This article has been written by Ms. Aarsha Prem, a 5th year LL.B. student from CLS GIBS college.

Introduction

The fraudster usually knows knowledge that the intended victim does not, which allows the fraudster to fool the victim. Fundamentally, the person or business engaging in fraud is profiting from information asymmetry, notably from the fact that it can be expensive to check and verify information, making it less likely that efforts will be made to avoid fraud. Due to poor corporate governance, lax supervision, and a lack of adherence to procedures and standards, the Indian banking sector and banks are routinely attacked. One of my most frequent problems with scams is the fact that they have been carried out in every system they have targeted because of flaws in that system.

What is Fraud? 

Fraud is a deliberate act of deception intended to give the offender an unauthorised benefit or to deny the victim of a right. Examples of fraud include tax fraud, wire fraud, securities fraud, credit card fraud and bankruptcy fraud. A single person, a group of people, or an entire corporation can engage in fraudulent behaviour.

False statements regarding the facts are an aspect of fraud, regardless of whether they are intentionally withheld for the purpose of getting something that might not have been supplied otherwise or made to another party with the aim to deceive.

What is Corporate Fraud?

Corporate fraud refers to any illegal, unethical, or dishonest behaviour that is carried out by an organisation or by an individual acting in their official capacity as an employee of the organisation. They are frequently quite difficult to distinguish because of their complexity. Consumers or clients, creditors, investors, other firms, and ultimately the offending corporation and its staff are the victims of corporate fraud. When the scam is finally uncovered, the perpetrating company is frequently left in ruins and forced to file for bankruptcy. 

After been spent long ago by those who committed the fraud, a large portion of the money stolen unlawfully through corporate fraud is frequently never recovered.

Types Of Fraud In Business

Payroll Fraud

Payroll fraud is when someone uses the payroll system at your organisation to steal money while making it appear as though they are paying someone for their work. It will be easier for a worker who has access to the payroll system to commit this kind of fraud. Yet anyone with advanced hacking skills, whether they work for the organisation or not, might potentially commit it.

Financial Statement Fraud

An employee or business owner may falsify financial statements for a variety of reasons. For the purpose of inflating their assets, income, or overall net worth, the fraudster most usually fabricates financial records. They will also minimise their debts, liabilities, and losses. Those who engage in this type of deception typically do so to obtain loans or to avoid penalty for not upholding their financial obligations. The employee may occasionally ask for loans with the intention of stealing the funds for themselves.

Asset Misappropriation

Asset misappropriation constitutes the most frequent and often perpetrated type of employee fraud. To be clear, misappropriating assets constitutes willful theft from an employer. 

There are two categories: 

Misappropriation of cash includes taking money out of the safe or from the business’s bank accounts, using a company card for shady transactions, or utilising any other direct stealing technique. 

Non-cash Asset Theft: The theft of non-cash assets from the company. Unauthorized removal of inventory, office supplies, or equipment could be one form of this.

Tax Fraud

The more revenue a company generates, the more income taxes it must pay. When a business pays less in taxes because it falls under a lower tax bracket, this is known as tax fraud. Occasionally, business owners will attempt to lower their tax liability by inflating their company’s profits, declaring incorrect deductions on their tax returns, or filing a false return. Another phrase for totally evading paying taxes through both businesses and individuals is tax evasion. This is also seen as a type of tax fraud.

Identity Theft

Identity theft is the act of stealing another person’s personal information and using it to commit fraud against them. Fraudsters could use their social security number to start new credit accounts, make purchases using their credit card information, engage in criminal activity using a bogus identity, and much more. 

Corruption

A broad phrase used to describe numerous sorts of business fraud is corruption. In essence, corruption refers to any type of dishonest activity or willful mismanagement of funds by a person in a position of authority within a firm. 

Money laundering is just one illustration of corruption, others include;

manipulating elections held in public. 

taking bribes. 

doing transactions that are not reported. 

interacting commercially with criminals.

Landmark Cases

Enron

The Enron scandal is one of the most well-known instances of corporate deception. Enron, a significant energy corporation, was making enormous profits at its peak. But, when the business started to experience diminishing revenues and debt issues, firm executives covered up the truth by engaging in extensive accounting fraud. Enron ultimately failed, as did the accounting firm it hired, Arthur Andersen. Enron’s creditors and investors suffered billion-dollar losses, while thousands of workers lost their jobs. The Sarbanes-Oxley Act, which demanded greater transparency in businesses’ financial reporting and imposed considerably tougher penalties on any company caught committing accounting fraud, is attributed with having been passed as a result of the Enron accounting debacle.

Vijay Mallya Scam

Vijay Mallya borrowed money from 17 banks in 2012 to purchase Air Deccan. He never repaid these loans, and he escaped capture by leaving the country. He owes the State Bank of India alone more than Rs. 1600 crores. This money is said to have been invested in fictitious businesses and laundered abroad. According to rumours, the money was used in transactions between the IPL club The Royal Challengers Bangalore and the Formula One racing team Force India. 

He fled to Britain before being apprehended in 2016, but a warrant for his arrest was issued under the 2002 Prevent of Money Laundering Act. He was detained following the encounter and eventually freed on a 65,000-pound bond for failing to produce his paperwork.

Harshad Mehta Scam

Harshad Mehta made use of the concept of “ready-forward agreements,” whereby the government sells securities for significant projects while also raising funds from investors and charging interest on that money. Mehta served as a go-between between the lending and borrowing banks, stealing money to put into the stock market and use for his own gain. Mehta and his family were found guilty of three months in jail after being found guilty of 76 criminal offences, 600 civil lawsuits, and other tax-related offences. Losses from this 1992 fraud were 4,000 crores, and India’s whole banking system had to be redesigned as a result. By creating a different audio system and a new committee to oversee SEBI, it increased the Reserve Bank of India’s role and authority.

The Commonwealth Games scam

A committee headed by Suresh Kalmadi defrauded the Commonwealth Games of 2010 to the tune of Rs. 70,000 crore. 

During the preparation phase, the funds were embezzled using the arbitrary authority of the organising committee chairman. Along with the money being misappropriated, a variety of political and administrative issues also came to light. Following a probe by the Central Vigilance Commission, Kalmadi was expelled from the committee, arrested on April 25, 2011, and expelled from the Congress Party. The Delhi High Court in 2012 forbade him from attending the opening ceremony of the London Olympics. The committee and Kalmadi were charged with violating the Prevention of Corruption Act of 2002, forging documents in order to cheat, cheating, and other laws.

Conclusion

Because of legal gaps, scammers may be able to commit crimes. Even while updating and altering the law to meet society changes is not the only answer, these frauds highlight how frequently government organisations disregard their duties and arbitrarily overstep their jurisdiction. Even though it may be challenging, these actions may always be stopped as long as there is thorough control that complies with all applicable laws. Where there is responsibility, there is accountability, and that would ensure that all safety measures are being done to avoid any such irregularities.

References:

https://www.investopedia.com/terms/f/fraud.asp

https://corporatefinanceinstitute.com/resources/esg/corporate-fraud/

https://www.bankmidwest.com/blog/6-types-of-fraud-in-business/

https://blog.ipleaders.in/top-10-biggest-scams-in-india/#Biggest_scams_in_India

Aishwarya Says:

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