“Any system of regulations to govern the conduct of the people of a community, society or nation, in response to the need for regularly, consistency and justice based upon collective human experience”
Sounds Complex doesn't it.... This is the definition of ‘Law’. Imagine a definition by itself so complex to understand and implement is even tougher.
Over the last two years, India has seen an increase in the number of scams spanning across the public as well as the private sector. These scams, to some degree, have highlighted the prevalent levels of bribery and corruption in the country. The World Bank has identified corruption as among the greatest obstacles to economic and social development. Economists have predicted countries with a higher levels of corruption not only deters financial institutions from long term investment but can actually result in capital outflows, creating a volatile economic environment. Corruption is a menace to civil society. It is also as old as mankind.
Therefore it is quite obvious that there needs to be stricter laws against frauds and scams and there is a desperate need to stop this menace from growing. But what if, I would say that the main reason for such frauds is our Growth Rate, would you still want to put laws to stop that growth, would you be willing to let go of all the luxuries by halting our countries growth?
Think over it...
One of the main reasons cited for increase in corruption over the past few years has been; India’s growing economy, with such fast growth comes need and desire to succeed for all people in such competitive environment if people end up lagging behind they resort to frauds and try to get back to winning ways. Therefore no longer it’s business as usual. Exception circumstances merit exceptional strategies to address the challenges.
According to a recent study Corruption poses a risk to India’s projected 9 percent GDP growth and may result in a volatile political and economic environment. This can be seen now with the growth of the country being estimated at 7.7% for Q2 of 2011. This is our countries weakest growth for six quarters. From the high of almost 10% in 2008, its been dragged down to 7.7% with high inflation and high corruption. Which begs the question was our growth down to such corrupt practices not being identified?
The survey portraits that 68% of the surveyed population believes corruption are the biggest threat to our economic growth and if corruption is reduced then India is capable of achieving its target. According to the survey 51% believe that India will attract lesser quantum of overall investments than its peers owing to corruption, similarly 93% believe that the shadow of corruption negatively impacts the capital market too. This is where I would like to raise a question are laws against frauds/scams/corruption enough to prevent them from happening? If the answer is yes then we have had laws in place for more than 50 years. We have CVC the Central Vigilance Commission; the likes of SEBI, CRISIL, ICRA, CARE to safe guard the investors from corporate frauds, and number of other institutes that have been set up not just to prevent but to detect frauds and scams, but still people commit frauds, still corruption is at a all time high.
Therefore it’s not just a question of existence but a question of pro-active steps being taken to stop frauds from happening and to eradicate corruption from the system.
When we speak about frauds or scams the one name that springs to our mind is Satyam: India’s fourth largest software company. The management admitted about $ 1 billion of cash on the company books was fictitious, about 94% of the cash nonexistent. We still regard the Satyam scam as one of India’s worst and one which has truly deterred our image globally.
When it comes to frauds and corruption things don’t just end there. Not long ago we had the IPL scam post which we experienced the CWG scam and now the 2G scam. The quantum of these frauds are way beyond our wildest imagination, it is like a economy with an economy. No other country would have witnessed so many cases of corruption/ frauds/scams in a space of couple of years.
We always believe the judiciary that has been instilled to protect the common man, but when they themselves indulged such scams it’s a cause for concern. In July 2008 an investigation found 36 judges were guilty of receiving gifts bought with money embezzled from court treasury in Ghaziabad.
In a recent report by ET pointed out the amazing surge in India’s exports to the Bahamas which is a well-known tax haven is fuelling intense suspicion that a large proportion of these transactions are nothing more than fake transactions aimed at bringing back money stashed in secret accounts at overseas banks.
The report stated between 2008-09 and 2010-11, exports to the Bahamas jumped to $2.2 billion from $2.2 million. What were a missing out on all these is focus on transfer pricing deals, which deals with the pricing of goods between a company and its subsidiaries, this also needs to be scrutinised more thoroughly because it is a widely utilised tax avoidance technique in international business. Meanwhile, Indian black money continues to be transferred freely around the world. A recent report noted that, several Indians had been transferring money from Switzerland to other countries that don’t have any bilateral agreements for sharing information with India.
Huge chunks of money were reported to have been transferred to Macau, the Isle of Man, New Jersey Island, Cayman Islands and Seychelles – all tax havens.
If all these weren’t enough here are some more frightening facts on frauds and scams as per “India Fraud Survey Report 2010"
KEY FINDINGS |
According to the respondents the sectors which has more likelihood of public sector exposure has the maximum corrupt practices |
81% say financial statement frauds is a major issue |
41% say that they don’t have formal fraud risk management framework |
e-commerce and computer related fraud to be source of major concern in coming years |
75% of all fraudulent activities, except Intellectual Property were perpetrated by employees |
The fallout post revelation of a fraud/scam is certain to be significant, including punitive damages, tarnished corporate and brand image, loss of revenue, plummeting shareholder value and inability to attract and retain human capital.
To combat frauds effectively organizations need to adopt holistic approach that takes cognizance of fraud risks emanating from the organization’s strategy and adequacy of mitigating measures at multiple levels.
In India we have a tendency to react once things happen and promise that the same won’t happen again. Unfortunately once the fraud comes to the fore we start looking for people to shift the blame viz. auditors, government officials etc. We always forget that though it is the responsibility of an auditor to detect malpractices in a company’s financials they are not the original perpetrators of the fraud. It is therefore the duty of the management and the employees of the organization to stop indulging in fraudulent activities. Unfortunately there isn’t enough whistle-blowing happening in organisations. People have learnt to go by it.
Therefore to answer the question should we have stricter laws against frauds/scams/corruption by way of passing a Bill/Act to prevent people from practicing such fraudulent activities is that no laws can prevent such activities from happening if we as the followers choose to break them. We have to understand our responsibilities and act in ethical manner.
Therefore as I said earlier the enemy continues to be within the system and not outside. The fight against corruption and fraud has to begin from within. No law of the land can stop people from initiating such acts, unless we decide to stop the menace by changing ourselves.
As I conclude I remember a very famous poem which was given by Saint Kabir in year 1500 very apt for this conclusion and it read:-
“Bura Jo Dekhan Main Chala, Bura Naa Milya Koye Jo Munn Khoja Apnaa, To Mujhse Bura Naa Koye”
