“KONKAN GYANPEETH URAN COLLEGE OF COMMERCE & ARTS,

URAN, NAVI MUMBAI-400702”

PROJECT REPORT ON

THE ROLE OF ACCOUNTING FIRMS IN MONEY LAUNDERING IN INDIA

B. Com (Accounting & Finance)

SEMESTER-VI

2022-2023

A Project Submitted to University of Mumbai for partial completion of the degree of

Bachelor in Commerce (Accounting and Finance) Under the Faculty of Commerce

By

TANDEL DISHA GAJANAN

ROLL NO: -57

SUBJECT: -PROJECT WORK I (SEM VI)

Under the Guidance of

PROF. Riyaz N. Pathan

“KONKAN GYANPEETH COLLEGE OF COMMERCE & ARTS, URAN, NAVI MUMBAI-400702”

1
 “KONKAN GYANPEETH URAN COLLEGE OF COMMERCE & ARTS,

URAN, NAVI MUMBAI-400702”

PROJECT REPORT ON

THE ROLE OF ACCOUNTING FIRMS IN MONEY LAUNDERING IN INDIA

B. Com (Accounting & Finance)

SEMESTER-VI

2022-2023

A Project Submitted to University of Mumbai for partial completion of the degree of

Bachelor in Commerce (Accounting and Finance) Under the Faculty of Commerce

By

TANDEL DISHA GAJANAN

ROLL NO: -57

SUBJECT: -PROJECT WORK I (SEM VI)

Under the Guidance of

PROF. Riyaz N. Pathan

“KONKAN GYANPEETH URAN COLLEGE OF COMMERCE & ARTS, URAN, NAVI MUMBAI-400702

2
 “KONKAN GYANPEETH URAN COLLEGE OF COMMERCE & ARTS ,

URAN, NAVI MUMBAI-400702”

Certificate

This is to certify that Ms DISHA GAJANAN TANDEL has worked and duly completed her/his Project Work

For the degree of Bachelor in Commerce (Accounting & Finance) under the Faculty of Commerce in the

subject of PROJECT WORK and her/his project is entitled THE ROLES OF ACCOUNTING FIRMS IN

MONEY LAUNDERING IN INDIA under my supervision.

I further certify that the entire work has been done by the learner under my guidance and that no part of it

has been submitted previously for any Degree or Diploma of any University.

It is her/ his own work and facts reported by her/his personal findings and investigations.

Seal of the college

Date of submission: Name and Signature of Guiding Teacher

3
 Declaration by learner

I the undersigned Miss DISHA GAJANAN TANDEL declare that the work embodied in this project

work titled THE ROLES OF ACCOUNTING FIRMS IN MONEY LAUNDERING IN INDIA forms

my own contribution to the research work carried out under the guidance of Prof. Riyaz N Pathan is a

result of my own research work and has not been previously submitted to any other University for any other

Degree/Diploma to this or any other University.

Wherever reference has been made to previous works of others, it has been clearly indicated as such and

included in the bibliography.

I, here by further declare that all information of this document has been obtained and presented in

accordance with academic rules and ethical conduct.

Name and Signature of the learner

DISHA GAJANAN TANDEL

Certified by

Name and signature of the Guiding Teacher

Prof. Riyaz N Pathan

4
 Acknowledgment

To list who all have helped me is difficult because they are so numerous and the depth is so enormous.

I would like to acknowledge the following as being idealistic channels and fresh dimensions in the

completion of this project.

I take this opportunity to thank the University of Mumbai for giving me chance to do this project.

I would like to thank my Principal, Dr. Baliram N. Gaikwad for providing the necessary facilities required

for completion of this project.

I take this opportunity to thank our Coordinator Dr. Parag Karulkar, for his moral support and guidance.

I would also like to express my sincere gratitude towards my project guide Prof. Riyaz N. Pathan whose
guidance and care made the project successful.

I would like to thank my College Library, for having provided various reference books and magazines

related to my project.

Lastly, I would like to thank each and every person who directly or indirectly helped me in the completion

of the project especially my Parents and Peers who supported me throughout my project.

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THE ROLES OF ACCOUNTING FIRMS IN MONEY LAUNDERING IN INDIA

(CASE STUDY OF ACCOUNTING FIRMS IN INDIA )

TABLE OF CONTENTS

Title Page i

Dedication ii

Certification iii

Declaration iv

Acknowledgement v

Table of contents vi-vii

Abstract 8

CHAPTER NO.1
INTRODUCTION
1.1 Accounting 9-13

1.2 Money Laundering 14-22

1.3 Significance of the study 22-23

1.4 Statement of problem 23

1.5 Limitation of Study 24-25

CHAPTER NO. 2
RESEARCH & METHODOLOGY

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2.1 OBJECTIVE 26

2.2 HYPOTHESIS 26-27

2.3 Data Collection 28-30

CHAPTER NO. 3
LITERATURE REVIEW

3.1 FRAUD CASE 31-32

3.2 SATYAM FRAUD CASE 33-44

3.3 PUNJAB NATIONAL BANK CASE 45-51

CHAPTER NO. 4
DATA ANALYSIS & INTERPRETATION 52-68

CHAPTER NO. 5
CONCLUSION 69-70

CHAPTER NO. 6
SUGGESTION 71-76

CHAPTER NO. 7
REFRENCES 77-83

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 ABSTRACT

Concern about money laundering has become one of the major preoccupations of governments and financial
sector regulators around the world. The purpose of this research is to demonstrate the role of accounting in
money laundering processes and particularly the role of accountants because they play an important role in
financial institutions. Specifically, it shows how Accountants facilitate and combat money-laundering
activities. This paper is based on secondary research in the library using number of academic journals and
books, archival and survey study. Because of their positions, accountants were involved in many cases of
money laundering activities. Thus, accountants are responsible for fighting against and combating money
laundering by reporting any suspicious activities. Such gaps between the requirements of accountants, and
their engagement with these obligations is important in identifying ways to improve the responsibility of
accounting professionals to undermine money laundering.

White-collar crime is increasing in the Western world. It has been estimated that some £500 billion of hot
money is laundered through the world's financial markets each year. Such huge amounts of money cannot be
successfully laundered without the involvement of accountants (and other professionals) who use their
expertise to create the complex webs of transactions whose purpose it is to conceal and obscure illegal activity.
Despite this involvement, accountants and auditors are expected to play a leading role in the reporting of fraud
and money laundering. Through a detailed consideration of a case in which a small accountancy firm was
judged by the High Court to be involved in money laundering, the paper explores the relationship between
regulators and errant accountants. The reluctance or inability of the regulators to pursue other accountants and
larger accounting firms implicated in this case suggests that, by design or by default, the current regulatory
apparatus operates to shield the activities of accountancy firms from critical scrutiny.

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 CHAPTER NO :`1

INTRODUCTION
1.1 Accounting :

Accounting has several specialized fields and roles. Private (internal) accounting generally refers to
accountants who work within a single business entity. Small business accountants may assume general roles
which require preparing the records (book keeping) and performing bank reconciliations. Accounting
professionals are generally divided into three fields: tax, audit, and advisory. The tax field focuses on federal,
state, and local tax filings. Audit roles test the validity of financial statements and internal controls.

9
Advisory services perform general financial consulting. Public accounting firms have several different clients,
whereas private accounting refers to working for one specific business entity.

Definition of Accounting
Accounting can be defined as a process of reporting, recording, interpreting and summarising economic data.
The introduction of accounting helps the decision-makers of a company to make effective choices, by
providing information on the financial status of the business.
The American Institute of Certified Public Accountants (AICPA) had defined accounting as the “art of
recording, classifying, and summarising in a significant manner and in terms of money, transactions and events
which are, in part at least, of financial character, and interpreting the results thereof”.

Today, accounting is used by everyone and a good understanding of it is beneficial to all. Accountancy act as
a language of finance. To understand accounting efficiently, it is important to understand the aspects of
accounting.

Characteristics of Accounting:

The following attributes or characteristics can be drawn from the definition of Accounting:

(1) Identifying financial transactions and events

Accounting records only those transactions and events which are of financial nature.

So, first of all, such transactions and events are identified.

(2) Measuring the transactions

Accounting measures the transactions and events in terms of money which are considered as a common unit.

(3) Recording of transactions

Accounting involves recording the financial transactions inappropriate book of accounts such as Journal or
Subsidiary Books.

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(4) Classifying the transactions

(5) Transactions recorded in the books of original entry – Journal or Subsidiary books are classified and
grouped according to nature and posted in separate accounts known as ‘Ledger Accounts’.

(6) Summarising the transactions

It involves presenting the classified data in a manner and in the form of statements, which are understandable
by the users.

It includes Trial balance, Trading Account, Profit and Loss Account and Balance Sheet.

(7) Analysing and interpreting financial data Results of the business are analysed and interpreted so that users
of financial statements can make a meaningful and sound judgment

(8) Communicating the financial data or reports to the users

Communicating the financial data to the users on time is the final step of Accounting so that they can make
appropriate decisions.

What are the Advantages of Accounting?

The following are the main advantages of accounting:

1. Provide information about financial performance

\Accounting provides factual information about financial performance during a given period

of time Like, profit earned or loss incurred over a period and financial position at a particular

point of time.

2. Provide assistance to management

Accounting helps management in business planning, decision making and in exercising control.

For this, it provides financial information in the form of reports.

3. Facilitates comparative study

By keeping systematic records and preparation of reports at regular intervals, accounting helps in making a
comparison.

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4. Helps in settlement of tax liability

Systematic accounting records help in settlement of various tax liabilities. Such as – Income Tax, GST, etc.

5. Helpful in raising loan

Banks and Financial Institutions grant a loan to the firm on the basis of appraisal of the financial statement of
the firm.

6. Helpful in decision making

Accounting provides useful information to the management for taking decisions.

What Are the Limitations of Accounting?

Following are the limitations of accounting:

Accounting is not precise: Accounting is not completely free from personal bias or judgment.

Accounting is done on historic values of assets: Accounting records assets at their historical cost less
depreciation. It does not reflect their current market value.

Ignore the effect of price level changes: Accounting statements are prepared at historical cost. So changes in
the value of money are ignored.

Ignore the qualitative information: Accounting records only monetary transactions. It ignores the qualitative
aspects.

Affected by window dressing: Window dressing means manipulation in accounting to present a more
favourable position of the business than the actual position.

Accounting is the system of recording financial transactions with both numbers and text in the form of financial
statements. It provides an essential tool for billing customers, keeping track of assets and liabilities (debts),
determining profitability, and tracking the flow of cash.

The system is largely self-regulated and designed for the users of financial information, who are referred to as
stakeholders: business owners, lenders, employees, managers, customers, and others. Stakeholders utilize
financial statements to help make business, lending, and investment decisions Accounting has several
specialized fields and roles. Private (internal) accounting generally refers to accountants who work within a
single business entity. Small business accountants may assume general roles which require preparing the

12
records (bookkeeping) and performing bank reconciliations. Accounting professionals are generally divided
into three fields: tax, audit, and advisory. The tax field focuses on federal, state, and local tax filings. Audit
roles test the validity of financial statements and internal controls.

Advisory services perform general financial consulting. Public accounting firms have several different clients,
whereas private accounting refers to working for one specific business entity.

Accounting is the system of recording financial transactions with both numbers and text in the form of
financial statements. It provides an essential tool for billing customers, keeping track of assets and liabilities
(debts), determining profitability, and tracking the flow of cash. The system is largely self-regulated and
designed for the users of financial information, who are referred to as stakeholders: business owners, lenders,
employees, managers, customers, and others. Stakeholders utilize financial statements to help make business,
lending, and investment decisions.

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1.2 Money laundering:

Meaning

Money Laundering is the process of transforming the proceeds of crime into ostensibly legitimate money or
other assets. Also it involve the misuse of the financial system (involving things such as securities, digital
currencies, credit cards, and traditional currency), including terrorism financing and evasion of international
sanctions.

Prevention of Money Laundering Act, 2002

Prevention of Money Laundering Act, 2002 is an Act of the Parliament of enacted by the NDA government to
prevent money-laundering and to provide for confiscation of property derived from money laundering.[1][2]
PMLA and the Rules notified there under came into force with effect from July 1, 2005.

The Act and Rules notified there under impose obligation on banking companies, financial institutions and
intermediaries to verify identity of clients, maintain records and furnish information in prescribed form to
Financial Intelligence Unit -India

(1) This Act may be called the Prevention of Money-laundering Act, 2002.

(2) It extends to the whole of India

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(3) It shall come into force on such date 1 as the Central Government may, by notification in the Official
Gazette, appoint, and different dates may be appointed for different provisions of this Act and any reference
in any such provision to the commencement of this Act shall be construed as a reference to the coming into
force of that provision.

The PMLA seeks to combat money laundering in India and has three main objectives:

• To prevent and control money laundering.

• To confiscate and seize the property obtained from the laundered money; and To deal with
any other issue connected with money laundering in India.

in 1986, the Congress issued the Money Laundering Act, which required all institutions to prepare and present
to the Internal Revenue Service (IRS) a Currency Transactions Report (CT) within 15 days of any deals in
cash, of amounts greater than Rupees 8,00,000 provided by an individual or deposited in one day . Such
legislation signaled the recognition of the place of professional and accounting based knowledge in questions
of corruption or illegality in financial matters. Moreover, De Maillard has suggested that the knowledge and
practices of accounting professionals needs to further inform responses to money laundering. which currently
onlv focus on the transformation of dirt money into clean monev (cited in 2008:593). Monev laundering is
now regarded as a multinational phenomenon where extremely disciplined and well funded organized
criminals manipulate national Anti-Money Laundering (AML) rules to move their proceeds of crime.
According to Ryder (2008:636), it is clear that "a large number of mechanisms exist, which could be exploited
by organized criminals to hide their wealth and assets without regard to international borders, which means
that virtually any financial transaction could involve money laundering". As money laundering has become a
global problem, it requires an effective and coordinated international response (Ryder 2008:636-637). Abel
and Gerson (2001:30) claim that "money laundering disrupts financial systems around the world by damaging
international financial institutions reputations and weakening their relationships with intermediaries,
regulators and the general public.

According to Abel and Gerson (2001). to organize an international response to this threat. in 1989 the Group
of Seven (G-7) (Canada, France, Germany, Italy, Japan, the United Kingdom and the United States) formed a
global money-laundering watchdog organization called the Financial Action Task Force (FATF) Since then,
"FATF membership has grown to nearly 30 countries and jurisdictions" (Abel and Gerson 2001:30).

15
According to Ryder (2008:236-237). he claims that "The international community has implemented a series
of measures including the United Nations Convention against Illicit Traffic in Narcotic Drugs and
Psychotropic Substances, the statement of principles of the Basel Committee on Banking Regulations and
Supervisory Practices, the FATF's 40

Recommendations, the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the
Proceeds of Crime and three European Money Laundering Directives to reduce the extent of money
laundering". Some of these international measures impose specific AML obligations on nation states

(Ryder 2008:237-238). As a result, money laundering has become the most important concern of authorities
and regulators in the financing sector over the world (Davies 2007:729).

Global economic is exposed to several negative phenomenon that affect its growth and money laundering is
now regarded as one of these phenomenon. Money laundering is not only limited in one country but also its
risk increases in developing and development countries, specially oil-producing countries because of their
financial institutions weaknesses such as banking sectors. Accounting sector plays an important role in
increasing or limiting such activities, because the confidential information accessed by accountants' positions
them as central to any investigative activities surrounding money laundering, while at the same time, the
specific knowledge and techniques practiced by professional accountants holds great potential to be co-opted
into illicit actions and organizations. Therefore, because of the situation in Libya now. it has become necessary
to warn about money laundering processes and make accountants have more knowledge about such activitv
in order to reduce or prevent it. The purpose of this paper is to show the definition of money laundering and
how it happens. In addition, it aims to demonstrate the role of accounting in such accountants facilitate and
fight against money-laundering processes around the world since 1986.

This could help Libyan's financial institutions and banking to enhance and develop accounting professions. in
order to reduce corruption and illegal activities in financial matters that affect economic growth .This Daber
is based on description analysis for several academic journals. books and researches that related and addressed
money laundering activities in specific period of time since 1986 until now. This study reached to a set of
results that could improve and raise accountant's work in India .

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Accounting calculus and ideologies have become a major influence on commercial and everyday life in most
Western societies. Inter alia accounting has developed as a means of recording transactions and identifying,
and thereby inhibiting, fraudulent activity. Accountants routinely trade upon their claims of rationality,
professionalism and `service of the public interest' to secure or extend their monopolies (e.g., external audits),
privileges and status. In this way, accountants have colonized both public and private sectors where their
calculations routinely inform decisions about the allocation of goods and services, including employment
health and education.

Major advances have been made in illuminating the expansion of `accounting think' in relation to the social,
economic and political role of accounting and accountants (Tinker, 1985; Lehman, 1992; Hopwood and Miller,
1994). But comparatively little research has addressed the antisocial and predatory acts of accountancy firms,
their partners and advisers (Tinker and Okcabol, 1991). One aspect of such antisocial action concerns the
apparent links between accountants and white-collar crime. Yet, despite being a phenomenon that is
increasingly scrutinised by social scientists (e.g. Levi, 1987; Nelken, 1993; Geis et al, 1995), and frequently
reported in the daily press , the involvement of accountants (Pizzo et al, 1989; Kerry and Brown, 1992) in
white-collar crime has been generally neglected by accounting academics.

17
It is estimated that some 500 billion of hot money is laundered through the world's financial systems (The
Times, 20 September 1995, page 26). The increasing amount and visibility of white- collar crime has been
perceived as a threat to the reputation of Hyderabad as a (comparatively) clean international financial centre.
In response, the India government has introduced legislation (e.g the Criminal Justice Act 1993; The Money
Laundering Regulations 1993; also see Bosworth-Davies and Saltmarsh, 1994; Bingham, 1992) that requires
accountants and auditors (and other financial advisers) to play a central role in the detection/reporting of fraud
and money laundering. This legislation expects accountants and auditors to override their commercial concerns
and report suspicious transactions and schemes to regulators. These requirements presuppose that accountants
themselves are not a party to such transactions even though they have a history of what Woolf (1983) calls
"turning a blind eye on the wholesale abuse by client company directors of [legal] provisions"

(page 112) and disclosing considerably less than what they actually know (Woolf, 1986, page 511; also see
Sikka and Willmott, 1995).

In 1993, India major criminal law enforcement agency, the Serious Fraud Office (SFO), was investigating 57
cases of fraud which alone amounted to some 6 billion (SFO 1994, page 8). Such large amounts, it has been
argued, cannot easily be laundered without the (direct or indirect) involvement of accountants (Kochan and
Whittington, 1991; Stewart, 1991; Barchard, 1992; Davies, 1992; Kerry and Brown, 1992; Lever, 1992; the

18
Financial Crime Enforcement Network, 1992; Ehrenfeld, 1992). It is accountants, amongst others, who are
knowledgeable of the world's financial systems. It is accountants who are able to create and manipulate the
complex transactions which make it difficult to identify and trace the origins and the ultimate destiny of the
illicit funds or, when acting as auditors, are reluctant to reveal and report such activity.

By detailing a court case in which two members of a small accounting firm was judged to have 'knowingly'
laundered money and assisted in the misapplication of the plaintiff's [AGIP ] funds, this paper illustrates how
money laundering activity is undertaken. It also draws attention to the alleged involvement of larger firms in
the case. More importantly, perhaps, it highlights the operation of the regulatory apparatus in the UK in
addressing cases of money laundering. Despite the court judgement, the reluctance of regulatory authorities to
investigate evidence and allegations brought out in this case indicates an alarming degree of inertia and
backpassing within the India regulatory process. The evidence of this case suggests the existence of a deeply
ingrained indifference to the apparent involvement of major accounting firms in money laundering activity or,
at least, an institutionalized disinclination to undertake vigorous and open investigation of such cases.

The paper is organised into four sections. The first section sketches a framework for understanding white collar
crime. Often attention is focused upon the acts of individuals, but in contrast, we argue that more attention
should be given to the organizational and social contexts that tolerate or `turn a blind eye to' white collar crime.
The second section describes the case of AGIP (Africa) Limited v Jackson & Others (1990) 1 Ch. 265 in which
an accountancy firm (Jackson & Co.) was found to have used a series of shell (or cut-out) companies to launder
money (Mansell, 1991a; also see Robinson 1994, page 293). We detail the way in which very large sums of
money passed through the offices of this firm, though the only benefit derived by those involved took the form
of standard fee income. Additionally, our examination of this case raises some questions about the role of two
other accountancy firms: Grant Thornton whose tax manager allegedly provided a number of contacts for

Jackson & Co., and Coopers & Lybrand whose audits of AGIP did not detect the fraud which allegedly began
in the mid 1970s. We submit that the clarity of High Court judgement and the many unanswered questions
surrounding the comparatively high-profile AGIP case should have attracted the attention of UK regulators.
More specifically, allegations made during the course of the trial should have prompted an investigation of the
involvement of the larger accountancy firms in the AGIP affair. The apparent lack of action prompted us to
engage in a dialogue with the regulators. Through a series of questions raised in Parliament and numerous
letters to regulators and Ministers, including the Prime Minister, we sought to discover how the regulatory
apparatus was responding to the revelations of the AGIP case. This correspondence is reported in the third

19
section of the paper. On the basis of the findings derived from our investigation of the response of the
regulators and Ministers, the fourth section concludes that regulatory indifference and inaction is symptomatic
of a close and indulgent relationship between the UK accountancy profession and the state .

Under the weight of liberalist critiques, the state's role in the economic sphere is severely restricted. With the
exception of a diminishing sector of public utilities, the modern state lacks its own means of production. It is
therefore dependent upon the private sector to generate the wealth necessary to provide public services,
including education, social security, health and defence (Habermas, 1976; Offe, 1984, 1985). In order to
maintain and expand these services, and thereby sustain its legitimacy, institutions of the state are obliged to
enact and enforce policies which serve the long-term smooth accumulation of economic surpluses by private
capital. Such policies include the use of legislation to regulate transactions within the private sector, including
the enactment of legislation that defines and outlaws particular kinds of activity, such as fraud and money
laundering which have been ascribed the label of `white-collar crime'.

Attempts to regulate economic activity may be resisted as those who perceive their `private interests' or
`freedom' to be detrimentally affected by such regulations. They strive to apply pressures, individually and
collectively, upon the state to limit and dilute restrictions upon their activity . When attacking regulations, the
business sector routinely ridicules and challenges the laws on the grounds that they stifle economic activity
and infringe their right to privacy, etc. Subsequent de-regulation may please large sections of the business
sector but, in addition to risking loss of mass support for liberalization, its longer term consequence may be
the undermining of confidence when the paralysing effect of uncertainty outweighs the costs of compliance.

20
Without `hierarchy', the tendency of free `markets' is to degenerate into chaos as the absence of trust is not
made good by the rule of law.

In order to secure even minimal compliance and enforcement with some laws - for example against corporate
crime, fraud, institutionalised lawbreaking - vigilance is required inside private organisations. The separation
of public and private spheres in modern societies means that, to a greater or lesser extent, the state depends
upon the business sector to monitor and report compliance. The form of this regulation of economic activity
is a product of recurrent conflicts which involve a process of negotiation and bargaining between
representatives of the public and private sectors. Exemplifying this process of negotiation, social policy on
white-collar crime, including fraud and insider dealing, is constantly in the making: a relaxation of legislation
that inadvertently undermines business confidence and/or mass support is followed by pressures for increased
regulation.

According to the United State Treasury Department

"money laundering " is the process of making illegally gained proceeds (i.e. dirty money ) appears legal (clean)
and this involves three steps: placement, layering and integration. This is the more reason why many regulatory
and governmental authorities issues estimates each year for the amount of money laundered, either worldwide
or within the national economy. In 1996 the international monetary fund estimated that two to five percent of
the world wide global economy involved money laundered.

Furthermore, Osisoma (2009) refers to money laundering as a second-order financial crime which derives from
an underlying criminal activity often called predicate offences. It generates proceeds which when laundered
results in the offences of money laundering. i.e. money laundering is a cross border crime.

Summers (2000), states that the observable fact of money laundering is a characteristic of organized crime
with researcher and academic estimating that the money laundering generate about US$100 billion; while the
British Intelligence estimated that the total amount being laundered annually is about US$500 billion.

While firms operating in the same country generally have to follow the same AML laws and regulations,
accountancy firms in India all structure their AML efforts slightly different. That is why, most financial
institutions globally, and many non-financial institutions, are required to identify and report transactions of a
suspicious nature to the financial intelligence unit of the country

21
Money laundering has been a major concern to the shareholders regulatory authorities, and the public at large
especially the financial sector and this can be traced to the lack/inadequacy of credit administration by many
financial institution as a result of their inability to properly appraised the loan granted which in turn result in
increase volume of non-performing assets, putting any institution in precarious financial situations.

(Idowu and Obasan, 2012) Money laundering in India had worsened in recent times, covering the image of
decent and hardworking people in the country i.e. top management and opportunist ride on the back of various
accounting firms and bank to carryout their illegal act, because of the confidence that the law in the country
will protect them, to the disadvantage of decent people which in turn frustrate legitimate business.It is against
this backdrop that this study seeks to examine the role of accounting firms in money laundering in India.

1.3Significance of the Study

Thus, criminal organisations are increasingly contracting the task of money laundering to accountants because
the methods required to circumvent the law and avoid detection are complex.

The growth of money laundering over the years has constituted a worrisome issue to individuals and corporate
individuals. This is because majority of the stakeholders, retirees, customers, present employee e.t.c. rely on

22
the both financial institution and accountancy firms for payment, thereby Stemming the tide of money
laundering will go a long way in alleviating the economic hardship being experienced currently by these
categories of citizens and would help again in reassuring the stakeholders and also raising their confidence
level in the financial and economic system of the country.

This study will be of great importance to the government, corporate individual, financial and non-financial
institution since it will help to determine the actual income of every companies and banks so as to pay the
exact tax. It will also help to create responsibilities for all those in the regulated sector to disclose relevant
information relating to money laundering to the authorities.

It will also helps to set outs various money laundering offences and it consequences, and finally, It will also
give them positive insight on how to fight this evil menace called money laundering in the country.

1.4 Statement of the Problem

The role of accountancy firms in money laundering are difficult to enumerate but It is clear that such activit y
damages both the financial and economy sector of a Country.Financial institutions, that are critical to economic
growth reduces productivity In economy as a Result of money laundering which in turn, slow economic growth
and Development in the country. Globally, and in India today, the UNODC report that, two trends
Characterized money laundering in recent years, the first is the increasing Involvement of professionals
(Accountant) and the second is that Accounting Firms are used not only to conceal the origin of the source of
proceeds, but also Manage subsequent asset and /or other legitimate business globally, and as a Result of this
tackling money laundering and the accountability of legal in Stitution whether interdiction, enforcement, or
disruption depends so much on The socio-economic environment within which they are conceived or operated.
Money laundering constitute a threat to the continued existence of corporate Organization as result of absence
of concrete internal auditing procedure, non- Compliance with relevant accounting standards due to the
negligence of the Accountants, inadequate book-keeping/accounting procedures which gives rise Unhealthy
meddlesomeness(presentation of distorting or misleading financial Statement) though this money laundering
has become a potential threat to the Continue operation of capitalist economy. Money laundering has been a
major concern to the shareholders regulatory Authorities, and the public at large especially the financial sector
and this can be Traced to the lack/inadequacy of credit administration by many financial Institution as a result
of their inability to properly appraised the loan granted Which in turn result in increase volume of
nonperforming assets, putting any Institution in precarious financial situations.

23
1.5 Limitation of the Study

We were confronted with some problems when carrying out this research. These

Problems include.

• Financial problems:- the success of our research work depends on the Finance availability and this
affected the researcher because the finance at His disposal was not sufficient to carry out the research
effectively.

• Time:- this has to do with the time-frame given for the completion of the Study and also other
challenges; activities and engagements forcing me as a Final year student reduced my time-frame.

• Data collection problems: as a result of the research study we were faced With problem of getting
required source of data on time.

Definition of Terms

1. Accounting firms: this are specialized service providers run by experienced Accountants who serve either
business customers or consumers. Like Individuals, accounting firms can choose to specialize in different
areas of Accounting, such as business startups or liquidations.

2. Audit Accounting firms: These firms perform audit of companies, Organisations, small business as annual
audits are required for businesses In most places and these firms are always contracted to perform those
Audits.

3. Money Laundering is the process of transforming the proceeds Of crime into ostensibly legitimate money
or other assets. Also it involve the Misuse of the financial system (involving things such as securities, digital
Currencies, credit cards, and traditional currency), including terrorism Financing and evasion of
international sanctions.

4. Layering

This is a process whereby the launderer engages in a series of conversions or Movement of the funds to distance
than from their source. Here layers upon Layers of transactions are created, moving “dirty” monies between

24
accounts or Business or buying and selling assets on a local and international basis until the Original source
of the money is untraceable

1. Structuring: Often known as smurfing, this is a method of placement Whereby cash is broken into smaller
deposits of money, used to defeat Suspicion of money laundering and to avoid anti-money laundering
Reporting requirements.

2. Forensic Accounting: this is a special area of practice in accounting where Accounting, auditing, and
investigative skills are used to assist court in legal Matters, forensic accountants are also known as forensic
auditors, they Investigate white collar crimes such as money laundering, embezzlements ,Fraud, and
bankruptcy.

3. White-Collar Crime:- Edwin Sutherland in 1939 defines it as “a crime Committed by a person of

respectability and high social status in the course Of his occupation. It is a financially motivated nonviolent
crime committed for illegal monetary Gain.

1. Fraud: this refers to a wrongful or criminal deception intended to result in Financial or personal gain
.i.e. it is an act or course of deception, omission or Perversion of truth in order to gain unlawful or unfair
advantage.

2. Corruption: This refers to the wrongdoing, on the part of an authority or Those in power which is
illegitimate. i.e. it is as complex social and economic Phenomenon carried out by those in power for personal
advantage.

25
 CHAPTER NO :2

RESEARCH & METHODOLOGY

2.1 OBJECTIVES

The Objectives of this study are as follows;

• Ascertain how Accounting firms help to reduce, and prevent money laundering in India
• Eliminate the constraint encountered by accounting firms in money laundering in India
• Determine the economy effect of money laundering in India
• Examine the effectiveness of the Anti-Money laundering laws and regulations used for prevention of
money laundering in India
• To prevent and control money laundering
• To confiscate and seize the property obtained from the laundered money; and To deal with any other
issue connected with money laundering in India.
• The Act also proposes punishment under sec.4.

2.2 HYPOTHESIS

1. Ascertain how Accounting firms help to reduce, and prevent money laundering in India :-

The main objective of money laundering is to learn how accounting firms can lessen and stop money
laundering. How can accounting firms contribute to reduce and preventing money laundering. How can
accounting firms help to curtail money laundering .

2. Eliminate the constraint encountered by accounting firms in money laundering in India ;-

The second objective of money laundering is to remove the obstacle that accounting firms have when it comes
to money laundering . remove the barrier to money laundering that accounting firms face to ascertain the
difficulty accounting firms have in money laundering should be eliminated removing the obstacle that
accountancy firms face in money laundering .

26
3.determine the economy effect of money laundering in India

the other objective is to analyse the impact of money laundering on the economy. How money laundering
affect the economy . analyse the financial impact of money laundering determine how money laundering
affects the economy . analyse the impact of money laundering on the economy . how money laundering can
have a negative impact on the economy.

4. Examine the effectiveness of the Anti-Money laundering laws and regulations used for prevention of
money laundering in India

Analyse the impact of money laundering on the economy. Assess the success of the anti-money laundering
laws and rules that are employed to prevent money laundering. Analyse the financial impact of money
laundering. Assess how well the anti-money laundering laws and rules work to prevent the practise. Determine
how money laundering affects the economy. Study the effectiveness of the anti-money laundering regulations
and legislation that have been implemented to prevent money

5. To prevent and control money laundering

6.To confiscate and seize the property obtained from the laundered money; and

7.To deal with any other issue connected with money laundering in India.

8.The Act also proposes punishment under sec.4.

9. Hide :

To reflect the fact that cash is often introduced to the economy through commercial concerns which may
knowingly or not knowingly be part of the laundering scheme ,and it is these which ultimately pay prove to
be the inheritance between the criminal and the financial sector.

10.Move :

Clearly explains that the money launderer uses transfers,sales and purchase of assets ,and changes the shape
and size of the lumps of money so as to obstuscare the trail between the money and crime on money and
criminal.

11.Invest :

The criminal spends the money ;he/she may invest it in assets, or in his / her lifestyles.

27
2.3 DATA COLLECTION

28
Registered cases of money laundering

6,000

5,000

4,000

3,000

2,000

1,000

0
(2018-19) (2019-20) (2020-21) (2021-22).

29
 FRAUD
CASES

CHEATING CORRUPTION ILLICT TRACKING OTHERS

30
 CHAPTER NO:3

LITERATURE REVIEW
3.1 FRAUD CASE

Fraud cases : a common insight in the corporate world

Fraud is a global problem that affects people from all walks of life and all sectors of the economy. Fraud may
affect any organization, no matter how big or minor it is. Financial reporting fraud may have serious
ramifications for a firm and its stakeholders, as well as public trust in the capital markets. After the Enron
fiasco, which served as a catalyst for others to imagine their own Enron in their different firms, corporate
accounting fraud is not a new issue in our society. Investors lose faith in financial disclosures, the integrity of
financial disclosures is questioned, and corporations face massive financial losses as a result of the growing
trend in financial crimes throughout the world. The Satyam fraud highlighted the importance of corporate
governance in setting the standards for the audit committee’s work and board members’ responsibilities.
Recent corporate accounting scams and scandals, as well as the ensuing clamour for openness and honesty in
reporting, have undoubtedly resulted in two dissimilar but natural conclusions.

For starters, forensic accounting skills have become more important in breaking down the complex accounting
manoeuvres that have disguised financial statement crimes.

Second, public pressure for reform, as well as following regulatory action, has altered the corporate governance
landscape.

In reality, both of these developments share the purpose of resolving investors’ concerns about financial
reporting transparency. The financial community has realised that there is a great need for skilled professionals
who can identify, expose, and prevent structural weaknesses in three key areas, namely, poor CG, flawed
internal controls, and fraudulent financial statements, as a result of the failure of the corporate communication
structure.

31
Legal compliance with respect to the offence of fraud in India

Fraud has been defined under Section 17 of the Indian Contract Act, 1872 to include any false representation
of a material fact related to the contract whether by words or conduct, bogus or misleading allegations, or
nondisclosure of what should have been disclosed that is intended to deceive and deceives the other in such a
way that the person acting on such misrepresentation acts to his or her own detriment. It also includes promises
made without the purpose to keep them, as well as any other conduct or omission that has been considered
fraudulent by law.

32
3.2 SATYAM FRAUD CASE

INTRODUCTION:

Satyam Computers was once the crown jewel of the Indian Information Technology sector (IT sector), but it
was brought to its knees in 2009 by its founders due to financial fraud. Satyam’s unexpected collapse sparked
a debate over the Chief Executive Officer’s (CEO) role in propelling a firm to new heights of success, as well
as the CEO’s relationship with the Board of Directors and the formation of key committees. The scandal
brought to light the importance of corporate governance (CG) in designing audit committee standards and
board member responsibilities. The Satyam scandal was a shock to the market, particularly to Satyam
investors, and it was also responsible for harming India’s reputation in the global market .

A Case Study on ‘Satyam Scam’ Accounting Scandal: When the 2008 recession hit the world, India was not
only going through a financial crisis but also an ethical crisis. Imagine a hypothetical scenario in the stock
market where the very basic financials provided to you by a company are manipulated. This was what
happened with Satyam Computer Services.

33
The Satyam Scandal exposed the many loopholes of the Indian Legal system while also throwing light upon
the Financial system. Established in 1987 by the Raju brothers, Satyam Computers went on to get listed on
the BSE in 1991, where the shares were oversubscribed by 17 times. Its growth was steadily quick, achieving
milestones year after year. The annual revenue of 1 billion, and touched 2 billion in 2008. The ideal success
story. The truth, as the meaning of ‘Satyam’ is, was that the numbers were extravagant figures being supported
by fake bills, receipts and bank statements. Satyam also employed their own ERP system to fake bills
amounted to nearly 5000 Cr. in a Fixed Deposit (FD). In 2009, the board of directors expressed that the idle
money in the FDs be invested, one that the Raju brothers decided to invest in Matyas, another holding of the
Raju family. It was a last resort to match the statements between Satyam and Matyas, which the stakeholders
opposed.

The heat of disagreements and the pressure that built from the World Bank’s interrogation, the subsequent
falling of share prices and the inability to match the real estate statements of Matyas to an IT company put
Satyam and PwC failures in the spotlight. Following this, Raju and ten others were arrested with three partial
charges, consolidating into a single charge sheet.account for these fictitious receipts instead of the commercial
ERP accounting systems.

Satyam fraud case

Satyam Computer Services Limited, a worldwide IT firm situated in India, has just been added to a renowned
list of firms engaged in fraudulent financial operations. Mr. Ramalingam Raju, Satyam’s CEO, accepted
responsibility for all of the accounting irregularities that exaggerated the company’s sales and earnings, as
well as a cash position of about $1.04 billion that did not exist. In 2007 and 2009, Satyam received the Golden
Peacock Award for the best-governed corporation in September 2008. Satyam Computers, formerly India’s IT
crown jewel and the country’s fourth-largest company with high-profile customers, has now gotten engaged
in the country’s greatest corporate scandal in living memory. Mr. Ramalinga Raju, who was apprehended and
confessed to a $1.47 billion (Rs. 7,800 crores) scam, revealed that he had been making up earnings for years.
It was alleged that Raju and his brother, Mr. B. Rama Raju, the Managing Director, disguised the lie from the
company’s board, top management, and auditors

34
Background story of the Satyam fraud case

In the Indian outsourced IT-services market, Satyam Computer Services Limited was a rising star. Mr.
Ramalinga Raju established the firm in Hyderabad in 1987. The company began with 20 workers and quickly
expanded to become a worldwide company with operations in 65 countries across the world. Satyam was the
first Indian business to be listed on three global stock exchanges, namely New York Stock Exchange (NYSE),
DOW Jones, and EURONEXT.

After TCS, Infosys, and Wipro, it was recognized as India’s fourth-largest software exporter. The corporation
had significant expansion in the 1990s. Satyam Renaissance, Satyam Info way, Satyam Spark Solutions, and
Satyam Enterprise Solutions were formed as a result of the same. Satyam Info Way (Sify) was the first Indian
internet business to be listed on the NASDAQ. In the new century, Satyam acquired a number of firms,
extended its operations to a number of countries, and signed MoUs with a number of international corporations.

Satyam continued to add feathers to its cap by becoming the first company in the world to start a Customer-
Oriented Global Organisation training program in May 2000, signing contracts with a slew of international
players including Microsoft, Emirates, TRW, i2 Technologies, and Ford, claiming the honour of being the first
ISO 9001:2001 company in the world certified by BVQI, and establishing a global presence by opening offices
in Singapore, Duba, and Dubai.

In the fiscal year 2003-2004, Satyam’s total revenues were Rs. 25,415.4 million. By March 2008, the
company’s sales revenue had increased by more than thrice. During that time, the firm grew at a compound
annual growth rate of 38 percent. The average operational profit, net profit, and operating cash flows were 28,
33, and 35 percent, respectively. Additionally, profits per share (EPS) surged at a 40 percent compound annual
growth rate, from $0.12 to $0.62. Satyam clearly generated significant corporate growth and shareholder value.
In a worldwide
IT business, the company was a rising star and a household brand. Unfortunately, Satyam became the focus of
a large accounting scam within less than five months after earning the Global Peacock Award.

35
Parties who were responsible in the Satyam fraud case

Mr. Raju was the prime perpetrator of the deception. Mr. Raju, as well as secondary actors such as the CFO,
the managing director, the company’s worldwide head of internal audit, and Mr. Raju’s brother, have been
charged with the offence of fraud by Indian authorities. In addition, Satyam’s auditors and Board of Directors
share some blame for the scam because they failed to locate it. Finally, the Satyam crisis was exacerbated by
the ownership structure of Indian corporations.

Timeline of events that contributed to the Satyam fraud case

June 24, 1987: Satyam Computers was launched in Hyderabad.

1991: Debuts in Bombay Stock Exchange with an IPO oversubscribed 17 times.

2001: Gets listed on NYSE: Revenue crosses $1 billion.

2008: Revenue crosses $2 billion.

December 16, 2008: Satyam Computers had announced the acquisition of a 100 percent share in Maytas
Properties and Maytas Infra, two firms owned by Chairman Ramalinga Raju’s sons. The proposed $1.6 billion
purchase was called off seven hours later owing to investor opposition to the buyout. However, Satyam’s stock
dropped 55% in trade on the New York Stock Exchange.

December 23, 2008: Satyam had been barred from conducting business with the World Bank’s direct contracts
for an eight-year term, one of the harshest penalties imposed by a customer against an Indian outsourcing
company. Satyam was found ineligible for contracts, according to the bank, since it provided illegal incentives
to bank employees and failed to maintain documentation to justify costs charged to its subcontractors.

December 25, 2008: Satyam had demanded an apology and a complete explanation from the World Bank for
the assertions, which the outsourcer claims have harmed investor trust. Satyam did not challenge why the
business was prohibited from contracts, nor did it seek for the prohibition to be lifted. Instead, it objected to
the assertions made by bank personnel. It also ignores the accusations that the World Bank said rendered
Satyam unsuitable for future contracts.

36
December 26, 2008: Following the World Bank’s scathing pronouncements, Mangalam Srinivasan, an
independent director of Satyam, resigned.

December 28, 2008: Three additional directors had resigned. Satyam had moved its board meeting from
December 29 to January 10, when it was likely to announce a management restructuring. The action was
intended to give the company more time to consider options other than a prospective share purchase. Satyam
had also hired Merrill Lynch to evaluate strategic options for increasing shareholder value.

January 2, 2009: The promoters’ stake decreased from 8.64 percent to 5.13 percent when institutions that had
pledged the shares ditched them.

January 6, 2009: Promoters’ stake fell to 3.6%.

January 7, 2009: Ramalinga Raju resigned after confessing to inflating the company’s financial statistics. He
claimed that the company’s cash and bank accounts on the balance sheet were overstated and fudged to the
tune of INR 50,400 million. Other Indian outsourcers were scrambling to prove their worth to clients and
investors. The National Association of Software and Service Companies, an industry association in India, had
jumped to defend the Indian IT sector as a whole.

January 8, 2009: Satyam was attempting to reassure customers and investors that it could keep the firm viable
following the admission by its former CEO of India’s largest-ever financial fraud. However, law firms Izard
Nobel and Vianale & Vianale filed class-action lawsuits on behalf of US shareholders, marking the first legal
action against Satyam management following the scam.

January 11, 2009: The Indian government intervened in the Satyam outsourcing issue, appointing three
persons to a newly formed Board of Directors in an attempt to save the company. Deepak S Parekh, Executive
Chairman of Housing Development Finance Corporation (HDFC), C. Achuthan, Director of the National Stock
Exchange and previous member of the Securities and Exchange Board of India, and Kiran Karnik, former
President of NASSCOM, formed the new board.

37
January 12, 2009: Satyam’s new Board of Directors conducted a news conference, revealing that the business
was searching for methods to obtain capital and stay afloat throughout the crisis. One way to earn funds might
be to ask many of its Triple A-rated consumers to pay for services in advance.

What led to the fraud in Satyam?

Satyam’s problems began when its chairman, Mr. Ramalinga Raju, announced a $1.6 billion offer for two
Maytas firms, namely, Maytas Infrastructure Ltd and Maytas Properties Ltd, on December 16th, 2008,
indicating that he wished to use the capital available for the benefit of investors. Raju’s family has promoted
and controlled the two businesses. Investors and the market both gave him the thumbs down, forcing him to
withdraw within 12 hours. Concerns regarding Satyam’s corporate governance caused a 55 percent drop in
share values of the company. Satyam was forbidden from doing business with the World Bank for eight years
on December 23, 2008, after the international institute charged it with data theft and corrupting its employees.

On December 28, 2008, one independent director of the company, US academician Mangalam Srinivasan,
announced his resignation, followed by three more independent directors, Vinod K Dham (famously known
as the father of the Pentium and an ex-Intel employee), M Rammohan Rao (Dean of the prestigious Indian
School of Business), and Krishna Palepu (professor at Harvard Business School).

B. Ramalinga Raju resigned as chairman of Satyam on January 7, 2009, after admitting to a financial scam
involving over Rs. 7800 crore. In his letter, he indicated that his purchase of Maytas firms was his final attempt
to replace fictional assets with genuine ones. It was like riding a tiger and not knowing how to get off without
getting devoured, he said in his letter. Satyam’s proprietors, B Ramalinga Raju and his brother B Rama Raju,
were detained by state police in Andhra Pradesh, and the firm was taken over by the Central Government.

Under the Indian Penal Code, 1860, the Raju brothers were charged with criminal breach of trust, cheating,
criminal conspiracy, and forgery. Satyam’s board was reformed by the Central Government, and three
members were appointed, namely, the HDFC Chairman Deepak Parekh, Ex Nasscom Chairman and IT
specialist Kiran Karnik, and former SEBI member C Achuthan.

CII chief mentor Tarun Das, former president of the Institute for Chartered Accountants (ICAI) TN

38
Manoharan, and LIC’s S Balakrishnan were all named to the reconstituted Board by the Central Government.
Satyam’s auditors PricewaterhouseCoopers (PwC) ultimately stated that their audit report was incorrect
because it was based on incorrect financial statements submitted by Satyam’s management, a week after
Satyam founder B Ramalinga Raju’s sensational confession.

Satyam’s CFO Srinivas Vadlamani confessed to having inflated the number of employees by 10,000 on
January 22, 2009. He informed CID investigators that this enabled him to withdraw roughly Rs 20 crore per
month from the related but fictitious salary accounts.

Andhra Pradesh State CB-CID had raided the house of Suryanarayana Raju, Ramalinga Raju’s younger brother
who owned 4.3 percent of Maytas Infra. 112 sale deeds of different land purchases and development
agreements were recovered from the house. PricewaterhouseCoopers (PwC) senior partners S Gopalakrishnan
and Srinivas Talluri were detained for their suspected participation in the Satyam scam. They were arrested
by the state’s CID police on allegations of fraud (Section 420) and criminal conspiracy (Section 120B).

Parties who were responsible in the Satyam fraud case

Mr. Raju was the prime perpetrator of the deception. Mr. Raju, as well as secondary actors such as the CFO,
the managing director, the company’s worldwide head of internal audit, and Mr. Raju’s brother, have been
charged with the offence of fraud by Indian authorities. In addition, Satyam’s auditors and Board of Directors
share some blame for the scam because they failed to locate it. Finally, the Satyam crisis was exacerbated by
the ownership structure of Indian corporations.

Significant role played by Mr. Raju in the Satyam fraud case

Mr. Raju had alleged that he overvalued Satyam’s assets by $1.47 billion on the balance sheet. The corporation
claimed to hold about $1.04 billion in bank loans and cash, but none of it existed. Satyam’s obligations were
similarly understated on its balance sheet.

Over the course of several years, Satyam inflated income virtually every quarter in order to match analyst
expectations. To further the deception, Mr. Raju faked many bank statements.

39
Mr. Raju fabricated bank accounts in order to inflate the balance sheet with fictitious funds. By claiming
interest revenue from the fictitious bank accounts, he inflated his income statement.

Mr. Raju further said that during the last three years (2006-2008), he created 6,000 false pay accounts and

took the money when the corporation deposited it. To exaggerate revenue, the company’s worldwide head of
internal audit established fake customer identities and made fraudulent invoices in their names.

In addition, the company’s worldwide head of internal audit faked board decisions and received financing
unlawfully. It had also appeared that the funds obtained in the United States through American Depository
Receipts (‘ADRs’) never made it to the company’s balance sheets.

Mr. Raju initially claimed that he did not divert any funds to his personal accounts and that the company was
not as profitable as it had claimed. However, during subsequent interrogations, Mr. Raju revealed that he had
diverted a large sum of money to other companies that he owned and that he had been doing so since 2004.

Mr. Raju first claimed that he was the sole perpetrator of the scam. However, Indian authorities have also
prosecuted Mr. Raju’s brother, the company’s CFO, the company’s worldwide head of internal audit, and one
of the company’s managing directors, as previously mentioned.

The silent role played by Satyam’s auditors

Price Waterhouse Coopers (PwC), a global auditing company, audited Satyam’s records from June 2000 until
the fraud was discovered. PwC was heavily chastised by several commentators for failing to spot the scam.
PwC signed Satyam’s financial accounts and was legally accountable for the figures.

The auditors did not appear to conduct independent verification with the banks where Satyam claimed to hold
deposits. Furthermore, the deception lasted several years and included both balance sheet and income
statement falsification. Satyam simply generated fictional sources whenever it required extra money to fulfil
analyst projections, and it did it several times without the auditors ever noticing the deception.

Surprisingly, Satyam paid PwC twice as much for the audit as other corporations would, raising doubts about
whether PwC was participating in the scam. PwC examined the firm for approximately nine years and failed

40
to identify the fraud, but Merrill Lynch identified the wrongdoing in just ten days as part of their due diligence.
Put simply, Satyam’s audit committee failed to act on a whistleblower’s information.

According to Serious Fraud Investigation Officer’s (SFIO’s) findings, independent director Krishna Palepu
received an anonymous email from an alias, Joseph Abraham, on December 18, 2008, two days after the
Satyam board met and planned to buy two group entities, Maytas Infra Ltd and Maytas Properties Ltd.

The deception was revealed as a result of the email. M. Rammohan Rao, Chairman of the Audit Committee,
forwarded the email to S. Gopalkrishnan, partner at PwC, the company’s auditors. Over the phone,
Gopalkrishnan informed Rao that the claims were false and that he would get a full response in a projected
presentation before the audit committee on December 29. That meeting never happened.

Contribution of Satyam’s Board of Directors in the scam

The Satyam Board of Directors had nine members. As required by Indian listing rules, five members of the
Board were independent. Satyam stated in regulatory filings with the SEC that it did not have a financial
specialist on its Board of Directors in 2008. Concerns also arose afterward about the Board of Directors’ lack
of independence.

The Board of Directors included a number of well-known corporate heavyweights, which possibly contributed
to Satyam’s lack of scrutiny. Krishna Palepu, a Harvard professor and corporate governance specialist,
Rommohan Rao, the Dean of the Indian School of Business, and Vinod Dham, co-inventor of the Pentium
Processor, were among the Board’s members.

On December 16, 2008, the Board came under fire for approving Satyam’s purchase of real estate firms in
which Mr. Raju had a significant stake. After a shareholder uprising, the Board of Directors revoked the
approval. Within two days of the transaction’s cancellation, Krishna Palepu, Rommohan Rao, and Vinod
Dham all resigned from the Board.

The bungled deal gave the appearance to investors that the Board of Directors was not actively monitoring
Satyam. Furthermore, the Board of Directors should have noticed some of the same red signals that PwC, the
auditor, missed.

41
Furthermore, the fact that Mr. Raju reduced his Satyam shares considerably in the three years leading up to
the fraud’s discovery should have troubled the Board of Directors. Mr. Raju’s stake in the company dropped
from15.67percentin2005-2006to2.3percentin2009. The Aftermath of Satyam Scam Exposure

Two days after the confession was made Raju was arrested and charged with criminal conspiracy, breach of
trust, and forgery. The shares fell to Rs.11.50 on that day compared to heights of Rs.544 in 2008. The CBI
raided the house of the youngest Raju sibling where 112 sales deeds to different land purchases were found.
The CBI also found 13,000 fake employee records created in Satyam and claimed that the scam amounted to
over Rs. 7000 crores.

PwC initially claimed that their failure to catch the fraud was due to the reliance placed by them on information
provided by the management. PwC was found guilty and its license was temporarily revoked for 2 years.
Investors too became vary of other companies audited by PwC. This resulted in the share prices of these
companies falling by 5-15%. The news of the scam led to the Sensex falling by 7.3%

Mahindra Satyam

The Indian stock markets were now in turmoil. The Indian government realizing the impact this could have on
the stock markets and future FDIs immediately spurted to action. They began investigating and quickly
appointed a new board to Satyam. The board’s goal was to sell the company within the next 100 days.

With this aim, the board appointed Goldman Sachs and Avendus Capital to help fast track the sale. SEBI
appointed retired SC justice Barucha to oversee the transaction in order to instil trust. Several companies bid
on April 13, 2009. The winning bid was placed by Tech Mahindra who went on to buy Satyam for 1/3rd of its
value before the fraud was revealed.

On 4th November 2011, bail was granted to Raju and two others accused. In 2015 Raju, his 2 brothers, and 7
others were sentenced to 7 years in prison.

42
Factors that contributed to the Satyam fraud case

The Satyam scam was caused by a number of causes. None of the Satyam’s independent board members
(including the dean of the Indian School of Business, a Harvard Business School professor, and a former Intel
star), the institutional investor community, the SEBI, retail investors, or the external auditor, including
professional investors with detailed information and models at their disposal, detected the wrongdoing.

• Greed.
• Ambitious corporate growth.
• Deceptive reporting practices, lack of transparency.
• Excessive interest in maintaining stock prices.
• Executive incentives.
• Stock market expectations.
• Nature of accounting rules.
• ESOPs issued to those who prepared fake bills.
• High-risk deals that went sour.
• Audit failures (both Internal & External).
• The aggressiveness of investment banks, commercial banks,.
• Rating agencies & investors.
• Weak Independent directors and Audit committee.
• Whistle Whistle blower policy not being effective. Victims of the Satyam fraud case

Satyam employees had stressful moments and restless nights as they faced non payment of salary, project
cancellations, layoffs, and equally gloomy outside employment chances. They were morally, financially,
legally, and socially trapped in a variety of ways.

Satyam’s clients reported a lack of faith in the company and reassessed their contracts, opting to deal with
other rivals instead. Satyam’s contracts with Cisco, Telstra, and the World Bank were all canceled. Customers
were taken aback by the project’s lack of continuity, confidentiality, and expense overrun.

Shareholders lost their money, and there was skepticism about India’s resurgence as a favoured investment
location. In a statement, Mahindra’s VC and MD claimed the incident had “caused immeasurable and
inexcusable damage to Brand India and Brand IT in particular.”

43
Bankers were worried about the recovery of financial and non-financial exposure, as well as the recall of
facilities. The Indian government was concerned that the country’s image and the IT sector might damage
people’s willingness to invest or conduct business in the country.

Acquisition of Satyam by Mahindra Group

On 13 April 2009, via a formal public auction process, a 31% stake in Satyam was purchased by Mahindra &
Mahindra owned company Tech Mahindra, as part of its diversification strategy. Effective July 2009, Satyam
rebranded its services under the new Mahindra management as "Mahindra Satyam". After a delay due to tax
issues[29][30] Tech Mahindra announced its merger with Mahindra Satyam on 21 March 2012, after the board
of two companies gave the approval.[31][32] The companies are merged legally on 25 June 2013.

AFTERMATH ACQUSITION

Tech Mahindra is trading higher by nearly 3% at Rs 1,028 after the company has merged Mahindra Satyam
within itself. The trading of Mahindra Satyam shares has been suspended from today as the swap ratio of
Mahindra Satyam and Tech Mahindra will come into force. Tech Mahindra informed BSE that "the board of
directors at its meeting held on June 25, 2013 has fixed July 05, 2013 as the record date for determining the
shareholders of Satyam Computer Services ('Mahindra Satyam') who would be entitled to receive shares of
the company under the approved scheme". The boards of Mahindra Satyam and Tech Mahindra last year
proposed a swap ratio of 2:17. Mahindra Satyam shareholders will get two shares of Tech Mahindra of Rs 10
each for every 17 shares they hold. The stock opened at Rs 1,026 and hit a high of Rs 1,031 on NSE. A
combined 310,092 shares have changed hands on the counter so far on NSE and BSE.

Conclusion

The accounting fraud perpetrated by Satyam’s founders in 2009 is proof that “the science of conduct is affected
in great part by human avarice, ambition, and passion for power, money, fame, and glory.” Scandals have
demonstrated that “excellent behaviour based on solid corporate governance, ethics, and accounting and
auditing standards is urgently needed.” In emerging nations, the Satyam case underlines the necessity of
securities laws and CG. Indeed, Satyam fraud “spurred the government of India to tighten the CG norms to
prevent recurrence of similar frauds in future.” As a result, big financial reporting frauds must be investigated
for “takeaways” and “best practices” in order to limit the frequency of similar frauds in the future.

44
3.2 Punjab National Bank Fraud Case

Introduction

Hardly anyone could have predicted that on Valentine’s Day, the year 2018 will forever be marked as a black
year for the banking industry. India’s biggest-ever banking scam shook the very core of the financial sector in
India and at the helm of this fiasco, sat none other than the diamond mogul billionaire, Nirav Modi and his
cronies. The magnitude of the scam was a staggering Rs.11,400 crores (about 1.8 billion dollars) and it
mainly took place at a single branch in Mumbai of the Punjab National Bank (PNB), the second-biggest
public sector lender in India.

The plot of the scam was quite elaborate and even though investigations are still ongoing, it can be said that
the scam was led by Nirav Modi and his uncle Mehul Choksi in collusion with some of the bank officials of
Punjab National Bank. To comprehend the modus operandi of this grand greedy plan to defraud a leading
public sector bank, it is necessary to understand the term Letter of Undertaking (LoU) first for it was the
unauthorised LoUs granted to Nirav Modi and Company by corrupted PNB officials that helped Modi run
away with thousands of crores of taxpayers hard-earned money. So, LoU stands for Letter of Undertaking
which is a form of bank guarantee. What this bank guarantee in the form of LoU does is it allows the LoU
receiver to raise money overseas by showing the LoU. The foreign banks (overseas branches of Indian Banks)
see the LoU and give credit/loan to the debtor and the bank giving the LoU stays as a guarantee that in case
the debtor fails to repay the debt, the bank will repay the same. When a person walks into a bank seeking an
LoU, the bank seeks collateral, usually in the form of a Fixed Deposit (FD) or property held in his name.
Also, a credit limit is sanctioned by the bank giving LoU.

So, basically, LoUs gave cheap buyer’s credit for short term purposes.

What happened in this scam is unauthorised Letters of Undertakings (LoUs) were given by corrupted PNB
officials to Nirav Modi and his firm.These LoUs were given without any collateral as security and any
sanctioned credit limit. To make matters worse, all these transactions were not added to the PNB’s Core
Banking System (CBS) which is used for record-keeping purposes. Also in some cases, a lower amount was
quoted while making a corresponding entry. All these unauthorised LoU related transactions were done by the
corrupt officials using the SWIFT system, which is an elaborate messaging network used by the banks and
financial institutions internationally to accurately, quickly, and safely send and receive financial information.
The SWIFT system had no linkage with the bank’s record keeping core system, i.e.,CBS and this gave Nirav

45
Modi and his cronies the shadow area to operate with unauthorised LoUs. In other words, the SWIFT
bypassed the CBS of the bank. Since the overseas Indian bank branches trust their Indian counterparts,
without scrutinising the credit quality, they promptly issued loans (buyer’s credit) to Nirav Modi and his
firms. Added to this, though these LoUs were given for import-related payments, Nirav Modi and his cronies
used them to clear previous loans and for other purposes. These went on rampant and unchecked in the
shadows for about seven years by Nirav Modi, Mehul Choksi and their associates in collusion with corrupt
PNB officials.

When and how did the PNB scam come to light?

As stated earlier, this sham was going on in collusion with corrupt officials of PNB at a branch in Mumbai.
When one of the corrupt officials retired, a new official took his place. But this official asked for collateral
from Nirav Modi and his firms for granting LoUs as per the norms upon which he was told that Nirav Modi
and his firms are used to getting LoUs without collateral for many years. Also, the foreign banks who had
given loans to Nirav Modi and his firms based on PNB’s LoUs came knocking at the doors of PNB. At this
juncture, internal investigations had started but no records of such transactions were found because the
corrupt officials did not keep relevant records of the unauthorised LoUs in the bank’s CBS (Core Banking
System).

Thus, on 14th February 2018, the Punjab National Bank, the second-largest Public sector Bank helplessly
reported to stock exchanges, the Central Bureau of Investigation (CBI), Reserve Bank of India (RBI) and the
public regarding fraudulent transactions of a staggering value of 1.8 billion dollars (approximately) and the
Nirav Modi scam hit the headlines.

Timeline of the Nirav Modi scam

How the Nirav Modi scam unfolded and evolved is enumerated below in the form of the following timeline:

Dates & Important events of the Nirav Modi scam

29th January, 2018 Punjab National Bank (PNB) complained to the police authorities that two of its staff

members in collusion with Nirav Modi and Mehul Choksi had cheated the bank for about two billion dollars.

46
5th February, 2018 The PNB informed SEBI that it had started its own internal inquiry into the scam and

the CBI after convening a meeting, took over the inquiry process.

14th February, 2018 PNB declared a fraud of Rs. 11,400 crores of money and additionally, foreign

branches of Indian overseas banks also declared that money was being credited to Nirav Modi and his firms

because of the unapproved ways of banking by PNB staff in the form of granting unsecured and unauthorised

Letters of Undertakings (LoUs).

16th February, 2018 After the complaint was filed against Mehul Choksi, CBI investigated around 20

retailing stores of Choksi’s Gitanjali Group. PNB published a positive statement about hoping for the

recovery of loss within a period of six months. The credit exposure to the Nirav Modi fraud of different banks

came forward from the risk exposure data. They are as follows:Union Bank of India – $300 million (approx)

State Bank of India – $212 million (approx)UCO Bank – $412 million (approx)

Allahabad Bank – $367 million (approx)The Reserve Bank of India announced the requirement of tight

supervisory and regulatory actions.

17th February, 2018 CBI issued arrest warrants against the two corrupt employees of PNB and executives

of Nirav Modi’s group who were integral to the scam. The Enforcement Directorate (ED) seized diamonds,

gold, and jewellery items from Nirav Modi’s home, shops and offices worth Rs.56.74 billion (approx)

20th February, 2018 The share prices of PNB tanked into a nosedive because of the immense fear and

volatility induced by the scam and lost thousands of crores in market capitalization. The then Finance

Minister Late Arun Jaitley and RBI issued statements about the omission of linking of SWIFT with the CBS

(Core Banking System).Diamond mogul Nirav Modi and his lawyers vehemently denied any crimes or

offences. But, ED after investigation found that Nirav Modi and Mehul Choksi had laundered the funds

47
illegally through nearly 100 shell companies. Three more officers of Nirav Modi Group were taken into

custody by CBI for interrogation and investigation.

21st February, 2018 CBI started taking into custody many corrupt officers who were involved in the

scam including the general manager of PNB, Mr. Rajesh Jindal who served for many years in the Mumbai

Branch where the scam allegedly took place

23rd February, 2018 Institute of Chartered Accountants of India (ICAI) appointed independent

auditors to investigate the PNB scam.RBI declared stricter control in supervising and regulating the SWIFT

system.

27th February, 2018 Bankruptcy proceedings were filed by Nirav Modi’s firm Firestar Diamond

International in the United States.

28th February, 2018 M.K.Sharma, a former auditor was arrested by CBI for manipulating the audit system

in the PNB scam.

1st March, 2018Internal Auditor of PNB Bishnubrata Mishra was arrested by CBI for his role in the scam.

6th March, 2018 CBI took into custody Vipul Chitalia Vice President of Banking Operations of Gitanjali

group.

2nd June, 2018 Interpol issued a Red Corner Notice against Nirav Modi for money laundering and fraud.

26th June, 2018 A Mumbai Court issued an order against Nirav Modi and Mehul Choksi to appear before the

Court or be declared as fugitives as per the provisions of the Prevention of Money Laundering Act (PMLA),

2002.

3rd August, 2018 The Indian government requested the UK government for the extradition of fugitive

billionaire Nirav Modi back to India to face trial.

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18th March, 2019 The Westminster Court in London issued an arrest warrant against fugitive diamantaire

Nirav Modi after the Indian government’s request was duly forwarded to the Court by the UK Home Office.

20th March, 2019 Nirav Modi was arrested in London after the Westminster Court issued an arrest

warrant against the fugitive billionaire and he was sent to Her Majesty’s Prison (HMP) Wandsworth.

29th March, 2019 The bail application by Nirav Modi was rejected by the Westminster Court.

25th February, 2021 The UK’s Westminster Magistrates’ Court, presided by District Judge Sam Goozee

ruled Nirav Modi can be extradited to India to face charges of fraud and money laundering.

Aftermath of the PNB scam

The Nirav Modi PNB Scam shook the entire financial sector in India and what followed soon after is follows:

On March 13, 2018, about a month from the scam hitting headlines, RBI issued a notice banning banks from
issuing guarantees in the form of Letters of Undertaking (LOU) to prevent any further misuse of this facility
with immediate effect. Thus, the process of issuance of LoUs for trade-related credits for imports in India got
discontinued by commercial banks with immediate effect as per the order of RBI.RBI also ordered the linkage
of the SWIFT system with the banks’ record-keeping system i.e. the Core Banking System (CBS) within the
stipulated deadline. Nirav Modi was charged with criminal conspiracy, cheating, dishonesty, fraud, breach of
trust and breach of contract.The banking sector, jewellery sector, and insurance sector suffered from some
serious negative lashbacks. PNB was expected to clear about Rs. 11,400 crores (about 1.8 billion dollars) It
owed in the form of bank guarantees to overseas branches of Indian Banks like UCO Bank, Allahabad Bank,
Axis Bank, Union Bank of India, and SBI.

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Impact of the Nirav Modi PNB scam

Impact of the Nirav Modi scam on the stock market

Investors lose confidence in the financial sector when scams of this magnitude come to the surface and the
PNB Scam was no exception. NIFTY and SENSEX suffered terrible blows in the aftermath of the Nirav
Modi Scam. A more detailed effect of the scam on the stock market is enumerated below:

Impact of the Nirav Modi scam on bank stocks

Bank stocks play a major role in the stock market and there are thirty-four nationalised banks in India. In the
month of February, 2018, when the Nirav Modi scam became public, the banking stocks tanked immensely
and the market cap of these thirty-four banks decreased by more than thirty-six thousand crores of rupees.
PNB stocks alone lost investors’ wealth amounting to eight thousand crores of rupees. Without delving deep
into the statistics and numericals, it can be said the exposed banks (UCO Bank, Allahabad Bank, Axis Bank,
Union Bank of India, and SBI) i.e. the banks who gave loans based on the unauthorised LoUs suffered the
brunt of the tsunami of loss.

Impact of the Nirav Modi scam on jewellery stocks

Nirav Modi’s jewellery companies like Firestar Diamond International Company were not listed on the stock
market exchanges. But Nirav Modi’s uncle, Mehul Choksi’s Gitanjali Gems stocks started a skydive after the
scam went public. Nirav Modi and Mehul Choksi controlled a considerable portion of the jewellery sector in
India and the banks became extremely unwilling and sceptical about giving credits to the other jewellery
companies. This led to more volatility in the jewellery sector and investors lost more and more wealth.

Impact of the Nirav Modi scam on LIC

Life Insurance Corporation (LIC), another State-owned Company was badly hit by the Nirav Modi scam
indirectly. It is common knowledge that LIC invests money into the stock market and LIC was the single
institutional investor in the exposed banks viz Punjab National Bank, Allahabad Bank, Union Bank of India ,
Mehul Choksi’s Gitanjali Gems. So, when the stocks of these companies plummeted because of the Nirav
Modi scam, LIC lost thousands of crores of rupees.

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Impact of the Nirav Modi scam on PNB’s credit rating

The Nirav Modi scam left the PNB scarred in more than one way. The two billion dollar scam severely
impacted PNB’s credit ratings as published by various rating organisations and bureaus. In the aftermath of
the scam, CRISIL had put PNB’s credit rating on ‘watch’. Fitch’s local arm, India Ratings, had cut PNB’s
long-term issuer rating to “IND AA+” with a negative outlook from “IND AAA” soon after the scam became
public. Further, international rating agency Moody’s followed suit and downgraded state-run Punjab National
Bank’s (PNB) rating to Ba1/NP from Baa3/P-3. Although, present ratings are more or less back to the pre
scam level.

Impact of the Nirav Modi scam on the export-import industry

Letter of Undertakings (LoUs) were crucial for any businessman of the export-import industry for they
provided short term credit at low interest rates. Now one rotten apple of Nirav Modi led to the complete ban
of LoUs for the entire industry thereby severely jeopardising the entire export-import sector. Even though
other forms of credits are still available, the higher interest rates are burning deep holes in their pockets and
making other businessmen pay for Nirav Modi’s greed. Specially the small time traders have been the worst
sufferers. Loss of arbitrage for businessmen, depreciation of the Indian rupee etc were all a result of the
billion dollar Nirav Modi scam.

Conclusion

When the Nirav Modi scam hit the headlines in the spring of 2018, the miseries of the common man were
inevitably visible in the form of long lines and sorrowful crowds standing in front of the gates of their bank
branches. The Nirav Modi scam struck as the biggest earthquake in India’s banking history and in its
aftershock followed the further loss of thousands of crores of rupees of investors’ wealth when the stock
market took a nosedive and crashed. It is true that after this scam, many reforms were introduced in the form
of the Fugitive Economic Offenders Act (2018), integration of SWIFT with CBS (Core Banking System),
stricter regulations etc. but an effective deterrent that will scare the future Nirav Modis from playing with
India’s economy is yet to see the daylight. Until more stringent laws and regulations are introduced along
with mechanisms to ensure the full compliance of such security regulations, the menace of greedy fraudsters
in the banking sector will remain miles away from becoming a thing of the past.

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 CHAPTER NO : 4

DATA ANALYSIS & INTERPRETATION

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A Case Study on ‘Satyam Scam’ Accounting Scandal: When the 2008 recession hit the world, India was not
only going through a financial crisis but also an ethical crisis. Imagine a hypothetical scenario in the stock
market where the very basic financials provided to you by a company are manipulated. This was what
happened with Satyam Computer Service

The Satyam scam (Satyam computers scam) was finally exposed early in 2009. Analysts dubbed the scam as
India’s own Enron. Today, we take a look at the scandal that hit the nation in the midst of a recession was
carried out, its effects, and how it was dealt with.

The Flawless Public Facade

Satyam Computer Services Ltd was founded in 1987 in Hyderabad by brothers, Rama Raju and Ramalinga
Raju (henceforth Raju). The name in the ancient Indian language Sanskrit meant ‘Truth’. The firm began with
20 employees offering IT and BPO services across various sectors

The initial success of the company soon led to it getting listed and opting for an IPO in the BSE in 1991. Post
this the company soon got its first Fortune 500 client- Deere and Co. This further allowed the business to grow
rapidly into becoming one of the top players in the market.

Satyam soon became the fourth largest IT software exporter in the industry after TCS, Wipro, and Infosys.

At the peak of its success, Satyam employed more than 50,000 employees and operated in 60+ countries.
Satyam was now seen as the prime example of an Indian Success story. Its financials too were perfect. The
firm was worth $1billion in 2003. Satyam soon went on to cross the $2billion mark in 2008.

During this period the company had a CAGR of 40%, operating profits averaging 21% with a 300% increase
in its stock price. Satyam was now an example to other companies as well. It was showered with accolades
from MZ Consult for being a ‘leader in Indian Corporate Governance and Accountability, the ‘Golden Peacock
Award’ for Corporate Accountability in 2008.

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 .

Mr Raju too was revered in the industry for his business acumen and was awarded the Ernest and Young
Entrepreneur of the Year Award in 2008.

Late in 2008, the board of Satyam decided to takeover Maytas a real estate company owned by Mr Raju. This
did not sit well with the shareholders which led to the decision being reversed in 12 hours, impacting the stock
price. On December 23rd the World Bank barred Satyam from doing business with any of the banks’ direct
contacts for a period of 8 years.

This was one of the most severe penalties imposed by the World Bank against an Indian outsourcing company.
The World Bank had alleged that Satyam had failed to maintain documentation to support fees charged to its
subcontractors and the company also provided improper benefits to the banks’ staff.

But were these allegations true? At this point, Satyam was India’s crown jewel! Just 2 days later Satyam replied
demanded the World Bank to explain itself and also apologize as its actions had damaged Satyams investor
confidence.

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Satyam Scam Case Study: What was behind the Curtains?

As the investors were still coping up with the failed acquisition of Maytas and the allegations by the World
Bank on January 7th, 2009 the markets received the resignation by Mr Raju and along with it a confession that
he had manipulated accounts of Rs. 7000 crores. Investors and clients all around the World were left shocked.
This just couldn’t be happening!

In order to understand the scam, we would have to go back to 1999. Mr Raju had begun inflating the quarterly
profits in order to meet the analyst expectations. For eg the results announced on October 17, 2009, overstated
quarterly revenues by 75% and profits by 97%. Raju had done this along with the company’s global head for
internal audit.

Mr Raju used his personal computer to create a number of bank statements in order to inflate the balance sheet
with cash that simply did not exist. The company’s global head for internal audit created fake customer
identities and fake invoices in order to inflate the revenue.

55
This, in turn, would allow the company easy access to loans and the impression of its success led to an increase
in the share price. Also, the cash that the company had raised from the markets in the US never even made it
to the balance sheets. But this was not sufficient for Raju, he went on to create records for fake employees and
would withdraw salaries on their behalf.

The increased share price drove Raju to get rid of as many shares as possible and maintain just enough to be a
part of the company. This allowed Raju to make profits from their sales at high prices. He also withdrew $3
million every month as salaries on behalf of employees that did not exist

But where did all this money go? Although Raju had set up a great IT company, he was also interested in the
real estate business. The real estate business in the early 2000s was booming in Hyderabad. It was also
rumoured that Raju knew the plan(route) for a metro that was to be built in Hyderabad.

The foundation of the metro plans was laid in the year 2003. Raju soon diverted all the money into real estate
with hopes to make a good profit once the metro was functional. He also set up a real estate company called
Maytas.

But unfortunately, just like every other sector the real estate sector too was hit badly during the recession of
2008. By then almost a decade of manipulation of the financial statements had led to the hugely overstated
assets and underreported liabilities. Nearly $1.04billion in bank loans and cash that the books showed was
nonexistent. The gap was simply too big to fill!

By now whistleblowing attempts were also starting to arise. Company director Krishna Palepu received
anonymous emails from the alias Joseph Abraham. The mail exposed the fraud. Palepu forwarded it to another
director and to S. Gopalkrishnan a partner at PwC – their auditor.

Gopalkrishnan assured Palepu that there were no truths in the mail and a presentation would be held before
the audit committee in order to assure him on 29th December. The date was later revised to 10th January 2009.

Despite this Raju had a last resort. The plan included a takeover of Maytas by Satyam which would bridge the
gap that had accumulated over the years. The new financials would justify that the cash had been used to
purchase Maytas. But this plan was foiled after shareholder opposition.

This forced Raju to put himself at the mercy of the law. Raju later mentioned It was like riding a tiger, not
knowing how to get off without being eaten.

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Satyam Scam Case Study:

How Raju was able to get away with the Scandal?

The next big question while studying this big scandal is how was Ramalinga Raju able to get away with the
Satyam Scam (Satyam computers scam) in a company of over 50,000 employees?

The answer to this lies in the miserable failure of Price Waterhouse Coopers(PwC) their auditor. PwC was the
external auditors to the company and it was their duty to examine the financial records and ensure that they
are accurate. It is surprising how they did not notice 7561 fake bills after auditing Satyam for almost 9 years.

There were multiple red flags that the auditors could have caught upon. Firstly a simple check with the banks
would have revealed that the bills were not valid and the cash balances were overstated. Secondly, any
company with that big of cash reserves as Satyam would at least invest them in an interest yielding account.

But that was not the case here. Despite these obvious signs, PwC seemed to be looking the other way. Suspicion
towards PwC was later increased when it was found out that they were paid twice the fees for their services.

PwC was not able to detect the fraud for almost 9 years but Merrill Lynch discovered the fraud as part of their
due diligence in merely 10 days.

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The Aftermath of Satyam Scam Exposure

Two days after the confession was made Raju was arrested and charged with criminal conspiracy, breach of
trust, and forgery. The shares fell to Rs.11.50 on that day compared to heights of Rs.544 in 2008. The CBI
raided the house of the youngest Raju sibling where 112 sales deeds to different land purchases were found.
The CBI also found 13,000 fake employee records created in Satyam and claimed that the scam amounted to
over Rs. 7000 crores.

PwC initially claimed that their failure to catch the fraud was due to the reliance placed by them on information
provided by the management. PwC was found guilty and its license was temporarily revoked for 2 years.
Investors too became vary of other companies audited by PwC. This resulted in the share prices of these
companies falling by 5-15%. The news of the scam led to the Sensex falling by 7.3%

58
Mahindra Satyam

The Indian stock markets were now in turmoil. The Indian government realizing the impact this could have on
the stock markets and future FDIs immediately spurted to action. They began investigating and quickly
appointed a new board to Satyam. The board’s goal was to sell the company within the next 100 days.

With this aim, the board appointed Goldman Sachs and Avendus Capital to help fast track the sale. SEBI
appointed retired SC justice Barucha to oversee the transaction in order to instil trust. Several companies bid
on April 13, 2009. The winning bid was placed by Tech Mahindra who went on to buy Satyam for 1/3rd of its
value before the fraud was revealed.

On 4th November 2011, bail was granted to Raju and two others accused. In 2015 Raju, his 2 brothers, and 7
others were sentenced to 7 years in prison.

Frequently Asked Questions (FAQs)

What was the Satyam Computers scam?

The Satyam Scam was a large-scale accounting fraud of over Rs. 7,800 crores which eventually turned out to
be approximately Rs. 12,320 crores fiasco. Satyam computers management misled the market and the
stakeholders by manipulating the company’s financial health. Material facts were misstated and went
undetected for 7 to 8 years, even by PwC, its external auditors. Satyam’s finances were a black box that was
accessible only by Ramalinga Raju and his confidants. Its profits and assets were overstated. When this bubble
burst, a lot of people were affected and lots of money was wiped out. The CBI found 112 sales deeds for
purchasing lands and thousands of fake employee records.

Who is to blame in the Satyam scam?

There are a lot of people to blame in the Satyam scam (Satyam computers scam), starting with its founder Mr.
Ramalinga Raju, his brothers B Suryanarayana Raju, B Rama Raju, Satyam’s then CFO Srinivas Vadlamani,
its internal auditors, its external auditors S Gopalakrishnan and Srinivas Talluri from PriceWaterhouseCoopers
(PwC). There were eight other people involved in the scam apart from the top management.

How were Satyam books cooked?

Satyam’s books were cooked by overstating its revenues, profit margins, and profits for over a period of 5
years from 2003 to 2008. There were off-balance-sheet transactions involved. The books of accounts portrayed
it to be a far bigger company than it actually was. They sewed up projects with fictitious clients and had fake
and non-existent teams working on these projects. Over 7000 fake invoices were added to the company’s
computer systems to record sales that did not exist. The problem was that all of the red flags went undetected
by the external auditors from PwC.

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What happened to PwC after the Satyam scandal?

Initially, the SEBI had placed a 2-year audit ban order on PwC. Later, the Securities Appellate Tribunal or the
SAT overturned SEBI’s order in PwC in India and partly allowed the disgorgement of the 13 crore fee with
interest from them for the breach of duty. It set aside the ban on the ground that only the ICAI can take any
action against its members (the auditors), while the SEBI (SEBI) can only take remedial or preventive action.
Auditors are merely watch dogs, not bloodhounds, meaning that they raise concerns when they come across
something suspicious, however, they do not actively go in search of suspicious activity. In this case, PwC
cannot be accused of fraud on the basis of negligence in auditing.

Who acquired Satyam? Why did Mahindra acquire Satyam?

Tech Mahindra acquired Satyam as a strategic opportunity to move to the next level of growth. This acquisition
helped the group to diversify across customers, verticals and geographies. Earlier Tech Mahindra was a niche
player in the telecom vertical and Satyam was the fourth largest Indian IT services company in terms of
revenue. It was listed on Indian as well as the US’s stock exchange. Due to the scam, it was available at almost
one third of its value, and Tech Mahindra and its parent, the Mahindra group saw an opportunity and acquired
Satyam by becoming the highest bidders.

How did Satyam get caught?

Satyam had huge cash reserves. Its board recommended that this cash should be invested in order to earn
interest, unaware of the creative accounting practices in the company. The trouble started when the founders
decided to merge with a company called Mytas that was held and managed by Ramalinga Raju’s family. This
was the last straw left to put the fake funds in place. The board and the shareholders did not want this.
Ramalinga Raju confessed that he had manipulated accounts and the amount involved was Rs. 7,000 crores.
Further, the World Bank barred Satyam from doing business with it for eight years due to data theft and paying
bribes to its staff. This is how Satyam got caught.

A Case Study on ‘Satyam Scam’ Accounting Scandal: When the 2008 recession hit the world, India was not
only going through a financial crisis but also an ethical crisis. Imagine a hypothetical scenario in the stock
market where the very basic financials provided to you by a company are manipulated. This was what
happened with Satyam Computer Services.

The Satyam scam (Satyam computers scam) was finally exposed early in 2009. Analysts dubbed the scam as
India’s own Enron. Today, we take a look at the scandal that hit the nation in the midst of a recession was
carried out, its effects, and how it was dealt with.

60
Anti-Money Laundering/Combating the Financing of Terrorism - Topics

The Fund's involvement in AML/CFT

The international community has made the fight against money laundering and the financing of terrorism a
priority. Among the goals of this effort are: protecting the integrity and stability of the international financial
system, cutting off the resources available to terrorists, and making it more difficult for those engaged in
crime to profit from their criminal activities. The IMF's unique blend of universal membership, surveillance

functions, and financial sector expertise make it an integral and essential component of international efforts
to combat money-laundering and the financing of terrorism.

In 2000, the Fund responded to calls from the international community to expand its work in the area of anti
money laundering (AML) in general and concerning the abuse of Offshore Financial Centers (OFC) in
particular by initiating an OFC assessment program and exploring how it could incorporate AML work into

61
its activities, especially Article IV surveillance and the newly-established Financial Sector Assessment
Program (FSAP).1 Work on developing an AML Report on Standards and Codes (ROSC) module was ongoing
when the tragic events of September 11, 2001 intensified the efforts and broadened their scope to include
combating the financing of terrorism (CFT). Within about a year, the Fund was already actively at work
assessing member countries compliance with the international standard developed (and subsequently
fundamentally revised) by the Financial Action Task Force (FATF), as well as providing technical assistance
on how to improve AML/CFT regimes. This preliminary experience was favorably evaluated by the Board,
which in March, 2004, decided to incorporate AML/CFT assessments and AML/CFT technical assistance into
the Fund's regular work and continue to make AML/CFT assessments a mandatory ROSC in every FSAP and
OFC assessment.

The IMF is especially concerned about the possible consequences of money laundering and the financing of
terrorism on its members' economies. These include risks to the soundness and stability of financial institutions
and financial systems, increased volatility of international capital flows, and a dampening effect on foreign
direct investment. The problem is global; money launderers and terrorist financiers exploit loopholes and
differences among national AML/CFT systems and move their funds to or through jurisdictions with weak or
ineffective legal and institutional frameworks.

The IMF is contributing to the international fight against money laundering and the financing of terrorism in
several important ways, consistent with its core areas of competence. As a collaborative institution with near
universal membership, the IMF is a natural forum for sharing information, developing common approaches to
issues, and promoting desirable policies and standards -- all of which are critical in the fight against money
laundering and the financing of terrorism. In addition, the IMF's broad experience in conducting financial
sector assessments, providing technical assistance (TA) in the financial and nonfinancial sectors, and
exercising surveillance over members economic systems is particularly helpful in evaluating country
compliance with the international AML/CFT standards and in developing and implementing programs to assist
member countries in addressing identified shortcomings.

Currently, the three main areas of IMF work in connection with AML/CFT are:

Assessments: Each evaluation of financial sector strengths and weaknesses conducted under the Financial
Sector Assessment Program (FSAP) and the Offshore Financial Centers Program must include an assessment
of the jurisdiction's AML/CFT regime. Such assessments measure compliance with the FATF 40+9
Recommendations according to an agreed Methodology for Assessing Compliance with the FATF 40+9
Recommendations also used by the Financial Action Task Force (FATF), the FATF-style regional bodies
(FSRBs), and the World Bank in conducting their assessments;

62
Technical Assistance: Along with the World Bank, the IMF provides substantial technical assistance to
member countries on strengthening their legal, regulatory, institutional and financial supervisory frameworks
for AML/CFT; and

Policy Development: IMF and World Bank staff have been active in researching and analyzing international
practices in implementing AML/CFT regimes as a basis for providing policy advice and technical assistance.

Facts and Statistics on Money Laundering

1) The US was the first country to make money laundering illegal.

One of the most interesting money laundering facts concerns the term itself. Money laundering was coined
because of mobsters in the 1920s and 1930s who masked their illegally gained funds through their laundromat
businesses. At the time, money laundering was barely recognized as a crime. It wasn’t until 1986 when the US
first passed a law that made money laundering illegal.

2) Banks almost hit an all-time high in fines of $10 billion in 2019 for violations of anti-money laundering
policies.

Banks are usually the ones hit the hardest by fines because of anti-money laundering violations. According to
2019 anti-money laundering statistics, 60.5% of the banks’ fines were due to anti-money laundering
regulations violations. Marc Murphy, CEO of Fenergo, a startup software that helps financial institutions
recognize illegal transactions, believes the new and complex rules have contributed to this surge in fines.

3) Laundered money goes through three stages of money laundering.

Money laundering involves three stages: placement, layering, and integration. Placement refers to the act of
moving funds from firsthand association to criminal activities to a legitimate system. Layering involves
covering the trail to circumvent pursuit and inquiries on the origin of the funds. Integration is making money
available for the use of criminals and making it seem like it came from legitimate sources. Some cases of
money laundering go through the three stages repeatedly.

4) Criminals have included cryptocurrency in their money laundering techniques.

Cryptocurrency is becoming one of the many destinations of illicit funds from criminals. In 2019 alone,
Chainalysis traced a total of $2.8 billion in Bitcoin moved by criminals. More than half of this amount went
to two exchange platforms – Binance and Huobi.

5) Standard Chartered Bank continues to make headlines with its seemingly habitual anti-money laundering
violations.

63
 Standard Chartered Bank has a couple of money laundering examples up its sleeve. The British bank found
itself penalized yet again for its leniency in implementing anti-money laundering regulations. The US Treasury
Department has also chastised the bank for transacting with US-sanctioned countries such as Sudan, Syria,
and Iran. The bank was ordered to pay $1.1 billion to the US and the UK. This isn’t the first time US agencies
have imposed fines on Standard Chartered Bank. From 2001 to 2007, the bank was ordered to pay $667 million
for violating anti-money laundering regulations.

6) 91.1% of money laundering offenders were imprisoned, according to money laundering conviction
statistics.

In the fiscal year 2019, the United States Sentencing Commission reported that as many as 91.1% of those
accused of money laundering were imprisoned, with an average length of 70 months sentencing.

7) The anti-money laundering software market is projected to reach $1.77 billion by 2023.

There’s an upward trend in the market value of anti-money laundering software. In 2016 and 2017, the market
was valued at $690 million and $868 million. Based on these available anti-money laundering statistics, the
industry’s market value is projected to reach $1.77 billion by 2023.

8) Identity theft has become one of the top money laundering trends.

The number of cases of data breach and identity theft in recent years is alarming. What’s even more troubling
is that criminals use some of the stolen identities for money laundering activities specifically. This relatively
new scheme makes the know-your-customer guidelines a crucial part of anti-money laundering initiatives.

Global Money Laundering Statistics

9) 400 times more money is laundered in fiat currencies than in cryptocurrency.

Contrary to popular belief and what the media feeds the public, Bitcoin is not the usual arena for money
laundering activities. Bitcoin accounts for only $2.5 billion of money laundered since its inception in 2009.
This amount is significantly smaller than the annual $1 trillion money laundering statistics estimate we lose in
fiat currencies.

10) Anti-money laundering activities recover only 0.1% of criminal funds.

The combined efforts of nations to combat money laundering seem to be ineffective, according to a study by
Ronald F. Pol from La Trobe University in Melbourne, Australia. Using global statistics on money laundering,

this researcher has found that only 0.1% of illegally gained funds are recovered from criminals. This leaves
lawbreakers and organized groups free to use the majority of their funds for criminal acts.

64
 Money laundering activities cost the world 2% to 5% of its GDP.

Determining the actual cost of money laundering to the nations is difficult due to the layering and integration
processes funds go through. However, the United Nations believes that the estimated value of money
laundering worldwide, according to recent statistics, is between 2% and 5% of the world’s GDP. That’s
approximately $800 billion to $2 trillion laundered annually.

11) The Financial Crimes Enforcement Network of the US Treasury maintains the $300,000 purchase threshold
of real estate properties.

To combat the staggering money laundering statistics, the Financial Crimes Enforcement Network has
maintained the all-cash purchase threshold of properties to $300,000. This means that the agency may impose
reporting requirements and records when purchasing a real estate property for $300,000 and above in cash.
The purpose of this policy is to prevent possible shell companies from transferring illicit funds to a legal
economy.

12) 95% of system-generated alerts against money laundering resulted in false positives.

Financial institutions have systems to monitor suspicious transactions, such as substantial cash deposits and
frequent movement of funds from one bank to another. However, anti-money laundering statistics show that
95% of those system-generated alerts are false positives, costing firms billions of dollars every year in wasted
investigation time.

13) Global money-laundering statistics related to terrorist financing remained high in 2020.

The Basel AML Index measures the world’s annual progress against money laundering and terrorist financing
across 144 countries. In 2020, the report showed that the index is 5.22 out of 10, where 10 is the maximum
risk. According to the report, only six countries had shown improvement in anti-money laundering.

14) Afghanistan is most at risk of money laundering schemes according to money laundering statistics by
country.

One of the reasons why some countries remain at greater risk of money laundering activities is dormant
systems and weak oversight. Of 141 countries assessed by the Basel AML Index, Afghanistan leads the world
as the country with the highest AML risk at 8.16, where 10 is the maximum risk. Afghanistan is followed
closely by Haiti and Myanmar at 8.15 and 7.86, respectively.

15) Anti-money laundering statistics show worldwide growth for the AML solutions market.

The global market for anti-money laundering solutions is expected to grow at a compounding annual growth
rate of 15.6% from 2020 to 2025. This means that from $2.2 billion in 2020, the market will be valued at $4.5

65
billion by 2025. Stringent government policies and focus on financial institutions are the primary drivers of
the market’s growth.

16) 30% of money mules in the UK are below 21 years old.

One of the most troubling money laundering facts today involves individuals called money mules - people
whom criminals use to transfer their illegally obtained wealth on their behalf. Law enforcers have reported
that money mules are getting younger and younger. For instance, 30% of money mules reprimanded in the UK
fell below 21 years old

PIE CHART OF HAPPENINGS OF MONEY LAUNDRY CATEGORIES

66
67
68
 CHAPTER NO:5

CONCLUSION
Money laundering is a criminal activity that involves disguising the proceeds of illegal activities as legitimate
funds to avoid detection by authorities. Accounting plays a critical role in money laundering by providing a
means to conceal the illegal origins of funds.

In India, the use of accounting in money laundering is prevalent due to the country’s large and diverse
economy, which provides ample opportunities for illegal activities such as corruption, tax evasion, and
organized crime.

One of the primary ways in which accounting is used in money laundering is through the creation of false or
misleading financial statements. Criminal organizations and individuals can use false invoices, receipts, and
other financial documents to conceal the origins of their funds and make them appear legitimate. By doing so,
they can avoid detection by authorities and continue to use the funds for illegal activities.

Another way in which accounting is used in money laundering is through the creation of shell companies.
These companies exist only on paper and are often used as a front for illegal activities. By using these
companies to move funds around, criminals can further obscure the origins of their funds and avoid detection
by authorities.

Accounting plays a vital role in facilitating money laundering in India by creating false records, falsifying
invoices, and manipulating balance sheets. Money launderers use several techniques to conceal the true source
of their funds, such as creating shell companies, layering transactions, and using offshore accounts. Accounting
plays a crucial role in all of these techniques.

Moreover, in recent years, the Indian government has implemented several measures to combat money
laundering, such as the Prevention of Money Laundering Act (PMLA) and the Foreign Exchange Management
Act (FEMA). These laws require banks and financial institutions to implement strong Know Your Customer
(KYC) and Anti-Money Laundering (AML) policies and procedures. Accounting professionals in India also
have a responsibility to prevent money laundering. They must adhere to ethical standards and maintain their

69
professional integrity while providing accounting services to clients. Accounting professionals should also be
vigilant in detecting any suspicious transactions and reporting them to the appropriate authorities.

In conclusion, accounting plays a critical role in money laundering in India. However, with the
implementation of robust laws and regulations, along with the ethical responsibility of accounting
professionals, efforts are being made to combat this criminal activity.

Thus one can safely conclude that Money Laundering is global problem and must attract global concerns. ,
Without international cooperation money laundering cannot be controlled. The criminals outsmart the
enforcing agencies and deploy a team of experts like chartered accountants, attorneys, bankers mafia, to
disguise their illicit money and masquerade it as legitimate income. These experts charge fee between
10 to 15% of the sum involved. The nexus between white-collared criminals, politicians, enforcing agencies
and mafias cannot be rules out. Bankers play the most prominent role and without their connivance the
operation cannot be carried out. Development of new high-tech coupled with wire transfer of funds has
further aggravated the difficulties to detect the movement of slush funds. The international nature of money
laundering requires international law enforcement cooperation to successfully investigate and prosecute those
that instigate these complex criminal schemes. Money laundering must be combated mainly by penal means
and within the frameworks of international cooperation among judicial and law enforcement authorities. Last
but not the least it is vitally important to keep in mind that simple enactment of Anti-Money Laundering Laws
are not enough, the Law enforcement Community must keep pace with the ever changing dynamics of money
Launderers who constantly evolves innovative methods which helps them to stay beyond the reach of law

The Satyam fraud has shattered the dreams of different categories of investors, shocked the government and
regulators alike and led to questioning of the accounting practices of statutory auditors and corporate
governance norms in India. Severe corporate governance problems emerge out of the above-mentioned
corporate wreckage. Many of these governance problems were noticed in several other such corporate failures
in USA, UK and Europe. These countries reacted strongly to the corporate failures and codes & standards on
corporate governance came to the centre stage.

70
 CHAPTER NO:6
SUGGESTIONS

The Supreme Court-appointed SIT on black money has come out with a slew of recommendations to curb
money laundering, including misuse of exemption on long-term capital gains tax, Participatory Notes and
creation of shell companies.

The Special Investigating Team (SIT) has advocated action under anti-money laundering law for trade based
money laundering, putting a cap on huge cash transactions. Huge cash transactions generally take place in
illegal activities like drug trade & betting deals. In its report submitted to the apex court, the SIT mentioned
about the need to check the generation of black money in the education sector and through donations to
religious institutions and charities.

Recommendations to Curb Money Laundering

The SIT has emphasised the need for establishing additional courts to decide the pending cases under the
Income Tax Act establishment of Central KYC Registry Empowering the Directorate of Revenue Intelligence
under the Special Economic Zone Act. A specific recommendation has been made to check generation of black
money through cricket betting. While dealing with the misuse of exemption on Long Term Capital gains tax
for money laundering, the SIT has recommended that SEBI needs to have an effective monitoring mechanism
to study the unusual rise in stock prices of companies when such an increase takes place. Enforcement
Directorate should be informed to take action under Prevention of Money Laundering Act for the

predicate offences.

While deliberating on the misuse of Participatory notes for money laundering, the panel said it is clear that
obtaining information on “beneficial ownership” of P-notes is of crucial importance to prevent their misuse.
“SEBI needs to examine the issue raised above and come up with regulations where the ‘final beneficial owner’
of P-notes /ODIs are known,” it said adding that the information of “beneficial owner” with SEBI should be
in form of individual whose KYC information is known to it.

71
1. Improve Searches with Technology

It’s increasingly difficult to separate serious potential threats from the many false positives turning up in
searches.

“There are a great number of alerts that have to be looked at in order to lay a net over all the accounts you have
in an institution,” Cummans said. “If we can reduce false positives, we can expand the scope of accounts to a
more granular level and make reporting more effective.”

Using some form of technology, such as AI, to conduct constant searches can reduce some of the burden for
AML officials, essentially weeding out some false positives while expanding searches. With technology, “you
can look at a broader scope of alerts without having anyone physically going through all of them,” said
Cummans. “It makes for better coverage while letting staff devote their efforts to accounts deserving their time
and attention.”

2. Have Regular Cross-Communication

TCF runs a quarterly round table with state and local law enforcement and area banks to discuss trends and
new ways people are working to circumvent the system, says Cummans. Law enforcement provides
intelligence about fresh scams to banks, though often “banks are typically seeing these [schemes] before law
enforcement is. We’re providing a lot of details to them.”

\By having regular meetings, banks and law enforcement can keep each other up to date, verify any suspicions,
identify possible networks, and enhance the public-private partnership, creating a united front against money
launderers.

3. Use Data Analytics to Find Patterns

“Data analytics are a very critical piece of combating money laundering,” Cummans said. “We’re typically
finding multi-factored patterns occurring – [fraud] is happening in this geographic region with this specific
product type, from customers with this specific potential occupation.”

Once AML officials recognize questionable patterns, they can develop client models, tiering potential risks
and incorporating daily negative news alerts. “We would see if there are correlations between negative news

72
and any characteristics of the account, whether it’s geography or other factors,” he says. The goal is “real-time
analysis of a customer’s risk before they’re ever in the bank. Not two or three days after the fact. All they’ll
need is a couple of days – the money will have been ingested into the bank and it’s gone.”

TCF uses due diligence tools like Thomson Reuters CLEAR to better link accounts with potential alerts or
money laundering patterns. Finding individuals with multiple PINs or with connections to tax fraud are among
the many factors that could trigger further investigations.

4. Standardize Your Systems

As many banks have grown via acquisitions of rivals, they’ve often pieced together a network of legacy
computer systems. Some divisions may use spreadsheets, others may use ledgers. This disparity of systems
can hinder antifraud efforts, preventing various branches from effectively communicating with each other.

It’s why more financial institutions are moving into a fully digital environment, expanding their use of cloud
software and big data, “overlaying standardized definitions and inventories of definitions of terms so that they
can be standardized across the entire organization,” Cummans says.

5. Structured Training Is Essential

AML officials need to know what to look for. TCF has three dedicated officials—a trainer, a developer, and a
facilitator – responsible for nothing but new employee orientation and training. These trainers also provide
remedial training for officials to bring everyone back up to speed and routinely put the entire bank through its
paces.

Training front-end staff to look for suspicious actions is critical – they’re your first line of observation. For
example, say the account of an incapacitated elder is being used for fraudulent purposes by relatives. While
the back-end staff might not realize anything suspicious at first, a client services representative could voice
concerns that an account holder seems unaware of actions being taken in their name.

The Continuous Fight to Combat Money Laundering

XAll financial institutions, from large banks to small credit unions, need to be on the lookout for money
launderers. By integrating due diligence technology with people training and a robust partnership with law

73
enforcement, banks like TCF can more effectively combat the increasingly sophisticated money launderers in
the United States and abroad, helping prevent criminal activity from continuing on their watch.

What is Anti-Money Laundering?

Anti-Money Laundering (AML) is a set of policies, procedures, and technologies that prevents money
laundering. It is implemented within government systems and large financial institutions to monitor potentially
fraudulent activity.

Anti-Money Laundering

Summary

Anti-Money Laundering (AML) is a set of policies, procedures, and technologies that prevents money
laundering.

There are three major steps in money laundering (placement, layering, and integration), and various controls
are put in place to monitor suspicious activity that could be involved in money laundering.

Some anti-money laundering controls include knowing your customers, software filtering, and implementing
holding periods.

Strengthen Regulatory Framework:

The regulatory framework governing accounting practices in India should be strengthened to prevent money
laundering. This can be achieved by implementing more stringent reporting requirements, mandatory
background checks for those involved in accounting, and mandatory reporting of suspicious transactions.

Implement Anti-Money Laundering Measures:

Anti-money laundering measures should be implemented to ensure that accounting records are not manipulated
to conceal the source and destination of funds. This can be achieved by implementing effective due diligence
procedures, conducting regular audits, and requiring mandatory reporting of suspicious transactions.

74
Increase Awareness:

Increased awareness about the consequences of money laundering and the importance of accounting practices
in preventing it can go a long way in preventing this crime. This can be achieved by organizing training
programs for accountants, conducting awareness campaigns, and partnering with professional accounting
organizations to promote best practices.

Enhance Technological Capabilities:

Technological capabilities should be enhanced to prevent money laundering through accounting practices.
This can be achieved by developing software and tools to detect suspicious transactions, improving data
analytics capabilities to identify patterns and trends, and investing in blockchain technology to improve
transparency and accountability.

Collaborate with International Agencies:

Collaboration with international agencies can help prevent money laundering by improving cross-border
cooperation and intelligence sharing. This can be achieved by partnering with international organizations such
as the Financial Action Task Force (FATF) and the International Association of Insurance Supervisors (IAIS)
to develop best practices and share information on money laundering trends and methods.

In conclusion, accounting plays a critical role in preventing money laundering in India. Strengthening the
regulatory framework, implementing anti-money laundering measures, increasing awareness, enhancing
technological capabilities, and collaborating with international agencies are all important steps that can be
taken to prevent this crime. By working together, the government, accounting professionals, and international
agencies can effectively combat money laundering in India.

OECD principles on corporate governance give four pillars to follow to ensure smooth governance

° Accountability: The governance framework should include provisions for the strategic direction by the
company, effective management oversight, and the board's accountability to the company as well as to its
shareholders:

75
• Transparency: The governance framework should make sure that every aspect of the company, including their

financial situation, performance, ownership as well as governance structure re disclosed in a timely and

accurate manner.

o Responsibility: Responsibility should be there for corporate, shareholder as well as public interests to

ensure an effective system of corporate governance.

o Fairness: Investor protection, shareholder benefits and the prevention of improper trading practises

which leads to market confidence are linked to the fairness principle

76
 CHAPTER NO:7

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[2] The Pioneer (New Delhi), January 11’2009, p 1

[3] India Today (New Delhi), January 26’2009, p 43

77
[4] The World Bank is now having a relook at the ban imposed on the Mahindra Satyam when it was under
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[5] Economic Times (New Delhi) , December 24, 2009, p1

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[14] India Today, April 27, 2009, p 46

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79
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80
Punjab National Bank Case :-
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