ARTICLES

Corporate and investment fraud continues to pose significant challenges for organizations. Recent trends indicate that even well-vetted investments are not immune to risk. In a recent case a major institutional lender was defrauded of US$500 million through falsified financial statements and misleading disclosures, despite initial due diligences. Such incidents underscore the urgent need for continuous monitoring and robust risk management systems. The evolving nature of risks demands an ongoing, proactive approach to due diligence to ensure investments remain secure and adaptable to change.

In October 2025, a major fraud case involving approximately US$875 million was uncovered within a firm in India. The incident involved allegations of forged documents and unauthorized loans taken using falsified signatures, violating the terms of a prior exit agreement between former partners. This illustrates the risks associated with entering business partnerships without thorough due diligence. Before formalising any agreement, it is essential to evaluate a potential partner’s financial stability, business practices, and legal standing.

The Reserve Bank of India (RBI) imposed 353 penalties amounting to USD 6.23 million in the last fiscal year, for non-compliance with statutory provisions. This sharp increase highlights the growing need for organizations to manage compliance more effectively. The Three Lines of Defence (3LoD) model offers a structured approach by clearly defining roles across operational management, compliance, and internal audit. When tailored to an organization’s specific risk environment and supported by regular training, the model helps build stronger governance, reduce risk, and stay prepared for regulatory challenges.

Politically Exposed Persons (PEPs) present unique risks for businesses due to their potential involvement in financial misconduct. Effective PEP screening is essential to safeguard compliance and protect business integrity.

The Reserve Bank of India (RBI) reported 23,953 fraud cases amounting to over USD 4 billion in FY 2024-25, a sharp increase from USD 1.39 billion the previous year, despite a decline in the number of cases. Digital transaction frauds, primarily involving card and internet-based payments, were the most frequently reported. These often involve unauthorized access to customer data by third parties, but they can also be committed by the customers themselves.

In the first ten months of FY25, digital financial frauds in India surged to USD 482.5 million across 2.4 million incidents, as reported by the Ministry of Finance. This marks a 67% increase from FY23, reflecting the growing scale of financial crime.

In today’s digitally intertwined world, data rarely stays confined within national borders, and neither do the laws that govern it. Cross-border data transfers are now a routine part of global business, but they come with legal and operational risks. In India, the average cost of a data breach has surged to US$2.52 million, highlighting the financial impact of non-compliance.

India’s maritime sector plays a crucial role in the national economy and strategic planning, supported by a 2,500-kilometre coastline and a network of 12 major and over 200 minor ports. With around 95% of trade by volume and 70% by value moving through maritime transport, the sector plays a significant role in building the nation’s GDP. This growth brings increased complexity and demands stronger oversight. Maritime compliance and risk management goes beyond ships and ports, they extend across the entire supply chain, including factories, refineries, trucking companies, and key personnel.

In today’s business environment, reputation risk is a growing concern for organizations. A recent survey claims most professionals anticipate a rise in financial crime, while only 36% consider their company’s compliance program as highly effective – a clear gap between rising threats and organizations’ ability to manage them. To protect reputation, financial stability, and regulatory compliance, Integrity Due Diligence helps businesses identify and mitigate risks.

Risks in the supply chain is not only from the product itself, but many also arise from people, locations, and hidden connections. A recent report revealed that ~9% of reported issues stem from poor due diligence on people and third-party partners behind them. While companies are often diligent about verifying the quality of products and services, they frequently overlook the stakeholders behind them.

In a recent incident, a startup reported over $200 million in revenue for 2024, a 3x exaggeration over its actual earnings. This involved billing another entity for services that never occurred, creating an illusion of growth and of valuation. Such practices reflect a deeper issue: the growing misuse of financial data in pursuit of market advantage, which undermines transparency and raises serious concerns about corporate ethics.

Due diligence is a critical process that must be executed with care and integrity. Its proper execution is essential to make informed choices. When this process is performed merely as a procedural formality, it fails to fulfil its core purpose. In certain cases, due diligence that is not just inadequate but deeply flawed or neglected is referred to as egregious due diligence.

Compliance in India has changed over the years. India’s regulatory universe is estimated to comprise 1,536 Acts, 69,233 compliances, and 6,618 filings. Keeping track and staying compliant is a big challenge that companies face these days. As compliance requirements have evolved, the approach has also changed. From traditional methods to technology-integrated models are being adopted to make the process easier.

Cross-border M&A is a powerful strategy for companies aiming to expand globally, access new markets, and unlock operational synergies. According to statistics by the Ministry of Industry and Commerce, India’s gross FDI inflows crossed US$1 trillion between 2000 – 2024. As the volume and complexity of such transactions increase, robust due diligence has become more critical than ever. It allows acquiring companies to thoroughly assess the financial, legal, and operational health of their target enterprises.

Employment related frauds have surged significantly with the rapid evolution of technology. This is validated by most studies and reports. A report by Data Security Council of India (DSCI), revealed that nearly 60% frauds in the IT and BFSI sector involved impersonation of employees or clients. Employment related fraud spans industries undermining overall organizational trust. To address these risks, organizations do recognize the importance of conducting in-depth screening of candidates but may not be as strict as needed as this process is seen as a cost.

Most professionals find compliance requirements complex, leading to increased challenges in adherence. India’s business ecosystem is governed by extensive regulations making timely interpretation crucial. While compliance fosters integrity and accountability complex record-keeping and low awareness create challenges, leading to exhaustion and frustration, which can be described as ‘Compliance Fatigue’.

Any unrest has an almost immediate effect on the economy, slowing down areas it impacts and creating ripple effects. The overall cost of violence in India, including activities by anti-social forces (ASF), was estimated at US$646 billion in 2020, representing ~6% of India’s GDP. Anti-social forces are groups engaged in unlawful activities that threaten public peace, individual rights, and the integrity of the legal system.

A recent report highlights that in the past couple of years 59% of Indian companies have reported experiencing financial or economic fraud, a figure that is 18% above the global average of 41%, and marks a notable increase from previous years. Against this backdrop, antecedents of the founding team, remains a critical factor when evaluating a startup.

Fraud has been a persistent threat since ancient times. One of the earliest known cases dates back to Greece in 300 BC, where Hegestratos attempted to deceive shipload insurers by sinking his boat and keeping the cargo. While he drowned in the process, this highlights that fraud is not a new phenomenon.

Employees are a crucial asset to any organization, as their skills, talents, and abilities are fundamental to its success. There continue to be, however, growing instances where employees exploit their positions for personal gain at the expense of their employer.