Financial Crimes Haunt Banking Industry in Bangladesh: Experts Warn of Growing Threats

Introduction

A recent study by the Bangladesh Institute of Bank Management (BIBM) has highlighted the growing concerns of cheque-related and online frauds, with money laundering emerging as a major problem in the banking industry. The report reveals that about 65 per cent of Bangladeshi banks have faced one or more financial crime incidents during the period from 2014 to 2016.

Cheque-Related and Online Frauds: A Growing Concern

• Cheque-related frauds are a major problem in the banking industry, with many banks facing incidents of fake cheques and cheque tampering.
• Online frauds are also on the rise, with hackers using various techniques to steal customer information and money from bank accounts.

Money Laundering: A Major Problem

Money laundering is a significant concern for policymakers and central banks worldwide, including Bangladesh. Despite the country’s anti-money laundering (AML) rules being in line with globally accepted standards, there is still scope for improvement in their enforcement.

Compliance Requirements: A Serious Concern

• Banks need to be more serious about legal compliance and identifying right prices for exportable and importable products.
• Compliance is already a serious concern for banks, and they should be ready for the cost implications of such developments.
• AML rule compliance should be a collective concern, as failure to meet compliance requirements can result in hefty financial penalties.

IT-Related Fraud: A Growing Concern

IT-related fraud is also a growing concern, with lack of knowledge and awareness about IT security amongst clients and bankers being a major factor. External crime groups are showing unprecedented smartness in accomplishing financial crimes in this area.

Non-Performing Loans (NPLs): A Critical Challenge

Non-performing loans (NPLs) are a critical challenge for the banking sector in Bangladesh, and some banks are struggling to address the problem. Drawing a line between loan defaults for genuine reasons and willful defaults is essential, but the provision of loan classification norms in the country does not make this distinction.

Due Diligence: A Critical Institutional Challenge

Regulators demand stringent Know Your Customer (KYC) requirements from banks, and this should be more rigorous for clients involved in international trades. The Know Your Client’s Client (KYCC) requirement is also essential.

Employee Involvement: A Serious Concern

Involvement of employees or committing financial crimes with external groups by internal actors is a serious concern for the banking industry. Monitoring arrangements for employee activities alongside client monitoring are necessary. Installing a formal system of Know Your Employee (KYE) is also crucial.

Conclusion

The incidents of financial crimes and their frequencies damage trust and reputation of banks and affect employee morale. Bank leadership must ensure uninterrupted vigilance with respect to customers to detect transactions associated with financial crime. Developing an ethical corporate culture and motivating employees are keys to addressing financial crimes.

Dr. Shah Md Ahsan Habib, Professor and Director (Training) at the Bangladesh Institute of Bank Management (BIBM), emphasizes the need for banks to address these challenges and prevent financial crimes in the industry.

Recommendations

• Banks should be more serious about legal compliance and identifying right prices for exportable and importable products.
• Compliance is already a serious concern for banks, and they should be ready for the cost implications of such developments.
• AML rule compliance should be a collective concern, as failure to meet compliance requirements can result in hefty financial penalties.
• Regulators demand stringent Know Your Customer (KYC) requirements from banks, and this should be more rigorous for clients involved in international trades. The Know Your Client’s Client (KYCC) requirement is also essential.
• Involvement of employees or committing financial crimes with external groups by internal actors is a serious concern for the banking industry. Monitoring arrangements for employee activities alongside client monitoring are necessary. Installing a formal system of Know Your Employee (KYE) is also crucial.