39 Pages Posted: 27 Jan 2010
Date Written: January 19, 2010
White Collar Crimes are those, which are committed by respectable persons, holding enviable positions, either in public or private concern. It is very hard to detect these crimes. It is defined by the Federal Bureau of Investigation as “illegal acts characterized by deceit, concealment or violation of trust, which are not dependent upon the application or threat of physical force or violence.” The FBI says that in cases of white collar crime, “individuals and organizations commit these acts to obtain money, property or services; to avoid the payment or loss of money or services; or to secure personal or business advantage.”
The phrase “White Collar Crime” was coined in 1939 during the speech given by Edward Sutherland to the American Sociologist society. He, in his published research paper on white collar criminality in the American Sociological Review, defined the concept as, “a crime committed by persons of respectability and high social status in course of their occupation.” White collar crimes by their very nature are such that the injury or damage caused as a result of them is so widely diffused in the large body of society that their gravity in regard to individual victim is almost negligible. It is highly difficult to prosecute a white collar crime because the perpetrators are sophisticated criminals who conceal their activities through a series of complex transactions.
Today, the focus of white collar crimes has moved from the individual to the organization, where individuals alone or in collaboration with others commit acts that are criminal. One of such white collar crimes is the CORPORATE FRAUDS. Of all white collar crimes, corporate frauds are the most sophisticated and adversely affect the society. They are the crimes which are committed by the so called high profile and sophisticated humans of the society. They reduce the interest and trust in corporate investments and in turn reduce the confidence on the government as well as society. Corporate frauds are more dangerous to the society because financial loss to society from corporate frauds is greater than the financial loss from burglaries, robberies, larcenies etc.
Corporate frauds have become a global phenomenon with the advancement of commerce and technology. Like any other country, India is equally in the grip of corporate fraud. The reason for enormous increase in corporate frauds in recent decades is to be found in the fast developing economy and industrial growth of this developing country.
According to Oxford dictionary, a fraud is defined as, “the use of false representations to gain unjust advantage and criminal deception.” According to the Internal Resources Service (IRS) Department of the US Department of the treasury, “A corporate fraud is violation of the Internal Revenue Code (IRC) and related statutes committed by large, publicly traded corporations, and/or by their senior executives.”
A corporate fraud occurs when a company or organization deliberately changes or conceals the information in order to make it appear healthy. A company may commit fraud by manipulating accounting records, hiding debt, or failing to inform shareholders of loans and bonuses given to its executives. The falsification of financial information, including false accounting entries, bogus trades designed to inflate profits or hide losses and false transactions will help the organization to attract funds from the lenders and investors.
The motives of committing fraud by a company may be many, but the main motive is making money and creating a false soundness for the company in order to save its image in the market and to misguide the government departments to avoid the heavy tax burdens.
In India, the Commission on ‘Prevention of Corruption’ in its report observed, “the advancement of technological and scientific development is contributing to the emergence of mass society with a large rank in file and a small controlling elite, encouraging the growth of monopolies, the rise of a managerial class and intricate institutional mechanisms. Strict adherence to high standard of ethical behavior is necessary for the even and honest functioning of the new social, political and economic processes. The inability of all sections of society to appreciate this need in full results in the emergence and growth of white collar and economic crimes renders enforcement of the laws, themselves not sufficiently deterrent, more difficult.”
The Report of the Vivian Bose Commission of Inquiry into the affairs of Dalmia-Jain group of companies in 1963 highlights how these big industries indulge in frauds, falsification of accounts, tampering with records for personal gains and tax evasion etc. Similar observations were made by Mr. Justice M. C. Chagla about the big business magnate Mundra who wanted to build up an industrial empire of dubious means. There were as many as prosecutions against this business tycoon and companies owned and controlled by him between 1958 to 1960 and as many as 113 of them resulted into conviction.
A careful study of a number of large corporations and business houses attribute to the highest degree of criminality to business world which include traders, businessmen and industrialists. It has been held in the Report of Vivian Bose Commission of Inquiry that Business Communities in India of large and small merchants are basically a dishonest bunch of crooks. While it is true that the object of businessmen is to make profit, there are degrees and degrees of making profit, and nowhere in the world do businessmen get rich as quickly as they do in India.
The most comprehensive survey of attitudes by business executives towards management and corporate practices showed that the Business executive tends to ignore the great ethical laws as they apply immediately to his work. It is also believed that Businessmen would violate a code of ethics whenever they thought they could avoid detection.
Keywords: Corporate fraud, white collar Crime
Suggested Citation: Suggested Citation
Rajora, Varsha, Corporate Frauds in the World of Corporate Sector: A Critical Analysis (January 19, 2010). Available at SSRN: https://ssrn.com/abstract=1539013 or http://dx.doi.org/10.2139/ssrn.1539013
By Stuart Green
By Muel Kaptein