White-collar crime And Its Impact on Economy - Essay, UPSC MAINS | Course for UPPSC Preparation - UPPSC (UP) PDF Download

White-collar crime And Its Impact on Economy

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(1) Opening    —    In all soieties, at all times, corruption had its highs and lows and depend on many variables.

(2) Body    —    Corruption in British India.

    —    The Prevention of Corruption Act, 1947.

    —    The Prevention of Corruption Act, 1988.

    —    Vigilance commissioners in centre and states.

    —    The recent corruption charges.

    —    The role of investigating agencies. The overburdened police.

    —    The CBI is not free in handling the cases of senior level officers.

    —    The state agencies and the Government.

    —    All corruption cases are non-bailable offences.

    —    “Bail and no Jail”

    —    The court verdict.

    —    The travails of an ordinary citizen.

    —    Comssions of enquiry, Private prosecntion in cormption cases.

    —    Consequences of corruption and its impact on economy.

    —    The court verdict.Corruption in administrative set up, it discourages investments, limit economic growth and alters the composition of Government spending, Control breeds corruption.

    —    Talent is miscalulated.

    —    Quality of public service suffers.

(3) Closing    —    Bribes are difficult to levy on teachers' salaries but are easier to be levied on the construction of school buildings.

Down the ages and in all societies. corruption has had its highs and lows and seems to depend on many variables: the stage of development, the system of government, the earnestness of the executive, the effectiveness of the criminal justice system, the pace of economic activity, public opinion and, above all, the national character. Obviously, the attitude of the executive gets correctly reflected in its function of law enforcement and not in its rhetoric.

In British India, corruption was kept under check by the effective enforcement of laws by the police. At the higher levels where collusion was common, corruption did not provoke much public outcry and largely went unnoticed. There indeed were a few “scams” involving the ruling classes and the people were, by and large, happy about the punitive and corrective steps taken.

The largescale mobilisation of resources for the war efforts threw open the flood gates of corruption of the collusive kind. This, however, was countered by the amendment of the existing laws and the strengthening of the law enforcement machinery. Courts were empowered to attach the property of those involved in corruption cases. Special rules of evidence were introduced for drawing presumptions of guilt against those facing a bribery charge or in possession of assets disproportionate to known sources of income.

The Prevention of Corruption  Act, 1947, enacted just five months before Independence.’ in 

corporated all the special provisions and survived the change in the system of government and the birth of the republic. The subsequent amendments and enactment culminating in the Prevention of Corruption Act, 1988 only made the war-time, temporary, anti-corruption laws more stringent and enduring.

Administrative measures have kept pace with the legislative fiat to contain corruption. Vigilance Commissions came into being both at the Centre and in many States to deal with complaints. Governments have the option to take recourse to the Commission of Enquiry Act for holding a judicial enquiry into any allegation of corruption that assumes scandalous proportions. Some of the States have Lok Ayuktas, modelled on the Swedish Ombudsman. In the wake of the hawala scam, the Centre has revived the Lok Pal Bill.

Despite these measures, half a century of independence has witnessed a steady rise in the magnitude of corruption in public life. The Eighties saw serious allegations against the then Chief Minister of Maharashtra. The revelations of the payoffs in the Bofors gun deal confirmed the people's suspicions about integrity at the higher levels. The hawala cases have exposed the horizontal spread of corruption at the top. The manner in which certain Members of parliament allowed themselves to be purchased to vote against a no-confidence motion underscores the fact that the very foundation of our polity has been corrupted. The find of the “booty” in the house of the former Communications Minister is yet another proof of the situation. Cash for votes in Parliament another example.

Smart anti-corruption laws, commissions of enquiry and high-power vigilance bodies have not prevented the slide in the overall integrity of those in public service. The only apparent reason is law enforcement, the first arm of the criminal justice system, has failed to deliver the goods. The “soft State syndrome,” identified by Gunnar Myrdal, has been perpetuated.

After Independence, public spending and the number of public servants grew manifold. The anti-corruption agencies also grew in size but, in actual terms, the total anti-corruption initiatives considerably shrank in their ambit and reach. Even today, under the law, the police is the enforcing agency for anti-corruption laws. Specialised anti-corruption agencies were ment only to supplement the efforts of the police, exactly the same way the Criminal Investigation Department functions with its specialised professional skills and forensic ability to probe conventional crimes. In practice, however, the local police have shifted the responsibility to the small, specialised anti-corruption departments.

Overburdened as they are with the increasing law and order problems and security duties, the police, at the station level, may neglect crime investigation. Corruption is what Edwin Sutherland called the “white collar crime.” Crimes that are difficult to detect and investigate and are usually not the stuff newspaper headlines are made of. So, it suits the police to keep their hands off corruption cases. The perceived public image of the police as corrupt has also eroded their moral authority to enforce laws.

Anti-corruption work, has, therefore, become the exclusive responsibility of the Anti-Corruption Departments at the State level and of the Central Bureau of Investigation at the Central level — both equally small in their spread and reach. There has been no attempt to reverse this principle of exclusiveness.

Executive instructions clearly demarcate the beats of the State agencies and the CBI. The boundary lines, not sanctioned by the law, are always respected and transgressions frowned upon.

Small is beautiful but is also liable to easy restraining or unleashing by design. The small anti-corruption outfits are under control, of varying degrees. The CBI has the freedom only to book cases against officials of the middle and lower levels. The agency is not free to take up cases against officers of a certain senior level and above without the approval of the Ministry concerned. Administratively, the CBI continues to be a “subordinate office” under the Department of Personnel.

Elaborate executive orders and even statutory guidelines, exercising different degrees of control, exist in all the States. The State Governments retain with them the power to initiate an inquiry by the Anti-corruption Department. In criminal cases, generally, the anti-corruption agencies are free to investigate only when the public servant involved is of a non-gazetted rank. In other cases, prior government approval is a must. The State agencies are required to report their final findings to the Government which decides on the course of action. The political executive, therefore, can be selective at two stages. Beyond these, the governments have the power, sanctioned by the law, to withdraw any criminal prosecution in public interest. Instances of the use of this power in corruption cases are many.

The power to be thus selective may turn a shade darker. The scheme of things also permits the executive to order, on its own, an investigation against any public servant. Such power is liable to be unleashed against those government servants who are inconvenient or against political opponents who are Ministers and, therefore, are “public servants.” It is noteworthy that if the local police were to enforce the anti-corruption laws as they are statutorily empowered, none of these controls would apply.

The arrest of the accused public servant and the search of his house are two discretionary steps in investigation that can tell upon his self esteem and his family's social standing. All corruption cases are non-bailable offences. The investigator, however, may use his discretion to arrest or not to arrest an accused during the investigation. Again in a majority of non-bailable offences, including corruption cases, he has the discretion to grant or deny bail. Only when the accused is refused bail, is he produced before a magistrate who, again, may or may not grant bail.

Traditionally, in corruption cases where the evidence is largely documentary, the arrest of a public servant is an exception and not the rule. Even when arrest has to be resorted to, bail is the rule and not its denial. No area of law enforcement followed more scrupulously the dictum, “bail and no jail,” advocated by the apex court in the late seventies. Only in the post-hawala era does the order seem to be “jail and no bail.”

An accused public servant is denied bail only when he has destroyed or attempted to destroy evidence or has gone underground and evaded the investigation, thereby giving room for the apprehension that he will continue to tamper with evidence or will be unavailable for trial. Such corrupting cases are rather rare. Suspension or temporary removal from the public office should be sufficient to neutralise situations of this kind. For the others, stringent bail conditions imposed by the investigator or the court should be adequate as any violation is certain to land the accused in jail.

For the accused and his family a search of the house should be less embarrassing. The thumb rule in conducting a search is the need to look for some specific documents or thing that will be of evidently value for the case on hand and/or to look for hidden ill-gotten assets when the accused is reputed to be corrupt. House search, carried out in the form of a roving inquiry, is ethically wrong and legally forbidden.

As long as the law enforcement agencies are under remote control, the arrests of public servants and searches of their houses are procedural desecrations that, when resorted to, could be arbitrarily carried out “on orders”. The traditional, less-zealous approach to arrest and search in corruption cases appears sober and sane. These discretionary steps, if used indiscreetly, can play havoc with the morale of the public servants and turn the tables on the political arena. It is too early to comment on this in the currently raging anti-corruption crusade but it is history that the arrest of Indira Gandhi, in the late seventies, by the CBI on adequate legal grounds saw her bouncing back from political wilderness.

The arrests and house searches are made to appear as deterrent punishments though they are not legally meant to be so. They also appear to demonstrate the determination of the executive to put down corruption. The appearance will however, turn deceptive if the accused is freed of the criminal charges on acquittal or withdrawal and gets reinstated in public service or rehabilitated in public life.

The real deterrence is the court verdict that will create the stigma for the public servant who will be disqualified to hold public office. Anti-corruption initiatives will continue to fail as long as they are not geared to achieve this.

More than the visible executive controls mentioned, some invisible mechanisation are detrimental to anti-corruption initiatives. Apart from funding and financial sanctions, the executive also controls the appointments in these departments with the personnel drawn from the police department on a tenure basis. Being the most unglamorous of police jobs, the anti-corruption 

departments have acquired a notoriety as the dumping ground for the inconvenient and the inefficient. In practice, therefore, the anti-corruption departments are largely manned by personnel who just do not fit the bill.

The enacted law recognises the difficulty in the detection and investigation of corruption cases and that alone explains the presumptions of the law peculiar to this area and the legal sanction for the seemingly unethical practice of entrapment. Courts are also seized of the matter and the apex court has, several times, spelt out the correct judicial  approach in corruption cases. The whole lot of executive controls, however, operate to stymie the needed dynamism and the initiative on the part of the law enforces to reach out and unearth cases of corruption.  Given the near-ideal situation, anti-corruption work will be highly operative, providing the law enforcers with “a challenging, high-status, game-like job” and symbolising efficient professionalism and thorough detective work.

The travails of an ordinary citizen who seeks legal remedy in corruption cases are well known and documented. This has also left the public cynical about the sincerity of anti-corruption initiatives. When there is a spurt in crime and a rise in the feeling of insecurity, the police are rightly blamed. But no anti-corruption agency has ever been faulted for the increase in corruption and the rise in the legends about corruption.

The state of affairs in the vigilance bodies and the commissions of enquiry is none too happy. Those who softpedal dread the tabling of the Central Vigilance Commission's annual report in Parliament. The report no longer evokes the sound and fury it used to and the CVC's jurisdiction has since been curtailed. Judicial pronouncements have reduced the role of the CVC in disciplinary cases to that of a meddling “third party.” The high-power State Vigilance Commissions and  the Lok Ayuktas operate far below their capacity.

The appointment of a commission of enquiry presided over by a distinguished judge has been the standard practice when the allegations are against a political figure in a high place. The reports of the commissions of equity have arraigned some of the most powerful political leaders for lapse of integrity. Despite this, not a single commission report has led to prosecution. Prosecutions launched on the reports of the Shah Commission and the Sarkaria Commission have been withdrawn from courts “in public interest.”

The procedural law regarding private prosecutions in corruption cases was unclear till the mid-Eighties. The difficulty in the detection and investigation of such cases even by the regular law enforcement agencies was another deterrent. Moreover, the statutory prescription of a sanction for prosecution of public servants in service was again a stumbling block. The only legal remedy available to the public when the law enforcers failed was ineffective in cases of corruption. Private prosecution got the stamp of legitimacy by the apex court for the first time in the case against the former Chief Minister of Maharashtra. but it was not actually a trendsetter.

The increase in corruption, the failure of the law enforcement machinery, the protective web of immunity deftly woven by the ruling class and the all-pervading cynicism and helplessness on the part of the public set the stage for an anticorruption crusade. Surprisingly, the first to sound the war cry and to crash the whip was the least likely institution — the Election Commission. The apex court then stepped in to spearhead the anti-corruption revolution and its result, so far, has been commendable. If the long history of the case against the former Chief Minister of Maharashtra in the Eighties (that started with a judicial bang and ended in a judicial U-turn) is any indication, the effect of the current revolution could be short-term.

The need of the hour is earnest judicial efforts towards restructuring the very foundation of the law enforcement machinery in order to make it free, fair and impartial and also accountable so that the anti-corruption legislation can have its sway in high places.

The study of the causes and consequences of corruption and its impact on economy has a long history. Thirty years of seminal contribution on what economists call “rent seeking” and related empirical work on quantifying the extent of corruption has been limited. This is hardly surprising since corruption is mostly clandestine. Empirical economic research on the problem is therefore meagre.

Corruption in administrative set-up reduces the efficiency of the Government. The benefit of the welfare schemes seldom reaches the targeted groups, the development expenditure exceeds the estimated amount and the quality of work falls below specifications. A study of the irrigation and hydro-electric projects in Kerala reveals that the amounts spent are about five times the original estimate and the time taken for completion is long. The long gestation period and corruption have resulted in the accumulation of black money and inflation, on the one hand, and low quality of work has led to a fall in the output — a perennial loss, on the other.

The high prices paid to the rating agencies by their customers (usually multinational corporations and international banks) show that the information is useful and can have tangible economic effects. Substandard economic performance by itself, however, does not indicate widespread corruption, nor is economic success a sure sign of its absence. Failure to distinguish among various types of corruption is another limitation. The indices provide a wealth of useful information. The interest shown by the multinational corporations in the study of corruption is to ascertain the out-of-the-way expenses they have to incur while making investments in the respective countries.

The Enron Dabhol Corporation's “education expense” appears to be an example of corruption indulged in by multinationals and it falls in the category of bribes. It shows that Enron has not only reconciled itself to corruption in India but provided for it in its tender. Probably, the commissions alleged to have been paid in the Jain Hawala case also might be based on corruption indices which help ascertain the amount of bribes that changes hands when Government works are undertaken.

Corruption discourages investments, limits economic growth and alters the composition of Government spending, often to the detriment of growth.

Control breeds corruption. Policies aimed at liberalisation, deregulation and privatisation reduce the opportunities for corruption. Where Government regulations are pervasive, officials use their discretion in applying them and individuals are willing to offer bribes to circumvent the rules. Trade restrictions, Government subsidies, price controls, multiple exchange rate practices and foreign exchange allocation lead to corruption. Sociological factors, too, may some times develop rent seeking.

There are many adverse aspects of corruption. It slows economic growth through various channels. In a corrupt regime businessmen are made aware that up-front bribe is required before an enterprise can be started and that afterwards corrupt officials may lay claim to part of the proceeds from the investment. Businessmen interpret it as an undue tax which becomes a disincentive. Empiricial evidence suggests that corruption lowers investment and retards economic growth.

When rent seeking proves more lucrative than productive work, talent is miscalculated. Financial incentives may lure the more talented and the better educated to engage in rent seeking rather than in productive occupations, with the adverse consequences for growth rate. Of particular relevance to the developing countries is the possibility of corruption reducing, through diversion of funds, the effectiveness of aid flows. The donors may lose their inclination to continue aid. When it takes the form of tax evasion or claiming improper tax exemptions, corruption erodes tax revenue, which, in turn, may have an adverse impact on the budget.

The quality of infrastructure and public service suffers when contracts are awarded in a corrupt system. Corruption may tempt the officals to spend less on public welfare than on avenues that provide a scope for bribes. It is easier to collect substantial bribes on large infrastructure projects or high-technology defence system than on educational or welfare schemes.

Regression analysis indicates that the amount of corruption is negatively linked to level of investment and economic growth, that is to say, the more the corruption the less the economic growth. The analysis further shows that if the corruption index improves by one standard deviation, the investment rate increases by more than four percentage points and the annual growth rate to per capita GDP increases by over a half percentage point with a consequent improvement in the employment and economic growth.

Corrupt politicians choose Government projects on which it is easier to levy bribes than on the welfare ones. Be it the construction of a 

dam or the purchase of costly weapons, it would make no difference to the politicians as long as they derive the same rent from each option.

Statistics show that Government expenditure on education is negatively and significantly correlated with corruption. If a country moves up the corruption index, say, 6 to 8 the Government spending on education increases by around half a per cent of the GDP.