The Cabinet on Thursday approved a crucial Bill to confiscate assets of fugitive economic offenders like jeweller Nirav Modi and also decided to tighten the scrutiny of auditing firms by setting up an “oversight body”, effectively stripping the Institute of Chartered Accounts of India (ICAI) of some of its precious regulatory functions. The government will now place the Fugitive Economic Offenders Bill (FEOB), 2017, which was cleared by the Cabinet, in Parliament as soon as the Budget session reconvenes on March 6, finance minister Arun Jaitley said after the Cabinet meeting. Once cleared by Parliament, the law will make it easier to attach all the assets of economic offenders fleeing India to escape the reach of law, even without a conviction. Offences with a value of Rs 100 crore or more will be covered by this law. While the existing Prevention of Money Laundering Act (PMLA) has provisions for the confiscation of an offender’s assets, it can happen only after his conviction, and the confiscation is also limited to the proceeds of the relevant crime. However, the new Bill provides for the attachment of all the assets of offenders, irrespective of whether these are the proceeds of crime or not, Jaitley said.
The Cabinet’s clearance to the National Financial Reporting Authority (NAFRA), as envisaged in the Companies Act, 2013, will see the body working as a regulator for auditors of all listed and large unlisted firms above a certain threshold. The ICAI, the apex body of chartered accountants that currently functions as a self regulator, will continue to be the watchdog of other smaller unlisted firms. Moreover, ICAI’s other functions, including conducting examinations for CAs, will continue to be vested with it. NAFRA will comprise a chairman and a maximum of 15 members. “We can’t allow people to make a mockery of law — that you first indulge in loot and then refuse to submit to our legal system,” Jaitley said, in a veiled reference to businessmen like Modi and Vijay Mallya.
The decision to set up NAFRA seemed to have been prompted by the government’s perception of ICAI’s inability to discipline some of its auditor-members found to have indulged in professional misconduct, said Pavan Kumar Vijay, founder of consultancy firm Corporate Professionals. “It’s a welcome move.” Commenting on FEOB, Jaitley said to attach the foreign assets of a fugitive offender, the cooperation of the relevant country will be required. FEOB will empower special courts to declare one a fugitive economic offender and allow designated investigating agencies to attach his assets, without any encumbrances.
FEOB was required, as existing laws have certain inadequacies when it comes to promptly attaching the assets of high-value economic offenders who flee India after committing wilful defaults or acts of fraud in the country. Criminal proceedings in such cases usually require to be in various courts in the country and there are chances that court orders on confiscation of assets are at odds with one another.
The idea of FEOB was first proposed by Jaitley in Budget 2017-18, against the backdrop of Vijay Mallya, who owes over Rs 9,000 crore to a clutch of Indian banks, fleeing the country to escape legal proceedings. After allegedly defrauding Punjab National Bank of Rs 11,400-crore, diamond merchant Modi and his family members are currently abroad, while the passports of Modi and his uncle Mehul Choksi, who is also implicated in the scam, have been revoked.
As per FEOB, courts under PMLA will be entrusted with the responsibility to trying cases involving big economic offenders fleeing the country. Currently, such offences are tried under multiple laws, namely the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Recovery of Debts Due to Banks and Financial Institutions Act, and the Insolvency and Bankruptcy Code. FEOB, the provisions of which will override the relevant clauses in existing laws, will also provide for the appointment of an administrator to dispose of the attached property to pay off creditors.
According to the Bill, a fugitive economic offender is one who has an arrest warrant issued in relation to a scheduled offence and who leaves or has left India so as to avoid criminal prosecution, or refuses to return to India to face criminal prosecution. The offences covered under the Bill include wilful loan defaults, cheating and forgery, and non-repayment of deposits, among others.
As for auditors, they have come under increasing government scrutiny and heightened public glare in recent years, thanks to their connivance with fraudsters or inability to detect large-scale financial wrongdoing in cases ranging from Satyam Computer Services to the latest PNB fraud. Hitting out at auditors for their failure to detect the scam at Punjab National Bank, which had been going on since 2011, Jaitley last week said both internal and external auditors were looking the other way when the fraud was taking place. “I am sure the profession of chartered accountant itself, and those who control the discipline of the profession, will start introspecting and say what legitimate actions are to be taken.”