Financial crimes thrive on a lack of corporate ethics: study

A lack of corporate ethics is the prime cause for an increase in financial crimes in the banking industry, according to 73 percent of the respondents of a survey.

Lack of exemplary punishment was identified as the second major cause. Other reasons include lack of motivation, poor compensation and poor governance.

A research on “Corporate ethics and financial crime in banks: Bangladesh perspective” associated with the survey conducted by Bangladesh Institute of Bank Management (BIBM) was unveiled at a workshop yesterday. 

Shah Md Ahsan Habib, professor and director of BIBM, presented the research at the BIBM auditorium.

About 70 percent of the respondents marked weak internal control systems and non-independent internal audits as the key causes, according to the survey.

It found that two-thirds of banks faced some form of financial crime in recent times. About 65 percent of banks stated to have faced one or more incidents of financial crime from 2014 to 2016.

However, 35 percent of the banks surprisingly stated to have not faced financial crimes during the period.

It is good that the banks did not experience any loss due to financial crime but it is not unlikely that the banks are shy to disclose information about such incidents, said the research.

The survey identified three segments—general banking, credit and IT—as most susceptible to financial crimes. The number of credit card related frauds increased remarkably during 2016-17, the survey observed.

Lack of ethical practice recently put a bank in severe liquidity crisis, said Abu Hena Mohd Razee Hassan, deputy governor of Bangladesh Bank. The bank now is unable to pay back money to depositors, he said.

Liquidity crisis management is now the main challenge for the bank instead of operating business, he said.

This is the best example of how a lack of corporate ethical practice can cause disasters for a bank, said Hassan.

Farmers Bank is suffering from a severe financial crisis resulting from loan corruption and unethical practices of board members. The loss of reputation prompted depositors to withdraw money, further deepening the crisis.

Image or brand value is most important for a bank than managing default loans, said Nurul Amin, former managing director of Meghna Bank.

He said depositors' trust was the main asset of a bank and if a bank loses reputation, it would cause liquidity crisis.

Bangladesh Bank has taken many measures by issuing regulations and circulars to prevent financial crimes in banks, said Helal Ahmed Chowdhury, supernumerary professor of BIBM.

But the central bank's effort cannot solely stop the crime, he said, adding that all the stakeholders and banks would have to work together for establishing ethical practice.

Chowdhury, also the former managing director of Pubali Bank, emphasised on building up professional behaviours in the organisation to prevent financial crimes.