White collar crime: Bangladesh perspective

| Updated: October 25, 2017 03:46:07

During the past few years nearly Tk150.0 billion (US$ 1.9 billion) was stolen from the banks. The capital market rip-offs are also estimated to be of equivalent amount. Conspicuous ones-- Hallmark and BASIC Bank scams-- were thought by a section of people During the past few years nearly Tk150.0 billion (US$ 1.9 billion) was stolen from the banks. The capital market rip-offs are also estimated to be of equivalent amount. Conspicuous ones-- Hallmark and BASIC Bank scams-- were thought by a section of people

White collar crime is an urban phenomenon, an offshoot of the urban affluent society. It is different from street crimes in that it is non-violent. Its impact is not felt immediately but the ripple effect of a single financial scam can devastate an individual, destroy a company, shatter families by wiping out their life savings, or cost innocent investors millions of taka. Capital market scam in Bangladesh is a glaring example of numerous people going broke several of whom committing suicide.

During the past few years nearly Tk 150.0 billion (US$ 1.9 billion) was stolen from the banks. The capital market rip-offs are also estimated to be of equivalent amount. Conspicuous ones-- Hallmark and BASIC Bank scams-- were thought by a section of people to be crimes against institutions and not  individuals, thus supposed to be victimless, and hence more a matter of the government on how to respond. Conversely, the recent Bangladesh Bank heist, which is less than three per cent of the money involved in bank and capital market scams, raised much larger controversies. Behind these widely talked-about crimes, there are thousands more untold crime stories embracing many aspects of our socio-economic life.

Early 20th century America had a moral dilemma over white collar crimes, when laws against them were unclear. This was the time when the Great Crash & Great Depression took place. In 1939 US sociologist, Edwin Sutherland confronted the situation by coining the expression "White Collar Crime" as against blue collar, signifying the financial status and social standing of the persons doing these crimes. Sutherland defined white collar crime as, "a crime committed by a person of respectability and high social status in the course of his occupation".

According to the US Department of Justice, "White-collar offences shall constitute those classes of non-violent illegal activities which principally involve traditional notions of deceit, deception, concealment, manipulation, breach of trust, subterfuge or illegal circumvention". Most western countries, however, specifically list them out. Tax evasion, siphoning out money to a safe heaven, bribing, kick-back, bank fraud, extortion-- to name a few.
In the ensuing discussions we shall attempt to tackle the questions: a) why mostly the socially established people commit white collar crimes, and b) are these crimes preventable in Bangladesh.

To answer the first question, experts believe that white collar crimes thrive in a modern complex economic system where there are money, trust, greed and opportunity. Contractual trust is a basis of all monetary transactions. Opportunity on the other hand is created by all societies as the vehicle for progress. Socially established people have access to all of these four elements more than others. Western societies are not different. But they maintain a dynamic legal reform strategy.

When a particular method is used to commit a crime, authorities tighten the regulatory grip not to allow the same method to be repeated. For example, during 1990s, Robert Maxwell, the UK media tycoon and owner of The Mirror Group had set up nearly 500 shell or dummy companies, and using those companies as investment vehicle, siphoned out and embezzled employees' pension fund to the extent of 440 million sterling pounds. Since then the law relating to shell companies changed and no one would hear another crime taking place by using the same method in UK or elsewhere in the western world. When Serious Fraud Office (SFO) of UK unveiled the crime, Robert Maxwell had a mysterious death.

Conversely, in a similar situation what happens in Bangladesh? Hallmark started the scam by using the same nature of dummy companies as Robert Maxwell did. Hallmark also used another tool, in commercial terms, called, "Accommodation Bill of Exchange". A bill of exchange by itself is a legitimate commercial document used by traders to acknowledge and pay debt obligations. A trade bill of exchange has underlying consideration and integral value. The accommodation bill of exchange, as the name itself suggests, has none of these attributes and is issued to provide accommodation. All bills of exchange have a specific amount to be paid and a maturity date to pay, written on their faces. Hallmark opened several dummy company accounts with Sonali Bank and drew numerous bills of exchange on them without any business consideration. Sonali Bank in turn 'avalised' those bills. Avalisation, in banking terms, is an act of guarantee given on behalf of a third party (in these cases dummy companies). Now these otherwise valueless documents accepted by worthless companies, obtained the status of banker's own promissory notes soon after Sonali Bank avalised them. At this stage, Hallmark went out shopping around and easily discounted all Sonali Bank avalised bills of exchange with local banks and pocketed the money. The discounting banks took commercial risk on Sonali Bank and never bothered to verify the credibility of the drawee or the drawer. When the maturity dates came, the dummy companies defaulted and the entire payment liability fell on Sonali Bank.

Use of dummy companies has not been regulated nor has the use of accommodation bills been barred since the Hallmark scam. Many other cash- hungry business houses in Bangladesh are allegedly widely using this method even now. Companies using this dubious means of raising funds are big, influential and the owners are socially established.

Bankers and regulators know well about this dominant quasi-scam but in the absence of clear-cut rules they are mostly helpful because this quasi-scam is a lucrative fee earning business.
Robert Maxwell in UK and Hallmark in Bangladesh acted out of greed. It is true that greed is a basic human instinct and cannot be anticipated or removed from a person by framing rules. But a country can set rules to overcome the greed syndrome. A person tends to commit greed related crime if he believes that the benefit far exceeds the risk of doing the crime.

Our second issue, whether white collar crimes are preventable in Bangladesh may be addressed in the following way. Take the example of Rana Plaza tragedy. This happened because of compromising safety regulations by numerous government agencies. But following the international threat of export order cancellation, the government and the factory owners became alert and readily agreed to emulate the work safety practices being followed globally.

In course of time, Bangladesh has put in place the required safety rules, and these are now being complied with. The same safety rules could have been in place as a moral obligation prior to the compelling compliance.

Another example is the recent Bangladesh Bank heist. This happened because the other stakeholders are important external entities: Fed New York, three foreign correspondent banks in USA, RCBC bank, the  Philippines central bank, the government of Philippines and most importantly, SWIFT (Society for Worldwide Interbank Financial Telecommunication) organisation.

Both Fed NY and SWIFT emphatically claimed that their systems were not compromised and Bangladesh must mend its own cyber security standard. The implied threat to Bangladesh is scrapping of correspondent or mutual relationship due to slack internal control.

As a result, Bangladesh has begun to be fully prepared to tighten internal control in keeping with international best practices and norms.

From these two examples one thing is clear enough: Bangladesh yields to outside pressure instead of adopting best professional and ethical practices on its own.

In the predominant Muslim society of Bangladesh honesty is being routinely touted in religious sermons, public meetings, civil society events, though with little bearing on our public policies. On the other hand, secular western societies derive their public policy from private morality.

Fates of two American presidents, Nixon and Clinton are glaring examples. Jeffrey Howard Archer, a prominent British MP, later member of the House of Lords and a notable fiction writer with high social standing, could not escape prison sentence for an act of perjury.

There is a common saying in UK that one could get away with murder but not with white collar crime.

UK derives its moral values form the Anglo-Saxon and puritan heritage.

America, on the other hand, has built its ethical base on many remarkable and epoch-making events: the declaration independence, US constitution, bills of right, federalist papers and the inaugural speeches of successive presidents.

Small little phrases like "all man are created equal," or the statement of George Washington in his inaugural speech that there is an 'enduring union between virtue and happiness' are some of the precepts of American moral beliefs and behaviour.

In conclusion, I would say that the first step against this social evil in Bangladesh is the acceptance of the reality that virtue creates happiness and the rest would be only a matter of time.

History demonstrates that public sentiments towards any common cause can create invincible people power. Our language movement and liberation war bear this truth.

The writer is a retired banker.

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