The Thriving Dispute of Corporate Fraud and it’s Supremacy Over Other White-Collar Crimes
Author: A. Keerthikah, SOL, Mumbai University
Corporate Fraud has always been side-lined by our society as the impact of it, is not understood by many. The media has always given more attention to blue-collar crimes as they hold the attention of people more than white collar crimes. Most of the people believe fraud to be a part of business and don’t realise the consequences which will affect them. Being unaware about such topics makes a person vulnerable to these crimes as unlike other crimes, corporate fraud can affect any number of people. The social and economic effects of Corporate Fraud is immeasurable as the number of people affected is enormous. Fraud has been present in our world since time immemorial, even with proper laws corporate fraud has not shown any intention of slowing down. It has quickly spread its wings aggressively affecting our global economy. The influential people are mostly behind these frauds which makes it difficult to detect it or find any evidence relating to it. Hence there is often no conviction in these cases. The prevention of these frauds in the earlier stages is of utmost importance to make sure the company is safe from fraudulent activity. Corporate Fraud is a very serious issue and it should be treated as such before it becomes a norm for employees or executives to participate in unethical ways to gain more money. Some of the cases of Corporate Fraud such as Enron scandal or the Saradha group scam are good examples to understand the seriousness of this crime. This article briefly explains the effect of corporate fraud in our world economy with the help of some well-known corporate frauds which have previously done some serious damage to the respective country’s economy which in turn affected the economy globally.
Society has laws to maintain order, people must confine to these laws to fit in the society. When a person does not follow these rules, they are known to commit a crime. Crime is of various forms, the crimes which happen in the field of business is White-Collar crime. White collar crimes or the Rich man’s crime was introduced by E.H. Sutherland who discussed about the effects of these type of crimes in his research paper. These crimes are not taken seriously by the people compared to violent crimes or blue-collar crimes like rape or murder even though the victims of white-collar crimes are in a larger scale. White-collar crimes are not violent but they affect a larger scale of people. Blue-Collar crimes affect one or two people whereas the effects of a white-collar crime are massive. The Federal bureau of Investigation describes these crimes 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. This type of crime is often done by higher class of people who are driven by their greed. Corporate Fraud, Embezzlement, Extortion and Securities and Commodities Fraud are some of the most common type of White-Collar Crimes.
Corporate Fraud is unquestionably the most serious among them as it has the potential to create incalculable damage to the economy of the country. There are various forms of corporate fraud, the most common way of committing fraud is when individuals get hold of classified information then use that information for their own gain. These frauds are difficult to detect as it is mostly hidden, if the fraud is committed by an employee or manager it is easier to detect as compared to an individual in the executive level. Some companies alter their accounting records to show profits so that the investors are tricked. Not disclosing a certain defect of the product to the customers and not taking any measures to repair the problem is another type of fraud which takes place in the companies. Fraud in business sector has become more prevalent as in 2019, 5.127 trillion US dollars were lost to fraud globally. Corporate fraud is not just limited to financial losses but it also decreases the trust of the public on the companies. It has a serious impact on the society as it increases the cost of product which puts pressure on the consumers and provides them with inferior services. A company loses its credibility if it is suspected of fraud. Many companies go out of business which in turn leaves the employees without jobs.
The cases of fraud have increased all over the world which makes it dangerous for the society and the economy. WorldCom scandal was one of the major fraud scandals in the 21st century. The CEO of the company, Bernie Ebbers manipulated the accounting books to show profits. This was discovered by an auditor who found the journal entries suspicious. Prior to the WorldCom scandal was the Enron scandal, this scandal was so catastrophic that it led to the introduction of Sarbanes-Oxley Act. The Enron scandal drew attention to accounting and corporate fraud as its shareholders lost $74 billion in the four years leading up to its bankruptcy, and its employees lost billions in pension benefits. The effects of the Enron Scandal lasted for years after the incident as in 2017 a judge in US granted the right to a Toronto-based firm to sue the CEO of Enron over losses incurred after the purchase of its shares.
The Sahara Group fraud in India is another example of corporate fraud, the company had included the names of non-existent investors in their accounting books to cover up the funding of black money by influential people. The group collected more money than the permissible limit set by SEBI (Securities and Exchange Board of India). They led the SEBI on a futile search by refusing to refund the money to the investors and by providing wrong information about their donors. The chief of Sahara Group was later sentenced to jail by the Supreme Court of India for his non-payment of money to the investors, this was one of the few cases where the accused was punished. Another corporate fraud case was the Saradha Group Ponzi Scheme case which had a severe impact on the lower income people as most of the were rendered bankrupt and a great number of the victims committed suicide. The Indian Economy depends largely on these corporate sectors and such scams cause long time damage. The effects of Corporate Fraud go beyond monetary loss, the impact it has on the lives of people effected is massive, many of the victims end up committing suicide. The role of politics in Corporate Fraud specially in India is the reason that these types of crime keeps repeating.
Even though proper rules and regulations like Serious Fraud Investigation Office under Companies Act in India and Sarbanes-Oxley Act in the United States have been implemented, the most effective way of detecting corporate fraud are whistle-blowers. Whistle-blowers are people who expose unlawful acts in a company. These people are protected by Whistle-blower Protection Act in US. Most of the private and public companies have whistle-blower protection rules to make sure that fraud in a company is detected earlier and is prevented before it destroys the reputation of the company.
White-Collar Crimes have done more damage to the society and economy than blue collar-crimes. Corporate Fraud is a crime which is spreading in the world, aggressively attacking our globally economy. It is of the utmost importance to every country to make sure it enforces proper rules and regulations to curb this crime. The consequences of Corporate Fraud are evident hence it is the duty of the body in charge of controlling this business to take proper measurements to make sure crimes of this nature does not happen again.
 Akanksha Tomar, Mondaq.com, India: Corporate Frauds: An Analysis (2018).
 Troy Segal, Enron Scandal: The Fall of a Wall Street Darling, Investopedia,2020.