Corporate frauds investigating agency starved off funds

Efforts to usher in greater transparency in the way companies transact their business would get adversely impacted due to the government decision to trim the budget at the Serious Fraud Investigation Office (SFIO) under the corporate affairs ministry.

The budget allocation of investigation arm of corporate affairs ministry has been cut down by 15%, a move that earned criticism from Parliamentary standing committee of the finance ministry in its report tabled in Parliament on April 24, 2012.

The 55th report of the standing committee on finance headed by former finance minister and senior BJP leader Yashwant Sinha said, "The Committee are apprehensive that the reduced outlay for running such important attached office of the ministry (ministry of corporate affairs) would hamper the investigation of complex corporate frauds, having inter-departmental and multi-disciplinary ramifications."

The corporate affairs ministry slashed SFIO budget from Rs5.95 crore in 2011-12 to Rs5.11 crore in 2012-13. The ministry, however, defended its decision on the ground that the ministry of finance had allocated it an amount of Rs21,350 crore against the requisitioned demand of Rs24,200 crore.

Endorsing the Sinha committee view that performance of the serious fraud investigating agency would indeed get hit, Manoj Kumar, managing partner at corporate law firm Hammurabi & Solomon said, "It has been noticed many times that the agency (SFIO) does not have proper resources to investigate. The agency needs to be better equipped in terms of infrastructure to deliver on its objectives."

Pitching for a better equipped SFIO in terms of technology, Rohit Mahajan, Partner and co-Head, Forensic at consulting firm KPMG said, "Since technology has played the biggest role in most of the corporate frauds that came to light in India, it wouldn't be a good idea cutting down on budget allocation to SFIO. This (cut) might impact the investigations."

SFIO, which started in 2003, is mandated to investigate corporate scams under companies act, 1956. Since the inception of SFIO, it has been referred 89 cases for investigation. Out of referred cases, investigation reports were submitted in 73 cases until 31st Dec, 2011. Presently, the department is investigating twelve cases out of which seven cases were ordered for investigation this year.

The SFIO has earlier handled some big cases involving companies like Satyam, V N Parekh Securities, Classic Shares and Stock Broking Services Ltd.

Mahajan at KPMG asserted the need for better coordination among investigative agencies. “To get better and expeditious solution of fraud cases, multiple agencies currently investigating in India like ED, CBI, IB and SFIO need to work in a more cohesive manner" he added.

Kumar at Hammurabi & Solomon appealed to the government to learn from other countries to have a more focused approach towards its corporate fraud investigative arm. He said, "Since corruption is growing at a very high pace in India, government needs to empower agencies like SFIO to prevent scams like 2G, Satyam and Coalgate."

Source: DNA, 30.04.12, By Pankaj Sharma

Adarsh scam: Case registered against Ashok Chavan

Mumbai: The Enforcement Directorate (ED) has registered case of money laundering against former Maharashtra Chief Minister Ashok Chavan and 12 others in connection with the Adarsh scam today.

The Enforcement Case Information Report (ECIR) says that Ashok Chavan, then the Revenue Minister, was part of the criminal conspiracy with other accused to include civilians as member of the Adarsh society with ulterior motive to make his relatives members.

The ED told the Bombay High Court that they can take further action only after the Central Bureau of Investigation (CBI) completes its investigation. The CBI, in its reply, told the court that it will complete its investigation by June 15.
The ED's move comes a few days after the Maharashtra government-appointed judicial commission concluded that the controversial land in Mumbai belonged to the state government and was not meant for the families of Kargil War martyrs, as claimed by the Army.
Source: NDTV Correspondent,30.04.12

CAG Report Exposes Murky Land Deals in M’rashtra, Targets Lavasa

Report that has highlighted out-of-turn land allotments to ministers may force state govt to take tough calls


The Comptroller and Auditor General (CAG), took a major step towards exposing the hidden rot in the Maharashtra administration by painting a picture of murky land deals, open violation of building and environmental norms intended to benefit powerful politicians and businessmen. The report, which has already pushed the Prithivraj Chavan government on the backfoot, has criticised the allotment of land to the Lavasa hill station project near Pune and shed light on out-of-turn land allotments to many ministers.

Coming just weeks after the ruling Congress-NCP's drubbing in the municipal elections in Mumbai and Thane, and amidst a perception that the state administration is lethargic and adrift, the report is expected to force Prithviraj Chavan government to act. The leakage of some parts of the report last week created a firestorm which continued on Tuesday with the opposition creating a ruckus inside the assembly.

CAG found serious loopholes in the procedures followed to sanction the Lavasa hill station project to Hindustan Construction Company (HCC). “Hill-station type areas in Pune were identified without any expert study and Lavasa Corp was selected without any transparency; the project was driven more by private interest than public interest. The state decided to develop the area without publicity or expressions of interest, and only one project, Lavasa, got the sanction in 2001. No other hill stations have been developed since then with private participation in other parts of the state, resulting in skewed development,” the report stated.
“Grant of the Special Planning Authority status to Lavasa Corp – a first, with no precedence was accepted. The government abdicated its responsibility of monitoring the project, handing out undue favours to the developer. Lavasa Corp’s plans and layouts violated certain state rules but the director of town planning, Pune, didn’t monitor these modifications,” the CAG report added.
Apart from mentioning the irregularities regarding land allotment at a concessional rate to trusts belonging to several state ministers, the report also points to various cases of unethical procedures followed in government departments.
For instance, the report mentions certain practices in RTOs in Mumbai and other cities where hundreds of car owners were allotted their preferred vehicle registration numbers but were not charged a fee for that. The report also points out several cases of unexplained mismatch in the sale value and tax recovery in hundreds of vehicles. Earlier, state industries minister Narayan Rane claimed that the report leak was a breach of privilege and demanded action while home minister RR Patil announced an inquiry by the Mumbai Crime Branch into the leak.


Source: The Economic Times (Mumbai) Edition, April 18 ,2012

'Massive' Visa Fraud Alleged in Lawsuit Against Indian Firm

A former human resources manager at Larsen & Toubro InfoTech Limited Inc., a leading India-based IT services firm, accused the company of visa fraud in a complaint filed this week in a federal court in New Jersey.

Mumbai-based Larsen & Toubro is a major user of H-1B visas, ranking fifth last year on the list of largest visa users. The company had 1,608 visa approvals in 2011, according to the U.S. Citizenship and Immigration Service.

The former employee, Nanda Pai, also accuses the company of sexual discrimination, and alleges sexist behavior by some of its employees in the suit.

Pai's lawsuit joins a class action lawsuit filed earlier by another female ex-employee with a similar discrimination allegation. The class action suit seeks "not less than $100 million."

Pai's job in human resources at Larsen & Toubro in New Jersey adds a new dimension to this case.

In her role as human resources manager, Pai was required to help process visa-related documents. She alleges that immigration fraud "appeared to be rampant" at the company, according to the lawsuit.

This lawsuit is similar to one filed against another major Indian firm, Infosy.

In that suit, former employee Jay Palmer alleged that the firm committed visa fraud. Palmer charged that when he refused to participate in the alleged fraud, he was harassed, and faced racial taunts and even death threats.

The details of his lawsuit caught Washington's attention, and Infosys is now facing a federal grand jury probe over its visa practices while Palmer's civil case continues.

A Larsen & Toubro spokesman reached in Mumbai Tuesday said the company isn't commenting on pending litigation.

Pai alleges that her signature was forged on various visa-related documents, and when she asked about the forgeries, "she was advised to stay silent."

Pai's attorney, Krishnan Chittur in New York, said the visa issues are "extremely important" to the discrimination lawsuit.

"You begin with the proposition that they don't like women - they didn't like pregnant women," said Chittur, of the company.

When Pai informed the company in 2009 that she was pregnant, her supervisors "substantially increased her workload so that she had to put in grueling 18 hour workdays on a regular basis."

When Pai complained about the added workload her managers "blamed her for being weak," something they attributed to her pregnancy "and bluntly told her" to quit, the lawsuit alleges.

Chittur said the signature forgeries, as well other visa practices, had Pai worried that she was being set up to be the fall person.

Chittur said Pai faced potentially terrifying prospects because of what was occurring. "The level of anxiety and tension can only be imagined," he said.

In regard to the discrimination complaint, Pai's lawsuit claims she was paid less than men doing similar work at the company.

Pai said she was "deprecated" with "sexist comments" when she complained. She submitted her resignation at one point but was convinced to stay.

In 2008 Pai told her supervisor about a decision to have a second child. She was told that "she would be required to choose between her family and her career."

This was happening at the same time the work visa issue was getting new attention in Washington.

The U.S. Attorney's office in New Jersey indicted several tech firms, including Vision Systems , in 2008, on H-1B fraud charges.

Also in 2008, a report by the U.S. Citizenship and Immigration Service found high levels of fraud and technical violations.

Larsen & Toubro became concerned about its potential liability, and hired Ernst & Young to audit their immigration records and procedures. That audit was completed in October 2008, and found problems, according to the lawsuit.

The lawsuit alleges that the company engaged in a "massive cover-up" that included backdating documents and creating new ones.

The lawsuit alleges that the company misrepresented the wages paid to employees in visa applications.

When applying for green cards, the company was required to advertise for U.S. workers. The lawsuit contends that "every application that was received in response to such advertisements was rejected in advance."

The suit also claims that Larsen & Toubro falsely certified that it posted notices of jobs that H-1B workers were being hired for, as well as changing the location of the employee "from that which the U.S. government had granted the H-1B visas."

The lawsuit alleges that the firm failed to pay wages "which had been certified to the U.S. government in the H1-B visa application."

The lawsuit makes a number of allegations about the L-1B and business visas.

The Pai lawsuit joins one filed by Deepa Shanbhag, who was hired by the company as a contractor and later as a full-time employee.

Shanbhag joined as an employee on Jan. 25, 2011. On March 3, last year she informed the defendants that she was pregnant. She was terminated "the very next day," according to the lawsuit.

Shanbhag's lawsuit alleges that the company "fostered an intense climate of hostility towards women."

Patrick Thibodeau covers SaaS and enterprise applications, outsourcing, government IT policies, data centers and IT workforce issues for Computerworld.

The Greed Game

Early last month, the Indonesian authorities arrested a former tax office employee, Dhana Widyatmika, for fraud. The initial suspicion arose after a report by the Financial Transaction Report and Analysis Centre (PPATK) regarding Dhana’s suspicious “fat bank accounts,” which were believed to indicate possible fraudulent conduct. Dhana’s wealth was said to be worth at least Rp 60 billion (US$6.54 million), which is considered to be too much for a government official of his rank. An important red flag that alerts the authorities to many fraud cases in Indonesia is a so-called excessive lifestyle that many believe is a manifestation of greed. Association of Certified Fraud Examiners’ (ACFE) global fraud survey, for example, has put living beyond one’s means as the most noticeable behavioral symptom of fraud offenders. Other study revealed that greed is behind most if not all fraud cases. Mixed together with opportunity and rationalization, greed is a recipe for organizational disaster. As suggested by KPMG’s global fraud survey, most fraud offenders are working in areas that give them access to corporate assets. Additionally, another study conducted by ACFE concluded that the higher a fraud offender’s position, the higher the losses from their acts will be due to the opportunity afforded by such positions. In the case of tax fraud in Indonesia, many believe that Gayus Tambunan and Dhana Widyatmika were just “small players” and that there were others with higher positions involved in the scheme that might have caused even greater losses to the country. Often defined as excessive acquisitiveness, greed has been seen by many experts as the dark side of self-interest that comes in various forms such as the pursuit of money, sex and power. Nonetheless, many others also believe that it is a necessity in achieving wealth and prosperity, as it motivates people to work harder to achieve their goals. However, when the ambition to achieve wealth and prosperity becomes too great, evidence suggests that some people will then resort to fraud. In ACFE’s global fraud survey, for example, the “wheeler-dealer” attitude is one of the most common behavioral traits of fraud offenders. Many see fraud offenders as driven by the same desires as everybody else: the pursuit of happiness. Studies in psychology suggest that an increase in personal wealth of those who are already wealthy will not increase their happiness. Unfortunately, many wealthy people seem to think otherwise and focus most of their time and energy on financial matters even at the cost of ethics and morals. An interesting fact about greed and fraud is that although the former is generally known to cause the later, evidence also suggests that many fraud cases are uncovered due to the perpetrators’ greed. Fraud generally consists of three elements: action, concealment and conversion. Conversion is when fraud offenders are enjoying the proceeds of their crime through, for example, a lavish lifestyle such as the purchase of luxurious items (e.g., cars, jewelry and apartments). In other words, this stage is where fraud offenders satisfy their greed. Unfortunately for them, this stage is also where authorities will usually look for any signs or traces of fraudulent conduct, such as in the case of PPATK’s “fat bank account” list. The effectiveness of this fraud detection approach of course depends on the availability and access to information on wealth and possessions. Other than focusing on excessive lifestyles, as suggested by studies on fraud offenders, authorities should also look for other behavioral red flags such as an unwillingness to share duties, an unusually close relationship with customers and vendors and prior employment problems. Other nonbehavioral signs that are worth consideration include weak internal controls, tips and complaints from within the organization and transaction and bookkeeping anomalies. Overall, it takes more than just punishing current fraud offenders to eliminate fraud in Indonesia. A more comprehensive approach is needed particularly to cut off the supply of offenders by strengthening the moral and ethical values of future generations through family and formal education. The writer, director of the Center for Forensic Accounting Studies at the Islamic University of Indonesia, has a doctorate in forensic accounting from the University of Wollongong, Australia.

Political parties keep a private eye to advise on ticket seekers and rivals

NEW DELHI: As political parties learn to set up central war-rooms in their headquarters during elections to civic bodies, state assemblies or the Lok Sabha, they are increasingly depending on private detective agencies to collect and collate data in order to gauge people's mood, select prospective candidates and know rival strategies.

Sniffing a business opportunity, private players have come up with specialised services of providing ground report to political leaders. The concept of 'political intelligence' that emerged in 2004-05 is fast gaining currency where private intelligence firms are hired to seek credible information about candidates seeking party ticket or obtain information about the party's policies and their assessment about the identified political leaders of their own party in their areas of influence.

"Till about a decade back, there were just about two private firms for this kind of work but today this specialised line has a lot of takers," said Kunwar Vikram Singh, chairman of Association of Private Detective and Investigators ( APDI). At present, there are approximately 35 players across India, out of which five are national and the remaining 30 are regional or local. "In the past seven years this field has grown at a staggering 200-300%," he said.

VM Pandit, former CBI chief and chairman of Multi-Dimensional Management Consultancy said, "Although the government has the biggest intelligence machinery and its own party cadres, they are not always reliable as seen during the debacle of Indira Gandhi in 1977 and the drubbing of BJP's 'India Shining' campaign in 2004. So, we act as an unbiased third party."

Pandit has been hired by the Congress for verification and seeking information of party ticket nominees from some key constituencies in the upcoming Delhi Municipal elections. According to him, a detailed intelligence analysis report on the candidate or nominee's winnability has already been submitted to the high command.

Interestingly, in 1991 he was hired by Congress' arch-rival Bharatiya Janata Party for investigating "political affairs" of Shyam Charan Shukla, two-times chief minister of Madhya Pradesh, in Rajim and Buha Para constituencies of Raipur district

On an average, revenues and profits from any assignment at national or state level ranges from 25% to 40%. "For instance, if an MP candidate has 2 crore as the election budget, around 20% of this is spent on election intelligence," said Pandit. "A similar mechanism is there for state elections too. The USP of this field is that money is never a problem."

Industry players say it is both a volume- and individual-based business. For many on the professional front, it is about volumes i.e. the number of seats or constituencies offered to them for assessment and for a few it's more about personal equation with individual clients or candidates.

"The major ground work services provided by us include pre-election, constituency-based socio-economic research, background check of prospective candidates seeking ticket, their socio-political status, reputation check," said Kunwar Vikram Singh, who runs Lancer Network, one of the oldest detective agencies in the country. "Win-ability factors and dissention levels among prominent workers and local leaders and also to check on the anti-party activity of those who were denied ticket," he added.

Services provided by the intelligence firms are different from what the general marketing or political research companies, who conduct pre-poll and exit polls jointly with media houses, do. "We conduct multiple-surveys at the grass root level and collect every minute detail," said Vivek Bagri, chairman of Infoelection Leadtech.

Infoelection Leadtech was established in 2008 and has been in this business for over three years now. They are primarily into political research and electoral intelligence gathering via booth-level analysis of voter's sentiments about the party and the candidates.

Source: The Times of India