A rabbit hole of banking scams that goes unpunished

Most of them go unpunished, and in some cases the authorities seem to only lock the stable after the horse has run away.

January 22, 2022, 11:15 a.m.

Last modification: January 22, 2022, 12:02 p.m.

Infographic: TBS


Infographic: TBS

The South Bangla Agriculture and Commerce (SBAC) Bank suspended 11 of its officers – ranging from deputy managing directors and heads of several sections at the head office to heads of Khulna and Bagerhat branches – in October last year on charges allegations of irregularities. The suspension order came less than two weeks after a new president took office in September. Earlier, SM Amzad stepped down as chairman of the next generation bank. Shortly after, another director M Moazzam Hossain resigned. Their resignations followed a board meeting where they both acknowledged loan irregularities detected earlier by the Bangladesh Bank and promised to repay the money.

The private bank’s board apparently took its course, showing the duo the door. But despite the central bank calling Amzad a habitual defaulter and also finding Moazzam involved in fake loans and money laundering, the duo made their way onto the bank’s board.

The Anti-Corruption Commission recently sued Amzad in connection with the embezzlement of Tk20 crore from SBAC Bank by opening a front company. He also found Moazzam as an accomplice to Amzad in the SBAC bank loan fraud.

And the ACC only prosecuted him after he fled to the United States by skipping a travel ban.

This is not the only case; the same has happened in the case of some other financial sector scams exposed in recent years.

PK Halder is a notorious name in the financial industry for his involvement in a series of scams. He also fled to Canada despite a travel ban imposed after an ACC case in the laundering of over Tk 274 crore from International Leasing and Financial Services (ILFSL). It remains to be seen how PK Halder managed to secure senior positions in a number of financial institutions – banking and non-banking – in less than a decade. He is facing charges of embezzling Tk 3,500 crore from different financial institutions including People’s Leasing and Financial Services (PLFS), of which Moazzam was chairman.

These financial industry scammers are therefore intertwined and mutually supportive in their innovative ways of stealing unsupervised money placed in banks and non-banking institutions by unsuspecting depositors. Most of them go unpunished, and in some cases the authorities seem to only lock the stable after the horse has run away.

“Authorities only act after receiving a green signal from the government,” Professor Mahmood Osman Imam said, explaining cases of slow or no action against perpetrators of financial scams. When the government does not want someone arrested, the authorities move slowly and wait for the accused to leave the country, he said, wondering how people with evidence of loan irregularities become members of the bank’s board of directors.

“What I can say is that the government can act if they want to. They have agencies as tools ready to act,” he said.

There are agencies, there are laws, so why doesn’t the system automatically respond to such malfeasance?

“Stocks are only launched after a green signal. This is the story of the last 8 to 10 years,” he said.

Those who can get away with it are assumed to be linked to the powerful, said Dr Osman, who teaches finance at the University of Dhaka.

The Wall Street Scams That Brought Down the Global Economy

The global financial market has a history of scams that have stolen billions of dollars from investors and depositors and rocked economies. The American news channel CBS has listed 14 major scams of this type since 1719. Most of these scams have been investigated and the perpetrators brought to justice, prompting authorities to tighten their regulations. . But the Wall Street scam of 2008, which destroyed billions of investors’ dollars and led to a global recession, went almost entirely unpunished and no one served a single day in jail. The scam is said to have resulted from “comprehensive deregulation” of the financial sector led by former Federal Reserve chief Alan Greenspan and encouraged by both political parties – Democrats and Republicans, according to the CBS report in 2011.

“It is apparently because the ill-gotten gain is so spectacularly enormous that it not only enabled the perpetrators to buy control of the government, but also to wage a well-orchestrated and highly effective campaign to deflect public anger onto other victims of the fraud, rather than the perpetrators themselves,” reads the CBS report, calling the Great Wall Street scam a complete victory for fraudsters over attempts to restrain them by law. injected trillions of taxpayers’ dollars to bail out the financial sector.

“Favoring bank robbers”

Bangladesh’s banking sector experienced one after the other biggest banking scams in a decade between 2009 and 2019, when AMA Muhith was Minister of Finance. BASIC Bank scam of Tk 4,500 crore, Hallmark group robbed public bank Sonali of Tk 4,357 crore, Crescent group took Tk 3,443 crore from Janata Bank, Farmers Bank nearly went bankrupt, Bismillah group stole Tk 1,200 crore from four banks are part of it.

Muhith had faced a volley of criticism from lawmakers – government and opposition – for failing to take action against the perpetrators of the state-owned BASIC Bank scam. He was accused of “favoring bank robbers”. He presented a list of BASIC Bank officials and clients involved in the embezzlement of 4,500 crore from Tk. But no major action followed apart from rebuilding the bank’s board.

Farmers Bank, a new generation bank approved in its day, nearly went bankrupt and Muhith arranged 700 crore of Tk to recapitalize it.

“He destroyed a good bank”

In an interview with The Business Standard in 2019, Muhith felt that many of his decisions regarding the banking sector were not prudent. “I realize it was not the right decision to save Farmers Bank [which was rebooted as Padma Bank]. He said then he had to act under political pressure because the bank, founded by a former minister and bureaucrat, was ‘prone to looting’.

Although no action was taken against the then BASIC Bank chairman, Abdul Hye Bacchu, for the huge loan fraud during Muhith’s tenure as finance minister, he told TBS in the interview: “He [Bacchu] is an incredibly mean person. He destroyed a good bank.”

Financial sector scams continued to be uncovered. Nearly 100 cases have been filed in connection with these scams, but none of them have been settled to date. No one has been convicted, although a number of defendants have landed in jail in several cases.

“Until the perpetrators are brought to justice and punished, and if they are allowed to remain unharmed, they will be encouraged to repeat such scams and others will be encouraged to do so as well,” the former governor said. from the central bank, Dr. Salehuddin. Ahmad. Inaction or reluctance to take action is rewarding for the wrongdoers and discouraging for the good, he said. “We have to get out of this situation. It takes the goodwill of the government and the strong role of the central bank.”

In financial decisions, there may be political considerations which cannot be avoided all the time, but it should not be specific like deciding which bank should lend to whom. “It is not fair. It leads to a gradual breakdown of financial discipline, as has happened in the case of Bangladesh currently. Financial management is completely professional, a technical matter that requires complete professionalism, which is gradually being destroyed,” Dr Salehuddin said.

Looters loot, people pay

As the banks lost money, the government stepped in with funds to fill. The government spent Tk 17,521 crore to recapitalize banks in a decade until the coronavirus pandemic brought a series of relaxed measures from 2020 for banks to survive and sustain businesses.

Lead Economist Professor Rehman Sobhan sees bank recapitalization as a transfer of public finances to defaulters and compensation to inefficient banks. “It comes from the budget of the taxpayers and the people who pay the consumption taxes and is transferred to the defaulters, which is essentially what recapitalization means,” he said in a recent interview with TBS.

“You cannot become a developed country with such a weak financial system with an integrated crisis structure,” he warned.

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