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It will forewarn law enforcement agencies about suspicious transactions

Ponzi schemes and other such fraudulent monetary practices ensnare gullible citizens while businessmen and stock brokers make a fast buck by hoodwinking authorities or manipulating the stock market. In a bid to preclude such shady transactions, the Ministry of Corporate Affairs is looking to develop a ‘fraud prediction model’ that will forewarn law enforcement agencies about any suspicious movement of money in the market and strengthen its Market Research and Analysis Unit (MRAU). “The MRAU has been providing information and building capacity through workshops and seminars for officers, but it has not been able to detect fraud at an early stage to help prevent huge financial losses to people or the government. But now, the process has [been started] to augment [the unit’s] capabilities through the deployment of an ‘early warning system’ and induction of new technologies,” Corporate Affairs Minister Sachin Pilot told The Hindu.

By the end of March 31, 2013, the MRAU would have three important capabilities — a foolproof fraud prediction model; the capacity to carry out forensic audit; and a forensic lab for effective handling of cyber crimes. “An effective fraud prediction model is expected to insulate the economy from the disruptive effects of corporate fraud… In the next fiscal, we will see a modernised MRAU being manned by skilled manpower,” Mr. Pilot said.

The MCA has also decided to collaborate with the Ministry of Home Affairs, various intelligence agencies and financial intelligence units, regulatory bodies such as the SEBI and the RBI and cyber agencies, besides international bodies, to evolve a system wherein a financial fraud is detected at a nascent stage. Referring to the proposed Company Bill, Mr. Pilot said: “Once it is enacted into a law, it will usher in a new era of inter-agency coordination, which is actually the need of the hour for prevention of corporate fraud and other related crimes.”

Mr. Pilot — who has been personally monitoring the process of strengthening the MRAU under the Serious Fraud Investigation Office (SFIO), which looks into corporate frauds — said the objective behind it was to firm up the ‘early warning alerts’ for prevention of frauds and malfeasance.

“For this purpose, a comprehensive framework for analysis of incoming information and data to anticipate emerging problems was needed… This is what we are working on. By the end of this fiscal, the complete paraphernalia of processes and mechanism will be ready to address this problem,” he said.

As per existing legal provisions, frauds and white collar crimes are referred to the SFIO for investigation. However, according to Mr. Pilot, there is a time lag between the actual occurrence of fraud and the information reaching the public domain. Public interest is hugely compromised due to such delay.

The Minister said: “Now, we are broadening the scope of the MRAU and a high-power steering committee has been set up with technical experts in various fields to design a framework for a fraud prediction model by studying various cases and adopting the best practices being followed internationally. It is also being seen whether the Business Intelligence Unit (BIU) could be merged with MRAU for better results.”