Sujith Raghavan was perplexed when his company, a multi-national, threatened to slap an intellectual property violation suit on him. He had already put in his papers and was about to join another company.

On further enquiry he understood that the management had checked email messages sent out by him and had taken objection to the fact that he had sent out a copyright protected presentation to a client.

Raghavan was not aware that he had committed a crime and his track record with the company held him in good stead as it was soon detected that there was no ?malafide? intent. Lack of awareness of wrongdoing is seen as one of the highest reasons for economic crimes to exist, claims a survey carried out by Pricewaterhouse Coopers (PwC).

In the same vein, the management happened to stumble upon this violation as they were simply completing a routine mail clean-up. Such accidental detections represent 12% of fraud detections in India, says the PwC survey. Certainly not a very encouraging technique to detect economic crimes, and scary when the survey points out that the average direct cost of fraud for Indian companies is around Rs 6 crore.

And then there are the intangible costs, like the damage to business if a wrong document lands in the hands of one?s competitors. ?I could lose my entire business if some of my codes land up with my competition. I have invested crores in getting them to work the way I want them to,? says Unnikrishnan Menon, chief technology officer with an India based multinational.

Globally, around 43% companies report economic crimes. The PwC survey reveals the instances of companies reporting such crimes have gone down from 54% companies in 2005, to 35% in 2007. Could the situation in India have improved that dramatically in just two years?

In fact, as Vidya Rajarao, executive director of PwC, points out, the decrease in reporting is more likely caused by the stigma attached to reporting fraud, especially in light of the growing media and regulatory attention invited by recent corporate scandals, where weak risk management systems failed to identify both fraud risks and actual cases of fraud.

Larger than expected

And Indian companies cannot turn a blind eye to this. Companies in India feel that they could lose a lot by not being corrupt as their competition would then leave them behind and grow from the opportunities that the Indian economy throws up, says the PwC survey. An alarming 34% of Indian companies reported lost business opportunities traceable to bribes paid by their competitors. However, companies who have global ambitions will have to change their attitudes. ?Fraud and economic crimes have now transcended above the lower employee level to the promoter level,? says Navita Srikant of Ernst & Young. She has been carrying out three investigations for window dressing of books.

Regulatory authorities in India and overseas are getting extremely vigilant about tracking economic crimes. ?The intensity will only increase,? says Kaushik Kumar, a Mumbai based electronic security consultant.

Already the Indian companies listed on the US stock exchanges have to contend with the US Foreign Corrupt Practices Act that requires them to accurately record their transactions and imposes several sanctions, fines and penalties, for potential violations. Reviews suggest that the average settlement amount is around $13.5 million. ?So pleading ignorance will not amount to anything,? says Kumar.

Moreover such crimes also hamper growth. An investigative review of allegations against an employee at a project location, regarding receipt of kickbacks and bribers from vendors, showed a fraud being committed by team members. This fraud resulted in disproportionate expenses being charged in the books of accounts and caused a lost business opportunity with large organised vendors and a loss of profits to the organisation.

The way out

?As with any other crime, understanding the motives of fraud and crime is an important starting point,? says Kumar. And here there is a combination of reasons and motives. Clearly, greed rules in all the categories. Along with this there is the rising pressure of maintaining an expensive lifestyle. ?At an individual level, the need to catch up with one?s peers and rising materialism has increased the instances of fraud. Lack of control mechanisms only increase the temptation,? says Raghavendra Das, a human resource executive with an outsourcing firm.

At a corporate level, again the greed to grow is taking over the need to have prudent practices and controls in place. And this is creating an environment that perpetuates fraud. ?Corporates need to get out of a pure transaction mode and deal with this at a behavioural level,? says Srikant. Systems and technologies are important and are required, but then dealing with this at a human level, understanding the motivations of the people involved is also an important aspect, she reckons.

?Fraud happens at the very entry level. The racket at the recruitment level is huge. A majority of the people have incorrect resumes and misrepresent facts in their interviews and then these people get into the system and we expect them to not commit fraud,? Srikant adds.

Times to come will witness a huge number of frauds, especially in the IP area as it becomes a key differentiation factor. Also, with competition intensifying, experts reckon that corporate espionage or spying is set to rise. ?It already exists in a big way,? says Kumar. Bribing senior officials to leak out key information is the simplest form, it can get bigger in several cases, he adds.

Therefore the need to have a stringent control regime becomes extremely critical. At the same time, enforcing control norms, especially in an established organisation creates a human resource challenge, say experts. ?I would not like to have all my email transmissions checked without my permission,? says a senior executive with a cement company in India. A lot of companies have not brought in control systems, fearing a fall in employee morale.

Creating a culture for non-tolerance of fraud should be the starting point in any organisation, which should next communicate this across the board, explaining the context of the control system to all its team members. Experts says a lot of companies shy away from doing this as creating systems and then communicating them and then training people is seen to be cost prohibitive. ?But what they do not estimate is the cost of not managing this aspect,? says Kumar. He quotes Mark Twain who said, ?If you think education is expensive, try ignorance.?

Moreover, the need of the hour is to have a top-down approach. As Samuel Di Piazza, CEO, PwC pointed out, ?People in an organisation pick up quickly on how the CEO and other senior executives deal with individuals and situations that may not conform to the ethical code. The board also has something at stake: it is the responsibility of the total leadership, including the board, to infuse an organisational culture of ethics, and this challenge includes communicating effectively?.

Going ahead, as the economy confronts the possibility of a slowdown and tougher circumstances, the greed to take the easier route will be higher ? both at the promoter level and at the individual level, reckons Navita Srikant. And this is precisesly the time to stay alert and establish credentials. Private equity funds have now started smarting up and will be forcing a lot more diligence than before. Especially as a lot of their investments have been souring because of misrepresentations and promoter/manager led embezzlements.

One of the most damaging effects of inattention can be that the global business community will start looking askance at the Indian business climate. Hence, the need of the hour is to confront these issues and not sweep them under the carpet. Of course economic crimes will persist, some fraudsters will keep finding ways to beat the system, but being diligent will discourage several others from doing the same thing.