Monthly Archives: November 2013

Collaboration Could Prevent Reinventing the Wheel-A view on Financial Crimes

AIbEiAIAAABDCNHI9JDL38HrYSILdmNhcmRfcGhvdG8qKGRmZjM3Y2IyNGFiNzVkYTE5Y2QxOWM5YjVjZDg5YzZhODkzY2FhYmYwAeb12e_1DLWxFoaTlOyiwl7aGBdwRecently, a lot of thought churning has happened on the laws dealing with financial regulation (1.  http://www.sebi.gov.in/cms/sebi_data/attachdocs/1379571262546.pdf 2.   http://www.finmin.nic.in/fslrc/fslrc_report_vol1.pdf).

The Securities Law (Amendment) Second Ordinance, 2013, has bestowed powers of search of premises and seizure of evidence to SEBI. It has also empowered SEBI to assume jurisdiction over any public fund pooling over Rs 100 crores, by deeming such fund pooling activity to be a CIS, under SEBI’s regulations for ‘Collective Investment Schemes’. These amendments basically address existing concerns on securing evidence in market investigations speedily and plugging the yawning gap on regulating large scale collection of funds from the gullible public, under the guise of  unregulated CIS-like schemes.

The 2nd major activity was the massive exercise by the Financial Sector Legislative Reforms Commission under the Finance Ministry, to modernize all economic regulatory activity under a single ‘Indian Financial Code’ a draft of which has been submitted to the Government by the Commission. This mammoth exercise of making a single, sector-neutral financial code for 7 financial agencies(including reconstitution of the current 5 financial regulators) to administer, also resulted in a review of existing more than 60 laws under which these regulators currently conduct regulation of their specific financial sectors. The main attempt seems to have been to break the sector-based silos in enforcement of financial regulations and instead base it on the principles involved in the regulatory activity.

Seen on this backdrop of a draft unified financial code, the additional powers given to SEBI under the Amendment cited above, to conduct searches, seems to tilt again towards silo-ization, since it will further increase the distance between SEBI’s investigation and police’s criminal investigation in those serious market fraud cases which require both investigations to comprehensively deal with the fraudulent activity. The issues are 2-fold: 1. Does the regulator have or want to develop expertise in the various processes underlying search/seizure, including training in self defence and firearms?, and 2. Does the regulator require to undertake search/seizure procedure in market cases which do not have any element of criminality?

As regards 1., The processes underlying conduct of search requires that the search team either itself has self-defence expertise including use of firearms, or it requisitions the help of the local police for protection during the process. If police help has to be requisitioned, there would be need to develop institutional co-operation for this activity, between SEBI and the State Police, if there would arise oft-repeated requests for assistance.

As regards 2., from my limited experience at SEBI, the market manipulation cases which are investigated by SEBI, generally get the required co-operation from the regulated entities in the matter of production of documents. The non response and stone-walling can come from entities not regulated by SEBI, like banks, ISPs, telecom companies or individuals who are not themselves investors but who conspire with market entities in a market fraud etc.  In such cases, the limited need is to enable SEBI to legally the requisition the documents from those connected with the investigation irrespective of them being regulated by SEBI or otherwise. And this has been enabled in the Amendment mentioned above. So is there still need to empower and develop expertise within SEBI for the requirements of the procedure of search/seizure?  I would think that pure market violations without criminality should not need invocation of  such powers. It was my experience while in SEBI, that some cases do have an element of criminality in the operation of the fraud. The best scenario for such cases would be for SEBI to move on evidence along with the police, who should simultaneously investigate the criminality angle in the fraud. Such co-opting is seen in the US between the SEC and the police and the collected evidence is used in both the criminal prosecution as well as the case being heard in SEC. Since criminal investigation requires greater weight of hard evidence even to pin circumstantiality of the act, those of SEBI’s cases which need search/seizure processes could be better strengthened if done alongside police. Simultaneously, the added advantage is that the fraudster is holistically dealt with by punishments under the SEBI Act as well as the criminal law. In the current scheme of things, the two agencies of Govt deal with the same act of the fraudster independently, with the expertise of one not being availed of by the other, and many times the benefit of this lack of collaboration accrues to the fraudster.

For this then, what would be required is amending the SEBI Act to change SEBI’s method of  criminalizing offenses from the current ‘complaint before the criminal court u/s 26 SEBI Act’ to ‘complaint to the police u/s 154 CrPC’.  This could give better results in punishments since evidence from the criminal investigation by the police would also add weight to the findings of SEBI and vice versa. A critical factor in successfully developing this collaboration would the development of protocols for institutional co-operation(filing FIRs, sharing evidence and expertise, joint searches) between SEBI and police EOWs(Economic Offences Wings) or the CBI, for investigating the criminalities in specific market crimes like Insider Trading and market frauds. And designated courts for trial of the criminal market fraud cases chargesheeted by the police, on a fast track basis. Since the financial sector regulatory thinking shows an inclination for breaking silos, I have expanded that concept to market investigations.

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Change Management in Police

AIbEiAIAAABDCNHI9JDL38HrYSILdmNhcmRfcGhvdG8qKGRmZjM3Y2IyNGFiNzVkYTE5Y2QxOWM5YjVjZDg5YzZhODkzY2FhYmYwAeb12e_1DLWxFoaTlOyiwl7aGBdwAn officer shortly to retire came calling on me recently at my residence. While talking to him about the changes he has seen over the nearly three decades of his service in the police department, a few things stood out prominently-1. Despite the fact that the recruitment requirement is for 12th pass, he was seeing many graduates and post-grads joining the Maharashtra Police Department as constables, unlike 15-20 years ago. He mentioned that the more educated constabulary preferred office jobs within police department, to street policing and this was affecting the quality of policing in the police stations. 2. He was seeing approximately 1-2% per year attrition as a trend in the newer constables within the nearly 2000 strong Unit he was heading. This was a new experience for him and he felt that the more educated constabulary felt ashamed to do a constable’s job and were constantly seeking other government jobs or jobs in the private sector. 15-20% of the graduates from the newly recruited constabulary also study and appear for Public Service Commission exams and attempt to become police officers in the rank of Sub-Inspector or DySP. 3. The 30% reservation for women in the police force, he felt, was leading to a shortage of personnel for armed security duties like guarding vital installations, escorting prisoners to courts, VIP security etc, since women police could not be deployed for such duties.

What he was telling me, but not in so many words, was that there were significant baseline changes in the manpower of the police department over the years, and it had significantly altered the working environment within the police department. But the department has not organizationally thought through how to seamlessly adapt to the changed circumstances and make the changes work effectively towards its new and traditional functions.

Looking at the figures on these issues, this year, the recruitment of graduates/postgraduates was approximately 17% of the total constabulary recruitment. Similar figures for percentage of graduate constabulary recruited yearly over the last few years was not readily available and so the trend mentioned above could not be verified with data.  Women constabulary constitute 13.94% of the total sanctioned police for Maharashtra. So, if we look at the two factors he mentioned – 1. more educated constabulary and 2. more women personnel, what are the issues on the table? The issues appear to be 1. more educated recruits are doing jobs designed for people with far lesser qualification, and 2. the enhanced womens’ recruitment has not blended into the training process to produce effective calibre of trained women constabulary.

As regards the more educated constabulary, the department will need to ask itself questions like – can we see better use for the more educated frontline workforce in police duties? Is the training imparted after recruitment adapted to this trend of better educated workforce coming in? It seems logical and intuitive that if training content and methodology are not significantly altered to cater to new thoughts on job content of a constable, the newer generation of constabulary will continue to perceive low worth and low pride in doing a constable’s job.  The trend in attrition also flows from this same sense of lack of dignity in doing the constable’s job in the traditional way. These better educated constables therefore keep seeking upward mobility in jobs which have better perceived status in society. Police training is rigorous and takes significant time and effort to impart. If the trend in recruiting graduate constabulary continues, the department cannot afford to lose these trained personnel due to dissatisfaction with the job content.

Currently, investigation of crimes is done by officers from the rank of Deputy Superintendent of Police (in very few cases) to the Police Naik(in some Units like Mumbai city, crime investigation is not delegated to the last 3 of these ranks – ASI, Head Constable and Police Naik) i.e between 7 ranks. Overall, the chunk of investigative work is done by 6 ranks between Police Inspector to Police Naik.  As per the CID Maharashtra publication ‘Crime in Maharashtra-2011’, the total working manpower in these ranks in Maharashtra’s Civil(Unarmed)Police is 100514 and the crime investigation workload in Maharashtra is 4.91 cases per Investigator. However, this figure has been arrived at by taking all non-armed civil police personnel of the 7 above mentioned ranks into account. A large number of personnel posted in these ranks in the District/Commissionerate HQ are assigned to Establishment maintenance and reserve duties and  do not perform crime investigation work. Therefore, the actual workload per investigator in the police stations and special investigative units must be much higher-close to double if not more. If there is a trend of taking in more and more graduate constables in police every year, then there exists a case for developing the constabulary cadre into crime investigation officers for certain types of crimes. This will have the double benefit of 1. Reducing per officer workload regarding crime investigation, and also 2. effectively change the job content of the constabulary to make it easier for the more educated ones to feel more worth in doing a constable’s job.

The second issue of increased number of women in the police, needs both – a well thought out basic training program post-recruitment to equip this part of the workforce to be fully utilized in policing duties, as well as a new program of attitudinal change management for the older workforce to gainfully employ the recruited women constabulary in all policing jobs.

Such trends in permanent changes in quality as well as quantity of manpower in a department as dependent and rich in the manpower resource, as the police department is, needs periodic assessment in order to tune-in to changing times.

Confronting Corruption

AIbEiAIAAABDCNHI9JDL38HrYSILdmNhcmRfcGhvdG8qKGRmZjM3Y2IyNGFiNzVkYTE5Y2QxOWM5YjVjZDg5YzZhODkzY2FhYmYwAeb12e_1DLWxFoaTlOyiwl7aGBdwThere has been enormous debate on the problem of corruption in India.  The concerns on the collusive nexus of business and politics and the extractive politico-bureaucratic nexus working on the exploitation of natural resources of the country have been well publicized by the media. The widespread daily harassment faced by the common man when dealing with government functionaries from police and municipal departments are of course well known but eluding a systemic solution.

I was recently watching an old TV program on Gurcharan Das’ book, ‘India Grows at Night’, and all the three participants (the author Gurcharan Das, Sanjeev Aga from the Industry and  Mayank  Gandhi from India Against Corruption) were pointing towards improving accountability to people, as the road ahead on this issue, and it got me thinking. We have an electoral democracy for setting policies and the 5-yearly elections system to enable people to review the policy setting performance of the politicians every 5 years . The same system is supposed to review the goodness of the policy enforcement process, as part of the performance of the politicians. However, the distance of the policy enforcing bureaucracy including the law enforcing police, is too far from the people because their accountability to people is indirect, through the state or central government in power.  The sheer size of the bureaucracy and its service conditions like periodic transfers, add to the sense of anonymity when evaluating its performance on implementation. Also, due to security of job in government service, there is nothing in the system that can rope in accountability of civil servants to the people, for the manner in which policies and laws are implemented on the ground.  So then is there a way to democratize ‘implementation’ in the way that works for ‘policy-setting’?

Obviously, in the Indian context, I will have to delink the ballot based electoral process (though such systems for direct elections of mayors, who can appoint police chiefs (USA), and direct election of police chiefs (UK) exist in some countries) from solutions for bettering ‘poIicy implementation’. And I logically come back to my earlier panacea for many ills, viz. iterative Crime Victimization Surveys, which, I believe,  are a democratic tool for making the peoples’ feedback of the realities they face to work on police attitudes and professionalism. Every such survey can work as a baseline for initiating incremental changes in the working of a police station. And every next survey makes known the improving or deteriorating public satisfaction on the incremental changes in ‘implementation’.

Institution wide steps like increasing the computerization of processes, or use of technology like cctv cameras to monitor road junctions, all finally leading to more transparency and efficiency of policing performance, and any other initiative, especially local level initiatives, which could be something as simple as a useful liaison with civic authorities to improve the state of lighting in an isolated area, will improve service delivery at the bottom of the  system i.e. the police station. Since corruption thrives due to lack of any value to the system from peoples’ opinion on the effectiveness or otherwise of service delivery, increasing the accountability to the people at the absolute baseline of policy implementation in law enforcement, i.e. the police station, will surely have a systemic impact on corruption.