Where companies are under huge debt pressure you tend to see white collar crime: Samir Paranjpe, Grant Thornton

The financial services sector is becoming proactive in monitoring non-performing assets after witnessing a series of frauds and misdemeanours over the past couple of years, according to Samir Paranjpe, Partner and Forensic leader at Grant Thornton. Paranjpe talks about evolving trends in white collar crime and its pursuit, the role of regulators and the criminal justice system in this interaction. Edited Excerpts…

Any particular trends that you are witnessing with respect to white collar crime?
I think it’s very clear that both small and large companies are equally impacted today. So we are seeing extreme cases where very large companies are being affected by fraud and companies with turnovers of as little as 300 million rupees are also being impacted.

Why are frauds so prevalent in the financial services industry?
We are witnessing frauds across the board today. You hear more about the ones in the financial sector because these are being widely discussed in the public domain. But I think where companies are under huge debt pressure, you tend to see white collar crime. In times of growth, misdemeanours get covered. The moment things start slowing down that’s when the frauds come to light.

Do you see the involvement of promoters and senior management in perpetrating frauds?
Not always. But wherever the value of fraud is high, there is always some direct or indirect involvement of some members of the senior management team.

Do you think frauds tend to be systemic in nature? For example in the non-banking finance sector we have seen so many failures…
I think these cases need to be looked at on an individual basis. The truth is once a fraud is detected or misdemeanour is detected at a company that’s “too big”, that will have an impact on the sector.

Are you seeing regulators approaching fraud differently now?

There is a trend to identify the proceeds of fraud. Regulators are trying to identify assets that could have been purchased from these proceeds. In many cases the assets are located outside India. But there is a conviction to go after them.

The insolvency and bankruptcy code (IBC) has made it mandatory for insolvent companies to undergo scrutiny for fraud. Are you seeing these audits leading to increased detection of fraud?

The focus of IBC is on identifying transactions at insolvent companies that fall into any of three buckets – preferential, extortionate or undervalued. Increasingly resolution professionals are approaching the national company law tribunal (NCLT) to claw back sums of money that can be proved to have been lost on account of preferential deals entered into by the company or its management with any party. The forensic auditor first submits a report to NCLT which becomes the basis for determining whether a deal was preferential or not.

Has the detection of large frauds in the financial services industry led to any major rethink of prevention mechanisms at financial institutions and banks?

There is definitely an increased scrutiny of non-performing assets and bad loans. Banks are being extremely proactive in terms of monitoring these. There is a focus on watching early warning signals that can point towards fraud and implementing early warning systems across the organization.

Is prosecution of financial crime and conviction rates for the same satisfactory?

Most cases are still sub judice. The courts are dealing with them. Regulators are taking the support of specialists in identifying evidence and creating water-tight cases that can lead to conviction for financial crime. But we will have to wait to see when the judgements are out.


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