Fettering the fat cats

Mythili Bhusnurmath

THE Fugitive Economic Offenders (FEO) Bill, passed by Parliament recently, is noteworthy not only for its lofty intent — to deter white-collar crime by confiscating the property of economic offenders who flee the country — but also for the bipartisan support, cutting across party lines, that it received in both Houses.

Bipartisan support is rare in our fractured polity. But in the context of the FEO Bill, it is not surprising. Given the public outrage over the large number of ‘powerful’ people who cheat with apparent impunity and then escape the law of the land, no politician can afford to risk being seen as opposed to a law that aims to bring such fugitives to book. What is moot, therefore, is not whether the  Bill is warranted but whether it will deliver in a scenario where similar attempts have failed in the past.

The Bill, which will become law after receiving the President’s assent, seeks to prevent economic offenders from fleeing the country to escape possible prosecution. In popular lexicon, it aims to end ‘loot and scoot’. It does this by hanging the Damocles’ sword of summary confiscation of property over the heads of economic fugitives. The underlying rationale is that fear of confiscation will work as a powerful disincentive against FEOs fleeing India. And where they have already fled, as with the likes of Nirav Modi, Mehul Choksi, Lalit Modi, Vijay Mallya, etc., will induce them to return to try and prevent their property from being confiscated.

On paper, the Bill tightens the noose over fugitive economic offenders — defined as persons against whom arrest warrant has been issued for committing an offence listed in the Schedule to the Bill and have left the country and refuse to return in order to avoid facing prosecution. Some of its provisions might even seem draconian. Thus, one of its provisions, almost certain to be tested in a court of law, empowers the Enforcement Directorate to seize the property of the alleged FEO even before (emphasis added) conviction unlike existing laws that allow confiscation only after (emphasis added) conviction.

Another provision disentitles the alleged fugitive economic offender from any recourse under civil law. Again, unlike existing laws where confiscation is limited to the proceeds of the offence, under the FEO Bill the power of confiscation extends to properties that may not necessarily have been acquired by the proceeds of the offence.   

Since the aim (rightly so) is to go after large economic offenders, the Bill sets a floor on the value of the offence fairly high, at Rs 100 crore. This has the additional advantage of ensuring the energies of the Enforcement Agency are not spread thin over a large number of offenders, but are focussed, instead, on the big fish.

Prima facie, the Bill will ensure justice is done, better and faster. But some of the provisions, as mentioned above, run the risk of running foul of one of the basic freedoms granted under the Constitution: No individual can be penalised without being convicted and no one can be denied access to justice; a principle that has been upheld many times by the courts, with the Constitution Bench of the Supreme Court in a landmark ruling of July 2016 clearly ruling that access to justice is ‘a facet of right to life guaranteed under Article 21 of the Constitution’.

There is the danger, therefore, that the Bill might not pass the test of judicial scrutiny as its premise ‘guilty till proved innocent’ goes against the very grain of the premise of ‘innocent until proved guilty’ under our system of common law. Moreover, under the Bill, all assets, whether or not they have been offered as security in the case of a loan, can be attached. The rationale, presumably, is to ensure enough assets are attached and sold while they have economic value; unlike at present, when the asset often becomes worthless by the time the case meanders to an end through our labyrinthian court processes. This again, could be called into question in a court of law.        

The fear, therefore, is that, as with many of our existing legislation, it might not make much difference when it comes to ground realities. Such scepticism is not unwarranted. On paper, we already have a multitude of laws such as the PMLA (Prevention of Money Laundering Act), SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) Act, Insolvency and Bankruptcy Code, etc., all of which were passed with the same laudable intent — to tackle white-collar crime. In practice, however, none of these laws has been able to make a dent on white-collar crime.   

Contrast this with what happens in the West where, more often than not, white-collar criminals are nailed, made to face the music and given exemplary punishment. Examples of the rich and the famous being pursued by the long arm of the law and convicted are legion. From Bernie Madoff, convicted of running a Ponzi scheme and duping millions, to Rajat Gupta, convicted of insider trading, to Jerome Kerviel, convicted of fake trades at the French bank, Societe Generale, to Bernard Ebbers, convicted of conspiracy and fraud at WorldCom, to Kenneth Lay of Enron, the power company that made Dabhol a household name in India (for all the wrong reasons), the guilty don’t escape.

Contrast it with what happens in India. The rich and famous are seldom hauled up and even where guilty, are almost never convicted or punished. The main reason is not want of laws but lack of political will and/or corruption. We are talking of big-ticket offenders and enormous clout. Even in the best-case scenario, it is far from certain the Bill will improve the chances of ensuring justice is meted out even to economic offenders who remain in India. As for those who manage to flee our shores, since they would, typically, have salted away the bulk of their ill-gotten wealth overseas under fictitious names, the chances that fear of confiscation will bring them back to face justice here are remote.

Agreed, that might seem an overly cynical view. But as long as our standards of probity across the socio-political-economic-legal spectrum remain as dismal as they are today, the Bill — even if it clears the test of legal infirmities — might just join the long list of legislation that while excellent on paper, fails to deliver in practice.

Senior consultant, National Council of Applied Economic Research