With the outbreak of the COVID-19 pandemic, and the subsequent worldwide economic slowdown, there has been a sharp increase in the white-collar offences across the globe. The compliance systems and internal controls of corporates, which safeguard their business interests against perpetrators and impounding regulators, now face new challenges.

To tackle these unprecedented adverse business and economic challenges, the management/employees of such corporates may be tempted to resort to certain unethical means to present the corporate’s financial health, as unaffected and promising to their stakeholders, prospective investors, and regulators.

Intending to keep their business afloat or to seize new business opportunities arising due to the losses suffered by other countries, the management may stray into illegal engagements such as bribery, fraud, money laundering, misrepresentation, forgery and falsification of accounts.

Another aspect of concern is the increased reliance on digitalization/technology by the corporate world due to the country-wide lockdown. During these trying times, cybercrime has witnessed a significant spike. The magnitude of information, power, and impact of the data held by any corporate in cyberspace is a magnet for fraudsters who leave no stone unturned to misuse the digital systems of other individuals. From attempting to gain access to proprietary data, trying to access business plans and corporate strategies, acquiring data on the finances and personal details of the company’s employees or trying to maliciously alter data to the detriment of the corporate or for one’s own benefit are some of the driving motivations of such fraudsters.

While it is extremely critical for the leadership and the internal controls team to be extra cautious and active in such a threatening climate, it is equally prudent for corporates to be prepared with the response strategies to deal with such misconduct or frauds targeting their business.

White-collar crimes are the prevalent worldwide, across a wide range of business organizations and, more often than not, the perpetrators of such crimes are either people within the company or closely associated with it, say, third-party service providers. Such instances of white-collar crimes cost the corporates heavily in terms of risk of huge legal penalties, business costs, fall in employee motivation and productivity, and increase in attrition rates. It may also cost the company in terms of the management’s time and energy spent in mitigating the damage, negotiating settlements, discredit in reputation, impact on sales, profits, stock price, and such other counts.

Opting for proven values and ethical corporate culture rather than outperforming competitors and enticing investors, wise leaders focus on effective compliance systems and internal controls in their organizations, motivate employees to act with integrity, and impose zero-tolerance measures for white-collar crimes.

If an allegation of economic crime is brought before the senior management, it is always recommended that an internal investigation is promptly undertaken. These allegations are usually received by the management from former or current employees; through whistle-blower hotlines; during audit/due-diligence exercises; from market sources, etc. Needless to say, it is useful to establish credibility of the allegation by verifying the source or conducting a preliminary inquiry to figure out whether the allegation has some substance before initiating a full-fledged internal investigation.

To proceed with any such internal investigation, the corporate needs to form a team of professionals, including independent legal and forensic experts, with instructions to: (a) formulate an investigation plan; (b) collect critical information and data from within and/or outside the organization; (c) analyze the collected data by specialists in the field, in the light of available facts and prevalent regulations; and (d) provide their findings on the suspects to the corporate, along with the recommendations, statutory reporting requirements, or any other action required from the management.

While India has an extensive legal framework on substantive laws dealing with most of the aforesaid economic offences, there is significant scope for improvement and development of the existing legal regime on the exact process and mechanism of conducting internal investigations. Such expert internal investigation is considered as best practice, ensuring corporates numerous socio-economic benefits. Most importantly, it minimizes the scope and exposure of external investigation and usually limits its outcome to the concerned employees only. Further, it emboldens the company in its defence before statutory authorities, in countering financial and reputational impacts, and in responding to media houses with clarity.

The need of the hour is for corporates to constructively invest time and energy for putting in place an effective control and compliance system and to set clear standards for adherence to values and ethics for all employees. If any instance of untoward offence or misconduct still occurs, then the corporate should immediately conduct an internal investigation. Once the exercise is concluded, the findings of such an investigation can also prove useful to strengthen existing policies and procedures, and to train other employees and stakeholders. It also serves to re-affirm company policy and protocol.