ETHICS IN FINANCE

1. INTRODUCTION

Ethics are important in every industry, but nowhere as much as in the financial services
industry, which connects all the people and the businesses in an economy.
Finance deals with matters related to money and market- it is management of funds, which is a
very important source for business. In fact no business can function without finance and it is
the very backbone of the company. General ethical norms encompass truthfulness, honesty,
integrity, respect for others, fairness and justice. Ethics in finance deals with the professional
interaction where financial theory meets practice and where the concept of ethical behavior
moves from the abstract to the concrete.
The financial crisis of 2008 stemmed in a large part, from unethical behavior on the art of those
in the financial services industry. Whether driven by greed, ignorance or a lack of knowledge
of industry ethical standards, the outcomes was a disaster. This has resulted in investors paying
more attention to their financial professionals ethics and going sufficient due diligence to see
that those they entrust the firms finances to are doing to manager it within boundaries of the
law and putting the clients interests ahead of their own.
Ethical dilemmas and ethical violations in finance can be attributed to an inconsistency in the
conceptual framework of modern financial-economic theory and the widespread use of a
principal-agent model of relationship in financial transactions. The financial-economic theory
that underlies the modern capitalist system is based on the rational-maximize paradigm, which
holds that individuals are self-seeking (egoistic) and that they behave rationally when they seek
to maximize their own interests. The principal-agent model of relationships refers to an
arrangement whereby one party, acting as an agent for another, carries out certain functions on
behalf of that other. Such arrangements are an integral part of the modern economic and
financial system, and it is difficult to imagine it functioning without them.

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2. MEANING

Ethics-:

The term ethics means ‘a set of moral principles that guide and govern the conduct of an
individual or a group’. It is the discipline that deals with what is good and bad and with
moral duty and obligation.
Ethical behavior is that which is in line with the accepted moral code and refers to a code
of conduct that guides an individual while dealing with others.
Ethics is based on well-founded standards of right and wrong that prescribe what humans
ought to do, usually in terms of rights, obligations, benefits to society, fairness, or
specific virtues.

Ethics in finance-:

Ethics in finance is compliment to general ethics. Ethics are very important to maintain
constancy in social life, where people work together with one another. Ethics in finance is
one of the main things which everyone has to follow.
It refers to the philosophical endeavors which seek to postulate the set of principles which
govern individual and collective conduct in the field of finance, as well as more general
enquiries into the justifications, both moral and amoral, which purport to guide conduct
in a financial environment. The role of ethics in financial management is to balance,
protect and preserve stakeholders' interests.
Finance is a crucial part of every business and is needed for its successful operations.
Finance should be properly managed by every business otherwise it may have adverse
effects. Ethics aims at controlling and handling all finance issue faced by companies and
employees. The various ethical issues included are accounting related like window
dressing and improper window dressing, insider trading, fake reimbursements,
overbilling, bribery, kickbacks etc.
Ethics in finance consists of the moral norms that apply to financial activity broadly
conceived.

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3. .CODE OF ETHICS IN FINANCE

1. The principle of integrity-

This principle calls upon all accounting and finance professionals to adhere to honesty
and straight forwardness while discharging their respective professional duties. In
addition the following acts of responsibility would help comply with the integrity
principle:
 Avoid being involved in activities which would impair the goodwill of the
organization.

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 Communicate adverse as well as favorable information with those concerned.

 Refuse to get involved in any activities which would adversely affect the
achievement of an organization objective.
 Refuse to take any gift or favor which could influence actions taken or to be taken
 Avoid conflicts and advice related parties on apparent conflicts which could arise
in the future

2. The principle of objectivity-:

This principle requires accounting and finance professionals to stick to their professional
and financial judgment. They should not allow bias, conflicting interests or undue
influence of others to override their business judgment.

3. The principle of confidentiality-:

The principle requires practitioners of accounting and financial management to refrain
from disclosing confidential information related to their work.

4. The principle of professional behavior-:

The principle requires accounting and finance professional to comply with relevant laws
and regulations and avoid such actions which may result into discrediting the profession

5. The principle of professional competence and due care-:

Finance and accounting professional have needed to update their professional skills from
time to time. This has assumed a greater significance in the modern day competitive
environment where updated skill and knowledge shall ensure that the client or employer
receives competent professional services based upon current and contemporary
developments in the related areas

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4. ETHICAL VIOLATIONS

The most frequently occurring ethical violations in finance relate to insider trading, stakeholder
interest versus stockholder interest, investment management, and campaign financing. Business
in general and financial markets in particular is replete with examples of violations of trust and
loyalty in both public and private dealings. Fraudulent financial dealings, influence peddling and
corruption in governments, brokers not maintaining proper records of customer trading, cheating
customers of their trading profits, unauthorized transactions, insider trading, misuse of customer
funds for personal gain, mispricing customer trades, and corruption and larceny in banking have
become common occurrences. Insider trading is perhaps one of the most publicized unethical
behaviors by traders. Insider trading refers to trading in the securities of a company to take
advantage of material "inside" information about the company that is not available to the public.
Such a trade is motivated by the possibility of generating extraordinary gain with the help of
nonpublic information (information not yet made public). It gives the trader an unfair advantage
over other traders in the same security. Insider trading was legal in some European countries
until recently. In the United States, the 1984 Trading Sanctions Act made it illegal to trade in a
security while in the possession of material nonpublic information. The law applies to both the
insiders, who have access to nonpublic information, and the people with whom they share such
information.

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5. IMPORTANCE OF ETHICS IN TAXATION

 Ethics in taxation refers to matters that relate to compliance with tax laws. As a part of
good governance, it is natural for companies to try and minimizes their tax liability
through effective tax planning by staying within parameter provided by law.

 Ethic is very important in taxation in terms of equality. If any amendment is being

made related to paying of the tax, in this situation professional have to use their
skills, knowledge, experience as well as they have also to make an decision within
the code of ethic, like as they also have to realize the ability of the person to pay the
tax.

 Tax planning is a compliant behavior while tax avoidance is a more of a grey issue.
The term tax avoidance is used to refer to legitimate not maybe, aggressive use of
things such as a financial instruments and other arrangement to obtain tax result not
intended by the government guise of overseas tax havens.

 Tax avoidance takes benefit of the loopholes in the law and the arrangement or
planning usually havens before the occurrence of tax liability. In professions like
taxation. Accountancy and different similar profession there are different decisions
are being made on the regular basis as well as on special occasions.

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 If we take an example of profession tax, at the time of making decision related to

the policies or amendment in tax ordinance or in specific scenario tax professional
use their judgment it means that they use their knowledge, skills and experience in
making the decision as well as they make an decision according to the code of
ethics either that decision would be harmful for the society or will show the equality
for all.

 Let’s suppose any amendment is being made different tax professional will see that
either that decision effect to society or not if that amendment affect to the society
they will not prefer to amend that provision.

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6. Ethical Dilemmas in Law Firms

Ethics are the moral principles that guide people to act one way and not another.
Attorneys make ethical decisions every day when deciding how to defend or represent a
client, and attorneys working for large firms also must act ethically in their business
practices. The state's code of professional ethics guides an attorney's behavior, but so do
the attorney's personal standards.

 Staff and Management

Large law firms sometimes select a non-lawyer to be their chief executive officer. This
can pose ethical problems, because people who aren't lawyers can't give legal advice.
Other employees, such as paralegals and secretaries, are also not permitted to offer legal
advice, and law firms must carefully train staff to ensure they don't violate this rule.
Law firms must ensure client confidentiality and prohibit misappropriation of client
funds. Employees, for example, have to be aware that disbursements from insurance
companies must go into an escrow account and not into a personal or business account.
They must know state guidelines governing client confidentiality; they can't, for example,
post information about clients on social networking sites or reveal details of a client's
case to a third party -- even a client's family member -- without express permission from
the client.

 Conflicts of Interest
Lawyers can't represent clients when they have a conflict of interest. For example, an
attorney could not sue someone he had previously represented if his previous
representation gave him information that would lead to an unfair advantage or the
appearance of one. Two lawyers in the same firm generally can't represent clients with

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opposing interests. Because law firms are large entities that may represent thousands of
clients, many firms use conflict-checking software to ensure they do not contract with a
client who might pose a conflict of interest. Further, even if one lawyer in the firm has no
direct conflict of interest, the fact that another lawyer does might prohibit representation.

 Financial Concerns
State codes of professional ethics provide specific guidelines for how attorneys must
handle client finances, and the right way to handle client money isn't always obvious. If a
client pays into an attorney's escrow account or an attorney is required to hold funds from
a settlement for a client, this money cannot be used for anything else. Lawyers are
generally prohibited from commingling their business assets with their clients' money.
When a lawyer works with a law firm, the firm's accounting department is often tasked
with managing financing and ensuring that lawyers properly manages finances.
 Client Advocacy
Law firms face ethical challenges when determining how best to advocate for their
clients. Lawyers can represent clients they know to be guilty, but they can't induce clients
to perjure themselves on the witness stand. Similarly, lawyers in emotionally charged
cases, such as child custody battles, frequently have to determine how to advocate for
their clients in a way that meets their personal ethical beliefs. For example, a lawyer
might be asked to allege that a parent molested a child when the lawyer doesn't believe
the parent committed this crime. Law firm managers frequently have to balance ethical
considerations with zealous advocacy of their clients; they can withdraw from cases when
balance is not possible.

 Professional Responsibility
Each state bar establishes its own rules of professional responsibility for lawyers, and law
firms must ensure that their partners, associates and any lawyers with whom they contract
follow these rules. These rules are more important than any other duty an attorney has,
including her duties to make money for her firm or to advocate for her client. Generally
speaking, codes of professional responsibility require that lawyers communicate

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effectively with their clients, avoid criminal behavior, manage payments legally and
fairly and refrain from defrauding anyone.
If a lawyer breaks one of these rules and commits malpractice, the law firm and the
individual attorney could be sued. Lawyers who break rules of professional conduct can
be sanctioned or even disbarred, and law firms with a history of rules violations may also
be sanctioned.

7. ETHICAL ISSUES IN FINACE

Ethics in finance are concerned with how to make good and moral choices in regard to
the preparation, presentation and disclosure of financial information. During the 1990s
and 2000s, a series of financial reporting scandals brought this issue into the forefront.
Knowing some of the issues presented in accounting ethics can help you ensure that you

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are considering some of the implications for the actions that you take with your own
business.

 Fraudulent Financial Reporting

Most accounting scandals over the last two decades have centered on fraudulent financial
reporting. Fraudulent financial reporting is the misstatement of the financial statements by
company management. Usually, this is carried out with the intent of misleading investors
and maintaining the company's share price.
While the effects of misleading financial reporting may boost the company's stock price in
the short-term, there are almost always ill effects in the long run. This short-term focus on
company finances

 Misappropriation of Assets
On an individual employee level, the most common ethical issue in accounting is the
misappropriation of assets. Misappropriation of assets is the use of company assets for any
other purpose than company interests. Otherwise known as stealing or embezzlement,
misappropriation of assets can occur at nearly any level of the company and to nearly any
degree.
For example, a senior level executive may charge a family dinner to the company as a
business expense. At the same time, a line-level production employee may take home
office supplies for personal use. In both cases, misappropriation of assets has occurred.

 Disclosure Violations
As a subtopic of fraudulent financial reporting, disclosure violations are errors of ethical
omission. While intentionally recording transactions in a manner that is not in accordance
with generally accepted accounting principles is considered fraudulent financial reporting,
the failure to disclose information to investors that could change their decisions about
investing in the company could be considered fraudulent financial reporting, as well.
Company executives must walk a fine line; it is important for management to protect the
company's proprietary information. However, if this information relates to a significant
event, it may not be ethical to keep this information from the investors.

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 Penalties for Violations

Penalties for violations of accounting ethics laws have increased greatly since the passage
of the Sarbanes-Oxley Act of 2002. This legislation allows for harsh penalties for
manipulating financial records, destroying information, interfering with an investigation
and provides legal protection for whistle-blowers.
In addition, chief executives can be held criminally liable for the misreporting of their
company. If accounting ethics wasn't an important consideration before, the higher stakes
provided by the Sarbanes-Oxley Act have definitely upped the ante.

 Concealed liabilities and expenses

It means manipulation in expenses and liabilities. Liabilities and expenses are concealed
to show an unrealistically better financial position.

8. UNETHICAL ISSUES IN FINANCE

There is no financial product that can guarantee performance and/or returns. But industry
emphasizes these aspects more than what the client needs. As the approach is to sell and
not advise. Following are the types of unethical practices.

 NON – DISCLOSURES
Non-disclosure of invisible risks and expenses is one of the most common unethical
practices. Firstly, the adjustment of the management fee and distribution expenses within
the product’s performance is strangely one of the most unethical norms that industry has
been following for many years. Secondly, when there are no financial products that can
guarantee performance, still at times products are mis-sold just by emphasizing on return
related assurances, quoting historical performance and not explicitly revealing the factors
that may be out of control and may pose a significant risk to the foreseeable performance
being claimed.

 ASING RELATIONSHIP OVER ADVISORY

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Most advisers are basically relationship managers. Instead of understanding investors’

perspective, most advisers focus on the selling products. It also includes a lack of
necessary knowledge, certifications, financial skills and being un-responsive in their
dealing. This form of unethical practices/ conduct is also associated with a failure to
effectively undertake the assessment of the client’s tolerance to risk.

 INTEGRITY RELATED ISSUES

This includes unethical conduct associated with misleading statements about the
performance, features, and risks of recommended financial products, or misleading
statements about the business reputations of those associated with financial products or
managed investment schemes. Misleading conduct is also linked to an inadequate
understanding of the financial product. This unethical conduct also includes the failure to
conduct appropriate and independent research into the financial product being
recommended.

 COMMISSION PASS – BACKS

This is another one of the most evident and unethical practice. According to the investors’
perspective, getting trapped in this unethical practice is nothing but being “penny wise and
pound foolish”. Saving a one-time expense is not what creates wealth. But the right
decisions and right discipline in long term does. In the hands of such product sellers, one
can never get the right advice. Advisory is a very ethical profession and not a bargain.

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9. Ethics in Auditing

Auditing is one of the most important tasks that accountants perform. It involves verifying
information to assess the truth and accuracy of accounting information, whether for internal
purposes or external evaluations for tax and lending institutions. To act ethically during an
audit, an accountant should evaluate numbers with the primary objective of getting to the
truth. There should be no conflicts of interest, such as owning stock in the business and
standing to gain if the numbers portray operations in an advantageous light.
An ethical culture is the foundation of effective internal controls. Every auditor knows that
internal controls are best practice and necessary to ensure compliance with applicable laws
and regulations and to ensure that there is a system of checks and balances to detect
inappropriate transactions. Yet, without a culture of ethics and compliance, people will find
ways to circumvent internal controls, policies, and procedures.
While there is no set ethics audit definition, an ethics audit can include reviewing the code
of ethics, reviewing past incidents and the response by the individual and the organization,
and interviewing employees to understand their perspective on the organization’s ethics.
Some choose to utilize different ethics audit types. The ethics audit types vary from
assessing individual employee awareness to understanding the overall ethical culture. In the
end, ethics auditing is similar to any other audit. We approach the audit by defining an
organizational objective, risks, and controls. When considering the repercussions of a weak
ethical culture, why ethics is important in auditing.

 Company Values
An organization should have clearly stated values to establish its culture of ethics and
compliance. Values that shape a company’s ethical culture through daily work practice

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could include: integrity, respect, diversity, safety, conscientiousness, creativity, and more.
For instance, safety is our company’s number one value — it might not seem an obvious
choice, but our people work in nuclear plants, manufacturing, and construction worksites
that may contain dangerous hazards. Thus, we’ve made safety a top value that is
fundamental to our ethics programs and prioritized in our peoples’ everyday work
practices.

 Code of Ethics and Code of Conduct

The values chosen in Step 1 should be incorporated into the organization’s code of ethics
— our guidelines about behavior and principles to govern decision-making — and the
code of conduct, which applies the code of ethics to a range of situations and actions.
Both documents should also include high-level guidelines regarding ethics and
compliance risk areas. For the code of conduct to be effective at guiding everyday work
practices, it should give direction to employees on applying the code of ethics to specific
issues that are important to the company. For example, if an employee is working in a
foreign country, the code of conduct should provide guidance on complying with the
Foreign Corrupt Practices Act rules regarding gifts, gratuities, and entertainment.
Of course, having a formal code of conduct doesn’t guarantee real-world compliance. A
code of conduct audit will assess whether the code of ethics and code of conduct that
exists in paper form is understood and internalized by employees in their lived
experience. Internal audit should ensure the code of conduct is provided to all employees,
directors, and agents.
Internal audit should also assess whether the employee code of conduct training is
effective in ensuring employees understand its requirements.

 Risk Assessment
Once your company has a code of ethics that employees understand and believe in, the
next step is to understand compliance risks as well as risks in the code of conduct
guidelines that you provided. To accomplish this, perform a risk assessment to ascertain
whether your company is focusing on current business risks as a result of changes in
organizations, business practices, and laws and regulations. When preparing each business

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unit risk assessment for compliance with applicable laws and regulations, be sure to
include issues that stem from the code of conduct guidelines such as anti-kickback, anti-
bribery, protection of company assets, or harassment issues.

 Inquiry and Reporting Mechanisms

It’s important that your ethics and compliance program includes a process for employees,
suppliers, customers and others who do business with your company to ask questions or
report concerns about ethics or violations of laws, regulations, and company policies.

 Communication Program
Develop a communication plan to increase ethics awareness and remind employees that
ethics and compliance are important to the company. The most effective communication
programs should engage all audiences with specific messages about ethics using a variety
of media. Effective communication program components include:
Separate pages on ethics and compliance in the company’s internal and external websites.
Internal ethics blogs from senior executives to help set the tone from the top.
Incorporate a variety of messages, short videos, and Q&A about ethics issues in the
company’s newsletter.

 Ethics and Compliance Program Assessment and Evaluation

At all points in the process of implementing an ethics and compliance culture, it is
important to maintain continuous program evaluation. There should be regular internal
and external audits of your ethics program, and an assessment of how often internal
controls are tested. Conduct employee surveys and focus groups to assess employee
impressions of the ethics and compliance culture. A constant vigilance and program
evaluation is necessary to maintain a strong culture of ethics.

 Leadership Commitment
To achieve and maintain an ethical company culture, there must be strong commitment
from the top to create the perception that ethics and compliance is important to the
company. Leadership commitment may be the final step in this list, but it is fundamental

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throughout the previous eight steps that management takes responsibility for
demonstrating through their actions the importance of ethics and compliance. There are
many ways that organizational structure and activities can demonstrate leadership
commitment

10. COMPANY AND ACCOUNTING ETHICS

According to the definition, ethics deals with what people consider to be morally good,
bad, right or wrong. It can be applied to any value belief system. People use ethics in the
decision making process. Ultimately, people make decisions based upon their belief of
what is right or wrong. Companies have a responsibility to their stakeholders to ensure all
business and accounting activity is handled ethically.

 Accounting Ethics
Integrity and client confidentiality are of utmost importance in accounting ethics.
Violating a professional code of professional ethics may subject an accountant to
disciplinary action. Professional values and ethics were developed by the American
Institute of CPAs to safeguard the reputation of the industry and public confidence in
public accountants.
Some examples of violations are as follows: A CPA cannot represent a client for whom
the CPA has a financial interest in the company, CPAs must maintain client
confidentiality and a CPA must exercise professional competence.

 Forensic Accounting

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Forensic accounting is a specialty field of accounting that analyzes and investigates white-
collar crimes such as embezzlement, corporate waste and misrepresentation of a
company's financial statements.
Forensic accountants are held to high ethical standards as they are overseers of ethical
behavior for corporations. They spend many man-hours poring over income and expense
statements, balance sheets and other earnings statements.

 Professional Code of Ethics

A professional code of ethics is important for an organization. Without it, the employees
have no set policy for interpreting values that are not always clear. The organization
should have a set code of ethics and not leave ethical decisions up to employee discretion.
An employee who follows the company's code of ethics is seen by the establishment as
an asset to the company. Following the company's code of ethics is beneficial to achieving
the company's overall business goals.

 Public Trust in Business

Companies must safeguard their business practices and strive to keep the confidence of
their customers and stakeholders. Business scandals of recent years have shaken public
trust in corporate ethics. Firms can quickly fall when public confidence in them is shaken.
Trust is earned by corporations based upon their performance and their record in dealing
with ethical issues. A long-term strategy is necessary for a business to nurture and increase
public trust in its organization.

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11. CORPORATE CRIME

Corporate crime, also called organizational crime, type of white-collar crime committed by
individuals within their legitimate occupations, for the benefit of their employing organization.
Such individuals generally do not think of themselves as criminals, nor do they consider their
activities criminal. Related to corporate crime is professional white-collar crime, which is crime,
committed by those who identify with crime and make crime their sole livelihood.

The origins of the concept of corporate crime can be traced to the larger concept of white-collar
crime, which was first introduced in the social sciences by American criminologist Edwin
Sutherland in a 1939 presidential address to the American Sociological Association. He defined
white-collar crime as “a crime committed by a person of respectability and high social status in
the course of his occupation.” Focusing on the powerful as well as the downcast, such a concept
represented a radical reorientation in theoretical views of the nature of criminality. Sutherland
later published a book titled White Collar Crime (1949), which concentrated almost exclusively
on corporate crime. Using official records of regulatory agencies, courts, and commissions, he
found that all 70 of the corporations that he examined over a 40-year period had violated at least
one law or had an adverse decision issued against it for false advertising, patent abuse, wartime
trade violations, price-fixing, fraud, or intended manufacturing and sale of faulty goods.

Many were recidivists (repeaters) with an average of eight negative decisions issued for each.
Sutherland noted that while “crime in the streets” captured the newspaper headlines, “crime in
the suites” continued unnoticed. While white-collar crime was far more costly than street crime,
most cases were not even covered under criminal law but were treated as civil or administrative
violations.

TYPES OF CORPORATE CRIME

Crime is the outcome of unethical issues unethical practices encourage crimes at various levels.
At the corporate level crime also take place. There are three types of corporate crime.

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For our purpose, corporate-level crime has been divided into three broad categories as

(1) Crimes involving employees

(2) Crimes between firms and
(3) Crimes against societies.

Types of corporate crime

1) Crimes involving employees:
In a corporate crime an employee can be involved and if an employee is involved it will be
more harmful to both organization and employees.

2) Crimes between firms:

Another type of crime is against firms. In some cases, crime happens against firms or
organizations.

3) Crimes against societies:

This is the most dangerous one because of these types of crime suffer entire society

4) Violence against employees:

Six million workers blistered on the work within the U.S.A. and 10,000 folks die within the
geographical point from injuries and 10,000 from the long-run effects of activity
diseases .Company executives square measure to blame for the overwhelming majority of
deaths as a result of they need desecrating activity health and safety standards or have
selected not to produce adequate standards.
So, employees square measure safer on the streets than on their job. For each person dead by
an interloper on the road two square measure dead by their workers.

5) Violence against shoppers:

Thousands of unsafe products injure or kill consumers per annum. 100,000 folks square
measure for good disabled every year and 13,000 die.

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Another vital issue to require into consideration is the marketing of products within the
accumulation.

6) Corporate pollution:
The last public additionally experiences violence within the type of contamination and
alternative new crimes. There square measure many alternative ignorant crimes. However,
they’re all committed for the sake of profit, and that they all hurt the setting.

7) Price fixing:
Silent value fixing happens once a restricted range of dominant corporations in a very
particular type of market follow the lead of their competitors in value. Undisguised value
fixing involves secret conferences and delicate communications between competitors in
given industries. Most common forms:
 Setting costs at planned, similar levels,
 Dividing the market into regions, with every firm agreeing to remain out of the other’s territory,
and
 Deciding to require turns to submit winning competitive bids for contracts, typically from
government agencies.

8) False advertising:
Once corporations use false advertisements to lure shoppers to shop for products or services
that supply few, if any, of the published advantages.

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12. WHITE COLLAR CRIME

White-collar crime is a non-violent crime where the primary motive is typically financial
in nature. White-collar criminals usually occupy a professional position of power and/or
prestige, and one that commands well above average compensation.
White-collar crimes may be perpetrated by individuals or at a corporate level. Due to the
sophisticated technology now available, however, even white-collar crimes committed by
an individual may result in tens of millions in losses for the victims.
A sociologist and criminologist, Edwin Sutherland, invented the phrase “white-collar
crime” in 1939. Prior to his writings on the subject, many people resisted believing that
members of the “upper class” engaged in criminal activity.
He defined that white-collar crime as a crime committed by persons of high social status
in course of their occupation. E.g. - misrepresentation through fraudulent advertisement,
infringement of patents, copyrights, and trade-marks, a publication of fabricated balance
sheets and profit and loss account of business, etc.
White-collar crimes are committed by persons of status, not for need but for greed~ sir
Walter reckless.
Sutherland further pointed out that white-collar crime is more harmful to society than
ordinary crimes because the financial loss to the society from white-collar crime is far
greater than the financial loss from burglaries, robberies, larcenies, etc.

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Types of White-collar Crime

White-collar crime encompasses a wide range of offenses, including the following:

1. Fraud
Fraud is a broad term that encompasses several different schemes used to defraud people
of their money. One of the most common and simplest is the offer to send someone a lot
of money (say, $10,000) if they will simply send the fraudster a little money (say, $300 –
the fraudster may represent the smaller sum as being a processing or finder’s fee). Of
course, the fraudster gets the money that is sent to him but never sends out the money he
promised to send.

2. Insider trading
Insider trading is trading done with the benefit of the trader possessing material, non-
public information that gives him or her an advantage in the financial markets. For
example, an employee at an investment bank may know that Company A is preparing to
acquire Company B. The employee can buy stock in Company B with the expectation
that the company’s stock will rise significantly in price once the acquisition becomes
public knowledge.

3. Ponzi scheme
Named after Charles Ponzi, the original perpetrator of such a scheme, a Ponzi scheme is
an investment scam that offers investors extremely high returns. It pays such returns to
the initial investors with the newly deposited funds of new investors.

When the scammer is no longer able to attract a sufficient number of new clients to pay
off the old ones, the scheme collapses like a house of cards, leaving many investors with
huge losses.

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4. Identity theft and other cybercrimes

Identity theft and computer system “hacking” are two of the most widespread computer
crimes. It’s estimated that losses from identity theft in the United States alone totaled
nearly $2 billion in 2019. California, with over 73,000 cases of identity theft reported,
was the state whose citizens suffered the most from the crime – Florida was a very distant
second with 37,000 reported cases.

5. Embezzlement
Embezzlement is a crime of theft, or larceny that can range from an employee taking a
few dollars out of a cash drawer to a complex scheme to transfer millions from a
company’s accounts to the embezzler’s accounts.

6. Counterfeiting
Our money has become more colorful and expanded in detail because it had to in order to
combat counterfeiting. With today’s computers and advanced laser printers, the old
currency was just too easy to copy. However, it’s questionable how successful the
government’s efforts in this area have been. Rumor has it that very high-quality copies of
the new $100 bill were available within 24 hours of the new bill first being issued.

7. Money laundering
Money laundering is a service essential to the needs of criminals who deal with large
amounts of cash. It involves funneling the cash through several accounts and eventually
into legitimate businesses, where it becomes intermingled with the genuine revenues of
the legitimate business and is no longer identifiable as having originally come from the
commission of a crime.

8. Espionage
Espionage, or spying, is typically a white-collar crime. For example, an agent of a foreign
government that wants to obtain part of Apple Inc. technology might approach an

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employee at Apple and offer to pay them $10,000 if they will provide a copy of the
desired technology.

Classification of White Collar Crimes

Theoretically, various white-collar crimes may broadly be classified into four major
categories as follows:-

1. Ad hoc crimes: they are also known as personal crimes because in this category of
white-collar crimes, the offender pursues his own individual objective having no face to
face contact with the victim.
Hacking on computers, credit card frauds tax evasion, etc. are common forms of ad hoc
white-collar crimes.

2. White-collar crimes involving a breach of trust or breach of faith bestowed by an

individual or institution on the perpetrator. Insider trading, financial embezzlements,

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misuse of funds fictitious payrolls, etc. are common illustrations of this type of white-
collar crimes.

3. Individuals occupying high positions or status who commit crime incidental to, and in
furtherance of their organizational operations constitute this category of white-collar
crimes. People occupying high position commit such crime, not because it is their central
purpose, but because they individually find an opportunity in the course of their
employment to earn quick money or gain undue advantages by using their power or
influence. Example of such crimes is fraudulent medical bill claims, fake educational
institutions, issuance of fake mark sheet/certificates, etc.

4. White-collar crimes may also be committed as a part of the business itself. Violation of
trademarks or copyrights, patent law or competition law, etc. the violation of domain
name and other corporate crimes are also white-collar crimes of this type.

White-Collar Crime in Certain Professions:

1. Medical Profession
White-collar crimes are commonly committed by persons belonging to the medical
profession includes-
 Issuance of false medical certificates.
 Helping illegal abortions.
 Selling sample drugs and medicines to patients and chemists.
 Sex determination of a child in the worm.
 Fake and intended prolonged treatments to increase the bills.

2. Engineering

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 underhand dealings with contractors and suppliers

 passing of sub-standard works and materials
 maintenance of bogus records of work-charged labor
 construction of buildings, roads, canals, dams, and bridges with sub-standard
material

3. Legal Profession
 violating ethical standards of the legal profession to earn large profits
 engaging professional witnesses for fake testimony
 fabricating false pieces of evidence

4. Educational Institutions
 By submitting fictitious and fake details about their institutions to achieve
financial aid and government grants.
 Fake and bogus enrolment of students.
 charging huge amounts by donations and capitation fees
 Procuring students to appear in different examinations on the basis of
manipulated eligibility certificates in return of huge sums.

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13. Acts/Legislation against White Collar Crime in India:

In India various legislation for identifying white-collar crime are as follows:

 Indian penal code, 1860
 Companies Act, 1961
 Customs Act, 1962
 Prevention of corruption Act,1988
 Income tax Act, 1961
 Commodities Act, 1955
 Imports and exports control Act, 1950
 IT Act, 2005
 Prevention of money laundering Act, 2002
 Lokpal Act, 2014

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13.CONCLUSION

Our society is interworking of people built in the pillar of trust. This trust is based on molarity
and ethical behavior. For financial market not only Ethics is the pillar, it is also a ladder for
success. Lose that trust and the firm or individual is going downhill. So financial firms should
not only keep code of ethics in paper but also promote self-regulation. For financial market
Ethical integrity is paramount and clients always come first.

They bear on our financial well-being; misconduct has the potential to rob people of their life
savings. Should emphasize integrity of financial professionals and ethical leadership. Principles
are duty of fiduciary and fairness

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