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ILFS; auditors
Business Tit-Bits

WILL THE BIG ONES ALSO BE JAILED

It looks that the Indian authorities and courts are finally realising the gravity of economic crimes, including those that cheat banks and are meting out harsh and appropriate punishment for them. The Times of India reports that a CBI court has given life imprisonment to a father-son duo, for having cheated Bank of India for over Rs.2.50 crores, by taking a loan against security of a plot of land, that never did exist. Also sent to jail are the chartered accountant, who prepared bogus financial statements to avail of the loan, the advocate who gave a clear title certificate for this non existent plot of land, as also the bank’s officer who was aware of this fraud, but yet sanctioned the loan. The CBI judge aptly remarked that such economic offences are detrimental to the country. The modus operandi was simple – a fraudulent borrower, a willing banker and a bogus security and financial statements willingly created by the CA and the lawyer, obviously for a fees. We would further expect the ICAI to dismiss this CA from his membership of the Institute and the Bar Council of India to take a similar action against the delinquent advocate.

If you compare this case with the likes of giant frauds like ILFS, they are puny, with perhaps no comparison. This case involved a sum of a mere Rs.2.50 cr., while IFIN, just one subsidiary of the infamous ILFS group, has cheated lenders for over Rs.20000 cr. But yet to us, there is a striking similarly in its modus operandi. IFIN is a giant fraud of a huge magnitude, but with a similar intent and mode viz. take loans against bogus security/financial statements, with the help of CAs and auditors in particular. IFIN borrowed huge funds on the strength and security of it strong financial position and performance as shown in its audited financial statements, attested by its CAs/auditors Deloitte and such statements were simply bogus. They were loaded with financial misrepresentations and falsities, which if you go by the allegations of a whistleblower, Deloitte was fully aware of, but was handsomely paid, in order to not object to it. So the security here, on the basis of which IFIN borrowed heavily from banks, were the very rosy, but bogus audited financial statements signed by Deloitte, which showed a strong cash flow, profits etc. and induced its lenders to lend copiously. Its former Vice Chairman Hari Shankaran is in jail on charges of these serious economic crimes and so is its former MD Ramesh Bawa, but what about all others who willingly participated in this giant fraudsters, and also benefitted from it.

The question is, will the likes of the mighty audit firms like Deloitte be similarly punished for their alleged dubious role in the ILFS scam. As reports go by, they too willingly and consciously abetted to the manipulation of financial statements of IFIN, which led to this massive fraud. As per recent newspaper reports, that pursuant to a whistleblower’s disclosures, the SFIO is on its tail. The SFIOs findings are that it has been a willing party to the falsification of accounts of IFIN, whose auditor it was for ten years. Deloitte overlooked many flaws in the books of account of IFIN and did not red flag them for an inducement. Deloitte gave it a clean chit for a fabulous fees, which is being questioned. The SFIO has been interrogating the former CEO of Deloitte Udayan Sen, probing these allegations which have surfaced due to a whistleblower’s letter, who incidentally happens to be the member of the Deloitte team that audited IFIN. Experts say that so serious and incriminating are the findings, that the MCA may debar Deloitte for at least five years from undertaking any audits.

Though Deloitte is clearly in the dock, it perfunctorily denied any wrong doing and said that it is cooperating with SFIO in the probe, which it anyway it is bound to. The larger and real issue is that will the courts give a similar punishment of jail to the partners of those firms, who compromised their integrity for the lure of money and were a willing party to the bogus financial statements of IFIN, or will they go scot free, on the strength of their financial resources and clout, by engaging the topmost lawyers to defend their apparent misconduct/malpractices. If history is a guide then the small will be punished and the big will go scot free.

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