Narendra Modi government has readied two key responses to prevent scamsters from abusing the system and getting away with economic crimes unpunished. These responses may not only act as a deterrent for those seeking to hoodwink the system but also take the sting away from opposition parties attack against the government on Rs 12,636 crore scam that came to fore in Punjab National Bank.
Cabinet decisions last Thursday are seen as Modi government’s counter to a bellicose opposition that’s likely to corner the treasury benches in the second half of the budget session in Parliament that begins today. First response was to bracket all scamsters who have fled the country as fugitives. Investigative authorities can now confiscate such fugitives’ assets if the sum involved was over Rs 100 crore.
This may be one way of bringing back people like Vijay Mallya, Lalit Modi, Nirav Modi, Sanjay Bhandari, Deepak Talwar and Mehul Choksi who have fled the country after having committed heinous economic crimes. The decision will adversely impact all scamsters who have evaded subjecting themselves before the courts or absconded without appearing before law enforcement agencies.
Fugitive Economic Offenders Bill, a story first broken by this newspaper, will have to be approved by both houses of Parliament if government plans to bring back scamsters. Of course, extradition laws of different countries permitting, these absconders need to be brought back to face the justice system in India. And, without the support of opposition Congress, the ruling BJP-led NDA cannot muster two-thirds vote in Rajya Sabha. The tyranny of numbers is against it.
The proposed bill will definitely help the Modi government retrieve some of the lost edge in its fight against corruption, the plank on which it was voted to power in 2014. Treasury benches have no option but to face pointed questions from opposition parties in the Parliament on the ignominous Punjab National Bank scam and how those that perpetrated such a a gigantic fraud fled the country with easy felicity.
Opposition would make merry out of the ruling alliance’s discomfort within and outside the Parliament. Second big response to economic crimes was the decision to set up National Financial Reporting Authority (NFRA). This will render the Institute of Chartered Accountants of India (ICAI) to a virtually tooth-less body. The decision to set up NFRA is huge given that ICAI had soft-peddled all professional irregularities unleashed by its members leading to scams in banks, financial institutions and large companies as well.
Here again, your newspaper was the first to report that a bill like this was in the works as early as last year.
Auditors in banks and companies have come to play a very significant negative role setting aside the basic tenets of their profession. An analysis of several bank frauds throw into stark relief the fact that auditors either ignored the crimes or they were in cohorts in all the major swindling that became rampant in Indian corporate world. The best case in point being Satyam and PWC's dubious role in it. The idea of self-regulation by auditors through ICAI has been resoundingly defeated thereby forcing the government to set up a 15-member body to ensure that auditors played their role truthfully to expose all irregularities. A bill relating to setting up NFRA will need support from different parties in the Parliament and outside.
Similar is the case with lawyers who increasingly have become a law to themselves while discharging their professional duties. Corrupt practices, deal making and subverting the system is what top chartered accountancy and law firms are now into. If the white-collar crimes were to be curbed, strong regulatory authorities like NFRA need to come into being. The Public Company Accounting Oversight Board (PCAOB) in US could be a guiding point to set up our own NFRA as an independent regulator of auditors and audit firms.
International Forum of Independent Audit Regulators (IFIAR) has regulators from 54 countries as members and India’s the only major geography where the auditors regulate themselves leading to the latest mess.
Already, the Companies Act of 2013 has the provision for setting up National Financial Reporting Authority with extensive powers to not only protect investors and public interest but extensive powers to deal with erring professionals through investigation and imposing penalties.
Apart from penalising or barring auditors from practice, what’s required is to bring in global best practices that will change the face of the profession in this country. Improving the over all quality of audits and addressing deficiencies with powers to over all development and regulation of auditors should be the objective.