Graded Assignment 2

International Finance
Submitted To: Vibhor sir
Submitted By: Piyush Khandelwal
Class: BBA 6th Semester

Question:
Make a report on major scandals in the financial
market in the world, with a reference to India and
how these scandals change the world. Example of
what preventive measure was enforced to make sure
that these scandals don't repeat themselves?
 1.) Lesson from Satyam: Corporate governance evolves, not
execution
MUMBAI: Seven years ago to this day, B Ramalinga Raju, the founder of Satyam NSE 0.13
% Computer Services, confessed to a Rupees 7,000-crore fraud on its balance sheet, which
he had hidden from the IT company's board, employees and auditors for several years. The
Satyam scandal was the largest accounting fraud in the history of corporate India and dubbed
India's Enron, a reference to the American energy company that collapsed due to a mammoth
accounting scandal.
Satyam rocked corporate India and laid bare many alarming truths about the inadequacies of
the country's corporate governance standards. The government reacted to the fraud by
overhauling the regulatory framework, with the new Companies Act 2013, which fixed
liabilities of auditor and independent directors, among other changes. In 2014, market
regulator SEBI amended Clause 49 of listing guidelines to improve corporate governance.

Impacts of Satyam scandal

The main obstacle is that most Indian companies are controlled by promoters, according to
industry watchers. Independent directors are only independent on paper. Directors are picked
from an "old boy's network"

- they are people close to a promoter or from a familiar circle. "Relationships/connectivity

between promoters and independent directors and also high remuneration levels can often
undermine true independence of directors,"

Pranav Haldea, Managing Director, PRIME Database That is not to say companies and
independent directors are ignorant of the tougher regulations created post Satyam.

By defining the responsibility of the independent director, the Companies Act lays out the
ramifications if the role is not taken seriously.

It is also thanks to stern rules that many professionals are turning to consultancies for advice
and training before taking up the role of independent directors. Many firms are even drawing
up new contracts which define the exact time the director needs to spend.
 2.) Commonwealth Games scandal

In 2010, New Delhi witnessed the Commonwealth Games (CWG) scam, one of the major
Indian scams involving a pilferage of Rs. 70,000 crore. It is estimated that out of Rs.70,000
crore spent on the Games, only half of the said amount was spent on Indian sportspersons.
The Central Vigilance Commission, involved in probing corruption in various
Commonwealth Games-related projects, found discrepancies in tenders – like payment to
non-existent parties, will-ful delays in execution of contracts, over-inflated price and
bungling in purchase of equipment through tendering – and misappropriation of funds.
Reports of CVC revealed that Suresh Kalmadi, the Chairman of the organising committee of
the Games, offered a contract of Rs 141 crore to Swiss Timings for its timing equipment
which was unnecessarily high by Rs 95 crore. The CVC then asked the CBI to probe certain
aspects of the games’ organisation. On 25 April 2011, CBI arrested Kalmadi. In addition to
Kalmadi, the CBI named two companies and eight persons including former Secretary
General Lalit Bhanot and former Director General VK Verma as accused. On 26 April 2011
he was sacked from the post of president of the Indian Olympic Association.
3.) Punjab National Bank fraud case

One of the most recent scandals, the Punjab National Bank fraud case is about the fraudulent
letter of undertaking worth Rs. 14,356.84 crore (US$ 2.1 billion) that was issued by the
Punjab National Bank at its branch office at Brady House in Fort, Mumbai, making the bank
liable for the amount. This fraud was masterminded by jeweller and designer Nirav Modi in
collusion with two PNB officials. After discovering the fraud, PNB filed a complaint with
the CBI wherein it was alleged that Nirav, Ami Modi, Nishal Modi and Mehul
Choksi, committed the offence of cheating PNB and causing a huge financial loss.

Modi is on the Interpol’s most wanted list for committing the criminal conspiracy, since
February 2018. Currently Modi is in UK, and is seeking political asylum in Britain though
the Indian government has officially asked for his extradition. The Enforcement Directorate
has begun attaching assets of the accused and is seeking to immediate confiscation under the
Fugitive Economic Offenders Ordinance. On a later date, CBI named key officials Usha
Anantha Subramanian, former CEO of PNB, executive directors KV Brahmaji Rao and
Sanjiv Sharan in a charge sheet holding them responsible for failure to implement several
circular and caution notices issued by the RBI regarding the reconciliation of SWIFT
messages and core banking systems.
4.) 2G Spectrum scam

Politicians and government officials under the United Progressive Alliance (Congress)
coalition government were named in this scam. This scam surfaced when Comptroller and
Auditor General of India revealed that the government, in 2008, had undercharged mobile
telephone companies for frequency allocation licences that used to create 2G spectrum
subscriptions for cell phones. According to the CAG of India “the difference between the
money collected and that mandated to be collected was Rs 1.76 trillion.

In February 2012, the Supreme Court declared the allotment of spectrum as “unconstitutional
and arbitrary” and cancelled the 122 licences issued in 2008 under A. Raja, then Minister of
Communications and IT. On 21 December 2017, the special court in New Delhi acquitted all
accused in the 2G spectrum case including prime accused A Raja and DMK chief M
Karunanidhi’s daughter M Kanimozhi. This verdict was based on the fact that CBI could not
find any evidence against the accused in those seven years. However on March 19-20, 2018,
the Enforcement Directorate and CBI respectively filed appeals against this verdict in the
Delhi High Court.
5.) The ‘Coalgate’ scam

The coal allocation scam, also referred to as ‘Coalgate’ is a political scandal that swamped
the UPA government in 2012 implicated the former Prime Minister Manmohan Singh and
pulled top neta-babus into the probe. This scam hit the headlines after the Comptroller and
Auditor General of India (CAG) accused the Indian government of allocating over 194 coal
blocks to public and private enterprises (PSE’s) for captive use in an ad hoc manner between
2004 and 2009.

According to CAG the presumptive loss that occurred due to the windfall gains made to
allottees was Rs 1.856 lakh crore. After BJP government filed a complaint with the Central
Vigilance Commission, the CVC directed CBI to probe the matter for corruption.
Industrialists like Naveen Jindal and Kumar Mangalam Birla were named in the FIR. A
special CBI court held the former coal secretary HC Gupta, former joint secretary in coal
ministry KS Kropha, and KC Samria, who was a director in charge of coal allocation,
guilty. However, it was a huge relief to former prime minister Manmohan Singh, who was
in charge of the coal ministry then, since the special CBI court observed that aspects of non-
compliance of guidelines regarding this coal block allocation was withheld from the then
prime minister. Recently a Delhi court sentenced H C Gupta, K S Kropha and K C Samria to
three-year imprisonment with a fine of Rs. 50,000 in connection with the scam.
Some Preventive Measures
Reward Honesty
One of the most effective ways to prevent a scandal in your business is to reward honesty
rather than merely to encourage it. Some companies have a values statement or code of
ethics that emphasizes honesty, but they still pay and promote salespeople based on the sales
figures alone or give bonuses to supervisors based on short-term profits without any other
consideration. If the company's incentive structure rewards employees who get results
regardless of how they do it, some employees may use dishonest means. Bonuses and
performance reviews should be based on upstanding professional behavior as well as results.

Changing the Culture

Once a dishonest corporate culture is established, it is very difficult to root out. Even honest
employees will be under constant pressure to conform to the prevailing culture. One way to
overcome this is to encourage and reward disagreement. An honest employee in a dishonest
office may try to keep quiet and mind her own business for some time to go along with the
group. Make it clear that you don't want your employees to always agree with you or each
other and that you are always open to criticisms or unpopular opinions. This can help give an
honest employee the courage to speak up against a prevailing practice that otherwise could
develop into a scandal.

Controls
An employee who has been honest in the past may be tempted to cut corners if he is under
financial pressure and has an easy opportunity to make extra money. For example, a
mortgage broker might help a client submit false paperwork for a home loan to earn a
commission. To prevent fraud and protect your business from scandal, remove any possible
opportunities by instituting a carefully planned set of internal audits and controls. Some
companies require all major tasks to involve at least two employees, ensuring that neither
employee is in a position to falsify the work without being observed.
10 Ways to Prevent Fraud
One of the best ways to develop policies and procedures that are effective in
prevention corporate fraud is with the assistance of an experienced anti-fraud
professional who has investigated hundreds of frauds to develop the most
relevant and most effective anti-fraud controls including:
 Establish clear and easy to understand standards from the top down. Have
an employee manual that clearly outlines these standards and keeps the
rules from becoming arbitrary.
 Always check references and perform background checks that include
employment, credit, licensing and criminal history for all new hires.
 Secure physical assets, access to data, and money at all levels including
monitoring and using pre-numbered checks, keep checks locked up, have a
“voided check” procedure and never sign blank checks. Review all
disbursements regularly.
 Segregation of duties of employees. Divide activities so one employee
doesn’t have too much control over an area or duty. Separate important
accounting and account payable functions. Small-business owners and
managers should review every payroll check personally. The person who
has custody of the checks should never have check signing authority. The
person opening the mail should not record the receivables and reconcile the
accounts.
 Proper authorization of transactions, ensuring that employees aren’t
exceeding their authority.
 Independent checks on performance, using audits, surprise check-ups,
inventory counts, or other procedures to verify compliance with policies
and procedures, as well as accuracy.
 Instill an anonymous reporting mechanism, such as an employee fraud
hotline.
 Small-business owners should control who first receives the bank
statements and other sensitive documents. Consider a separate post office
 box for the purpose of receiving bank statements, customer receipts or any
other sensitive documents.
 All account reconciliations and general ledger balances should have an
independent review by a person outside the responsibility area such as an
outside accountant. This allows for reviews, better ensuring nothing is
amiss and providing a deterrent for fraudulent activities.
 Conduct annual audits to motivate all bookkeeping-related staff to keep
things honest because they can never be sure what questions an auditor is
going to ask or what documents an auditor may request to review.

Thank You