Wednesday, September 12, 2012

On theSonali Bank “Nonsense”

As published in the "As I see It" column, The Independent

There is something eerie about the way this government isconducting business. Huge sums of public money just seem to vanish into thinair with the government not even bothered. Not too long ago, a committee formedby the government and headed by Ibrahim Khaled, Chairman Krishi Bank and formerDeputy Governor of Bangladesh Bank reported that well known individualssiphoned off thousands of crores of Taka by well laid out scams. To date, noaction has been taken against any of them.

The mind boggling scam in the Sonali Bank should have scared theGovernment out of its wits. Instead, theFinance Minister and the Governor of the Bangladesh Bank thought it fit tofight over turf instead in an unbelievable response to the scam! It seems as ifa few thousand crores is hardly a sum to bother this government. Nevertheless,the same government has prostrated itself before the World Bank for funds tobuild the Padma Bridge that is substantially less than what has been alleged tohave been looted in the Sonali scam! Something does not make sense.

The Finance Minister dismissed the scam as “nonsense”. In a roundtable discussion, he accused the media for blowing a “minor” issue out ofproportion to give the impression that the banking sector was breaking down. Inthe round table, he said “Here, my banking crisis – which is not a crisis atall. It is a matter of 3000, 4000 crores. Nonsense! But you [media] are harmingthe banking sector by publicizing it. Banking sector is confronted withquestions whether all of it had crumbled down."

Meanwhile, the Directors of Sonali Bank have cleared themselves ofany wrong doing. The name of an Adviserto the Prime Minister has surfaced as one who may have had a major role in thescam. This has helped take the heat off from the Directors of whom at least fourare former members of the student’s wing of the ruling party that is now agovernment unto themselves in turning the public educational institutions ofthe country into their fiefdom. Most of the other members of the Board of theBank have been appointed by the Government on political considerations.

The ease with which the Hallmark Group siphoned the money raisesserious concerns whether the country’s huge national banks are in safe hands. Evidenceof the fraud by Hallmark that came out in the media revealed that itwascommitted with consummate ease. It was only because of the insistence of anofficial in the Bank’s audit department that the scam was exposed. If thisofficial could have been won over by bribe to be a part of the good number ofinsiders who assisted the scam, then Hallmark would have digested the Taka 3547crores and ready to grab more.

According to Bangladesh Bank regulations, there are number ofmeasures to check such fraud in the private and nationalized banks. The bankshave internal audit and the Bangladesh Bank itself acts on a day to day basisas the watchdog over scams such as the one in Sonali Bank. It seems none ofthese safety nets worked in case of Hallmark that raises serious questions aboutinvolvement of many more Sonali Bank officials other than those against whomcharges have been brought after the scam was exposed.

The credit line that was exposed to Hallmark against projects thatwere never there raises serious questions on the conduct of the Bank’s topmanagement. The branches that gave Hallmark the credit lines did not have thefinancial power to do so. Hence the Managing Director of the Bank would need tobe questioned about his role. If he was not involved in the scam, then he couldsurely be faulted for his failure to check the fraud that people working underhim have committed.

The role of the Chairman and the Board would also need to bereviewed to determine whether they have had been any part of the scam. TheBoard is there to ensure that not just rules and regulations laid down by theBangladesh Bank are followed meticulously but also that the Bank officialsconduct their business on ethics and morality for they deal with money depositedmostly by the public in good faith. . Relevant officials in Bangladesh Bankshould also be question to explain the ease with which the scam was carriedout.

The government, however, seems to believe otherwise; that thesebanks are its property where rules and regulations together with ethics andmorality can be dispensed with at will. The Finance Minister’s “nonsense” thereforeassumes significance because in uttering his favourite word he failed tounderstand the significance and seriousness of dealing with public money! Byhis sarcasm, he has highlighted the factthat neither he nor the government can be trusted with public responsibility.That the government really gives a damn to the outrage in the media over thescam was underscored when it extended the contracts of the Chairmen of thenationalized banks, including the Sonali Bank after the media speculated thatthe latter was on way out. The extensions perhaps may have been thegovernment’s response to this speculation!

The Finance Minister’s reaction may have been intentional; todivert attention to politicization of the banking sector to which he hascontributed wittingly or otherwise. Earlier governments politicized the civilbureaucracy and stopped there. This government has made the civil bureaucracyan extension of the party but did not stop there. The public universities havefallen victim to this mindless politicization where party activists have beenappointed as Vice Chancellors. In such mindless politicization or to use abetter term, a spoils system gone haywire, the Awami League has given itsactivists positions of Directors in the nationalized banks. These positions donot give the incumbents any salary or any other privileges except an honorariumfor attending the meetings of the Board. Nevertheless, the Directors haveconsiderable power if they choose to exercise it. It is the Board that approvesall credit lines, importantly, the credit lines like those given to Hallmark.

It is common knowledge that Directors in private and nationalizedbanks routinely use their influence in favour of businesses in which they have directand indirect interests. They are also known to use such influence for personalbenefit. In fact, one of the major concerns of the Bangladesh Bank is to ensurethat the Directors of these banks do not misuse their positions for businessesin return for personal favours. Thus when this government appointed partyactivists, many with Chatra League background, to the board of nationalizedbanks, there was widespread concern inthe banking sector that they would misuse their position.

Ibrahim Khaled highlighted the danger of appointing former ChaatraLeague cadres as Directors of the nationalized banks when asked to comment onthe Sonali Bank scam. It is to this danger that the Governor of Bangladesh Bankalso alluded when he wrote to the Finance Minister to reconstitute the Board ofthe Sonali Bank. It is therefore extremely surprising that the Finance Ministerwho appointed these party activists asDirectors in the nationalized banks has failed to see the real danger to whichthe Governor and the Chairman of the Krishi Bank have tried to draw thegovernment’s attention. Unless immediate steps are taken to reconstitute theBoards of all the nationalized banks, the fears which the Finance Minister has sarcasticallydismissed as “nonsense” may in fact take down the whole banking industry whichaccording to many insiders is in real need of overhaul and restructuring.

The Sonali Bank scam brings to memory the way the first AL Governmenthad nationalized the industries immediately after independence and had placedparty activists in key positions. These party activists behaved as if theindustries were theirs to plunder and loot that they did merrily thatcontributed in a major way to making the government unpopular. It is thereforesad that this Awami League led government is repeating the mistake and evenmore sad that the Finance Minister is dismissing as “nonsense” the warningsthat the media is sending to it for the good of the party, the government andthe country.

The writeris a former Ambassador to Japan.

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