High-profile probes such as those intoalleged scams at Reebok and cartelisation among major cement firms have brought
the agency back into the news.

It is almost six in the evening. At this
time, when most office employees start calling it a day, the Serious Fraud
Investigation Office (SFIO), the government’s corporate investigative wing, is
pulsating with energy. At the office, located at an isolated corner of the
second floor of Paryavaran Bhavan in New Delhi’s CGO complex, visitors are
waiting, files are being moved from one room to another and multiple meetings
are underway.

Known best for its probe into the Satyam scam in 2009-10,
SFIO is again making headlines, thanks to various high-profile cases of alleged
frauds being referred to it in the last few months. The latest include the
alleged Rs 870-crore fraud in Adidas AG’s Indian subsidiary, Reebok India. Also,
earlier in July, the Ministry of Corporate Affairs had ordered SFIO to
scrutinise nine companies of the Radia group, including Vaishnavi Corporate
Communications and Neucom Consulting , after the Registrar of Companies found
inconsistencies in their financial accounts, an SFIO official
said.

“It (SFIO) is a very competent agency.
In the Satyam case, it showcased one of the best probes ever conducted in the
world. We need to strengthen it and give it more powers so that it can carry out
its job even better. But that is a gradual process,” says Minister of Corporate
Affairs Veerappa Moily. His ministry, which oversees the investigative agency,
recently indicated it might refer the OnMobile case to SFIO. Various liquidating
and multi-level marketing companies such as Singapore-based SpeakAsiaOnline are
currently under SFIO’s scanner.

However, some feel the agency lacks
teeth and resources to intimidate companies. A look at how the agency functions
and what it needs to match its foreign counterparts:

Inception
SFIO,
currently a non-statutory body, was established in 2003 on the basis of
recommendations of the Naresh Chandra committee on corporate governance. This
followed various stock market scams, irregularities in non-financial banking
companies and vanishing plantation companies. The idea behind its inception was
to tackle white-collar crimes, especially those committed on a large scale or
involving great complexity.

“While corporate culture is growing in the country, it is
important to have an investigative agency that can not only keeps a check, but
also deals with complex frauds that have inter-departmental and
multi-disciplinary ramifications,” says Pavan Kumar Vijay, managing director,
Corporate Professionals, a capital markets consultancy firm. Pradeep S Mehta,
secretary-general of CUTS International, agrees. “The increasing economic
activity led to a rise in economic crimes in the country. Therefore, you require
a beefed-up, well-equipped SFIO,” he says.

However, SFIO’s role
is not limited to policing companies. Besides corporate governance and financial
frauds, SFIO also monitors the public interest in terms of monetary
misappropriation or the number of people affected. It also probes investor
frauds, disappearing companies and cartelisation by firms.

Since
inception, it has probed several complex cases, including the Ketan Parekh scam
and the Satyam financial scam. More recently, it probed cartelisation among
major cement firms, a case later referred to the Competition Commission of India
for prosecution.

Structure
A multi-disciplinary organisation, SFIO
employs about 60 people, deputed from services such as banking, taxation,
police, customs and company law. Its Director, Nilimesh Baruah, recently deputed
from the government’s taxation department, heads the team of joint directors.
These joint directors, each having a team of his/her own, separately handle
taxation, law, information technology, financial transaction, corporate law,
capital market, forensic auditing, customs and excise. SFIO’s core investigative
team comprises 40 officers.

While people with different expertise help
the agency in probing a case from all dimensions, some argue this is not enough.
The government must develop a separate cadre for SFIO, as it has for the Central
Bureau of Investigation, they say. “Until
and unless you develop a cadre, your purpose is not fully addressed. Without a
cadre, one is unable to develop a proper structure of the organisation, as there
is no ownership,” says Vijay.

To investigate the alleged Reebok
fraud, SFIO has used imaging and cloning of computer systems to gather digital
evidence. The agency is also looking at adopting recent technologies like data
mining, which would enable it to secure a pattern of data for managing risks in
corporate governance.

Need teeth
Given the purview of SFIO, some say
it is not adequately staffed and needs more power to carry out its mandate.
According to Mehta, unlike agencies in the US and Europe, SFIO lacks financial
and legal resources to investigate the number of cases. “As it exists today, it
is more of a token effort. It requires much more efficiency and powers,” he
said. In the US, agencies like the Department of Justice are much stronger, he
added.

In Britain, the Serious Fraud Office, an independent government
department, investigates and prosecutes serious or complex fraud and corruption.
The agency is part of the UK’s criminal justice system and has special
legislative powers to secure evidence needed to build successful cases and bring
criminals to justice. The European Anti-Fraud Office, popularly known as OLAF,
is another agency which keeps an eye on such frauds. OLAF is part of the
European Commission, with a special and independent status.

However, unlike its counterparts, SFIO lacks legislative
recognition. Though the Naresh Chandra Committee had recommended a separate
statute for SFIO, it continues to remain a body under the ministry of corporate
affairs. Though the concept behind the organisation is “brilliant”, it is still
a “toothless tiger”, says Vijay. “The team is competent, but it does
not have powers to search, seize and arrest. SFIO can only do a post-mortem, not
work on the surveillance process.”

Experts say during the investigation
into the Satyam scam, SFIO found it difficult to secure court approvals to
interrogate suspects or carry out searches, something seen as a handicap for
such an agency.

Empowerment
To address this, the government is
gearing up to give legislative recognition to the agency through the new
Companies Bill. “We have proposed provisions that would enable SFIO to seize
property and assets and conduct investigations independently. It would also
empower it to interrogate anyone outside the country,” Moily said. Currently,
the investigative agency takes up a case only when it is referred to it from the
administrative ministry or from the judiciary; the new law would enable it to
take up investigations on its own accord.