The Telegraph
Since 1st March, 1999
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The ongoing brouhaha in the United States of America over corporate scandals has brought into sharp focus many kinds of financial and accounting fraud all over the world, including India. A major kind among these is cyberfraud and internet corruption, but this has been attracting attention only of late.

Fudging accounts, inflation of profit figures, auditing tricks have felled companies such as Enron, WorldCom and Arthur Andersen. Of these, WorldCom is a direct product of the information technology boom: it was the second largest carrier of internet data in the US. “This is the crisis of the modern corporate economy,” said John Kenneth Galbraith recently. He has not been surprised by the recent revelations. He finds echoes of the “great depression” of 1929 and the speculative orgy preceding it in the bursting of the tech-bubble.

It is not just the US which is beset by corporate scandals. An fraud survey report was undertaken last year by the global consultancy firm, KPMG. It reported that India had logged the largest number of electronic commerce security breaches (23 per cent of all Indian firms), with the United Kingdom and Germany tied at second place with 14 per cent.

Frauds everywhere

As many as 72 per cent of the respondents covered in the survey admitted that they had already suffered from corporate espionage or were potential targets. The number of frauds was the highest in the manufacturing sector followed by consumer products and financial services.

An interesting finding is that nearly half of the corporate frauds were committed by employees. Suppliers and service providers, the other culprits, accounted for much less. Frauds were operated through expense accounts, secret commissions, false invoices, counterfeiting, forged cheques and loan documents, transportation contracts, bogus claims, fake mail transfers and disappearance of customers.

These findings were echoed by another survey by Ernst and Young, which said that about 82 per cent of fraud cases were the handiwork of employees, of which a third were committed by senior management people.

The survey also warned that computer-related fraud committed by those in managerial positions was becoming a major threat to organizations in India. A seminar earlier this month advised banks to tighten electronic security as this is the area most prone to financial crimes.

Cybersecurity is a global issue and cannot be dealt with by a single country. The worst sufferer, of course, is the US, where a single computer virus — “I Love You” — had alone caused $ 11 billion worth of damage.

Web of deception

A Computer Crime and Security Survey undertaken by the Federal Bureau of Investigation found 90 per cent of respondents as having detected computer breaches and 74 per cent incurring losses due to such breaches. The major kind of fraud is theft of proprietary information and financial fraud. This is not limited to e-commerce, however: there are many cases of credit-card fraud, get-rich-quick schemes, hacking, virus attacks and so on. Till last year, a database of the US Federal Trade Commission received over 250,000 complaints from consumers related to internet fraud and other forms of deception.

In his address to the United Nations general assembly last month, Atal Bihari Vajpayee called for stern measures to deal with malfeasant corporate practices to help the world’s poor. He was particularly critical of corporate activities which drain out natural resources and traditional knowledge of developing countries without fair compensation.

Stopping cross-border internet fraud requires cooperation between international law enforcement agencies. Globalization has led to an explosion in terms of choices and access to both businesses and consumers. But the fallout is that conmen can appear suddenly, defraud consumers quickly and disappear without leaving any trace. Cyberia is truly getting sinister by the day.

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