DHAKA - Police investigating
Bangladesh's biggest-ever embezzlement case have
detained the chairwoman of Hall-Mark Group, the
highest-level arrest so far in a scandal
threatening to suck in leading political figures
as well as top officials at state-owned Sonali
Bank, the country's largest commercial lender.
Jesmine Islam, who in 2008 failed to win a
parliamentary seat running under the banner of the
now ruling Awami League, was placed on a five-day
remand on Friday. Hers is one of 11 cases,
involving 27 bank and company officials, so far
filed by the Anti-Corruption Commission in
connection with the Sonali Bank scam, which covers
embezzlement and fraudulent loans worth more than
US$400 million.
Two other Hall-Mark Group
executives were arrested earlier this
month for allegedly
misappropriating 15.68 billion takas (US$192
million) of depositors' money that the
little-known conglomerate is said to have swindled
from a Sonali Bank branch. Charges against those
arrested so far include money laundering and
corruption. As a consequence of credit facilities
given on the back of allegedly fraudulent
paperwork related to Hall-Mark, Sonali Bank now
needs to pay up to 57 branches of 26 commercial
banks in Bangladesh a sum of around $195 million.
This scale and nature of the scandal has
created distrust between commercial and
state-owned bank authorities, with many commercial
lenders holding back on giving money against
certain credit facilities related to state-owned
banks, hitting the business of even reputed
exporters.
The case has attracted
widespread criticism for the time taken to make
arrests. Despite its name, the Rapid Action
Battalion (RAB) did not start pulling in those
allegedly involved until it arrested Hall-Mark
managing director Tanvir Mahmud and group general
manager (commercial) Tushar Mahmud on October 7,
five months after the news of the fraud became
public.
In May, the central Bangladesh
Bank found that Sonali Bank directors and senior
management were involved in financial
irregularities in which companies, including
Hall-Mark Group, swindled a total of 35.47 billion
takas out of the bank's Ruposhi Bangla Hotel
branch in the capital.
Bangladesh Bank
told Sonali Bank to take action against 31 of its
officials, which led to an audit of the Ruposhi
Bangla branch. The audit found utter negligence in
the provision of unauthorized loans on the part of
the manager and assistant general manager.
News of the central bank's report was
broken by Prothom Alo, a leading newspaper, the
same month. When other dailies and television
channels began digging, information surfaced that
the Ruposhi Bangla branch officials had colluded
with Hall-Mark to provide the funds. The values of
assets owned by Hall-Mark were intentionally
inflated, the reports said. Some alleged the
involvement of Prime Minister Sheikh Hasina's
health affairs adviser, Syed Modasser Ali, in
influencing the loan sanctions.
The
Anti-Corruption Commission joined the fray in
July, forming a six-member committee that
questioned 78 people, including Hall-Mark
executives, Sonali bank officials and others whose
names had surfaced - including the PM's adviser.
Hall-Mark started off in the readymade
garments industry in 2007 and loans and guarantees
from Sonali helped it to grow in the past two
years to the extent of having 80 "factories" -
although half of these are now known to have
existed only on paper.
The total loans
that Hall-Mark allegedly embezzled in collusion
with Sonali Bank officials since 2010 amount to
26.86 billion takas. That amount was found by the
central Bangladesh Bank to be outstanding after
Hall-Mark paid off 4 billion takas. An additional
9 billion takas were disbursed to five other
companies.
ACC deputy director Mir
Mohammad Zainul Abedin Shibli, describing the
scandal as the "biggest misappropriation" in the
country's banking history, said part of the scam
involved credit facilities known as inland bill
purchases "fraudulently showing some of the
Hall-Mark officials as owners of various
businesses".
Hall-Mark allegedly obtained
short-term cash loans, backed by fraudulent
collateral in the form of factories and land, and
non-funded loans, which involve guarantees,
letters of credit and other documents which can be
sold on. A company taking a non-funded loan is
supposed to pay back the money involved after the
related import of machinery and products once
these are sold or used in production.
Hall-Mark group general manager
(commercial) Tushar Mahmud, admitted to the Daily
Star newspaper that the company diverted 15.68
billion takas in short-term loans into long-term
investments, said, "It takes a long time to get a
project loan. We know the way we've utilised the
working capital for long-term investments is not
proper."
His company owes Sonali Bank
around 7.01 billion takas in non-funded loans,
mostly in the form of guarantees against letter of
credits.
Hall-Mark managing director
Tanvir Mahmud initially told the media while
visiting the ACC office that he had "20 times more
wealth than the loan that was taken". By September
he had toned down his boast of wealth to request
that the authorities give him 20 to 30 years to
repay the outstanding amount owed.
It is
unlikely that the entire amount will be recovered,
Salehuddin Ahmed, a former Bangladesh Bank
governor told Asia Times Online, as "Sonali bank
cannot even recover money through collateral as
most of the documents provided by Hall-Mark were
forged. As such, most of this money is already out
of the banking system."
He believed some
of the loans may become a "bad debt" for Sonali
bank, as has been the fate of most cash fraud in
Bangladesh over the past few decades, including
the Omprakash Agarwal loan scandal of 2002.
That year, Omprakash Agarwal, an Indian
national engaged in yarn and textiles dyes imports
in Bangladesh since 1977, disappeared after taking
loans worth 3 billion takas from five private
banks.
Other incidents include
misappropriation of 6 billion takas by a man named
Nurunnabi in Chittagong in 2007 through a false
local letter of credit and the embezzlement of 6
billion takas withdrawn without cheque from
Oriental Bank in 2006. That case remains unsolved.
Salehuddin said funds in such fraudulent
loans are usually siphoned out of the country.
This money cannot be traced and recovered as
"during such situations, the attorney general from
Bangladesh would need to write to the attorney
general of the country to which the money may have
been siphoned to. In Bangladesh, this process has
not been effective due to the lack of coordination
between the central bank, the anti-corruption
commission, the attorney general's office and the
foreign affairs ministry. So money laundered has
not been recovered much."
Meanwhile,
Bangladesh Bank on Sunday relaxed restrictions it
had made on the issuance of letters of credit that
it had imposed after the Sonali Bank scandal
broke, but it will continue to require local
branches to obtain prior approval from head
offices on issuing inland bill purchases, the
financial device allegedly involved for much of
the Hall-Mark scam.
Syed Tashfin
Chowdhury is the Editor of Xtra, the weekend
magazine of New Age, in Bangladesh.
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