the crime etc., are extremely exhausting and tiresome job.

It naturally retards the pace of the investigation and the process taking years for

completion is a common spectacle. On the other side, time is central to the investigation

of economic crimes. Money rapidly multiplies with time in form of profits of

investments or interests on deposits. Delay of investigation is in the interests of the

criminals with this illgotten money. Delay in investigation process helps criminals to

multiply their res gestae several times with the passage of time, ipso facto rendering them

huge gainers in terms of monetary benefits that easily off-set the pains of trial and

conviction in court, if any. Early completion of investigation is vital for the cause of

justice. Constitution of a team of investigators including experts from various financial

institutions should be able to overcome the natural handicap of inordinate delays in the

investigation of economic offences.

A need of common sense in investigation of economic crimes is the initiative of

the investigator to make up the losses of the victims of the fraud to possible extent by

luring the criminals to a deal. Here comes to picture the discreetness of the investigator

in striking a deal with the criminals selon les regles without jeopardising the process of

the investigation in any way. Investigation per se does not bring any relief to the victims

of the fraud as its value lies only as an instrument of deterrence. Safeguarding the

interests of the hapless victims is the cardinal need in the circumstances au reste bringing

criminals to the book.

Huge money running to hundreds and thousands of crores of rupees is at the

centre of the investigation of scams and criminals are those who are clever, influential

and stacked with easy money. In the circumstances, attempts to lure the invesigator from

the rightful path of investigation are a natural phenomenon. For the investigation to be

successful, the investigator should have immense inner strength to resist the lures and

stick to his professional path. It is said that every person has a price ; and meeting
whatever price is no problem in the efforts to distract investigators of mega-economic

crimes from their commitment. In the circumstances, selection of right people as

investigators becomes a key decision in the success or otherwise of the investigation.

The tendency of soft-pedalling the role of financial institutions in the commission

of economic crimes for whatever reason is a serious Achilles heel in the investigation of

such crimes for the simple reason that lapses by these agencies create a framework for the

crimes. No large scale frauds against the general public is possible without these

agencies responsible for the financial discipline of the country willingly ignore violations

of financial norms and regulations and offer favours against rules and laws of the

financial discipline to the criminals engaged in the frauds. The role of theses institutions

in the commission of the crimes is as grave as that of the main –players and the

impresarios of the fraud. The fact is forgotten in the investigation of economic crimes in

India. The result is lopsided and unfair investigation which satisfies none let alone acting

as a deterrent against recurrence of such frauds. CRB scam is an example. Unless many

agencies responsible for financial discipline helped the the commission of the fraud by

the CRB capital markets by blatantly ignoring violations of norms and regulations by the

latter and unlawful favours, the swindling of the public to that extent would not have

been an easy feat. The SEBI tolerated CRB managing scores of shady share issues and

permitted to start a mutual fund and a share custodial service. The SBI opened its

banking services to the company to encash interest warrants and refund orders of the

company from the public without adequate security. Credit Rating Agency and IDBI’s

subsidiary CARE gifted the company’s fixed deposit programme, CRB caps a “A+”

rating in spite of the full knowledge of the liquidity problems and deteriorating assest
quality of the company after ICRA and CRISIL failed to oblige the company. The

auditors of the company ignored irregularities in the company’s operations in the audit

report. To top it all, the RBI turned blind eye to massive irregularities noticed during

inspection and issued an in–principle banking licence as favour and even tolerated the

company raising money for its bank after the licence was withdrawn. In absence of the

synergy by various financial institutions of the country. CRB Capital Markets just could

not befool and defraud thousands of investors to the extent it did, and struck gold. The

key figures in these financial institutions who helped CRB scam are as much responsible

for the scam as was Mr.C.R.Bhansail, the head of CRB capital Markets. Their

involvement gives an added dimension of conspiracy to the case. Law which provides

for the investigation of the case, treats all these players of the conspiracy on equal

footing. The exclusive attention of the investigation agency on the CRB chief and his

close associates to the exclusion of other conspirators cannot be called en regle and

bound to shake the confidence of the public in the investigation.

This is not an isolated case of financial institutions prevaricating from their raison

d’ etre. Another top credit rating agency of the country CRISIL failed to warn investors

in advance about the poor showing of ITC Classic Finance on the eve of the issue of

NCD and fixed deposit schemes of the company. For CRISIL, this was the second

instance within the short duration of a year after similar failure regarding Mideast Shoes.

The role of commercial banks infamous security scam is too well known to be repeated

here. Indian Bank scam is waiting on the side-wings to blow up to a major scam.

Ignoring the part of financial institutions and other government agencies in mega-
economic crimes is a sure way of ringing the death-knell of the financial discipline of the

country. An investigation true to its profession must give primus to fix these institutions

for their irresponsible roles and connivance in the scam. The responsibility of the main-

player of a scam reduces to insignificance before the filures, lapses and impacts of the

connivance of the players of these institutions on the financial market and public life of

the country. No honest investigation can afford to leave the key figures of these

institutions out of the field of investigation. Distractions like strikes and protests by the

colleagues of the offenders in the institutions as in the case of suspension of the officials

of the Bombay Branch of the State Bank of India for complicity in CRB scam should not

deter a professional investigator from his commitment. Corrupt colleagues flocking

together to go on agitation to protect one of them while caught is becoming a popular

strategy of scaring away the hands of law reaching them. A few years back, central

customs and excise staff of Delhi international airport resorted to agitation to protect a

few corrupt colleagues from the CBI net, Recently, air traffic control staff went on

agitation while some inefficient of them were suspended from service for grave

dereliction of duty. Very recently, arrest of public servants in Bihar fodder scam was

deferred by the CBI for the fear of creating law and order problems. A turly professional

investigator should not be deterred by such extraneous developments in his resolve to

unearth the truth. This is ore so in case of the investigation of economic crimes for the

simple reason that the money involved in such crimes in capable of buying anything

under the sun and creating any situation to the advantage of the criminals.
 Crimes are committed either out of passion or for gain, if not by accident or

negligence. Economic crimes constitute a major and important block of the crimes for

gain. Economic crimes against the gullible public and the financial system of the country

assume dangerous dimensions because of the magnitude of the crimes, their impact on

the financial discipline of the country, the losses and grief come with it to the gullible

public and the sense of the loss of credibility it brings to the financial market.

Professional and in depth investigation to these scams is sine qua non for the growth and

stability of the economy of the country.