Award-winning asset manager launders Tk45cr

After the Tk235 crore embezzlement by Universal Financial Solutions (UFS), now has come to light a further unfortunate development for the country's nascent mutual fund industry and investors.

Award-winning asset manager Alliance Capital Asset Management Ltd syphoned investors' money off two mutual funds under its management, according to a regulatory enquiry committee.

The securities regulator, suspecting an attempt at fleeing the country, has asked the police to bar the firm's managing director from leaving Bangladesh.

In its letter to the Special Branch of the police, the Bangladesh Securities and Exchange Commission (BSEC) said on Tuesday that the enquiry committee has found that Kh Asadul Islam illegally transferred Tk45.07 crore from the two mutual funds under its management to its own bank accounts and then withdrew the amounts.

"This was investors' money, and Kh Asadul Islam engaged himself in laundering it," said the regulator, which awarded the firm with the "Golden Jubilee Award of Freedom", the second prize, in the asset management category in October last year.

The funds were withdrawn from the asset manager's bank accounts either in cash or through bank transfers to unknown entities over the period from July 1 July 2021 to 31 December 2022, the BSEC investigators have found.

The enquiry is still in progress, and the committee sought an explanation and full disclosure of the laundering of the funds, but Asadul Islam did not cooperate, the BSEC said. It added that he failed to provide the committee with any reliable evidence as to the ultimate use of the investors' money.

Asadul Islam, while talking to The Business Standard over telephone, said, "I am not planning to leave the country, and we are preparing for the trustee meeting to decide dividends."

Disputing the term money laundering, he claimed that the asset manager merely made some investments outside the stock market to generate a higher return and that there had been no intention of money laundering.

"We will divest and bring back the money to the mutual funds as soon as possible," he added.

"We are an award-winning asset manager long lauded by our clients as they got 76% cash dividends in a decade from the MTB Unit fund, while unit holders replaced the previous asset manager to let us manage the Alliance Sandhani Life Unit Fund," he said, adding that the enquiry was set to end on 24 April.

However, mutual fund rules do not allow transferring investors' money, except for the sum of its fees, to the asset manager's bank account and withdrawing it. Syphoning is a form of money laundering, according to BSEC officials.

Islam is also a vice-president of the local association of asset management companies and mutual funds. The development has surprised many in the capital market, especially when Alliance Capital Asset Management won the award from BSEC only six months ago.

"The award committee, based on their criteria and the firm's past performance, picked the award winners at the time," said BSEC Executive Director and spokesperson Rezaul Karim, adding, "and the regulator is thoroughly conducting its enquiry now as some problems have been found."

The Bangladesh capital market has long been suffering from behavioural issues due to retail investors' dominance in the bourses, in contrast to the situation at most other markets across the world where professional firms manage a portion of the mass people's money.

Not even 2.5% of the total market capitalisation at the Dhaka Stock Exchange is being invested through mutual funds.

Another asset manager, UFS, has embezzled Tk235 crore of investors' money from the four mutual funds under its management, and the BSEC announced that it will sue its Managing Director Syed Hamza Alamgir, and other relevant people and firms under the anti-money laundering law.

The regulator last week also announced that it will force the trustee, Investment Corporation of Bangladesh (ICB), to act to recover the gigantic sum embezzled by UFS men following special audits as it was responsible to protect investors' wealth.

The BSEC itself will also serve a show cause notice regarding why the then officials of the ICB's trustee and custodian services wings will not be punished.

At the same time, the two audit firms – Ahmed Zaker and Company, and Rahman Mostafa Alam and Company – and each of their partners will be barred from working for any listed firm or capital market intermediary until the Financial Reporting Council goes through the BSEC investigation paper and the issues are resolved.

UFS embezzled cash from the four mutual funds under its management through syphoning cash, and showing fake assets in financial statements over the years.

Surprisingly, no one – not a trustee, custodian, or auditor – stopped the crime, and Syed Hamza Alamgir fled the country last year.

The BSEC did not take timely action to stop his departure from the country, although it had primary findings of the scam based on which it launched its investigation.

In the case of Alliance Capital Asset Management, it seemed to have acted a little more proactively.