Why can't we prosecute white collar thugs like the US does?

Ever since the 2008 financial crisis, the image of the United States of America across the world has been in a downward trajectory.

Greedy bankers, reckless insurance companies, manipulative rating agencies, negligent government sponsored enterprises, rouge traders and wild customers all manipulated and rigged various documents and financial statements to buy and sell homes and home mortgages. Prosecuting the culprits proved elusive due to complexity of derivative products. A jury proclaimed that bad investment decisions are not criminal acts.

Otherwise United States has an excellent track record of prosecuting white collar crimes and one worth emulating. It prosecutes like no other country resulting in massive fines for corporations and long sojourn in jail for executives. In just the last one year, multinationals have paid more than $10 billion in fines for wrong doing. Drug companies paid dearly for marketing transgressions. Credit card companies paid humongous fines for fixing credit and debit card fees. And the LIBOR scandal resulted in massive fines for banks while prosecutors debate on the merits of bringing criminal charges against company executives who were involved in actual rate manipulation.
Individuals too serve long sentences and pay hefty fines for their criminal acts. Raj Rajaratnam, billionaire founder of Galleon Hedge Fund recently started serving his eleven year prison sentence after having been found guilty of securities fraud. The judge also ordered him to pay a record fine of $92.8 million for his criminal acts. Bernie Madoff is serving a life sentence for perpetuating a ponzi scheme, while most of his accomplices have pled guilty and assets of his and his relatives seized and dispersed to the victim fund. Financier and cricket mogul Allen Stanford is serving a 110 year prison sentence for defrauding billions from investors. And Rajat Gupta, the famed Indian born American, was recently sentenced to two years’ jail term and a fine of $ 5 million after having been found guilty of insider trading.

The surprising aspect of all these white collar crimes is speedy trials and quick sentencing. Trials lasted anywhere between a month to three while that of Stanford took longer than a year after his lawyers put up a stern defence of the victim being mentally ill. Our government must strive to make that kind of speedy justice commonplace in India. And it might be the only way to silence the demands for an omnibus Lokpal bill.

The last five years have seen a plethora of white collar crimes being committed in India by individuals as well as companies -- from the mother of all scams in awarding of 2G spectrum licences to the biggest corporate frauds in Satyam Computers and Reebok, there have been plenty of illegal mining, coal block allocations, FEMA contraventions by the IPL teams and land denotification along with cartelisation, insider trading and stock price manipulation cases. But the prosecutors thus far have come up with a blank.

Several reasons

There are several reasons for prosecutors failing to take white collar crimes to their logical conclusion. But fundamentally the government and legal profession looking to overhaul must give priority to the following: too many toothless investigating agencies, too much political interference and several stifling rules and regulations overlapping each other that makes getting a guilty verdict an arduous task.

For a start, number of investigating agencies must be reduced. In the Satyam Computer scandal, five central government agencies – Central Bureau of Investigation (CBI), Serious Fraud Investigation Office (SIFO), Registrar of Companies (ROC), Securities and Exchange Board of India (SEBI), Enforcement Directorate (ED) and Income Tax (IT) departments coming under ministries of home, finance, law and corporate affairs probed the incident. The professional accounting regulatory agency, the Institute of Chartered Accounts of India (ICAI) and the local police launched their own investigations. Multiple agencies investigated the Nira Radia group of companies. In the recent HSBC money laundering case, the Financial Intelligence Unit or the FIU coming under the ministry of finance began probing charges.

With a myriad of investigating agencies coming under various ministries, political interference hamstrings the prosecution. Even if the criminal has a far-flung political connection, the wheels of justice come to a grinding halt. A consolidation of agencies or giving legislative recognition to SIFO as suggested by the Naresh Chandra committee can limit political influence as well as convert a toothless tiger into a ferocious beast, an agency that has an ability to induce fear in white collar criminals.  
India has no shortage of laws but enforcement is sporadic, inconsistent and subject to political interference. Only through active and consistent application will existing laws acquire potency. Revamping of stifling regulations and purging of overlapping laws must be given priority. This will enable public prosecutors to file charges quickly, collect evidence without delays and bring those suspected of malfeasance before the court for their day of reckoning as quickly as possible.

Free market economy is structured on the premise of rule of law and a level playing field for all individuals and corporations. As India embarks on becoming a more conventional capitalistic society with an ever increasing role for private sector, successful prosecution of white collar crimes is of paramount importance in promoting economic efficiency, reducing corruption and preserving faith in a free enterprise system.

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