When corporate fraud outpaces enforcement

As corporate fraud grows more complex, enforcement must move faster, deeper, and more cohesively

- SANDEEP DAS

THE RECENT EXTRADITION proceedings against Mehul Choksi and the allegations of money laundering against Reliance ADAG have once again spotlighted instances of monumental corporate frauds in India.

While such corporate frauds involve mind-boggling amounts, tracing and recovery of the proceeds of the crime have been sluggish and ineffective. In most cases, a fraction of the sum involved is traced after protracted investigations. At the same time, given the quantum of monies involved, courts are typically cautious in granting bail to the accused. The lengthy incarceration of the accused pending the completion of investigation / trial is often seen to be violative of their right to a speedy investigation and a fair trial. In many cases, the process itself becomes the punishment.

On the other hand, these frauds impair the economy and jeopardise interests of public shareholders and lenders since large corporates are mostly public-listed companies. In many cases, the promoters / management siphon corporate funds through a labyrinth of structured but ostensibly legitimate transactions. A classic ploy has been transacting business with entities camouflaged as legitimate third parties, but which act in concert with the promoters to conceal the ultimate beneficiaries. Often, there is an offshore leg of such transactions to ensure that the money is routed through tax friendly foreign jurisdictions.