Fraud survey: Will India Inc respond?

It is inexplicable, to say the least. A global consulting major -- KPMG -- has come out with a startling revelation. According to the results of a survey of over 1,000 leading Indian firms -- conducted by KPMG -- that were published recently, 60 per cent of Indian firms have experienced frauds in the past two years.

The finding virtually justifies the low rank of the country in the Corruption Perception Index.

In short, the report by KPMG, titled India Fraud Survey Report 2008, has effectively castigated India Inc, both at the employee and the management levels, suggesting a lack of morality at both levels.

Strangely, India Inc seems to have swallowed these findings without any remorse or response.

Yet, the findings of the survey are not the subject matter of this piece. What, however, is central to the piece is the author of this survey, the global level of frauds, the Indian perception to frauds, our template responses about India and its collective impact on the image of the nation.

Normally, these findings would have been greeted with indignation or denial by corporate India. But the silence this time is perplexing. Is it a classical case of ignorance about the potential damage that this could cause or is it a case of ignoring it totally? Crucially, has India Inc responded to the survey without understanding its debilitating consequences?

But is it a case of pot calling the kettle black?

Crucially, in this melee, what is forgotten by India Inc is to ask for the credentials of the surveyor. Should not the surveyor be holier than the surveyed? Should he not be put to a greater test and meet a higher ethical standard than those whom he surveys?

What is intriguing in the entire scheme of things is that the author of this report, i.e. KPMG, as an entity remains un-critiqued, unquestioned and unchallenged.

Let me explain.

According to its official Web site www.kpmg.com, 'KPMG International is a Swiss cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.'

What must surprise readers is that in this modern world of transparency and corporate governance there is not a word in the above mentioned Web site about the ownership structure of KPMG International -- the central arm of KPMG. In the absence of such information one is forced to assume that it is a closely guarded secret, with a purpose.

But let me go back a bit. A 'white paper' authored by a few chartered accountants (I was one of the co-authors) in 2003, exposed the underbelly of several global accounting firms, that were involved in lobbying with some ruler in one country or the other, pushing money into tax havens, or hobnobbing with intelligence services of some countries to destabilise poor nations, or -- believe it or not -- even inspecting toilets for stains, which were euphemistically called 'pristine audits.'

It was noticed that some of the firms named in the 'white paper' had paid billions of dollars as fines the world over, had similar clientele and employed similar business strategies. Crucially, they were headquartered in some remote tax haven. Obviously, this was done with an intention of not disclosing their ownership pattern.

Simply put, such firms are phantoms. And every intelligent person knows that phantoms do not have a mind of their own. Rather, someone with an agenda and sitting in the dark operates these phantoms through a remote.

Naturally, such matters raise an issue about the motives of many surveys. And till such issues are fully addressed, any 'survey,' however well intentioned, would remain suspect.

The recent case of Germany and Liechtenstein

What makes the silence of India Inc particularly odd is that such reports are based on the popular belief about India being more corrupt than the rest, especially the developed world. It feeds on popular assessments and sentiment.

And in this scenario no one dares to take a contrarian position, including India Inc, leading the media to categorise India as a 'fraud haven.'

And in contrast to the poor opinion that India Inc has of itself, it has a better opinion of about global corporates. Again that is perception. But what is the reality of corporate frauds, especially at the global level? A look at recent happenings in distant Europe would be instructive for the discussion on hand.

Readers may be aware that countries, especially in Europe, have long been at odds with tax havens -- particularly nations like Liechtenstein -- which have strict bank secrecy laws. This empowers tax evaders to stash their ill-gotten wealth in such havens. This old story of tax evasion and tax havens does not warrant much discussion here.

Nevertheless, what has brought these issues back to the centrestage is of recent happenings at a bank in Liechtenstein. Heinrich Kieber, an employee of the LGT bank, is reported to have sold explosive customer data to Germany's foreign intelligence agency, the BND.

According to press reports, Keiber sold a DVD containing details of over 2,000 client accounts worth more than Euro 4 billion (about Rs 25,000 crore) for a 'small fee.' The size is indeed astonishing.

Consequently, a number of German LGT customers have already voluntarily turned up before tax authorities seeking immunity from fines and penalties. So much for Germany's reputation of being a relatively honest country with law abiding countrymen.

Remember, it is a mere part of one DVD, one bank and one mole that is raising so much stink! When compared to the huge sums mentioned above, the figures mentioned in the KPMG survey (Rs 10 crore) seem inconsequential. Yet it is India which is considered to be more corrupt than Germany.

Business and corruption -- made for each other?

It takes no seer to say that business and corruption are made for each other globally. German businessmen have an excuse to stash their wealth abroad (their complex tax laws and high rates of taxes) as much as Indian businessmen have one to be corrupt.

If German businessmen have a reason to be corrupt so do Indian businessmen. They are no different. Readers may recall that in India, our bureaucracy and our laws have traditionally been anti-business. And in such a hostile atmosphere, corruption, especially against the ill-advised rules and regulations of the successive Indian governments, is all but natural.

Yet what is our perception about India and Germany? Why treat them differently?

Unanswered questions

Questions naturally arise. Why should any report by anyone -- whose ultimate ownership remains undisclosed -- target Indian businesses and Indian businessmen? Is there something more to it than meets the eye? Remember how phantoms operate?

Similarly, India Inc represented by chambers of commerce and industry must make a serious attempt in persuading KPMG to recall the report. India Inc must understand that business runs on money and trust. And in a globalised world it is this trust that holds the key to raising capital, exploring markets and making profits.

And this report explicitly challenges the trust quotient of our businessmen, especially at the management levels. The net consequence -- India Inc would find it difficult to do business at global level after such findings. Surely, what needs to be done is a matter between India Inc and its combined intelligence.

Finally, in the global context, what if such attempts are parts of some sinister design by someone operating through a phantom with an agenda to purely discredit India Inc?

It is time for the Confederation of Indian Industry, the Federation of Indian Chambers of Commerce and Industry, and other Indian trade bodies to respond, for the issue is far serious to be answered with silence.

The author is a Chennai-based chartered accountant. He can be contacted at mrv1000@rediffmail.com.