Discuss the Evidentiary Value of Forensic Diligence in a White-Collar Crime Investigation

The author in this article discusses the evidentiary value of Forensic diligence in a White-Collar Crime Investigation. It further discusses that the allegations that an accused in a white-collar crime may be charged with vary from offences under the Indian Penal Code (such as fraud, cheating, forgery, etc.) to offences under offences under special statutes (such as money laundering, insider trading, corruption, etc.).”
Estimated Reading Time: 11 minutes

Introduction

“The practitioners of evil the hoarders the profiteers the black-market and speculators are the worst enemies of our society. They have to be dealt with sternly. However well placed important and influential they may be. If we acquiesce in wrongdoing, people will lose faith in us’’

 – Dr. Radha Krishnan

All over the world businesses and commercial activities gained huge momentum with the inset of ‘globalisation’. This huge momentum has caused a great deal of inconvenience to the legal system all around the world with huge growth in “white-collar crime”. White-collar crime started happening owing to the diversification of businesses over periods of time. ‘white-collar crime’ as the term was used primarily in old ages to mark crimes that were committed by such persons who held high post or were of considerable social stature or repute in the first place. The increase in businesses and stakes involved, such crimes have increased exponentially. This meant that there existed a need for an effective system that could counter such crimes. To combat white-collar crime, a number of investigation and professional services have opened up and have refined their skills and procedures over the years. 

These services are often providing an in-depth analysis of the crimes committed and help in carrying out forensic investigations. This prepares the institution for legal proceedings and helps in finding evidence relevant to the crime. Generally, such crimes are nowadays observed in large multinational corporations which require constant auditing and maintaining of a proper financial record. These so-called agencies help in doing these things. The allegations that an accused in a white-collar crime may be charged with vary from offences under the Indian Penal Code (such as fraud, cheating, forgery, etc.) to offences under special statutes (such as money laundering, insider trading, corruption, etc.).” 

White-Collar Crime and white-collar crime investigation

According to the FBI, “The motivation behind these crimes is financial—to obtain or avoid losing money, property, or services or to secure a personal or business advantage. These are not victimless crimes. A single scam can destroy a company, devastate families by wiping out their life savings, or cost investors billions of dollars (or even all three). Today’s fraud schemes are more sophisticated than ever, and the FBI is dedicated to using its skills to track down the culprits and stop scams before they start.” 

The term was first coined by prof. Edward. H. Sutherland and quickly became globally utilized to denote “the crime committed by a person of respectability and high social status in course of their occupation”. Some Characteristics of white-collar crime are: 

  1. Generally committed by people who hold a high social status or ranking among others. 
  2. The crimes committed are more economical and commercial in the sense that they involve fraud, misrepresentation or irregularities, and other such practices.
  3. These are deliberate and planned conspiracies. 
  4. The victims of the crime are a major section of society if not the whole nation in certain cases. Such crimes can affect lower subordinates, poor families, and people dependent on the functioning of such an organism for financial aid. 
  5. In white-collar crimes, mens-rea or motive or mental state of an accused is not an essential part of the crime committed. Only the actus-reus or the action done by the culprit matters in such offenses.

Causes for WhiteCollar Crime

  1. Greed among high-class people who are financially stable but want more financial wealth leads to them committing such illegal acts known as white-collar crime. 
  2. To become more successful over competition companies, people holding high ranks may employ such techniques which result in financial fraud, misrepresentation, etc. 
  3. Lenient escapes available for people in such a position of power makes it viable for them to escape the law and authorities numerous time before being caught.

These financial frauds or white-collar crime arose during industrialization and further during globalization, these crimes became noticeable and were no longer petty. The ever-evolving economies of nations during these phases became increasingly dependent on such capitalist ventures and led to the development of companies, stock exchange, banking sector, etc.[1] The majority of these crimes have an element of greed in them which emanated from the ones who are involved in such crimes. Consequently, the persons involved in such crimes are generally business tycoons or politicians or people of repute. These people engage in such crimes when they become too greedy for their good ad try to fraud their way to more wealth.

White Collar Crimes in India gain huge focus and attention from the media because perpetrators are generally high-profile citizens. It has time and again through investigation been shown that a lot of times there is an unlawful involvement of Parties who are political. Businessmen in India are heavily involved in corporate crimes and these acts often go unnoticed by the court or administration. These corporate criminals are majorly involved in fraud, illicit contracting jobs, corruption, unfair labour trade practices, and so on.”[2]

Forensic Accounting in white-collar crime investigation

We now look at two responsible authorities who investigate and serve as an expert evidence/witness in such matters. These authorities in the contemporary world have become very important in terms of investigating and trying to prevent such crimes from happening. Forensic accounting is a process that employs skills such as accounting and investigation together to conduct a thorough investigation into the accounts or finances of an individual/business/company. Forensic Accounting serves the purpose of providing an analysis of accounts and financial data that could prove to be useful in legal proceedings. The personnel for such investigation is specifically trained to employ their skills of investigation to look for minute intricacies that go well beyond the normal reality and to look beyond the numbers present in the accounts. The usefulness of such a practice is established in cases of fraud or money laundering where the court may seek evidence that could be availed only if there was a forensic accounting done. It is necessary when the crimes are of such financial nature. The importance of forensic accounting has increased several folds in today’s business world. It a secure way to ensure that no fraud or embezzlement of money is taking place internally in a company or between two parties. The general employers for such professional forensic accountants include companies, banks, police, etc.

The job of a Forensic accountant entails compiling evidence from the finances, collecting and managing the data gathered from the accounts, presenting or reporting their findings throughout the investigation. A forensic accountant could be asked to be present in a court hearing to testify in their findings. This is where they can use their reports to present and address the court with their knowledge of the finances involved. Many times, the process includes tracing funds through shell corporations and a diligence review as their primary job. It is quite normal for a forensic accountant to be well trained in Alternate Dispute Resolution as most of the corporate crimes do not go to courts and are settled through ADR.[3]

Financial Auditing in white-collar crime investigation

Another authority is Financial Auditor. A process similar to financial Accounting, Financial auditing employs compliance evaluations and information of finances and other standards of regulation in a public company through an external agency. Forensic audit as a process is very systemic. There is an obvious goal to it and that is to obtain and evaluate evidence. This evidence is objectively obtained only for the economic and financial actions of a company. Sometimes Auditors deal with fraud in a specific and specialized manner. Such auditors are known as fraud auditors and are generally a specialized group among financial auditors that deal with fraud. 

Both forensic accountants and forensic auditors have several functions, for example, Corporate Investigations[4] wherein, corporate firms and offices who suspect that there might be a financial fraud taking place in their accounts or financial statements, auditors check for corporate wrongdoings inside and outside the company environment. Litigation Support[5] wherein, auditors assist counsels in investigating a white-collar crime in matters which are financial and need an expert opinion. Criminal Matters[6] wherein, Auditors try and discern the white-collar crimes that might be happening in the company. Auditors use financial transactions and other financial reports that are related to allegations of such crimes and sort them out in cases of fraud, stock manipulation, and other business and commerce related matters.

Financial stability is a key factor in the long term goals of a nation and an organization. Forensic auditing and accounting help to maintain this stability. These professions help in preventing, regulating, and penalization of any offenses that might occur in the corporate world or outside of it. 

Need for Forensic Diligence in white-collar crime investigation

Increasing revelation point out the importance of such authorities. One such recent revelation was the PNB SCAM. As per the Report submitted by Goldman Sachs on the Impact of PNB Scam on Indian Economy, it is stated that “To global investors, India’s economy may seem a bit like a raw mango these days—enticing from a distance but bitter to taste; good for pickles, and not much more. That Goldman Sachs cut India’s economic growth estimate from 8% to 7.6% for financial year 2019 may not be a surprise after the swell of bank scams that have washed over headlines in the last few weeks. The global investment bank has cited the $2 billion fraud at the state-run Punjab National Bank (PNB) among the reasons for slashing the projections for the world’s fastest-growing major economy”.[7]

This shows that there is an increasing need for forensic diligence in India, with the main purpose of conducting an investigation is to hold an inquiry. The company can then start with assessing the loss it has incurred and what was the nature of the offense that was committed by the alleged offender. After the preliminary investigation, the company can then decide on the need for a formal investigation. The purpose of a forensic investigation is ultimately to allow a corporation to assess the damage and the situation that caused the incident to happen. Furthermore, a forensic investigation helps a company in maintaining its privacy. The confidentiality that is involved in forensic investigation serves the purpose of internal structural assessment. The findings of a forensic investigation can then be used in a legal case. 

Evidentiary value of forensic reports in White-collar crime investigation

The whole purpose of a forensic investigation is to find out how the alleged crime happened and under what circumstances it happened. The reports regarding the crime submitted by a forensic investigator can serve as potential evidence in trials. Evidence submitted by forensic investigators is considered to be expert evidence and hence, carries a lot of value in court trials.

The Evidence Act,1872 provides the legal framework for such forensic investigation reports to be admissible as evidence. Sections 45 to 51 provide in-depth knowledge on how expert witnesses and evidence can be crucial in a trial. Being third-party expert evidence, forensic investigation reports fall under these sections. Specifically, section 45[8] of the evidence act allows a court to appoint an expert who has specialized knowledge in the required field. Section 45[9] has a broad interpretation to allow even accountants and auditors to be present as an expert witness.

The real value to forensic investigation evidence is added by section 45 of the act. It is a section that can be applied to both a criminal as well as a civil litigation case. While there is no express provision stating that forensic evidence is admissible through the application of section 45, it is a settled precedent in law and one that has gone through several interpretations to allow for such evidence to have evidentiary value. Expert evidence is an exception to the basic rule of evidence law. The law states that primary evidence is more important than secondary evidence, however, incorporate cases, such evidence is given value to provide more clarity and help the court reach a decision.

Expert evidence is by law not binding on the court, it is superseded by primary evidence in most of the cases,[10] with no additional need for it to be corroborated. There is also not a well-settled principle in law that lays down absolute corroboration in case of expert evidence for them to be admissible in court.[11] It has also been held by the court that for it to form an opinion in a case, it cannot solely rely on evidence provided by an expert on the matter, the sole reason being that the courts deem it to be inconclusive proof in most cases.[12] 

Forensic investigations done routinely may return reports that show irregularities or malfeasance in the internal corporate structure. If such incidents go unreported and unresolved and are later found in the official investigations, management who were ignorant would be treated as an accomplice of the perpetrator and become an alleged offender, who helped in the culpable offence.

A factor that can help determine the value of the forensic report submitted by the forensic investigator is explained in section 126 of the Evidence Act. This section pertains to attorney-client privilege. The sections explain how a company that engages a counsel to deal with the legal matter and conduct their private investigation into the matter would protect the findings of such an investigation through attorney-client privilege. Documents and other related communications discovered during this evidence would be protected by this section.[13] Thus the communication between the expert and the counsel of the company would also be protected under this section. Subsequently, to make the reports of the expert be submitted as evidence, the companies will have to waive the right granted under section 126 of the act. The corporations willing to refrain from exercising their privilege can also serve as an indicator of the value such reports possess and hence may be used by the courts to determine the situation better. 

Conclusion

White-collar crime investigation conducted by third-party individuals into the internal structure of corporations have become fairly common and have helped in reducing the discrepancies that arose previously due to mismanagement. Such investigations also serve the purpose of allowing a company to have a solid defence or case in trials. With proper investigation and a report to support the claims of the company, management of a company can save themselves from charges and allegations in a trial. With other regulatory frameworks such as The Prevention of Money Laundering Act, 1988 (PMLA), The Foreign Exchange Management Act, 1999 (FEMA), Tax Act, 2015, Finance Act, 2017, IT Act, Benami Property Transactions Acts, 1988 (Benami Transactions Act), & company Act, 2013, the Government has created sufficient ammunition to tackle the menace of white-collar crimes. The courts have observed a strict discipline when it comes to expert evidence and has been very critical of the same being admissible. Changing times and white-collar crime investigation practices have helped in a more independent and free approach for companies to provide substantial evidence to support their claims in a trial.     

Also read HealthSouth Scam: Reasons, Investigation, Inquire, Judgment and Aftermath

References

[1] Dr. Geetika Sood & Meenu Bala, White Collar Crimes in India, International Journal of Trend in Scientific Research and Development (IJTSRD) Volume: 3 | Issue: 4 | May-Jun 2019 Available Online: www.ijtsrd.come-ISSN: 2456 – 6470

[2] Id.

[3] James, Chan Forensic Accounting, Investopedia, https://www.investopedia.com/terms/f/forensicaccounting.asp

[4] Susan P. Shapiro, Thinking About White Collar Crime, Matters of Conceptualization and Research, National Institute Of Justice, 1980, p.64

[5] Id.

[6] Id.

[7] Iyer Sriram Nine Ways in Which the PNB Scam will affect India’s Economy, The Bitter Truth, Quartz India (2018).

[8] The Indian Evidence Act, 1872. 

[9] Basudeo Gir v State, AIR 1959 Pat 534. 

[10] Forest Range Officer v P. Mohammad Ali, 1993 SCR (3) 497.

[11] Murari Lal v State of M.P., (1980) 1 SCC 704. 

[12] Chennai Jalapathi Reddy v. Baddam Pratapa Reddy, (2019) 14 SCC 220; Virothi Tirupathi Rao v Kota Venu, (2016) 4 ALT 478.

[13] Larsen & Toubro Limited v. Prime Displays (P) Ltd., Abiz Business (P) Ltd., and Everest Media Ltd., (2003) 105(1) BomLR 189.

Hey there!

come here often?

Login To Come In