Bank Frauds: Globally as well as India has seen a rise in the number of Bank frauds. Bank frauds can be defined as obtaining finances or assets from a public financial institution unethically or by committing criminal act by an individual or organization.
Recently if you have remember the bank fraud was committed by Jeweller Nirav Modi on Punjab National Bank. In this case, few employees of Brady House branch of Punjab National Bank helped the Jeweller Nirav Modi to defraud PNB to the tune of Rs.10000 Crs by using fraudulent letter of undertaking ( Basically LoU is a form of bank guarantee under which a bank can allow its customer to raise money from another Indian bank's foreign branch in the form of a short term credit). These letter of undertaking were supposed to be for import of pearls for a period of 1 year. PNB employees misused the SWIFT network to transmit messages to Allahabad Bank and AXIS Bank on fund requirement while suppressing the details from their Core banking system. Thus, the branch employees involved in the scam were able to keep the LoU open beyond RBI stipulated time frame of 90 days from the date of shipment as well.
Corporate Frauds: Corporate frauds have also been quite prevalent and those which are committed in listed companies have a bigger impact as public investors are affected.
Corporate fraud could include, embezzlement of funds, diversion of raw material, creating fictitious invoices and also it could include fraud committed by the vendors, employees and customers. (Will share two interesting stories in the coming days)
Insurance Frauds: Insurance frauds such as false claims and concealing information such as pre-existing health issues not revealed at the time of taking the insurance policy etc. have been a common occurrence but in this
Sec 45 of The Insurance Laws (Amendment) Act 2015 states that no claim can be repudiated or rejected after 3 years of the policy being in force even if fraud is detected.
Simply law says that person may know that he could die in next year or within 2 years and can hide his/her pre-existing health issues but it is very difficult for him to predict death beyond 3 years so it is very likely that their claim is genuine.
I am not saying that each case is genuine but in the eyes of law we cannot drag down the innocent people to prove someone guilty.
As in criminal law, Blackstone's ratio (also known as the Blackstone ratio or Blackstone's formulation) is the idea that: It is better that ten guilty persons escape than that one innocent suffer.
Cyber Frauds: Cyber Frauds are the frauds done with the help of the internet, targeting the unauthorized use of digital instruments like credit card, ATM card, cyber equipment’s at home etc.
Example: Jamtara story.
Securities Frauds: Securities Fraud is committed in the securities market. Harshad Mehta scam of 1992 and Ketan Parekh scam of 2001 can be classified as Securities Fraud.
The Harshad Mehta Scam as it was called was a fraud which involved illegal diversion of bank funds to the tune of Rs.3500 to few brokers lead by Harshad Mehta. The fund that diverted was deployed in stock market manipulation.
In the case of Ketan Parekh, 2 strategies were predominantly used to manipulate the stock market to make illegal gains. One strategy was called the Pump and Dump which mainly involved artificially increasing the stock price of a company by executing large orders and dumping the holdings once the price reached a threshold to earn gains, while leaving the stocks in the hands of unsuspecting investors with substantially low prices.
The other strategy involved circular trading volumes which meant manipulating the market by executing simultaneous buy/sell transaction. This lead investor to believe that there was a lot of trading interest and thus invest in the stock which may not be worth.
Stay tuned for more interesting articles .. :D
Happy Reading .... :)
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