Project Report

(Submitted for the Degree of B.Com. Honours in Accounting & Finance under the
University of Calcutta)

Title of the Project

A STUDY ON -

WHITE COLLAR FRAUD

(CASE STUDIES ON):- (SATYAM COMPUTERS FRAUD CASE)
(VIJAY MALLYA LOAN FRAUD CASE)

Submitted by
Name of the Candidate : ROHAN PANDEY

Registration No. : 224-1111-0792-18

Calcutta University Roll No. : 181224-21-0196

Name of the College : SETH ANANDRAM JAIPURIA

COLLEGE

College Roll No. : 4112

Supervised by

Name of the Supervisor: Prof. SANTANU MALLIK

Name of the College: SETH ANANDRAM JAIPURIA

COLLEGE

MONTH AND YEAR OF SUBMISSION

DATE:15 JULY 2021

1
 Supervisor's Certificate

This is to certify that Mr. ROHAN PANDEY a student of B.Com. (Honors)in

Accounting & Finance of SETH ANANDRAM JAIPURIACOLLEGE

under the University of Calcutta has worked under my supervision and guidance for his

Project Work and prepared a Project Report with the title A STUDY ON

WHITE COLLAR FRAUD which he is submitting, is his genuine and original work to
the best of my knowledge.

Signature:..........................................................

Place: KOLKATA
Name: Prof. SANTANU MALLIK
Date: 15/07/2021
Designation:- Deptt of commerce,Evening

Name of the College:

SETH ANANDRAM JAIPURIA

COLLEGE

2
 Student's Declaration

I hereby declare that the Project Work with the title (in block letters)

A STUDY ON WHITE COLLAR FRAUD submitted by me for the partial

fulfillment of the degree of B.Com. (Honors) in Accounting & Finance under the

University of Calcutta is my original work and has not been submitted earlier to any

other University /Institution for the fulfillment of the requirement for any course of study.

I also declare that no chapter of this manuscript in whole or in part has been incorporated

in this report from any earlier work done by others or by me. However, extracts of any

literature which has been used for this report has been duly acknowledged providing

details of such literature in the references.

Signature:....................................................

Name: ROHAN PANDEY

Address: 16/1 mahendra bagchi road,711201

Place: KOLKATA-700007

Date: -

Registration No. : 224-1111-0792-18

ROLL NO.; 181224-21-0196

3
 CONTENTS

S.NO. TITLE PAGE NO.

COVER PAGE 1
1.

2. SUPERVISOR’S CERTIFICATE 2

3. STUDENT DECLARATION 3

4. CHAPTER -1 5-6
INTRODUCTION

5. CHAPTER -2 7-25
CONCEPTUAL FRAMEWORK

6. CHAPTER -3 26-32
CASE STUDY -1(SATYAM COMPUTER SERVICE FRAUD)
CASE STUDY -2(VIJAY MALLYA BANK LOAN FRAUD)

7. CHAPTER-4 33-34
CONCULSION &RECOMMENDATIONS

8. BIBLIOGRAPHY 35

4
 CHAPTER -1
INTRODUCTION
ABSTRACT
This paper provides a detailed understanding behind the motives of people
committing crimes. Researchers have named ―the people committing
crime, where the crimes were minimal and confined to a particular area of
administration as Grass Eaters. People involved in white collar crimes and
which has spread in almost all fields of business are termed as Meat Eaters.
With the advent of technology and growth of education, white collar crimes
are on the rise, being protected by professionals finding loopholes in the
judiciary and support from the government indirectly. This has created a
nexus where people from almost all walks of life have started forming
group to do white collar crimes and being protected by professionals in
law. This has lead to a situation where the small timers have become
white collar criminals. Talking about the prevalence of white collar crimes
in India, they are spreading like a rapid fire in every sphere of society.
Though corruption, one of the species of white collar crimes, has been the
most talked about issue in all spheres-social, economic and political, not
much stringent steps/actions have been taken to curb this menace.
Therefore the concern of this paper is to define white collar crime, study its
historical development and formulate tentative solutions for eradicating the
problem.
KEYWORDS:-

White Collar Fraud - The term ‗fraud‘ commonly includes activities such
as theft, corruption, conspiracy, embezzlement, money laundering, bribery
and extortion in an organization.

Government- Here the role of government and its support towards the
victims is referred to.

Education - Through education people are gaining knowledge about the

corporate world and using this knowledge for sabotaging the corporate
sector.

5
 Objectives of the study :-
Since 1939, the term white-collar crime is now synonymous with the full
range of frauds committed by business and governmentprofessionals.
These crimes are characterized by deceit, concealment, or violation of trust
and are not dependent on the application or threat of physical force or
violence. The motivation behind these crimes is financial—to obtain or
avoid losing money, property, or services or to secure a personal or
business advantage.

These are not victimless crimes. A single scam can destroy a company,
devastate families by wiping out their life savings, or cost investors billions
of dollars (or even all three). Today‘s fraud schemes are more sophisticated
than ever.

The reason behind this study is –

 To understand the volume of corporate crimes that is

committed in India and abroad.
 To know its effects on the Indian economy and the world asa
whole.
 To know the various roles of the governments throughout the
world to prevent this kind of fraud.
 To know the amount of expenditure that is incurred by the
government, for the prevention and for creating awarenessof
such fraud.

6
CHAPTER -2

WHITE COLLAR FRAUD

DEFINITION
Fraud is defined as any intentional act committed to secure an unfair or
unlawful gain but ―Fraudulent Practice‖ means any action or omission,
including misrepresentation, that Knowingly or recklessly misleads, or
attempts to mislead, a party to obtain a financial benefit or to avoid an
obligation .Corrupt Practice means the offering, giving, receiving or
soliciting, directly or indirectly, of anything of value to influence
improperly the actions of another party.

This thought of ―WHITE COLLAR FRAUD‖ evolved with the

Criminologist and Sociologist Edwin H. Sutherland, in the year 1939, who
popularized the term white collar crimes‗ by defining such a crime as one,
committed by a person of respectability and high social status in the course
of his occupation. Sutherland also included crimes committed by
corporations and other legal entities within his definition.

Sutherland‗s study of white collar crime was prompted by the view that
criminology had incorrectly focused on social and economic determinants
of crime, such as family background and level of wealth. There have been
crooks and unethical persons in business, various other professions, who
tend to become unscrupulous because of no reason apart from the thirst of
gaining more and more for themselves. These deviants have least regard
for ethical and moral human values.

Therefore, they carry on their illegal activities with impunity without the
fear of loss of respect and prestige. These crimes are of the nature of white
collar crimes‘ which is the essential outcome of the development of the
competent economy of the twenty-first century.

7
8
TYPES OF FRAUD AND
ITS STATISTICAL DATA –
There are numerous types of white collar crime. The types of white collar
crime includes and certainly is not limited to: identity theft, mail fraud,
blackmail, bank fraud, computer fraud, counterfeiting, credit card fraud,
embezzlement, forgery, insider trading, insurance fraud, investment
schemes, kickbacks, racketeering, securities fraud, income tax evasion,
telephone marketing fraud, property fraud, and pyramid investment
schemes. This is by no means a comprehensive list of the types of white
collar crimes committed. The type and scope of white crimes committed is
always evolving and the list continues to grow.

Here are some types of frauds that we come across often-

Financial Institution Fraud:

Financial institution fraud (FIF) is the class of criminal schemes targeting
traditional retail banks, credit unions, and other federally-insured financial
institutions. Many FIF schemes involve the compromise of customers‘
accounts or personal identifying information (PII); when identities are
stolen, both the financial institution and customers are considered
victims.FIF can be categorized as either external—when perpetrators have
no affiliation with the victim institution—or internal—when bank
employees use their access to accounts and systems and knowledge of
policies to commit fraud. Commonly investigated external FIF schemes
include stolen or counterfeit checks, account holder impersonation, access
device fraud, credit card scams, and email hacking leading to loss.
Unfortunately, as technology creates increased convenience and
accessibility for customers, it also creates opportunity for criminal actors.

9
10
Mortgage Fraud:
Mortgage fraud is a sub-category of FIF. It is crime characterized by some
type of material misstatement, misrepresentation, or omission in relation to
a mortgage loan which is then relied upon by a lender. A lie that influences
a bank‘s decision—about whether, for example, to approve a loan, accept a
reduced payoff amount, or agree to certain repayment terms—is mortgage
fraud. The officials have charged with investigating mortgage fraud,
particularly in the wake of the housing market collapse, have broadened
the definition to include frauds targeting distressed homeowners.

There are two distinct areas of mortgage fraud—fraud for profit and fraud
for housing.

 Fraud for profit: Those who commit this type of mortgage fraud are
often industry insiders using their specialized knowledge or authority
to commit or facilitate the fraud. Fraud for profit aims not to secure
housing, but rather to misuse the mortgage lending process to steal
cash and equity from lenders or homeowners.

 Fraud for housing: This type of fraud is typically represented by

illegal actions taken by a borrower motivated to acquire or maintain
ownership of a house. The borrower may, for example, misrepresent
income and asset information on a loan application or entice an
appraiser to manipulate a property‘s appraised value.

11
Health Care Fraud:

Healthcare fraud is a process by which criminals exploit flaws a healthcare

system to defraud health care programs, the government and individuals of
money. Healthcare fraud unfortunately is not limited to criminals outside
the healthcare profession; medical professionals also on occasion act to
steal funds from healthcare systems, individual and governments. The
crimes committed by industry professional include over billing, creating
false bills for services and patients who were never seen or treated, and
ordering tests and procedures which are not necessary. It is estimated that
health care fraud generates more than $100 billion annually in the United
States (National Fraud Center, 2000).

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Money Laundering:
Money laundering is the process by which criminals conceal or disguise
their proceeds and make them appear to have come from legitimate
sources.Money laundering allows criminals to hide and accumulate wealth,
avoid prosecution, evade taxes, increase profits through reinvestment, and
fund further criminal activity. While many definitions for money
laundering exist, it can be defined very simply as turning ―dirty‖ money
into ―clean‖ money. And it‘s a significant crime—money laundering can
undermine the integrity and stability of financial institutions and systems,
discourage foreign investment, and distort international capital
flows. Money laundering is usually associated with crimes that provide a
financial gain, and criminals who engage in money laundering derive their
proceeds in many ways. Some of their crimes include:

 Complex financial crimes

 Health care fraud
 Human trafficking
 International and domestic public corruption
 Narcotics trafficking
 Terrorism

There are variety of methods used by criminals to launder money, here are
a few of the ways through which criminals launder their illicit proceeds:

 Financial institutions
 International trade
 Precious medals
 Real estate
 Third party service providers

13
Insider Trading:
Insider trading is the trading of a public company's stock or other
securities (such as bonds or stock options) by individuals with access to
nonpublic information about the company. In various countries, some
kinds of trading based on insider information are illegal. This is because it
is seen as unfair to other investors who do not have access to the
information, as the investor with insider information could potentially
make far larger profits that a typical investor could not make.

Trading by specific insiders, such as employees, is commonly permitted as

long as it does not rely on material information not in the public domain.
Many jurisdictions require that such trading be reported so that the
transactions can be monitored.

14
Pink lines are the 30-day highs and red lines, the 30-day lows.

Insurance Fraud:
Insurance fraud is any act committed with the intent to obtain a fraudulent
outcome from an insurance process. This may occur when a claimant
attempts to obtain some benefit or advantage to which they are not
otherwise entitled, or when an insurer knowingly denies some benefit that
is due. To engage in an act or pattern of activity wherein one obtains
proceeds from an insurance company through deception.

Insurance fraud has existed since the beginning of insurance as a

commercial enterprise. Fraudulent claims account for a significant portion
of all claims received by insurers, and cost billions of dollars annually.
Types of insurance fraud are diverse, and occur in all areas of insurance.
Insurance crimes also range in severity, from slightly exaggerating claims
to deliberately causing accidents or damage.

15
16
Social Implications:
White collar crimes, while generally non violent, do contribute to
adverse social conditions particularly in poor and developing
countries. The reason for this relationship is due in part to the
limited opportunities for upward social and economic mobility for
many people around the world. Sociologists assert that people are
products of their environment. In some regions of the world white
collar crime is pervasive and often tolerated if not altogether
accepted. In these cases young people often view criminal activity as a
means and vehicle to a better life for both themselves and their
families. It‘s also difficult to convince a young people that a life of
crime is not a good career path when many of their peers are
involved in white collar crimes.
White collar crime also contributes to adverse social conditions by
reducing the available resources. Nations which have made a decision
to aggressively combat white collar crime have to fund these
activities. By funding deterrence, detection and prosecution efforts
against white collar criminals, governments often reduce funding for
various social programs. This eventually adversely impacts the
adoption and implementation of effective social programs.

Economic Implications:
White collar crime can adversely impact economic growth and
development. An institution, for example, which has experienced a
widely publicized breach of security in their computer system, may
find it difficult to regain the trust of their clients. This decline in trust
may be compounded when the security breach involves the loss of
client personal financial information. In cases where a corporation is
a major employer in a city or region the economic impact can be
enormous.

Political Implications:

17
 Government computer networks are often the target of attacks. This
decreases the ability of international organizations investing
resources in smaller countries. An increase
in white collar criminal activity can lead to an increase in funding for
warlords and anti government regimes. This makes it possible for
criminal organizations to be better equipped than police and
government forces.

National and Regional Stability:

White collar crime influences the extent to which national and
regional stability can be achieved. Poor and developing nations rely
on public and private organizations to invest and grow their
economies. This creates jobs and tax revenue. When white collar
crime increases and is directed, particularly, at private organizations,
these organization reduce investments, hire fewer people, generate
less tax revenue. In some cases businesses that become targets of
white collar crime are forced out of business. This decreases the
likelihood that similar businesses will invest in the region. This in
turn gives greater power and influence to warlords and criminal
elements as they become the primary source of employment
opportunities (United Nations Report, March 2007).

18
Factors Contributing To The Increase:

There are a multitude of factors which make it easier for criminals

to illegally and quickly exploit individuals, businesses, companies and
governments for personal gain. In recent decades advances in
technology which were initially designed and implemented to help
individuals, businesses and governments transfer data, funds and
information faster and more efficiently have provided opportunities
for white collar criminals to engage in various criminal activities.
These new technologies have also made it possible for white collar
criminals to engage in the exploitation of public and private sector
financial databases from anywhere in the world.

PREVENTIVE MEASURES FOR WHITE

COLLAR FRAUD

The first and most significant step which can be taken to reduce or
eliminate white collar crime against major companies and
corporations deals with accounting systems. Major companies have
complex financial reporting systems. The problem with this is that
these complex reporting systems which are often designed to ensure
that no major financial transaction can take place without multiple
approvals by managers at various levels within the organization. The
problem is that employees within these major corporations, in some
cases over a period of many years will learn how the system works
and identify critical weaknesses and flaws in the system.

19
A second problem is that major companies and corporations have to
purchase many goods and services. In many instances, if the price of
a good or service is relatively small, there are fewer steps and little
oversight for these transactions. As such, white collar criminals find
ways to create false invoices for relatively small items which are not
monitored closely by the corporation. While this may not be a major
problem when very few false invoices are created, it can be a major
problem when thousands of false invoices, in some cases up to
$10,000 can add up to millions of dollars over many years.

Major companies and corporations are vulnerable and have to take

appropriate action or they will continue to be exploited. Major
companies and corporations must implement more stringent
accounting controls which effectively track the dissemination of
funds for smaller purchase. Companies and corporations must
implement the same system of checks and balances for the purchase
of lower priced goods and services as they do for the larger financial
transactions. The level of approval may change, obviously, a board or
president of a corporation cannot be expected to sign off on every low
priced good or service. That would clearly be an inefficient and
ineffective use of time and resources. However, a company can have
the same number of people be involved in the approval process.
Companies and corporations can also limit the number of vendors
they purchase goods and services from. This will make it possible for
these corporations to purchase goods and services from vendors who
are well established, have a tremendous track record, who have
stringent control over the invoices they produce making it more
difficult for false invoices to enter the approval system of the targeted
corporations. Major corporations can also implement electronic
invoice approval systems. These data obviously would have to
encrypted and accessible only to those who are part of the invoice
review and approval process. Companies and corporations must
conduct both internal and external audits of their financial reporting
and resource allocation process.

20
Study shows, consistent with the previous study conducted two
years ago, that:
 The typical organization loses 5% of revenues every year due to
fraud. (About $895 billion was lost in the U.S. lastyear.)
 For every $1 million of revenues your business earned last year, a
starting point estimate for how much you might have lost to
occupational fraud is $50,000 (5% of $1 million).

To capitalize most effectively on antifraud spending, we can

consider these preventive measures:
 Strong internal controls- You need to strengthen any weak internal
controls to cut any chances criminals have to steal your assets. Weak
internal controls are cited by ACFE as the leading cause of white
collar crimes.
 Training- Without proper training, your employees will not know
how to detect fraud from within or outside the company. By
educating your staff on some common red flags associated with
fraud, you will be able to better detect and prevent fraud.
 Management’s help- Management must be heavily involved in the
fight against white collar crime. Taking the time to review controls
and correct weaknesses is essential to the betterment of your fraud
detection system. We don‘t want to send messages that we don‘t care,
or that committing a crime in the organization is simple.
 Hotline- Many businesses have set up anonymous fraud reporting
hotlines. Though the cost and maintenance of such a system has
deterred many businesses from adopting one, it can help to uncover
fraud, which can, in turn, save the business from the hefty losses
involved in such crimes.

The key to warding off fraudsters in the organization is to maintain a

vigilant ―Anti-Fraud‖ stance that everyone in the business is aware of and
supports. If we do suspect fraud within the company, the financial and
legal advisors can help reinforce the internal controls and investigate any
suspicious activity.

21
 National Scenario
FRAUD SCENARIO IN INDIA –
White collar crimes are to be considered as a global phenomenon to which
India is no exception. As discussed earlier, white collar crimes emerged in
India with the advent of the British colonization during the period of
industrial capitalism. Prior to that, instances of men working with the
District treasury embezzling with the money kept under his safe custody or
bribing practiced among the officials were found.

The chart below compares the top six fraud categories at global level with
India. In most of the cases, India is doing much worse than its global
counterparts are. Worldwide management conflict of interest, internal
financial fraud, corruption and bribery and vendor procurement related
frauds have increased. Physical theft of assets and information theft
decreased. Indian business crucial pain points are corruption and bribery,
information theft, internal financial fraud, financial mismanagement and
vendor procurement

No. Types of Fraud Global Global India

2011(%) 2010(% 2011(%
) )

1. Management conflict of interest 21 19 19

2. Internal financial fraud 19 13 23
3. Corruptions & bribery 19 10 31
4. Vendor procurement 20 15 22
5. Physical theft of assets 25 27 23
6. Information theft 23 27 27

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 2010-2011 Annual Global Fraud Survey report, conducted by Economist
Intelligence Unit gives expected results. Fraud continues to be a big
problem worldwide and more so in India. Of the companies surveyed,
globally 75% reported experiencing fraud during the year. Though the
figure has reduced in comparison to previous year‗s 88%, the situation is
still dismal.

In India, the situation is disastrous, with 84% organizations reporting that

they suffered from fraud during the year. It is wake-up call for India, as it
is ranked second worldwide after Africa and shares the position with China

INCREACE IN INCIDENCE OF FRAUD IN INDIA

23
----------------------------------------------------------------------------------------------------------------------
----

All information of statistical data has been collected from -

24
 International Scenario-
A rising awareness of ongoing corruption ,fraud and bribery and has
reached boards of directors and senior management of companies in
multiple countries, but pressure to generate growth, especially in rapid-
growth markets, keeps many managers from addressing problems.

The world's developing countries lost a total of $946.7 billion to

corruption, trade misinvoicing and tax evasion in 2011, according to the
research. And to make matters worse, the amount that gets spirited away is
growing larger with each passing year. Money lost to corruption in
developing nations was 13.7 percent greater in 2011 than was lost the year
before; illicit outflows total $832.4 billion in 2010.
The total figures are staggering: between 2002 and 2011, developing
countries lost about $5.9 trillion to illicit outflows (Illicit Outflows from
Developing Countries 2002-2011,‖ was released by Global Financial
Integrity, a research and advocacy organization based in Washington, D.C.
). Especially Tax Justice Network in the index was launched on November
7, 2013.estimated $21 to $32 trillion of private financial wealth is located,
untaxed or lightly taxed, in secrecy jurisdictions around the world. Illicit
cross-border financial flows add up to an estimated $1-1.6 trillion each
year.

All fraud research increasing alarm is just reminded fraud should not
happen, but it does. It can happen from the highest to lowest levels in an
organization.
Recent surveys by PricewaterhouseCoopers and Ernst & Young show that
incidents of fraud have increased globally by 22% over the past two years
and here in the UK the average corporate fraud costs a company some
£200,000. The government estimates the annual cost of fraud to the UK
economy is in the region of £14bn. There is a special note informed, move
to a more global business model that relies on a network of suppliers and
partners is leading to a higher risk of fraud.

25
 CHAPTER -3
CASE STUDY - 1
THE SATYAM SCANDAL
INTRODUCTION
Satyam Computer Services Limited was a “rising-star” in the Indian
“outsourced” IT-services industry. The company was formed in 1987 in Hyderabad
(India) by Mr. Ramalinga Raju. The firm began with 20 employees and grew rapidly
as a “global” business. It offered IT and business process outsourcing services
spanning various sectors.
Satyam was as an example of “India‟s growing success”. By 2003,
Satyam‟s IT services businesses included 13,120 technical associates servicing over
300 customers worldwide. At that time, the world-wide IT services market was
estimated at nearly $400 billion, with an estimated annual compound growth rate of
6.4%. “The markets major drivers at that point in time were the in- creased importance
of IT services to businesses worldwide; the impact of the Internet on e-Business; the
emergence of a high‐quality IT services industry in India and their methodologies;
and, the growing need of IT services providers who could provide a range of
services”. To effectively compete, both against domestic and global competitors, the
company embarked on a variety of multi‐pronged business growth strategies.
“In 2007, Ernst & Young awarded Mr. Raju with the „Entrepreneur of the
Year‟ award. On April 14, 2008, Satyam won awards from MZ Consult‟s for being a
„leader in India in CG and accountability‟. In September 2008, the World Council for
Corporate Governance awarded Satyam with the „Global Peacock Award‟ for global
excellence in corporate accountability”.
From 2003-2008, in nearly all financial metrics of interest to investors, the
company grew measurably. Satyam generated USD $467 million in total sales. By
March 2008, the company had grown to USD $2.1 billion. The company
demonstrated an annual compound growth rate of 35% over that period. Operating
profits averaged 21%. Earnings per share similarly grew, from $0.12 to $0.62, at a
compound annual growth rate of 40%. Over the same period (2003‐2009), the
company was trading at an average trailing EBITDA multiple of 15.36.
Finally, beginning in January 2003, at a share price of 138.08 INR,
Satyam‟s stock would peak at 526.25 INR—a 300% improvement in share price after
nearly five years. Satyam clearly generated significant corporate growth and
shareholder value. The company was a leading star and a recognizable name in a
global IT marketplace. The external environment in which Satyam operated was
indeed beneficial to the company‟s growth. But, the numbers did not represent the full
picture. The case of Satyam accounting fraud has been dubbed as “India‟s Enron”.
Satyam became the centerpiece of a “massive” accounting fraud.

26
 SATYAM COMPUTER SCAM
On January 7, 2009, Mr. Raju disclosed in a letter to Satyam Computers
Limited Board of Directors that he had been manipulating the company‟s
accounting numbers for years. Mr. Raju claimed that he overstated assets on
Satyam‟s balance sheet by $1.47 billion. Nearly $1.04 billion in bank loans and
cash that the company claimed to own was non-existent. Satyam also
underreported liabilities on its balance sheet. Satyam overstated income nearly
every quarter over the course of several years in order to meet analyst
expectations. For example, the results announced on October 17, 2009
overstated quarterly revenues by 75 percent and profits by 97 percent. Mr. Raju
and the company‟s global head of internal audit used a number of different
techniques to perpetrate the fraud. “Using his personal computer, Mr. Raju
created numerous bank statements to advance the fraud. Mr. Raju falsified the
bank accounts to inflate the balance sheet with balances that did not exist. He
inflated the income statement by claiming interest income from the fake bank
accounts. Mr. Raju also revealed that he created 6000 fake salary accounts over
the past few years and appropriated the money after the company deposited it.
The company‟s global head of internal audit created fake customer identities
and generated fake invoices against their names to inflate revenue. The global
head of internal audit also forged board resolutions and illegally obtained loans
for the company”. It also appeared that the cash that the company raised through
American Depository Receipts in the United States never made it to the balance
sheets.

27
 Promoter‘s shareholding pattern in Satyam
Computers from 2001 to 2009.

Percentage

30%
25%
20%
15% Percentage %
10%
5%
0% Percentage %
2001 2002 2003 2004 2005 2006 2007 2008 2009

(As on Promoter’s holding in % )

YEAR %
2001 26%
2002 22.26%
2003 20.76%
2004 17.35%
2005 15.67%
2006 14.02%
2007 8.79%
2008 8.74%
2009 2.18%

28
 CASE STUDY - 2
VIJAY MALLYA‟s
MONEY LAUNDERING FRAUD
INTRODUCTION
Vijay Mallya is an Indian businessman and politician. The son of businessman
Vittal Mallya, he is the ex-chairman of United Spirits Ltd, the largest spirits
company in India and continues to serve as Chairman of UB Group, an Indian
conglomerate with interests in beverage alcohol, aviation infrastructure, real
estate and fertilizer among others. He has been the Chairman of Sanofi India
(previously Hoechst AG and Aventis) as well as the Chairman of Bayer
CropScience in India for over 20 years, in addition to being the Chairman of
several other companies. Mallya also co-owns the Formula One team Sahara
Force India. His companies own Indian Premier League team Royal
Challengers Bangalore, the I-League teams Mohun Bagan AC and East Bengal
FC. He is also a member of the World Motor Sport Council representing India
in the FIA. He is also known for having launched Kingfisher Airlines, an airline
established as a major business venture in 2005 that later became insolvent and
was shut down in 2012.
United Breweries Holdings Limited (UBHL) or UB Group is an Indian
conglomerate company headquartered in UB City, Bangalore in the state of
Karnataka, India.[1] Its core business includes beverages, aviation and
investments in various sectors. The company markets beer under the Kingfisher
brand, and owns various other brands of alcoholic beverages. It also launched
Kingfisher Airlines, an airline in India whose operation has been halted after
problems in 2014 that led to its license being revoked by the DGCA. The
company chairman, Vijay Mallya, left India on 2 March 2016, allegedly to
escape legal action by Indian banks to whom he owes some ₹ 9,000 crore
(US$1.3 billion) in loans. It now has greater than a 40% share of the Indian
brewing market with 79 distilleries and bottling units across the world.

29
 S.W.O.T. ANALYSIS OF
KINGFISHER AIRLINES
The SWOT of Kingfisher airlines discusses the strengths, weaknesses,
opportunities and threats of one of the leading Indian airline companies.
Kingfisher airlines have been involved in several controversies.

STRENGTHS of Kingfisher Airlines

 Strong brand value and reputation in the minds of the consumer
 UB group as the parent company
 First Indian airline to have a new fleet of planes
 Quality service and innovation
 More than 80 destinations
 Less than 100 people (employees) per aircraft

WEAKNESSES of Kingfisher Airlines

 Still in RED (Still to Break Even)
(An outstanding of 950crs only to oil marketing cost till may end )
 High ticket pricing (KF First & Class)
 Tough competition from Indian as well as international players

OPPORTUNITIES of Kingfisher Airlines

 If able to survive for a couple of years, then can have a big market share
 Untapped International Markets
 Untapped cargo market
 Expanding tourism business

THREATS of Kingfisher Airlines

 Falling demand
 Over capacity in the skies
 ATF prices
 Economic slowdown
 Infrastructure issues

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 THE FRAUD COMMITTED
BY VIJAYMALLYA
In the year 2006, IDBI Bank got a proposal from Kingfisher Airlines, seeking funds to
acquire aircraft. Vijay Mallya had launched the airline the previous year, in May 2005. He
strikes a deal with the British beer maker Scottish and Newcastle, which had bought a 37.5
per cent stake in Mallya‟s United Breweries Ltd for Rs 940 crore. However, when the
Kingfisher proposal came up at a meeting of the credit committee of the IDBI, the aircraft
acquisition plan wasn‟t permitted to fly.

As oil prices started to climb (an average of $72.68 a dollar between 2005 and 2010) and the
company struggled to run a business that included a full-service airline and a low-cost carrier,
its finances floundered and its debt burden and losses surged. But by the end of March 2008,
Kingfisher‟s debt had mounted to Rs 934 crore. A year later, it had multiplied to Rs 5,665
crore. Its net losses widened from Rs 188 crore in 2007-08 to Rs 1,608 crore the following
financial year.

But a few years later, in 2009, when Kingfisher Airlines was the second largest airline in
India in terms of the number of passengers it carried, the bank provided a loan of Rs 900
crore to Kingfisher, a decision that has come to hurt top officials of the bank, who are now
being put on the wringer by the Central Bureau of Investigation (CBI) and other agencies
with Mallya being declared a „willful defaulter‟

By 2009-10, Kingfisher Airlines had accumulated a debt of over Rs 7,000 crore. It continued
to pile up losses and had already turned net-worth negative the previous financial year. In
November 2010, banks for the first time restructured Kingfisher‟s debt. State Bank of India
converted Rs 1,355 crore of debt into equity at a 61.6 per cent premium to the market price of
the Kingfisher Airlines stock. Besides, the bankers stretched the period of repayment of loans
to nine years with a two-year moratorium, cut the interest rates, and sanctioned a fresh loan.
However, a breather on loan repayment wasn‟t enough to revive Kingfisher Airlines, which
continued to bleed with every passing year.

Kingfisher Airlines had pledged its brand to banks for an estimated Rs 4,100 crore. Mallya
had given a personal guarantee of Rs 248.97 crore while United Breweries Holdings has
provided a corporate guarantee of Rs 1,601.43 crore. In addition, Kingfisher has provided a
pooled collateral security of Rs 5,238.59 crore, which includes Kingfisher House in Mumbai,
Kingfisher Villa in Goa, and hypothecation of helicopters. Besides, the pledged securities
include ground support and other equipment (Rs 101.58 crore), computers (Rs 22.43 crore),
office equipment (Rs 13.39 crore), furniture and fixtures (Rs 33.35 crore) and an aircraft (Rs
107.77 crore). In short, Mallya had pledged all of Kingfisher‟s movable assets.

In the years 2011 & 2012, Mallya withdrew huge salaries from Kingfisher of Rs 33.46 crore
each month. But in the end of 2012, Kingfisher Airlines was grounded, leaving its employees
with unpaid salaries. The company had allegedly not deposited its employees‟ provident fund
to the government and had run losses in excess of Rs 4,000 crore in 2012-13.

In February 2013, the airline‟s flying permits were withdrawn. . Its accumulated losses ran into
Rs 16,023 crore, while its net worth fell to a negative Rs 12,919 crore at the end of

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March 2013. Later that year when a consortium of 14 banks led by the SBI approached
UBHL for payment of what was then an outstanding of Rs 6,493 crore in loans to Kingfisher
Airlines, Mallya wrote back saying a significant amount would be settled when British
alcoholic beverages giant Diageo Plc buys stake worth nearly Rs 5,000 crore from UBHL and
others in the Diageo-Mallya owned United Spirits Limited (USL).

In April 2015, Mumbai International Airport Private Limited (MIAL) sold Mallya‟s personal
aircraft (its registration number, VT-VJM, matches his initials) for Rs 22 lakhs to recover
airport dues of the grounded airline. As trouble mounted, Kingfisher Airlines was chased by
the service tax department over non-payment of service tax of over Rs 115 crore. The airlines
had also defaulted on crediting over Rs 372 crore of Income Tax. The matter is now before
the Supreme Court, and Diageo, Mallya‟s companies and their lenders agreed in November
2015 for the dozens of petitions in the matter to be heard in April 2016.

Currently Vijay Mallya has been charged with at least 27 cases in various courts. Out of
these, at least 22 are related to loan default by Kingfisher Airlines — an amount that
stood at Rs 9,091.40 crore at the end of November 2015, according to Union Finance
Minister Arun Jaitley, who spoke in Parliament.

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 CHAPTER-4
CONCLUSIONS
Recent corporate frauds and the outcry for transparency and honesty in
reporting have given rise to two outcomes. First, forensic accounting skills have
become very crucial in untangling the complicated accounting manoeuvres that
has unclear financial statements. Second, public demand for change and
subsequent regulatory action has transformed Corporate Governance's scenario
across the globe. In fact, both these trends have the common goal of addressing
the investors‘ concerns about the transparent financial re- porting system. The
failure of the corporate communication structure, therefore, has made the
financial community realize that ―there is a great need for skilled professionals
that can identify, expose, and prevent structural weaknesses in three key areas:
poor corporate governance, flawed internal controls, and fraudulent financial
statements. Hence Corporate Governance's framework needs to be first of all
strengthened and then implemented.

A careful study of the fraud cases suggests:

• Difficult to detect collusion: Another point of concern is the increasing

collusion between the employees of organizations and external parties. Collusion
can be difficult to detect, and this makes it easier for external parties to steal
large amounts quickly.

• Banks the most vulnerable: Increasing cases of fraud against banks is a

worrying sign for organizations and the regulator.

• Need for investors to be vigilant: The large value of fraud committed against
investors is alarming. Although the regulator is constantly mandating regulations
to safeguard investors, it is an investor‘s duty to closely screen advisers and
companies offering abnormally high returns.

Legal systems around the world must treat white collar criminals, regardless of
their socioeconomic status, affluence, education level or wealth, the same as any
other criminal charged with a criminal act. Governments must take action to
detect, deter and prosecute these offenses as aggressively as they would prosecute
crimes committed by regular street criminals, otherwise it will only grow and
continue to have an ever greater adverse impact on society.

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 RECOMMENDATIONS
The first and most significant step which can be taken to reduce or eliminate
white collar crime against major companies and corporations deals with
accounting systems. Major companies have complex financial reporting systems.
The problem is that employees within these major corporations, in some cases
over a period of many years will learn how the system works and identify critical
weaknesses and flaws in the system. A second problem is that major companies
and corporations have to purchase many goods and services. In many instances,
if the price of a good or service is relatively small, there are fewer steps and little
oversight for these transactions.

Major companies and corporations must implement more stringent accounting

controls which effectively track the dissemination of funds for smaller purchase.
Companies and corporations must implement the same system of checks and
balances for the purchase of lower priced goods and services as they do for the
larger financial transactions. The level of approval may change, obviously, a
board or president of a corporation cannot be expected to sign off on every low
priced good or service. That would clearly be an inefficient and ineffective use of
time and resources. However, a company can have the same number of people be
involved in the approval process. Companies and corporations can also limit the
number of vendors they purchase goods and services from. This will make it
possible for these corporations to purchase goods and services from vendors who
are well established, have a tremendous track record, who have stringent control
over the invoices they produce making it more difficult for false invoices to enter
the approval system of the targeted corporations.

Governments around the world certainly cannot address the ever increasing
problem of white collar crime alone. They do, however, have the responsibility to
do everything their limited resources will permit to address this threat. At a
minimum governments must accomplish the following in order to build and
strengthen the essential infrastructure needed to combat white collar crime;

1) Identify the Threat; 2) Understand the White Collar Crime Environment;

3) Adopt Stringent Penalties; 4) Strengthen Computer Security Systems;
5) Strengthen Employee Screening; 6) Systems Educate the Public; 7) Adopt best
Accounting Practices; 7) Require Multiple Verification for Monetary Transfers.

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 BIBLIOGRAPHY & WEBOLOGY
 BOOKS REFERED TO -
 The Study Of White Collar Crime: Toward A Reorientation In Theory
And Research - (1964)-
Earl R. Quinney
 The Legal Environment and White Collar Crime - (2008) (Preventive
Measures Taken)-
John D. Gill,
Mark Scott
 White Collar Crimes In India - (2012) (White Collar Crimes In India )-
G. Nagarajan,
Dr. J. Khaja Sheriff
 Some Personality Correlates of Business White-Collar Crime - (2006) (
Definition Of White Collar Fraud)-
Gerhard Blickle University of Bonn, Germany ,
Alexander Schlegel University of Mainz, Germany ,

Uwe Klein KPMG Frankfurt, Germany

 WEBSITES / LINKS REFERED TO-

 https://www.google.co.in/
 https://www.google.co.in/
 https://www.researchgate.net/publication/274793696-Corporate-Corrupt
Corporate Fraud-By-Gholam-Hossein-Davani
 http://www.kahnlitwin.com/blogs/business-blog/the-effects-of-white-collar-
crime-on-business-today
 http://www.huffingtonpost.in/devangshu-datta/ramalinga-raju-and-the-
incredible-story-of-indias-greatest-whit/
 http://timesofindia.indiatimes.com/business/india-business/Mallya-bank-loan-
fraud-case-ED-registers-fresh-case/articleshow/53830147.cms
 http://indianexpress.com/article/india/india-news-india/sunday-story-once-
upon-a-time-there-was-a-king-vijay-mallya/
 http://www.idco.in/2009/
 http://www.financialexpress.com/archive/odisha-demands-report-from-idco-
on-rs-52000-cr-land-scam/1265244

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