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Corruption in India and the recent PNB fraud

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India has been ranked 81st in the global corruption perception index for 2017, released by Transparency International, which named the country among the “worst offenders” in terms of graft and press freedom in the Asia Pacific region. It is to be noted at the same time that this index covers public sector corruption and press freedom including death of journalists and therefore does not accurately reflect extent of corruption only.

However, corruption has been the bane of Indian Society ever since independence. This started with Mundhra-LIC scam and Dharma Teja-The Jayanti shipping scandal during Nehru’s time and have continued to flourish till now. This is all pervasive starting from small value bribes and tax evasions to large value financial fraud, black money generation and illegal overseas deposits.

To gauge the extent of bribing, there is this, a website where people can anonymously report bribes paid by them or demanded from them to access government services. Since the website was launched in August 15, 2010, it has received 1,54,058 reports involving bribes to the tune of Rs 2,867.51 crore.

The largest contributors to corruption were entitlement programs and social spending schemes enacted by the Indian government. Examples include the Mahatma Gandhi National Rural Employment Guarantee Act and the National Rural Health Mission. Other areas of corruption include India’s trucking industry which is forced to pay billions of rupees in bribes annually to numerous regulatory and police stops on interstate highways.

Direct transfer of benefits and GST will largely bring down the level of such corruption. Tendering processes and awarding contracts was another area offering much scope for corruption. This has been lowered through streamlining of procedures, computerisation and online approvals. Electoral funding is another issue govt. is currently trying to address.

As a matter of fact, nearly one third of Indian MPs of 16th Lok Sabha have criminal cases pending against them. Many of the biggest scandals since 2010 have involved high level government officials, including Cabinet Ministers and Chief Ministers, such as the 2010 Commonwealth Games scam, the Adarsh Housing Society scam, the Coal Mining Scam , the Mining Scandal in Karnataka and the Cash for Vote scams. Corruption in India is a consequence of the nexus between Bureaucracy, politics and criminals.

As R Jagannathan so precisely said on financial frauds in Swarajya –  what links the Harshad Mehta, Ketan Parekh and PNB scams is that money was lent against fake documentation, either actual paper or virtual, but without the backing of real assets.

Most banks and financial agencies have operating manuals which lay down how every transaction is to be done or recorded following specified policy and procedures. Yet, there are many gaps in the such SOPOP or statement of policy and operating procedure, which makes this and many other frauds possible. Like in PNB case, the transactions could be made outside the Core Banking Solution and reconciliation of NOSTRO account was not done. This as far as the internal control mechanism is concerned.

But most astonishing is how, say in PNB case, the collusion in such high value fraud between the officials of borrower company and lending bank could be continued for such a long time without the knowledge of their colleagues at the branch.

It is understood that judicial requests for exchange of information are being sent for getting details of the overseas financial holdings of Nirav Modi and Mehul Choksi and also details of their bank accounts, assets, partnerships, showrooms, trusts and other assets. These assets and their sources of income will be investigated and if necessary would be attached under the criminal sections of the Prevention of Money Laundering Act (PMLA) if it is found that they have been created using tainted funds or the proceeds of crime from the alleged bank fraud.

India has arrangement with USA for implementing Foreign Account Tax Compliance Act effective from 2017. It is also a signatory to Convention on Mutual Administrative Assistance in Tax matters. These provisions could also be beneficially utilized for criminal proceedings against them and seizure of their assets.

Phone calls from Delhi on who to give loans to is another impediment to good credit administration. There needs to be a permanent structure in place to separate the government’s ownership rights from the actual job of running banks on commercial lines.

In PNB scam, 19 persons including an auditor of the branch have been arrested. Govt. has asked PSU banks to scan all bad debts above Rs. 50 crores for possible fraud. It has shut down 35 overseas branches of PSU banks over synergy and profitability; 69 more offices under review for closure. It has also moved to set up a new regulator for CAs and the Fugitive Economic Offenders Bill for confiscation of assets without conviction where such fraudsters flee the country. Recently, Karti Chidambaram has been arrested in the INX Media Money Laundering case. This comes in the wake of actions against Bhupinda Singh Hooda, Gurpal Singh (Amarinder Singh’s son in law) and wife of Abhishek Singhvi.

Corruption is like a cancer in the body of Indian society. Its seed is the greed in individuals. It needs treatment like chemotherapy. That is why measures like Vigorous prosecution, Aadhar identification, Demonetization and GST were injected to reengineer human souls and minds as much as socio-economic realities.

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