The Telegraph
Since 1st March, 1999
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Corporate fraud-buster

New Delhi, Jan. 9: The Centre today cleared the proposal to establish a Serious Fraud and Investigation Office within the department of company affairs to deal with white-collar corporate crimes.

The serious fraud office, a key recommendation of the Naresh Chandra report on corporate audit and governance, will investigate corporate frauds only.

“It will be a separate office working under the existing laws and regulations. After investigating, it will report to the department of company affairs,” information and broadcasting minister Sushma Swaraj said after a Cabinet meeting.

The Cabinet also approved the grant of compensation to states to offset the loss of revenue they might suffer after a value added tax regime (VAT) comes into effect in April.

“The finance ministry has been authorised to negotiate with the states the rate of compensation for any possible revenue loss due to introduction of VAT,” Swaraj said. “The final pattern of the compensation package will be brought to the Cabinet’s notice.”

The Centre also cleared adoption of an eight-digit commodity classification code, under the harmonised system of nomenclature, bringing the code in line with international practice.

Industry has been demanding an end to the present six-digit code to get rid of the hassles they encounter with customs authorities over charging the relevant import duty.

The move to set up the serious fraud office gathered steam last year after a string of corporate crashes, including those of Worldcom and Enron, which resulted from corporate malfeasance and misgovernance.

India was also hit when Xerox Corporation of the US admitted that its local subsidiary, then run by the Modis, had bribed bureaucrats to wrest government orders. Last week, department of company affairs secretary Vinod Dhall said the fraud office would, in all likelihood, be set up in the next fiscal.

The office will only take up investigation of frauds characterised by complexity and inter-departmental and multi-disciplinary ramifications; substantial involvement of public interest and the possibility of investigations leading or contributing to a clear improvement in systems, laws or procedures.

It will have a multi-disciplinary team, comprising experts in accountancy, forensic auditing, taxation, law, information technology and capital markets. Whenever necessary, the fraud office may outsource investigations to professional agencies. The office will initially have two regional offices — one each for northern and western regions.

An empowered committee of secretaries, led by the Cabinet secretary, will screen and approve contractual or deputation appointments for emoluments which would be outside government scales of pay to attract the best manpower.

The panel will also include the secretaries in the departments of company affairs, revenue, expenditure and personnel. A smaller panel, led by the department of company affairs secretary, will supervise, review and monitor the fraud office.

Others on this panel will include the Sebi chairman, the chairpersons of Central Board of Direct Taxes and Central Board of Excise and Customs and the directors of CBI, revenue intelligence and enforcement.

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