Example of Corporate scandals/failure in Pakistan.

One of the biggest Pakistan’s corporate fraud scandal was of the case of Axact and BCCI where New York
time reported that the company was running a fake diploma business over the internet. It describes how
scores of unknowing victims–from accountants in the Middle East to bakery workers in Michigan–have
been snookered by Axact’s scheme. This scam targeted weak clients across the world, who highlighted
total 370 sites of bogus educational institutions, and netted tens of millions of dollars in annual
revenues. Some Pakistanis worry that these revelations will deliver a body blow to Pakistan’s already-
beleaguered global image. On May 20, Interior Minister Chaudhry Nisar Ali Khan admitted that the affair
“raises questions” about Pakistan’s reputation. Still, as big and bad as the Axact affair is, it is nowhere
near as serious or damaging as another infamous fraud scandal that hit Pakistan more than 20 years
ago.

In 1991, details emerged of astonishing levels of malfeasance at an institution called the Bank of Credit
and Commerce International (BCCI). Founded in 1972 by a Pakistani named Agha Hasan Abedi (who
served as director until 1990), the bank became synonymous with fraud on the most massive (and
global) of scales. BCCI attracted all the wrong superlatives: Biggest corporate criminal enterprise, biggest
Ponzi scheme, and biggest bank fraud scandal. 

BCCI was unabashedly global. It had offices around the world, including a headquarters in London. It was
incorporated in Luxembourg, and many of its shareholders were in the Arab Gulf. According to
the Time investigation: “BCCI was always a Pakistani bank, with its heart in Karachi.” Abedi, its founder
and long-time director, was Pakistani, as were many of its middle managers and top officials. The bank
was close to Pakistan’s political leadership, providing financial assistance to military leader Gen. Zia al-
Haq and finding a job for his brother. According to Kerry’s report, BCCI also helped finance Pakistan’s
nuclear weapons procurement. Much of the bank’s start-up capital came from wealthy Pakistan-based
depositors. Overseas Pakistanis used the bank to send money home. Bank accounting ledgers were in
the Urdu language. BCCI contraband shipments often passed through Karachi. And when investigators
began honing in on the bank’s activities, BCCI officials from around the world fled to Pakistan.

Pakistan’s relationship with Washington (along with U.S. ties to BCCI) may help explain why the bank
was able to carry out its criminal acts for so long, even after information started to circulate about BCCI’s
illicit activities. Washington and Islamabad worked closely in the 1980s to fund and arm anti-Soviet
mujahideen fighters in Afghanistan, and the United States may have concluded that confronting
Pakistan about the bank would risk provoking Islamabad and jeopardize bilateral cooperation. There is
actually evidence that Washington worked directly with BCCI to support anti-Soviet forces in
Afghanistan; an internal BCCI memo from 1987 claimed that USAID asked the bank to purchase 1,000
mules for mujahideen fighters there.

The Axact and BCCI scandals share several things in common. Many of their activities were Karachi-
based, they arguably committed unprecedented levels of fraud, and their operations were highly global.
Yet the similarities end there.

The damage from the Axact scandal will likely be relatively modest. Those directly and deleteriously
affected will be restricted to the unfortunate souls duped into paying big money for fake degrees, and to
Axact’s several thousand employees. Pakistan’s impressive IT sector–which features world-renowned
innovators and award-winning software, and which Axact, by describing itself as a software firm, claims
to be a part of–should emerge unscathed. Most Pakistanis regard Axact–a modest IT exporter–as more
of an outlier than a formal member of the IT sector.

By contrast, the BCCI scandal produced a dramatic and widespread impact. The bank’s collapse, for
example, robbed 40,000 Bangladeshi depositors–and many other working-class account holders–of their
life savings. Central banks from poor countries with BCCI accounts feared major economic losses. It took
21 years, nearly $700 million, and more than 60 prosecutions to complete a legal settlement process.

Additionally, the scandal caused great embarrassment for governments around the world. According to
Kerry’s report, BCCI had relationships “that ranged from the questionable, to the improper, to the fully
corrupt” with officials in Pakistan and at least 31 other nations.

And then there is the issue of terrorist financing.

In the early 2000s, American and French intelligence officials discovered that companies previously
affiliated with BCCI continued to work with Bin Laden (a one-time account holder) after the bank’s
demise, and that Bin Laden’s financial network model was similar to the one used by BCCI in the 1980s.
An American investigator of BCCI would describe the bank as “the mother and father of terrorist
financing operations.”

This all makes a fake diploma scam, as reprehensible as it is, sound downright harmless by comparison.