Tag: Fraud

CHALLENGES OF CORRUPTION

Corruption is a global phenomenon and it’s everywhere. Corruption has increased progressively and is now spreading more and more in our society. Corruption around the world is believed to be endemic and is universal and is a important contributor to slow economic growth, to restrain investment, to inhibit the provision of public services and to increase inequality to such an extent that international organisations like the World Bank have identified corruption as ‘The single greatest obstacle to economic and social development’. Theorists believe that ”corruption is most prevalent during the most intense phase of modernization of a country and tends to decline with institutionalisation of advanced democracy”. Basically, Corruption is offence on the part of an authority or powerful party through means that are not legitimate, immoral, or not compatible with ethical standards.

In a broader sense, Corruption is not just the bad behaviour of government officials stealing off money for their own benefit. It also includes cases where the systems do not work efficiently , and ordinary people are left in a dilemma, needing to give a bribe to get a work done. The economy of the state also plays an important role in increasing corruption. Inequality of wealth distribution, exploitation by employers, and low wages and salaries provide ideal breeding ground for corruption. Corruption also violates human rights, challenges the rule of law, distorts the development process, and dis-empowers the Indian state. Corruption is a hindrance in the process of fulfilling civil, political, economic, social and cultural rights.

FORMS OF CORRUPTION

  • Embezzlement: The theft of resources by people itself who are put to administer it. It happens When unfaithful employees steal from their employers. This is a serious offence where a public officials is misappropriating public resources, when a state official steals from the public institution in which he or she is employed and from resources he is supposed to administer on behalf of the public.
  • Nepotism: Nepotism is typical favouritism, in which an officer prefers his proper kinfolk and family members. Many unrestricted presidents have tried to secure their power position by nominating family members to key political, economic and military/security positions in the state apparatus.
  • Favouritism: Favouritism is a tool of power abuse implying “privatisation” and a highly improper distribution of state resources, no matter how these resources have been accumulated in the first place. Favouritism is the natural human tendency to favour friends, family. Favouritism is closely related to corruption so far as it implies a corrupted distribution of resources. It can be said that this is the other side of the coin where corruption is the accumulation of resources.
  • Fraud: Fraud is a financial crime that involves some kind of deception or deceit. Fraud involves a manipulation or distortion of information, facts and expertise, by public officials positioned between politicians and inhabitants, who seek to draw a private profit. Fraud is when a public official, who is responsible for carrying out the orders or tasks assigned by his superiors , manipulates the flow of information to his private profit.
  • Bribery: This form of corruption is the payment that is given or taken in a corrupt relationship. A bribe is a fixed sum, a certain percentage of a contract, or any other favour in money of kind, usually paid to a state official who can make contracts on behalf of the state or otherwise distribute benefits to companies or individuals, businessmen and clients.

Characteristics of Corruption

  1. It is a gap between group and their individual interest.
  2. It is between two or more parties since one can hardly be corrupt with one’s own self.
  3. Consenting adults that have a common understanding.
  4. It is Beneficial in future.
  5. The Existence of power that could be grabbed, entrusted or otherwise available.
  6. The misuse of the power that often drives a wedge between intended and stated positions, for benefits that is unintended.

Corruption in India is a consequence of the nexus between bureaucracy, politics and criminals. It has been observed that in cities and villages throughout India, there is “mafia raj” consisting of municipal and government officials, elected politicians, judicial officers, real estate developers and law enforcement officials, who acquire, develop and sell land in illegal ways. Many state-funded construction activities in India, such as constructing roads, flyovers, are dominated by the construction mafia, which are groupings of corrupt public works officials, materials suppliers, politicians and construction contractors.

It is now well recognized that the State is mainly responsible for both formulating and enforcing policies relating to good governance and human rights. Good governance is a key factor. The good governance agenda includes protection and promotion of human rights and rule of law. Both these functions will not be fully accomplished if corruption is widespread in government. Major challenge is that Corruption is a strong violator of human rights, particularly the economic and social rights of individuals as well as those of the State. It not only weakens development and growth, it also hinders efforts aimed at poverty eradication, socio-economic transformation and creation of an egalitarian society in accordance with the Directive Principles of the State Policy.

The Ponzi Scheme

What is it?

The Ponzi scheme is an investment fraud and one of the most infamous white-collar crimes in history. It is named after Charles Ponzi, the historical scamster who was best known for his financial crimes in the early 1900’s. He was from Italy, but it was after he moved to America that he started his fraudulent activities. The scheme he developed involved conning investors into giving him millions of dollars, and then paying them returns with other investor’s money. Investors were promised that in consideration of their investment, they would receive large returns of up to 50% in 45 days, or up to 100% in 90 days. Instead of paying these investors out of the actual profit of his business, Ponzi paid these investors by further borrowing from new investors. The investors were inclined to accept these deals as it was investment with seemingly high returns and little to no risk. In this way, Ponzi created a chain of borrowing and repaying from various investors, in the process pocketing some of the money from each transaction for himself.

The Ponzi scheme seems to be the prefect con, with the scammer earning large amounts of money, and the unsuspecting investors also satisfied with their exponential returns. This 100-year-old scheme is so well planned that is made use of even by today’s white-collar criminals. The prime example is Bernie Madoff, who in 2008 was caught operating the largest Ponzi scheme in history. Not all the Ponzi scheme cases are big enough to make the headlines, as some white-collar offenders run this scheme to a small extent. However, it can be said without a doubt that this scheme is one of the most standard, but also effective white-collar crimes a criminal can commit. However, investors are now becoming increasingly aware of these schemes, and there are also several anti-fraud agencies monitoring investment activities. Some of the basic parameter’s investors must identify to avoid falling into a Ponzi scheme are;

  • High returns with little or no risk
  • Overly consistent returns
  • Unregistered investments
  • Unlicensed sellers
  • Issues with paperwork
  • Secretive, complex strategies

The presences of all these features means that there is almost certainly a Ponzi scheme being run. It is evident from these features that it is investors dream to have such characteristics in a business, which is the primary reason why it is so tempting for many investors to fall prey to this scheme. However, over the years, corporate investors have come to realise that if it seems too good to be true, it often is.

Bernie Madoff Case

Many people are of the view that white-collar crimes are more serious than normal crimes committed on a day-to-day basis. Normal crimes are high-risk, low-reward situations such as shoplifting or robberies, wherein the perpetrator is taking a large risk in order to secure a relatively small reward. White collar crimes, on the other hand, are low-risk, high-reward situations. Such perpetrators commit crimes which generally go unnoticed for long periods of time, until some thorough investigation takes place or some questions are raised. In this time, they can earn exponential amounts of money as a result of their offences. We can take the example of Bernie Madoff here, one of the best-known white-collar offenders of all time. He committed the largest financial fraud in the history of the US, which involved around $65 Billion. Madoff had been committing corporate fraud and it was going unnoticed, with his career continuing on for about 20 years even after he committed such serious offences. This is evidence to the nature of white-collar crimes as being low-risk, high-reward crimes. It was only in 2008 that he was apprehended by federal authorities, and pleaded guilty to 11 federal crimes. He also admitted to operating the largest private Ponzi scheme in history. Hence, he was sentences to 150 years in prison in 2009 (the maximum for a person his age), for spending 20 years of his career defrauding clients and committing other federal felonies (including securities fraud, wire fraud, mail fraud, money laundering, theft from employee benefit plan, and many more). In February of 2020, Madoff’s lawyer pleaded for compassionate release of Madoff from prison, citing health and wellness issues (kidney failure and deteriorating health). However, this bid for release failed and Madoff continues to serve his prison time.

Madoff did not sound remorseful when interviewed in the years after his crimes, but he does show some self-awareness. “It wasn’t like I was being blackmailed into doing something, or that I was afraid of getting caught doing it,” he continues. “I, sort of, you know, rationalized that what I was doing was OK, that it wasn’t going to hurt anybody.” This is a prime example of neutralization of crimes by a perpetrator.

Corruption

Corruption refers to a form of criminal activity or dishonesty. It refers to an evil act by an individual or a group. Most noteworthy, this act compromises the rights and privileges of others. Furthermore, Corruption primarily includes activities like bribery or embezzlement. However, corruption can take place in many ways. Most probably, people in positions of authority are susceptible to Corruption. Corruption certainly reflects greedy and selfish behavior.

Methods of Corruption

First of all, Bribery is the most common method of Corruption. Bribery involves the improper use of favours and gifts in exchange for personal gain. Furthermore, the types of favours are diverse. Above all, the favours include money, gifts, company shares, sexual favours, employment , entertainment, and political benefits. Also, personal gain can be – giving preferential treatment and overlooking crime. Embezzlement refers to the act of withholding assets for the purpose of theft. Furthermore, it takes place by one or more individuals who were entrusted with these assets. Above all, embezzlement is a type of financial  fraud. The graft is a global form of Corruption. Most noteworthy, it refers to the illegal use of a politician’s authority for personal gain. Furthermore, a popular way for the graft is misdirecting public funds for the benefit of politicians. Extortion is another major method of Corruption. It means to obtain property, money or services illegally. Above all, this obtainment takes place by coercing individuals or organizations. Hence, Extortion is quite similar to blackmail. Favouritism and nepotism is quite an old form of Corruption still in usage. This refers to a person favouring one’s own relatives and friends to jobs. This is certainly a very unfair practice. This is because many deserving candidates fail to get jobs. Abuse of discretion is another method of Corruption. Here, a person misuses one’s power and authority. An example can be a judge unjustly dismissing a criminal’s case.Finally, influence peddling is the last method here. This refers to illegally using one’s influence with the government or other authorized individuals. Furthermore, it takes place in order to obtain preferential treatment or favour.

Ways of Stopping Corruption

One important way of preventing Corruption is to give a better salary in a government job. Many government  employees receive pretty low salaries. Therefore, they resort to bribery to meet their expenses. So, government employees should receive higher salaries. Consequently, high salaries would reduce their motivation and resolve to engage in bribery. Increasing the number of workers can be another suitable way of curbing Corruption. In many government offices, the workload is very high. This provides an opportunity to slow down the work by government employees. Consequently, these employees then indulge in bribery in return for faster delivery of work. Hence, this opportunity to bribe can be removed by bringing in more employees in government offices. Tough laws are very important for stopping Corruption. Above all, strict punishments need to be meted out to guilty individuals. Furthermore, there should be an efficient and quick implementation of strict laws. Applying cameras in workplaces is an excellent way to prevent corruption. Above all, many individuals would refrain from indulging in Corruption due to fear of being caught. Furthermore, these individuals would have otherwise engaged in Corruption.

The government must make sure to keep inflation low. Due to the rise in prices, many people feel their incomes to be too low. Consequently, this increases Corruption among the masses. Businessmen raise prices to sell their stock of goods at higher prices. Furthermore, the politician supports them due to the benefits they receive.To sum it up, Corruption is a great evil of society. This evil should be quickly eliminated from society. Corruption is the poison that has penetrated the minds of many individuals these days. Hopefully, with consistent political and social efforts, we can get rid of Corruption.