A rabbit hole of bank scams going unpunished

Infographics: TBS

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

The private bank board seemingly took its course, showing the duo the door. But despite the fact that the central bank had labelled Amzad a habitual defaulter and also found Moazzam involved in loan forgeries and money laundering, the duo made their way into the bank's board.

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

And the ACC sued him only after he had fled to the USA skipping a travel ban.

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

PK Halder has been a notorious name in the financial sector for his involvement in a series of scams. He also fled to Canada despite a travel ban imposed after an ACC case in connection with laundering over Tk274 crore from International Leasing and Financial Services (ILFSL). It remains a mystery how PK Halder could manage to secure top executive posts in a number of financial institutions – both bank and non-bank – in less than a decade. He faces charges of embezzling Tk3,500 crore from different financial institutions including People's Leasing and Financial Services (PLFS), of which Moazzam was chairman.

So these crooks in the financial sector are interlinked and support each other in their innovative ways to steal unguarded money put into banks and non-bank institutions by unsuspecting depositors. Most of them go unpunished and authorities in some cases seem to lock the stable only after the horse has bolted.

"The authorities act only after they get a green signal from the government," said Prof Mahmood Osman Imam, explaining the instances of slow or no action against the perpetrators of financial scams. When the government does not want someone to be caught, authorities move slowly and wait until the accused moves out of the country, he said, wondering how people with evidence of loan irregularities become members of the bank board.

"What I can say is the government can take action if it wants to. It has got agencies as ready tools to act," he said.

There are agencies, there are laws, then why does the system not automatically respond to such malpractices?

"Actions are initiated only after a green signal. This is the history of the last 8-10 years," he said.

Those who can go scot free are assumed to be linked with powerful ones, said Dr Osman, who teaches finance at Dhaka University.

Wall Street scams that crashed global economy

The global financial market has a history of scams that robbed investors and depositors of billions of dollars and shook economies. The US news channel CBS listed 14 such major scams since 1719. Most of these scams were investigated and the perpetrators were brought to book, prompting the authorities to tighten their regulations. But the Wall Street Rip-off of 2008, which destroyed trillions of dollars of investors and led to a global recession, went almost entirely unpunished and nobody served a single day in jail. The scam was said to have stemmed from "complete deregulation" of the financial industry spearheaded by former Fed Reserve chief Alan Greenspan and abetted by both political parties – Democrats and Republicans, says the CBS report back in 2011.

"This is apparently because the ill-gotten gain is so spectacularly enormous that it has not only allowed the perpetrators to buy control of the government, but also to run a well-orchestrated and highly effective campaign to divert the anger of the public upon other victims of the fraud, rather than upon the perpetrators themselves," reads the CBS report, terming the Great Wall Street Rip-off as a complete victory of the fraudsters over attempts to restrain them by law. The US treasury pumped in trillions of dollars of taxpayers' money to bail the financial sector out of the crisis.

"Favouring the bank looters"

Bangladesh's banking sector saw its biggest banking scams one after another in a decade between 2009 to 2019 when AMA Muhith was the finance minister. The Tk4,500 crore BASIC Bank scam, Hallmark Group robbing state-owned Sonali Bank of Tk4,357 crore, Crescent Group taking away Tk3,443 crore from Janata Bank, Farmers Bank going almost bankrupt, Bismillah Group stealing Tk1,200 crore from four banks are among those.

Muhith had faced a volley of criticism from lawmakers – from both ruling and opposition – for not taking actions against perpetrators of the state-owned BASIC Bank scam. He was blamed for "favouring the bank looters". He presented a list of BASIC Bank officials and clients that were involved in embezzling Tk4,500 crore. But no major action followed apart from reconstruction of the bank board.

Farmers Bank, a new generation bank approved during his time, almost went bankrupt and Muhith arranged Tk700 crore to recapitalise it.

"He has destroyed a good bank"

In an interview with The Business Standard in 2019, Muhith mused that many of his decisions on the banking sector were not prudent. "I realise that it was not the right decision to save Farmers Bank [which was rebooted as Padma Bank]." He said then he had to act on political pressure as the bank, founded by a former minister and bureaucrat, was "subject to loot".

Though no step was taken against the then chairman of BASIC Bank 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 evil person. He has destroyed a good bank."

Financial sector scams continued to be unearthed. Nearly 100 cases were filed in connection of those scams, but none of them has been disposed of so far. No one was convicted, though a number of accused landed in jail in several instances.

"As long as perpetrators are not brought to justice and punished, and if they are allowed to go scot-free, they will be encouraged to repeat such scams and others will also be encouraged to do so," said former central bank governor Dr Salehuddin Ahmed. Inaction or dilly-dallying in taking steps is rewarding for the wrongdoers and disheartening for the good ones, he said. "We have to come out of this situation. It needs the goodwill of the government and the strong role of the central bank."

In financial decisions, there might be some political considerations that cannot be avoided all the time, but this should not be specific like deciding which bank should lend to whom. "This is not right. This leads to gradual collapse of financial discipline as happened in the case of Bangladesh now. Financial management is completely professional, a technical issue which needs full professionalism, which is gradually being destroyed," Dr Salehuddin said.

Looters loot, people pay

While banks were losing money, the government stepped in with funds to fill in. The government spent Tk17,521 crore to recapitalise banks in a decade until the coronavirus pandemic brought a raft of relaxed measures from 2020 for banks to survive and support businesses.

Senior economist Prof Rehman Sobhan considers recapitalisation of banks is a transfer of public finance to defaulters and compensation to inefficient banks. "This has come from the budget of the taxpayers and the people who are paying consumer taxes and that is transferred to the defaulters, which is essentially what recapitalisation means," he said in a recent interview with TBS.

"You cannot become a developed country with such a weak financial system with built-in structure of crisis," he warned.