Financial Crime World

Financial Crimes Definition in India: A Q&A Guide

In a bid to tackle the increasing instances of corporate crime, fraud, and investigations in India, this comprehensive guide provides a high-level overview of key concepts and laws governing financial crimes in the country.

What is Corporate Fraud?

Corporate fraud refers to any illegal or unethical business practices that result in financial loss to shareholders, employees, customers, or other stakeholders. In India, corporate fraud can take many forms, including:

  • Insider trading
  • Market manipulation
  • Misappropriation of funds

Main Laws Governing Bribery and Corruption

The Prevention of Corruption Act, 1988, and the Indian Penal Code (IPC) govern bribery and corruption in India. Under these laws, individuals found guilty of accepting or offering bribes can face severe penalties, including:

  • Imprisonment
  • Fines

Insider Dealing: Impact on Financial Markets

Insider dealing occurs when a person with access to confidential information about a listed company uses that information to trade in the company’s securities. In India, insider dealing is punishable under Section 12 of the Securities and Exchange Board of India (SEBI) Act, 1992.

Money Laundering and Terrorist Financing

  • Money laundering involves concealing the source of illegally obtained funds to make them appear legitimate.
  • Terrorist financing refers to the provision of funds to individuals or groups engaged in terrorist activities. In India, both money laundering and terrorist financing are punishable under the Prevention of Money Laundering Act (PMLA), 2002.

Financial Record Keeping Requirements

Financial institutions in India are required to maintain accurate and detailed records of all transactions, including:

  • Cash transactions exceeding INR 10 lakhs Failure to comply with these requirements can result in penalties and fines.

Due Diligence: Essential for Businesses Operating in India

Due diligence refers to the process of gathering and verifying information about a business partner or potential acquisition target to identify any potential risks or liabilities. In India, due diligence is essential for businesses to:

  • Avoid falling foul of anti-money laundering laws
  • Ensure compliance with regulatory requirements

Company Liability for Financial Crimes

Yes, in India, companies can be held liable for financial crimes committed by their employees or subsidiaries under the concept of vicarious liability. This means that companies may be penalized for failing to prevent or detect financial crimes committed by their employees or subsidiaries.

Immunity and Leniency Policies

Immunity and leniency refer to the policies adopted by regulatory authorities to encourage individuals and companies to cooperate with investigations into financial crimes. In India, regulatory authorities offer:

  • Immunity from prosecution
  • Reduced penalties in exchange for cooperation and timely disclosure of information

Whistleblowing: Reporting Suspected Financial Crimes

Whistleblowing refers to the reporting of suspected financial crimes by individuals who have knowledge of such activities. In India, individuals can report suspected financial crimes to:

  • Regulatory authorities, such as the Securities and Exchange Board of India (SEBI) or the Enforcement Directorate (ED)
  • Law enforcement agencies