Regulatory Developments in White-Collar Crime Laws in India

By Vaidehi Sharma, a student of BALLB at Mohanlal Sukhadia University

Introduction

White-collar crimes, which are committed through non-violent offenses that are financially motivated by a person holding professional or managerial positions, have increasingly emerged as a concern to India’s legal and regulatory regimes. As India’s economy grows rapidly, the financial systems modernize, and the country integrates itself further into the world’s economic system, white-collar crimes have become increasingly more complex, taking advantage of advancements in technology and complicated financial systems.

These crimes have posed a lot of challenges to law enforcement, judicial interpretation, and regulatory monitoring. To understand the financial and social impact of these offenses, the Indian government has undertaken legislative reforms, regulatory changes, judicial decisions, and international collaborations to better combat white-collar crimes and bring perpetrators to justice.

In the last few years, the Indian government has taken an all-round approach to combating the complexities of white-collar crimes. These measures encompass new legislative frameworks, changes in the existing laws, increased regulatory oversight, international cooperation, and landmark judicial decisions. Each of these developments plays a crucial role in ensuring a robust response to the growing threat of white-collar crime, addressing both the complexities of modern economic offenses and the need for systemic transparency and accountability.

Introduction of New Legislative Frameworks

Over the years, India has made drastic changes to its white-collar crime legal framework. During 2023, it enacted three major bills which superseded colonial-era legislations altogether, thus pointing toward much stronger legislation than those traditionally used to handle economic offenses of the contemporary type. These new pieces of legislation were not just about responding to current situations but also about addressing evolving concerns about financial crime.

These reforms, which have come into effect as of July 1, 2024, look to fill the gaps within the legal system and further simplify prosecutions against individuals with involvement in white-collar crimes.

1. Bhartiya Nyaya Sanhita, 2023

The Bhartiya Nyaya Sanhita, 2023, is a replacement for the Indian Penal Code of 1860, which has long been the foundation of criminal law in India. Though the IPC was prepared under British colonial rule, it did not take into account the intricacies of white-collar crimes in the modern economy. The BNS is a progressive piece of legislation that introduces provisions particularly aimed at combating white-collar crimes. The law broadly defines “economic offenses” and includes crimes such as:

• Criminal breach of trust: This refers to a situation where property that has been entrusted to a person in a fiduciary position, such as bankers and company directors, is used for personal gain.
• Banknote counterfeiting: This includes both physical reproduction and digital reproduction of banknotes, which is also a crime that has come with the development of modern printing technologies and online means.
• Hawala transactions: Such illegal, unregulated money transfers are frequently resorted to avoid law restrictions on money transfers and raising funds for terrorist and money laundering activities.
• Mass marketing frauds: Because of the increased digital media, scams involving huge populations of people, like the Ponzi scheme and the fraudulent investment schemes, have exponentially increased.

BNS fixes the heavy sentences upon those found guilty of white-collar crimes. This indicates the seriousness of the government regarding offenses that are undermining the financial system and exploiting the trust of the public. It is very important since the number of economic crimes is on the rise, which had not been penalized adequately in the earlier years as the legal systems were not up to date.

1. Bharatiya Nagarik Suraksha Sanhita (BNSS), 2023

The Bharatiya Nagarik Suraksha Sanhita (BNSS), 2023, replaces the Code of Criminal Procedure (CrPC) of 1973, introducing provisions that are designed to enhance the victim-centered approach in criminal justice. This new law seeks to ensure fairness in investigations and trials and includes several critical reforms aimed at strengthening the prosecution of white-collar crimes. Among the key features of the BNSS are:

• Mandatory audiovisual recording of search and seizure: This provision ensures that law enforcement authorities carry out searches and seizures transparently, with recordings made of all such actions to prevent abuse of power and ensure accountability in the investigative process.
• Victim protection mechanisms: The BNSS also develops mechanisms to protect victims and witnesses in financial fraud cases; this is particularly important during the time they are perceived to be vulnerable to intimidation or retaliation by powerful offenders. This mechanism helps increase the safety of people appearing in court and testifying against white-collar crime suspects.

Considering that many white-collar crimes are inherently surreptitious and complicated and the victims are not known or cannot come forward often because of fear of reaction, the implementation of such reforms is particularly important.

1. Bharatiya Sakshya Adhiniyam, 2023

The Bharatiya Sakshya Adhiniyam, 2023, is another landmark reform that supersedes the Indian Evidence Act of 1872, which was outdated and ill-equipped to deal with the complexities of modern criminal investigations, especially those involving technology. With the increasing use of digital platforms in committing financial fraud, such as online banking fraud, stock manipulation, and cybercrimes, this law adapts the evidentiary framework to the current technological landscape. Key provisions of the BSA include:

• Recognition of electronic evidence as prime evidence: In the past, electronic records such as email, text messages, and other digital documents were often devalued or considered second-class evidence in criminal litigation. The BSA brings these electronic forms of evidence on par with physical evidence, thus making it more accurate and comprehensive to tell the story of financial crimes.
• Chain of custody for electronic evidence: The law also pays much attention to the preservation of electronic evidence from collection to use in court. This is very important since digital evidence is easily compromised and thus cannot be taken to court.

These are some of the changes that need to be done to address the rise in cybercrimes and the increasing trend of financial frauds that take advantage of digital platforms and online systems.

Changes in Existing Laws

Besides introducing new laws, India has also amended many existing laws to deal with white-collar crimes better. The amendments increase the scope of offenses, enhance the powers of enforcement, and make it easier for regulatory bodies to act against financial wrongdoers.

1. Prevention of Money Laundering Act (PMLA), 2002

The Prevention of Money Laundering Act (PMLA), 2002 has been amended several times to better align with international standards and to meet the challenges emerging in financial crimes such as money laundering. Some of the important amendments include:

• Enhanced powers for enforcement agencies: The Enforcement Directorate (ED) now has increased authority to attach assets that are suspected to be proceeds of crime. These assets can be frozen or confiscated, which is a powerful deterrent for individuals involved in money laundering activities.
• Expanded definition of money laundering: The scope of what constitutes money laundering has been expanded so that new forms of financial fraud and money laundering schemes are now covered under PMLA, thus allowing offenders not to get a way out by exploiting any loopholes in the legal system.
• International cooperation: Recent amendments have also allowed for greater international cooperation in the fight against money laundering, which is necessary given that most white-collar crimes, including money laundering, are cross-border transactions.

These reforms enable India to effectively counter money laundering from domestic to international levels.

1. Prevention of Corruption Act, 1988

Prevention of Corruption Act (PCA) is yet another law that has had multiple landmark amendments in it. Through amendments, this legislation has made the law comprehensive and robust in handling issues such as corruption and other white-collar crimes:

• Expanded concept of public servants: Previously, it was only the employees and officials of the government that were considered public servants. In the PCA, both private individuals and private organizations performing public functions like private contractors working on a project for the government were now considered public servants.

The amendments made bribe-offering criminal. That way, both parties in a corrupt transaction will be included within the scope of the law. The law requires accountability for those individuals and corporations that offer bribes to influence decisions or get undue advantage.

Further to these amendments, judicial interpretation has extended the scope of the PCA to include more corrupt practices, from corporate bribery to financial fraud within public institutions.

Strengthened Regulatory Supervision

The regulatory agencies include the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI), which play an important role in regulating the financial sector and dealing with white-collar crimes. The two agencies have implemented tight control mechanisms in response to the increased cases of financial crimes.

1. Securities and Exchange Board of India (SEBI)

SEBI, the primary regulator of the securities market in India, has taken several proactive steps to prevent financial fraud and market manipulation. One key measure is tightening the due diligence requirements of Alternate Investment Funds (AIFs), which high-net-worth individuals commonly use to invest in stressed assets. The key steps taken by SEBI are:

• Full review of the AIF schemes: SEBI reviews AIF schemes on a more frequent basis to ensure that those schemes comply with all relevant financial regulations and do not engage in practices that might facilitate market manipulation or obscure financial instability.
• Scrutiny of large investors: SEBI has also increased its scrutiny of large investors in order to prevent the misuse of financial instruments and to ensure that no entity is able to manipulate the market for personal gain. These measures are crucial in ensuring market integrity and protecting smaller investors from exploitation.

1. Reserve Bank of India (RBI)

The RBI, India’s central banking authority, introduced several reforms aimed at preventing financial fraud and more transparency in the banking sector. Some of the significant changes include:

• Providing borrowers with a reasonable opportunity to respond: The RBI has stated that before a borrower’s account is classified as fraudulent, the banks should have provided the borrower with the opportunity to respond to fraud allegations. This will provide for a fair classification procedure and avoid wrongful penalizations on the borrowers.
• Strengthened fraud detection systems: The RBI has motivated banks to adopt more advanced technology in the detection of fraud, which includes artificial intelligence-based systems that can analyse transaction patterns and flag suspicious activity. This proactive approach helps in detecting fraud before it becomes too late, thus avoiding large-scale financial damage.

International Collaboration and Compliance

White-collar crimes are often cross-border transactions. International cooperation is quite essential in dealing with such financial frauds. Thus, India has increased interaction with international bodies like the Financial Action Task Force (FATF) to prevent the white-collar crimes associated with transnational transactions.

India has been working with the FATF on improving the effectiveness of its anti-money laundering measures and prosecuting financial crimes. Though India’s rating for money laundering investigations is still “moderately effective,” the FATF has encouraged the country to speed up prosecutions and decrease court backlogs. These are the key areas where improvement is needed:

• Cross-border evidence collection: Evidence gathered from another jurisdiction is admissible but may be hard to come by due to the variation in legal frameworks. Strong international cooperation in law and treaties will have to do with facilitating evidence transfer.
• Extradition of fugitives: The cases of Vijay Mallya and Nirav Modi who have left the country for alleged financial fraud, depict how India is struggling with the extradition of fugitives. The government has been making efforts to strengthen extradition procedures so that those white-collar criminals do not leave the country and escape.

Judicial Pronouncements

Judiciaries have played an immense role in expanding the scope of white-collar crime laws and ensuring that justice is served. Various judgments have defined terms of significant legal concepts, for instance,

• Expansion of public servant definition: In CBI v. Ramesh Gelli & Ors. (2016), private bank executives were deemed public servants under the PCA.
• Recognition of electronic evidence: Emails, digital records, and forensic data are now primary evidence, as endorsed in State of Maharashtra v. Dr. Praful B. Desai (2003).

New judgments have further strengthened the point that individuals and even corporate bodies should be dealt with equally for indulging in corrupt practices, particularly in the form of fraudulent activities related to money laundering.

Conclusion

India’s regulatory developments signal a transformative shift in its approach to combating white-collar crimes. The introduction of new legislative frameworks, amendments to existing laws, and enhanced regulatory oversight, combined with active judicial intervention, form the cornerstone of this evolving strategy. These reforms aim to ensure that perpetrators of financial crimes are held accountable and that the integrity of the financial system is safeguarded.

However, challenges remain. India should continue to tackle judicial backlogs, resource constraints within enforcement agencies, and the continuing sophistication of offenders. Many of these financial crimes now have an international flavor, requiring increased international cooperation and legal harmonization. By leveraging technological advancements, building capacity in enforcement agencies, and fostering a culture of transparency and accountability, India can strengthen its fight against white-collar crimes and ensure a more secure and just economic environment for its citizens.