FINANCIAL INTELLIGENCE –safe navigation in choppy waters

Banking institutions are more dangerous  to our liberties than standing armies”……..  Thomas Jefferson


When the institutions created by a body-politic suffer from mortal wounds in the course of their operative life and such injuries remain neglected, the life and limb of all those within the maudlin fold of such body-politic, during the vagaries of unkempt time, tend to perish, unseen and unsung.

Vagaries of the unkempt time do particularly victimize the unwary, while the sinful notes of apostasy turn loud and strident in the rhythms disguising as intonations of normalcy and legitimacy of institutional frameworks of such dysfunctional State. Thus the pain and tribulations get multiplied to the prejudice of the society at large.

In the socio-political domains of collective responsibility, anonymity per se does not operate as an escape route from the collective institutional lapses. In fact the particularity of locus in the collective endeavours of the State institutions as a fact remains irrelevant and redundant. On the other hand, the in-built retribution mechanisms ingrained in the body-politic, take heavy toll indiscriminately across the board, while the unwary and the disadvantaged are always the worst hit.

State is bound under the constitutional scheme to protect its subjects from any systemic victimization, especially in the inclement climate of free-for-all competition.


State pursues the lofty object of safety and security of the subjects by adopting and strengthening robust institutional mechanisms, not only for financially empowering and expanding ‘entrepreneurial energy’ of the society but simultaneously for effectively protecting its citizens, even the unwary and disadvantaged amongst them, from the sub-culture of irreverence to State institutions, identified in the legal domains as the  deadly rituals described as  frauds, financial and market manipulations which are strategically performed by the unscrupulous and anti-social elements.

State has necessarily to undertake and efficiently handle, through its institutions, the challenging task of regularly debugging and demining the financial paths from the menace of the secretively laid  explosives, critically networked intrigues and cleverly disguised ‘killer traps’.

The sovereign function of State in the direction of clearing and protecting the routes for safe navigation for general economic activities as well as for the entrepreneurial initiatives is the most vital State obligation. The primacy of this State obligation is unquestionable. However, due to ‘digital inequality’ and ‘financial illiteracy’ perilously spawning and spreading within the lengthy and breadth of the society, besides multiple competition-driven issues faced by the disadvantaged segments of society, this role of the State of an all-time and all-weather protector becomes paramount in value and significance.

The Gandhian wisdom contained in his famous aphorism that earth has sufficient resources to meet the needs of every man but does not have resources to meet the greed of a man, lays down an apt conceptual base for the futuristic financial surveillance responsibilities of the State.

The economic and financial model  of the society , being founded on the tenets of social justice,  was enthusiastically adopted by the people of India, within the frame work of our constitution with a loud focus on socio-economic justice, of course, substantial justice, for all.

The existential questions which reverberate perpetually in the wide and deep spaces of the democracy today are:

i)   Why the State institutions lack ability for self-direction to accomplish the vital tasks, by purging through effective processes their self-espoused work-culture from in-built dilatory practices and hyper-technicalities of redundant procedures?

ii) Why the State institutions lack inner-energy to remain engaged in hot-pursuits of their respective tasks with a zeal to actualize their quintessential raison d’etre ?

iii) Why the State institutions remain dormant or dysfunctional, without any accountability, when the harmful forces and negative factors operate in a conspicuously noticeable manner within their jurisdictional arenas to negate and thwart the priorities of the nation?

iv)   Why the State institutions fail to articulate, identify and assess the challenges of the moment and why these institutions despite resources fail to script and follow a proper course of action to prevent the negative consequences stemming from unaddressed challenges?

v)         Why the State institutions do not act in perfect coordination with each other to prevent a crisis from blowing into a disaster?

The aforesaid  existential questions necessarily indicate the scenario of politically sanctified ‘terminal laziness’ which occupies large space in the body-politic. The formal answers to the questions are as problematic as the criticality of questions itself. One has to dig deep into a host of circumstances ranging from bureaucratic inefficiency, lack of accountability, prevalence of corruption and even the mortal sin of faulty preferences in the real-life discourse of procedural niceties versus substantial justice, to discover the  much-needed answers.

The answers ultimately discovered with some diligence do not ipso facto prove to be solutions to the problems underlying the questions.

The financial markets, the banking system, the bourses as well as the online commerce are very vital socio-economic platforms, in the context of present-day wealth-sharing mechanism of the society.

Just one segment of  Online commerce is not only thriving in the commercial streets but is poised for a mammoth growth. It is expected that 271 billion consumer transactions (valuing 856.6 billion US dollars) will upgrade from the extant cash mode to digital mode by the year 2023 in India ( as per Report released by Accenture). The same research-based report indicates that globally the digital transactions, on upgrade mode from cash to digital, are slated to touch 7 trillion US dollar mark by the year 2023. Due to widened and thickened participative level of the small investors in the banking, online commerce as well as in the stock markets, an upgraded version of surveillance of the ever-expanding territories of finance needs to be meaningfully installed and functionally operationalized so as to facilitate spot actions and preventive actions.

Is our banking system robust enough to flawlessly buttress and facilitate such massive level of transactions, given its pitfalls in vigilance and audit roles?

With such Sisyphean dilemma in mind, we need to have an urgent relook and an invasive investigation qua the visible fragilities and frailties of the banking institutions, manipulation-triggered volatility in the bourses as well as unfiltered and toxic components and pitfalls of online commerce. Invasive and extensive intervention of the State is required in the institutional frameworks. The well crafted ‘analgesic-jargon’ of the financial Pundits, suggesting complacence needs to be rejected in toto. Each and every branch of the system needs to be closely watched, probed and intervened with ante harm functional scripts and strategies.

The painful effects of institutionally-tolerated deep vulnerabilities of the small investors or depositor in the financial world cannot be permitted to perpetuate. Institutions cannot afford the luxury of resting on oars in the tsunamis and frowning calamities of the present day. It needs to be borne in mind that the wrongful deprivation of the small savings of the helpless citizens through deceptive and lethal routes of Bank failures, market crashes and online manipulations, has not only been jeopardizing the integrity of the institutions but is mortally emaciating financial strength of the nation.

In the year 2019, as per official data an amount of more than Rs 9 Lakh crores was classified by the Banks and Financial Institutions as Non Performing Asset. Out of the above Rs. 2.50 Lakh crores is in the hands of just 12 defaulter companies. Identically the imperfections of the banking due to systemic flaws is well demonstrated by the fact that in a short nine year slot i.e. between the years 2010 to 2019 as many as 49000 bank frauds, involving more than 2 Trillion Rupees were reported by the banking sector.

The systemic failures, on repeated occasions to prevent qualitative slippages of banking assets as well as to forestall the frauds through existing apparatus of vigilance are appalling features of the financial world. Painfully all the consequential injuries to the society at large remain a muted reality.

A study by RBI revealed that out of 1,10,000 registered NBFCS as many as 9500 are too weak and these are red-flagged by RBI as high risk NBFCS. All the 9500 red flagged NBFCs are still continuing their operations, of course, within a formalized functional scenario.

The blindness of the audit-systems, dormancy of inspection systems, inefficacy of supervisory systems as well as the deep inertia of vigilance  and regulatory systems in the entire length and breadth of the Financial sector unfolded layer-by-layer, over the years.

An ostensibly well-structured and well-monitored NBFC, IL&FS (Chairman, Ravi Parthasarthy, Vice Chairman, Hari Sankaran and large number of senior executives were found involved ) crumbled under the weight of its own massive manipulations, dodging  all the  known audit and monitoring mechanisms. It transpired that  the said NBFC with the then borrowing size of Rs 91000 crores had indulged in dubious and highly complex operations through undisclosed  global network of about 348 subsidiaries( against disclosed size of only 169 subsidiaries).The IL&FS is certainly the most appalling case in India of audit failures and regulatory failures.

Apart from the above, even recent frauds committed by promoters of Yes Bank (infamous Rana Kapur case), top management of ICICI bank (infamous Chanda Kochhar case) are the most critical cases of surveillance failure and regulatory failures in the financial sector. A closer look at the modus operandi in these cases clearly reveals the serious lapses in the surveillance obligations on the part of the regulators. In fact that extent of ineptitude on the part of the regulators is shocking.

In Chanda Kochhar case a wide-spread and formalized corruption angle was conspicuously scripted on the face of records. Identically in Yes Bank case, the earth scorching policy of Rana Kapur could be unearthed with a reasonable degree of vigilance or audit probe of upright nature by the Regulators. The accountability aspects are painfully overlooked and the ever-growing malaise continues to play havoc.

The official data explicitly brings to light that the corpus of banking fund being contribution of 85% Indians as depositors while such corpus of savings is handed over systemically to about 2% Indians as borrowers, resulting in massive dissipation, due to institutional lapses, of the entire common corpus of savings of the depositors.

Another recent case of Lakshmi Vilas bank ( 563 branches and 974 ATMs) having liability size of Rs 20973 crores suddenly putting the system under critical stress is also appalling. RBI allowed its amalgamation with wholly owned subsidiary of a Singapore-based bank DBS Bank.

On the slippery and half-regulated paths financial sector, a large-sized NBFC, Dewan Housing Finance Ltd.(DHFL) stumbled and collapsed (Wadhawans’ undetected acts of misfeasance involving Rs 31000 crores), Another  seismic shock in the foundation of the system was  recorded when Punjab and Maharashtra Cooperative Bank ( 37 year old Bank, 137 branches, Chairman Waryam Singh),just collapsed like a house of cards . These shocks are   indelible blots on the role of the extant institutional regulators.

The haunting question resonating in all these intrigues is: where is the locus of accountability, within the complex institutional knots and snarls?

Looking at the competition scenario, the position of the disadvantaged and less resourceful becomes clear with regard to perils of fatal wounds. In the global markets China collectively and strategically rejuvenates its economy as well as the financial muscle of the natives (Their strategies are termed in Mandarin as Fuxing: rejuvenation). As a strong economy, China promotes the politico-economic culture of fuqiang (wealth and power), while nudging out individual players from other countries in the space of wealth making.

In contrast with processes of Fuxing and fuqiang resorted to by China, Indian entrepreneurs, are left to fend for themselves with their limited resources. Thus the pain of lost opportunities ultimately hurt all. In a recent scenario China successfully launched  3 trillion US dollar IPO in New York and London markets (almost equal to GDP of India).

A magnum opus of Schell and Dellury titled ‘Wealth and Power’ is an eye opener about Chinese strategies and global competition in wealth making exercises as well as resultant disadvantages to the less organized and less equipped players.

The bourses are entirely operated on the trajectories of artificial-intelligence driven algorithms described as High Frequency Trading (HFT). The flurry of activity in these trajectories is mind-boggling in its speed, range and magnitude. These bourse-based activities are vulnerable to the market manipulations in the subterranean forms of market cornering (controlling a particular scrip/commodity) market spoofing (disruptive algorithmic trading), short and distort ( bear raiding), wash trading, pump and dump games, lure and squeeze techniques and stock bashing methods, Markets ramping, quote stuffing, cross market manipulations, cross product manipulations, high close (finance) besides many other ‘underhand tools’ for market manipulations purse-snatch, rob and deceive the gullible, little-informed and self-guided consumers trusting the system and the institutions.

Shares and marketable securities in Indian exchanges get launched by the corporate barons of the day, with premium tags, using multiple techniques and methods. The launch, with market strategies bolstered by selective taglines, often causes a bullish frenzy amongst a large unorganized group of investors. Such frenzy is sparked by the magic effects of so called public educators in the field.  It is a common sight that a small person, with little savings, is guided by the market forces manipulated by the well networked financial pundits, carrying brand tags and arrogating to themselves the status of Prophets of the market.

A basic study of economics brings to light how demand for a product is generated, expanded and even manipulated.  The common route to the demand side management in the markets highways is superhighway of ‘aggressive marketing’, an expression including everything and anything, regardless of ethics. The massive network of the financial advisors, investment experts and bankers strategically operate, unwatched by the establishment, towards creation and augmentation of demand for the targeted financial products.

The financial streets of stock exchanges today boast of a market capitalization of a mammoth size in the proximity of US dollars 2.50 trillion, just at the advent of the turbulent year 2020. As per last official data available on official website, the market capitalization of Indian bourses was US dollars 2.37 trillion, as on 31st March 2018.

With ritualistic denials of these blood-stained realities, the State, continues to mull up a policy initiative of opening up the Provident Fund and Pension Funds of the employees to the market exposure.

Today the crest-fallen market realities and sheer absence of an integrated financial intelligence services stand as monstrous realities, hand in glove, on the parched grounds of ‘financial surrealism’. The financial prophets perched on the podium, continue to carry out satanic rituals.

In the critical absence of any financial intelligence institution of the State, an investor remains in the dark, as to why a market shows ascendant graph on one odd day of trading, while plunging to a great depth, just the next moment.  Every query of the befuddled and victimized investor stands brushed by such professionals under the nomenclature of ‘market sentiment’ or ‘market correction’.  Such cleverly invented phenomenon of ‘market sentiment’ or ‘market correction’ cannot operate in vacuo. The market manipulations are not the consequence of divine operation of transcendental forces. The fair and transparent market games are seldom played without justified co-relation with the fundamentals of the economy.  The financial intelligence institution, with multi-module set-up, has to be established with the objects of closely watching, policing, surveying, investigating and intervening in the operations of the market.

In the process of the main function of being a watch dog, apex vigilance bureau, highly empowered, multi-trigger operator for inter-institutional coordination and globally networked  the proposed Financial Intelligence Institution shall operate to prevent the disasters.

It is noteworthy that some steps have already been taken by the State in this direction, while no legal or financial framework could be evolved for securing, an integrated financial intelligence institution ,with effective capability to prevent collapse of Banks, disastrous bubbles in the market as well as in the expanding perils of the online business. The Financial Intelligence Institution has to be well equipped with energy, strength, skills and resilience to combat the forces of deceit and fraud operating in the multilayered markets as well as engaged in cornering the online commerce.

In historical perspective in the year 1992 Reserve Bank of India, was relieved by the State of the market-related vigilance obligations, when The Security and Exchange Board of India Act 1992 (in short SEBI Act) was notified.  The preamble to the said Act reads as under:-

“An Act to provide for establishment of a Board to protect interest of the investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith or incidental thereto.”

We cannot, even willy-nilly, turn a blind eye to the  critical absence of effective protection actually available to the depositors, investors and fund-members in the black swan events, especially in the form of sudden market conflagrations.  In fact, the spectrum of the available protections, as existing on date, being essentially bureaucratic, cannot secure a safety and security cover for the masses to save their souls in the face of a crisis.

Society cannot survive with sermons alone. The only available consolation to the victims  of systemic failures offered by the State read: “let the conflagration engulf thy chattels, thou shalt remain blessed with a salubrious sermons for thy wellbeing”.

SEBI Act, within its scheme is primarily regulatory, qua the business in stock exchanges and their tributaries and distributaries.  The prescribed functions are performed, on the desks of SEBI or RBI Offices, in a typical bureaucratic template. In such functional model, formal exercises of routine officialdom, in the nature of subjecting to scrutiny of ‘requisite documents’ of the companies, brokers and operators etc. relating to the business in the markets is undertaken and the ‘enlightened observations’ are routinely put on files. Such files thereafter wait endlessly for some angel to descend and to translate the observations into action. Alas! Such angels seldom descend.  The provisions of the SEBI Act and rules prescribed thereunder, do not make ample room for financial intelligence network, including arduous tasks, of identification of the real colour of market ‘inflows’ and market ‘outflows’ .

The existing legal and financial provisions miss a clear road-map for strategic and hard-hitting spot decisions and for actual implementation of any befitting action-plan to control and to defuse an errant behaviour of the  financial underworld and to revitalize the self-defence systems of the   State institutions.

A broad spectrum of institutional framework carved out to handle the challenges will be conducive to gain clarity of the multifaceted regulatory issues.

The securities and Exchange Board, constituted under the said Act, is devised to perform various functions prescribed in the textual fold of Section 11 of the said Act. A perusal of the scheme of the said Act and of the relevant rules would per se establish the near-absence of financial intelligence network for watching and handling the markets. The system, as established to deal with the markets certainly does not possess the capability of de-mystifying the omni-potent ‘market sentiment’.  This systemic deficiency conspicuously stares investor community as a whole, with fiery eyeballs of potential threats.

We are undoubtedly treading through the zigzag of ammunition streets, without a trustworthy security reconnaissance with the aid of accountable outfit of financial intelligence services.  Sudden ‘sparks’ or ‘planted flames’ in the financial sector are inevitable in the political realities of the present day, unless divine intervention saves us.

Centuries back, Cornelius Tacitus ( Roman historian, 56 Ad to 120 AD) aptly said : corruptisma re publica plurimae legis (The more corrupt the State, the more numerous the laws). Our laws to combat corrupt and deceptive practices are also growing in number while results are still unsatisfactory.

The Companies Act 2013 Chapter XIV (through sections 206 to 229 read with Companies (inspection, inquiry and Investigation) Rules 2014) deal with the inspection, inquiry and investigations. Section 211 facilitate the establishment of Serious Fraud Investigation Office, Under the said provision of law, the Serious Fraud Investigation Office already  set up under Resolution no 45011/16//2003-Adm-I is notified as Serious Fraud Investigation Office.

The Prevention of Money Laundering Act also facilitates surveillance into transactions of dubious nature.

It is a matter of common experience that even in the normal terrains of anti-social activities, such as, the street crime scenario, the policing is made more and more effective, by introducing better equipped outfits, such as, anti-terrorist squads and intelligence wings to facilitate timely operations at the identified spots and to prevent disasters.

In the financial streets today, India certainly needs well equipped and capable personnel, with well-developed financial policing skills, to identify the trouble spots and to effectively handle the crisis, on the spot, by direct action so that an unnoticed ‘bubble effect’ in the financial world, does not prove to be disastrous for the society.

The intelligence service outfit with a team of integrated Financial Intelligence Service Officers having skills of combat capabilities in the financial arena of killer-games under the command of independent, highly empowered, globally-networked and multi-functional Monitoring and Action Authority has to take over the responsibility to save the nation from financial disasters.

The Financial Intelligence Services need to be a globally-networked, highly empowered, multi-functional team of ‘financial sector cops’ with commando-trainings in the hard terrains of financial deceptions and manipulations. Such team also needs to be fortified by effective Artificial Intelligence tools developed with the avant garde technology besides multi-pronged triggers in their hands to activate, on click of a button, all other institutions engaged in any direct and indirect tasks of controlling and regulating the financial sector. The integrated financial intelligence outfit, need to be devised to mainly concentrate and focus, inter-alia, on the following aspects:-


a)  Physical verification of the financial credentials and antecedents of the promoters/account holders/ borrowers from the field sources, in lieu of extant formal disclosures (the KYC norms), made as self-attested declarations by the account holders/ promoters/ borrowers.

b)  Identification of actual colour of fund ‘inflow’ and fund ‘outflow’ in the financial markets, duly subjecting to detailed scrutiny, the real financial base and actual feeder-sources of such base qua transaction-maker, broker, sub broker and operator even big investor in the stock markets.

c)  Identification of mode, manner and route of the outflow of funds from the stock market to ascertain the actual beneficiaries out of the transaction. Transaction-wise monitoring is urgently called for in respect of substantial and voluminous inter-State transactions.

d)  Critical scrutiny of mode and manner of fixing premium of the shares, before market launch, through rigorous physical verification, with regard to credentials and antecedents of the company and promoters.

e)  Undertaking research and study of sustainability of all the segments of the markets, in long term perspective, so as to educate the investors to avoid perilous investment decisions and to comprehend the beneficial time frames for investments.

f)  Effectively investigate the operations of fake and unaccounted currency rackets as well as the underworld financial transactions through clandestine routes in the names of religious, educational and Charitable services and to expose and nab the criminals having nexus with such subterranean activities.

Nation today, apart from the Authorities established or appointed under Reserve Bank Of India Act, Companies Act, Stock Exchange Board of India Act, Prevention of Money laundering Act, has to create a dedicated Financial Intelligence Institution to carry out the challenging and monumental tasks. These tasks are presently being handled through the following two anti-corruption institutions;

(A)  Central Bureau of Investigation. CBI was originally established as an investigative outfit, under the nomenclature of Delhi Special Police Establishment (DSPE), was developed by War department of Delhi Police in the year 1941. It was originally sustained through route of Ordinances (Ordinance XXII of 1943, Ordinance 22 of 1946 which was acquired its present status as CBI by Delhi Special Police Establishment Act 1946.

(B) Central Vigilance Commission is another well-established institution which has its genesis in the report of Committee On Prevention of Corruption (1964) .It is also known as Santhanam Committee(appointed in June 1962 and report was submitted in March 1964).

As the facts bear out, there are almost nil instances of actual prevention of fraud or deception on the acknowledged strength of proactive approach or synchronistic action of any of the said two investigative agencies. On the contrary, the complaint based post-facto investigations and prosecution by the said agencies though quite commendable in volume and quality, still leave a lot to be desired, while the inflicted wounds on the victims of systemic failures continue to bleed literally unattended.

In contemplation of the realities of present day life, Bill Bryson rightly pondered   “We used to build civilizations.  Now we build shopping malls”

It is time to rise to the occasion as a society so  that even the ‘shopping malls’  built by us, do not disastrously blow up into ‘smoking malls’.

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