This article was authored by Rupinder Malik, Partner and Madhvi Datta, Senior Associate.
Despite an ongoing pandemic, there has been a significant increase in the white-collar crimes and scrutiny. Over the past few years, the enforcement agencies have been relatively active in undertaking punitive actions such as attachment of properties and undertaking arrests. Just a few months ago, the Enforcement Directorate ("ED") seized assets worth 1.6 million euro in France belonging to a fugitive Indian businessman and arrested the promoter of a bankrupt travel company, in connection with its money laundering probe. Other notable instances include ED arresting high-profile people such as former ICICI Bank MD-CEO's husband (in connection with ICICI -Videocon money laundering case) and Yes Bank former CEO (in connection with the YES Bank fraud case). Overall, ED investigated approximately 170 Prevention of Money-laundering Act, 2002 ("PMLA") cases and conducted approximately 430 raids for PMLA and foreign exchange laws violations in FY'20.
The Central Bureau of Investigation ("CBI") has also been proactive and recently filed an FIR against MD of a real estate investment company and other officials, for allegedly cheating a public sector bank for approximately INR 200 crores. In another instance, the CBI booked a Hyderabad based firm for cheating a consortium of eight banks to the tune of INR 4,736.57 crore.
There was also significant activity at the Serious Fraud Investigation Office ("SFIO"). Among the high-profile cases that the SFIO is investigating are alleged frauds at Deewan Housing Finance Corporation, Bhushan Steel, IL&FS and few other cases. In order to curb corporate wrongdoings, government is planning to re-structure SFIO office by doubling the manpower to nearly 350. Moreover, the Ministry of Corporate Affairs which has set-up a 12-member high-level panel to prepare an investigation manual for the SFIO, appears to be calling for enhanced scrutiny into corporate governance and fraud issues, which can provide impetus to increased enforcement trends.
According to a report issued in November 2020 by the global corruption monitoring agency, Transparency International, India has the highest rate of bribery in Asia, with 39% of those surveyed reporting that they had paid a bribe for using public services.
Key LegislativeActions and Judicial Decisions
India's capital markets regulator, SEBI amended the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 to introduce a new requirement where listed entities will need to disclose to the stock exchanges, the fact of initiation of forensic audit and forensic audit report without any application of materiality threshold.
In October 2020, SEBI issued a clarification on prohibition of manipulative, fraudulent and unfair trade practices while dealing in securities. Objective being, to prohibit a company from diversion, misutilisation or siphoning off of assets / earnings of a company whose securities are listed. The same month, SEBI also set up a specialized department named Corporation Finance Investigation Department (CFID) to keep a check on promoter frauds. In addition, the Finance Act, 2019 introduced amendments to the PMLA to widen the scope of 'proceeds of crime'.
Also, the implementation period of the Companies (Auditor's Report) Order, 2020 has been deferred to April 2021, from the previous period of April 2020.
On the judicial front, the Supreme Court ("SC") held that employees of a deemed university and trustees of a charitable trust established to operate such university will also be considered public servants and can be prosecuted for illegal gratification under the Prevention of Corruption Act, 1988. Further, in order to curb human rights violation by personnel of investigating agencies, SC directed installation of CCTV cameras in all police stations including offices of CBI, National Investigation Agency, ED, Narcotics Control Bureau, Department of Revenue Intelligence and SFIO.
Interestingly, three PILs were filed in the SC, one for, seeking a direction to Centre, states, and union territories to set up expert committees to analyse and help improve India's global ranking on Corruption Perception Index (CPI); second for, life imprisonment for offences such as bribery, money laundering and others; and third for, establishing special anti-corruption courts in every district.
What does 2021 hold?
Companies have been tracking the exponential growth of enforcement actions by authorities dealing with white collar crime, and this has led to an increase in the number of forensic/ internal investigations conducted by companies, presumably to pre-emptively shore up against any such actions. Another obvious factor that could impact this is the higher standards of ethics, compliance and corporate governance being adopted by various organisations. Risk assessment is going to be a key part of the resumption process and is something that needs to be led by the compliance team under the close guidance of the top-level leadership.
While we hope for an introduction of a robust whistle-blower protection regime in India and pending rules on adequate compliance procedures / guidelines under the Prevention of Corruption Act, 1988, what we are likely to see in 2021 is the Personal Data Protection Bill tabled before the parliament. This will introduce a revamped legislative framework to govern data protection and privacy in India.
Given the Central Government's tough public stance on corruption, fraud and other such economic offences, it is anticipated that there would an increase in both regulatory stringency and enforcement actions as the economy recovers from the impact of Covid-19 and gets on a track of growth and resurgence – with a key focus on financial crime and cybersecurity.
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