Financial crimes thrive on a lack of corporate ethics: study

The lack of business ethics is the main cause of the increase in financial crimes in the banking sector, according to 73% of respondents in a survey.

The lack of exemplary punishment has been identified as the second leading cause. Other reasons include lack of motivation, poor compensation and poor governance.

A study on "Corporate Ethics and Financial Crime in Banks: The Bangladesh Perspective" associated with the survey conducted by the Bangladesh Institute of Bank Management (BIBM) has was unveiled yesterday at a workshop.

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

About 70% of respondents indicated that internal control systems and non-independent internal audits were the main causes, according to the survey.

She found that two-thirds of banks have faced some form of financial crime lately. About 65% of banks reported having experienced one or more financial crimes between 2014 and 2016.

However, 35% of banks said surprisingly that they had not faced financial crimes during the period.

It is good that banks have not suffered any losses as a result of financial crime, but it is not unlikely that banks are reluctant to disclose information about such incidents, according to the research. .

The survey identified three segments – general banking, credit and IT – as the most sensitive to financial crimes. The number of credit card fraud has increased dramatically in 2016-17, according to the survey.

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

Managing liquidity crises is now the biggest challenge for the bank instead of doing business, he said.

This is the best example of how a lack of ethical business practice can cause disaster at a bank, Hassan said.

The Farmers Bank is suffering from a severe financial crisis resulting from the corruption of loans and unethical practices of members of the board of directors. The loss of reputation has caused depositors to withdraw money, further aggravating the crisis.

The value of the image or brand is more important to a bank than the management of default loans, said Nurul Amin, former managing director of Meghna Bank.

He said that depositors' confidence was the main asset of a bank and that if a bank lost its reputation, it would cause a liquidity crisis.

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

But the central bank's effort can not only stop the crime, he said, adding that all stakeholders and banks should work together to establish an ethical practice.

Chowdhury, also the former managing director of Pubali Bank, insisted on building professional behaviors in the organization to prevent financial crimes.

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