UNIVERSITY OF CENTRAL PUNJAB

Business Ethics Project

Topic: Corruption in Pakistan Railways and Banking Sector

Presented To: Prof. Farzeen

Presented By:

Bilal Ilyas L1F08MBAM2087

Hammad Amjad L1F08MBAM2034

Arslan Ahmad L1F08MBAM2049

Syed Sajjad Zafar L1S08MBAM0091

Zubair Safdar L1F08MBAM2042

Section: “A”

Date of Submission: 02nd June, 2010

Corruption in Pakistan Railways
and Banking Sector

What is Corruption:

The word corrupt (Middle English, from Latin corruptus, past participle

of corrumpere, to destroy: com-, intensive pref. and rumpere, to break) when
used as an adverb literally means "utterly broken". In modern English usage
the words corruption and corrupt have many meanings:
 Political corruption: the abuse of public power, office, or resources by
government officials or employees for personal gain, e.g. by extortion,
soliciting or offering bribe.
 Corporate corruption: corporate criminality and the abuse of power by
corporation officials, either internally or externally.
 Putrefaction: the natural process of decomposition in the human and
animal body following death.
 Data corruption: an unintended change to data in storage or in transit.
 Linguistic corruption: the change in meaning to a language or a text
introduced by cumulative errors in transcription as changes in the
language speakers' comprehension.
 Bribery in politics, business, or sport (including match fixing).

Corruption in Pakistan:

Pakistan 2008 Corruption Perceptions Index Score is 2.5. Out of 180

countries, it is ranked as the 46th most corrupt country in the world.
Corruption jumps 400% in Pakistan in 3. Corruption in Pakistan has surged by
whopping 400 percent in the last 3 years, said National Corruption Perception
Survey 2009 carried out by Transparency International. The National
Corruption Perception Survey 2009 (NCPS 2009) indicates that the overall
Corruption in 2002 has increased from Rs 45 Billion to Rs 195 Billion in 2009.

Corrupt Sectors of Economy:

 Police and Power

 Health and Land
 Judiciary
  Railways
 Customs & Taxation
 Banking

Pakistan Railways:

“To provide a safe reliable, modern ,efficient and cost effective infrastructure
to its customer, to contribute in building the economy of Pakistan and to look
after the welfare of its employee.”

Basically Pakistan railway has two Moto’s

 Safety first and always
 Avoid accident at all cost

Pakistan Railways (reporting mark PR) is a national state-owned rail

transport service of Pakistan, head-quartered in Lahore. It is administered by
the federal government under the Ministry of Railways. PR provides an
important mode of transportation throughout Pakistan. It is commonly
referred to as the "life line of the country", by aiding in large scale movement
of people and freight throughout Pakistan.

Role of Pakistan Railways:

Passenger traffic comprises 50% of the total revenue annually. During

1999-2000, this amounted to Rs. 4.8 billion. Pakistan Railways carries
65 million passengers annually and daily operates 228 mails, express and
passenger trains. Daily, PR carries an average of 178,000 people . The Freight
Business Unit, with 12,000 personnel, operates over 200 freight stations on
the railway network. About 39% of the revenue is generated from the
transportation of POL products, 19% from imported wheat, fertilizer and rock
phosphate. The remaining 42% is earned from domestic traffic.

Corruption in Railways:

There is a lot of corruption in various departments such as finance

department, material department, and purchase department and in employee
hiring. Pakistan Railways is continuously facing economic losses despite the
injection of subsidy worth billions of rupees to make it a profitable public
sector organization over the last two years. The National Assembly was told
on Thursday that during 2007-2008 it suffered a loss of Rs12.66 billion which
increased to Rs18.609 billion in 2008-2009. A fresh study for updating
valuation of railway’s assets is currently in progress, the minister said. During
2007-2008, the minister for railways said, 15 per cent increase in pay and
pension of federal government employees, phenomenal increase in oil prices
were the main reasons behind PR’s losses. Moreover, on the eve tragic death
of Shaheed Mohtarma Benazir Bhutto, railway’s assets suffered a massive loss
of Rs6.5 billion. The incident also caused a loss of Rs0.994 million due to
suspension of train services. It also faced a shortfall of revenue of Rs9.017
billion. Similarly, during 2008-2009 the organization had to face a shortfall in
it revenue of Rs6.439 billion. Likewise, the government increased pay,
allowances and pensions up to 20 percent which the PR had to pay from its
kitty.

Over Sale of Tickets:

Train is always overloaded with the

bundle of people and Customer feel very
difficult to take their seats. AS the railways sold extra tickets to customers and
the money earned from them is been taken some officials in their private
pockets.

Overpriced Tickets:

Small level employees of Pakistan

railway place stamps on the price of the ticket.
This disguises the price of the ticket and after
that employee can charge the amount that
they want. They sale there tickets to consumer
and charge high rate. Some time employee
does not check tickets and charge directly
from the passengers.

Train Parts

When train imported from other countries their parts are good. But the
employees of the company sale the original parts of train in high price and
purchase the cheap parts for the train. Railway assets are suffering the
massive loss of 6.5 billion.

Corruptions in Railway Funds

Higher authorities of railway are misusing the fund of railway this is the
reason that it is suffering the loss of over 18 billion rupees.

In-efficient and Overhired Staff

Railways have hired extra staff due ti some causes like
political pressures and many of them are earning
salaries by sitting idle at homes or working at other
places. If it is a big seat then there will be allot of
bribery and references for that individual. And the
working staff is a glowing example of mismanagement.

Railway land

There is major corruption on the land of the railway. The people occupy
a large amount of railway land. Some time government sale the land of railway
to private people in very less price and take commissions for that purpose.

Financial Corruption:

There is a great amount of burden on

PR of international debts as the previous
members of the institution have done a lot of
frauds and manipulated the accounts in their
personal favours. Now the amount of debt
has reached to 20.7 billions.

Other Corruptions:

 Sale of scrap at lower price

 Purchase of various equipments without bidding or from bogus parties
 Theft in furnace oil
  Theft in railway warehouses
 Goods stolen from carriage boogie
 Ticket prices increased at holidays (Eid, Other Festivals)

Corruption  in Banking of Pakistan:

“Something that is evil but is supposed to be good”

The banking sector is among the key domains of national economies around
the world. In addition to being the backbone of economic structures, it is an
important service provider from consumers’ perspective. It provides the
citizens a safe place for their savings, enhances their financial strength
through investment and saving schemes, and provides loans for self
employment.

In Pakistan Corruption become a very serious problem and corruption bring

down the money (wealth) in a country. In Pakistan there is no any department
where corruption does not survived.

Types of Corruption:

Bribery:

“An offer of money or favor to influence a public official”

Nepotism:

“Favoritism can be seen by public officials to relatives or fast friends”

Embezzlement:

“Take the property of government and money of others without

permission or right”

Causes of Corruption:

 The absence of an inquiry’s structure to deal with corruption.

  A weak civil society
 Low and imbalance economic growth
 Low political competition

Following are the few factors of corruption in the banks of Pakistan

 Sales force
 Invigilation team
 Bank account
 International currency conversion rates
 Consumer products
 Limited information to clients
 IRR
 ATMs
 Investments
 Reinvestments
 Profit rate
 Deduction of taxes
 Financial statements of the banks
 Operations department
 General banking
 Commissions system
 Hidden charges
 Hidden information
 Commitments
  Sales Force

Sales force of the bank is the most

corrupt department of the bank. Mostly
these employees of this department are
on the contractual basis so they are not
loyal to the banks or not take the job
seriously. They can do the same job for
other banks.

The sales forces are the people who interact and make network with the
clients. These sales people commit very different thing to the costumer, even
not given by the bank. Most of the times the sales team lie to the costumer for
making the sales and for commissions. There is no check and balance for the
sales team in any bank of Pakistan.

It is a common practice of the sales teams that they work for many banks as a
free lancer at a time. So they try to sale for the high commission rate, not for
the sales of bank’s products.

 Invigilation Team

The teams which normally go to the costumers for the verification of

willingness and eligibility of the costumer who applied for the consumer
product of bank. This team generates a report about the costumer and at the
basis of these reports, banks decide to provide the facility to the costumer or
not.

If this department works in a good way then they put a check and balance on
the sales force. But this department bribe from the costumer for making the
report.

 Bank Account and Deductions

In the bank accounts, normally we find current

account and profit & loss account in every bank
with different names. The banks use the amount
deposited in the accounts for the profit generation
of bank. At the time of with-drawl, costumer has to
wait for the money if the with-drawl amount is
high.

In the deduction, we find the unusually deduction from the account with many
names; like, service charges, annually charges etc. this deduction is made
without telling the costumers. On the other hand, we find the zakat deduction
without informing the costumer and normally the costumer don’t want to
deduction of zakat from the bank.

 International Currency Conversion Rates

Normally banks have own rates provider for the
international currency conversion rates and the
bank official do not agree on the other providers.
These minor margins make a huge difference in
the total. Ultimately the banks earn the profit and
the costumer has to suffer with the conversion
rates.

 Consumer Products

In the consumer department of the banks there is huge margin of corruption

and the department takes full advantage of it. These loss points normally do
not make tight intentionally by the banks officials because these points make
the sales high.

 Limited Information To Clients

Sales team and other department provide the limited information to the
clients which makes the product very attractive one for the costumers. Once
the sales is made, than costumer comes to know about the reality, the
deductions, the hidden charges but at that time no one take the responsibility
of it.
  IRR And Profit Rates

Internal rate of return is the rate on which banks

charge the interest to the costumers for it
products. Normally banks try to hide the original
internal rate of return to the costumers and
provide the false rate to attract the costumers
for the bank’s products. This tactic is used to
prove the better and cheep service than the
competitive banks.

 ATMs

In Pakistan, normally all ATMs are online linked to almost

all banks operating in Pakistan. We can with-draw the cash
from any ATM machine. These cash with-drawls have the
hidden charges and in some cases we found that the
costumers get the fake currency note from ATM machine
and no one can take the responsibility of that fake
currency note.

 Investments & Reinvestments

Banks make the investments in many areas of the deposited cash by the
costumers. Normally they also generate profits from there and don’t share any
profit with the costumers. Banks earn profit from the undefined way and
reinvest the profit to make the further more profits. We don’t find any
evidence for this corruption of the bank but it is the common practice and
done on the very large scale.

 Financial Statements Of The Banks

Costumers have multi accounts and multi consumer bank product attitude in
Pakistan. That is why; the default rate of Pakistan bank consumer is so high.

In order to avail the different facilities and the products

for which bank statement is required, the bank
costumers rotate the money from one bank to other to
make the sound financial bank statements. Illegally the
fake financial statements are also exists in the banks
and the bank managers take bribe for this act. This is
not a very common practice but this method is used
where the high profile financial statements is required.

 Operations Department And General Banking

In the operations department and the general banking there is lots of paper
works involved. In such documentations there is so many corruption involved
 in the internal working of banks. Although we don’t have any example of such
corruption and this work is not affected to the costumer directly, so that is
why this case is not discussed in the consumer lobby.

Conclusion

These are the few corruption and loss points in the banking sector of Pakistan.

Case:

The former President of Bank of

Punjab (BoP) Hamesh Khan has
been arrested and detained in the
United States.
The United States Department of Justice (DOJ) confirmed it to the Pakistani
government.

The Bank of Punjab (BoP) had granted a loan of Rs 9 billion to the Haris Steel
Industries (HSI) without fulfilling the legal requirements and the HSI subsequently
defaulted on the loan. The bank then filed a petition against HSI and made BoP
ex-President accomplice in the transaction – a charge its then President and CEO
Hamesh Khan denies to-date calling it "witch-hunting" and "politically motivated".

The Spokesman of National Accountability Bureau (NAB), Ghazni Khan, Thursday

confirmed Hamesh Khan’s arrest in the United States saying that the US Justice
Department had also informed the Pakistani government in writing of his arrest
and detention.

The Supreme Court of Pakistan had directed the federal government to arrest or
has arrested, the former President of Bank of Punjab Hamesh Khan, who is said to
be involved in billions of rupees of fraud case.