Financial

scams in
Banks
 Group: Synergy
Presented By Presented To

Mr. Afif Bin Mustakim

Lecturer

Jahangirnagar University
Table of Contents
1. What is Financial Scam
2. The Basic Bank scam
3. Why & how this scam occurred?
4. Potential solutions and consequences
5. Financial fraud in Punjab National Bank
6. Why & how this scam occurred?
7. Potential solutions and consequences
 What is Financial Scam?

Tamanna Haque (L) 1810

Financial Scam
The use of To own or hold by a
illegal means financial institution

To obtain money,
assets
 The BASIC
Bank scam by
Sheikh Abdul
Hye Bacchu
Former Chairman of BASIC Bank Sheikh Abdul Hye alias Bachchu,
who is believed to have masterminded the bank's Tk4,500 crore loan
scam, still remains untouched by both the law enforcement agencies
and the Anti-Corruption Commission (ACC) on the issue of his being
brought to justice.
Case Background
Notorious Fraudster committed BASIC Bank
scam in 1990s

Prepared schemes to investors and depositors

Tk. 4500 crore laundered most of the funds for

personal use

Bangladesh Bank enquired and collapsed in

between 2009 to 2013
Basic Bank Violates the Rules

Loan Governance Lack of sound

Irregularities failure management

(The Daily Star, 2016)

Why & how this
scam occurred?

Imtiaz Jahan 1835

11
 Why & how this scam Occurred

01
Dozens of anomalies in distributing loans by
scam-hit BASIC Bank during the tenure

02 03
BB & finance ministry 59 objections in extension
mentioned Bachchu's name of loans and other banking
in the scam, the ACC didn’t activities in 2010-13
 Financial Informations

Financial losses of 60 crore SFG Shipping

2009-2014 estimated & 65 crore Shifan
Tk 3884 Crore Shipping on 2012

110 in 2014, 314 in 90 crore – Amir

2015, 1493 in 2016, 684 Shipping and 25 crore
in 2017, 354 in 2018 - Asian Shipping
 Auditor Findings

01 02
loans to shipping lines created
approving loans by branch
responsibility of recovering
offices did not provide
Tk 212.51 crore.
necessary documents.

03 04
borrowers had no previous auditors penned 58 objections
experience of business in details in the report
Former Governor’s Opinion
★ Governor said board of directors and the
chairman could not avoid responsibility
★ Court had rebuked the commission’s lawyers
★ BB found the involvement of Bacchu in
extension of shady loans
★ FM told that action could not be taken against
Bacchu because of ruling Awami League leaders.
 Potential solutions and
consequences of BASIC
Bank Scam

Sheikh Monia Ali 1817

16
The Consequences of BASIC Bank Scam

01 02
Pay Scale Salary Deduction
Unable to support high The Bank has moved
scale of pay to cut employees
salaries
03 04
Salary Structure Others Benefit
Cancelled its Cancelled other
existing salary extra financial
structure benefit
 Potential Solutions
Improved Public Stronger
Regulation Awareness Enforcement

Strengthen Educating the Improve

regulations public about enforcement
and financial of financial
oversight of scam laws
financial
institution
Potential Solutions (Continued)

Improved Collaboration
Technology

Implement Sharing
improved Information to
security identify risk
measures to
detect fraud
 04

Financial Fraud in India

Rubaiya Jannatul Ferdaus 1816

Punjab National
Bank scam by
Nirav Modi
Punjab National Bank (PNB) India’s second largest public sector bank
released a disaster on 14th February 2018 by revealing a scam of
Rs.11,400 crore directed by one of the country's richest businessmen of
the diamond, Nirav Modi. The “biggest bank loot scam in 70 years” in
independent India happened in one of the largest Public Sector Bank
that had trembled entire banking sector.
Case Background

Mr. Nirav Modi, defrauded Punjab National Bank

(PNB) of over $1.8 billion in 2018

The fraud involved the issuance of fraudulent

Letters of Undertaking (LoUs) and SWIFT
Transfer.

The fraud was discovered in January 2018,

causing a major scandal in India's banking sector
and leading to the resignation of PNB's CEO.
Violated Systems
Letter of Undertaking
LOU’s were issued in favour of
Nirav Modi by passing the bank’s
reporting system using SWIFT
messages to overseas banks
without authorization.
SWIFT Transfers
Two employees of PNB
directly used SWIFT to move millions
of
dollars across borders every hour and
bypassed the core banking system
 Why & how this
scam occurred?

Arafat Hossain 1826 26

 How this scam Occurred
01
Issuance of fraudulent Letters 02
of Undertaking (LoUs)
Unauthorized use of SWIFT
messaging system
03 04
Concealment and Detection and
rotation of funds disclosure
 Impact on the Stock Market
Union Bank of India
reported loss of 5.8 per cent
that led to Rs. 633 crores of
erosion in its overall market
capital at the time
Axis Bank
The share price of Axis
Bank fell by roughly 3.4
per cent, this downward
spiral on up to to 15
February 2018
Allahabad Bank
The bank saw a stock price
drop of over 9.9 percent that
continued till the 15th of
February 2018
SBI
The State bank of India saw
shares plummet by 3.34 per
cent, with there being an
overall market value drop
of over Rs. 8,329 crores
 Potential solutions
of PNB Bank Scam

Nishat Islam 1838 29

 Potential solution
Regulations and
guidelines Use of technology
Banks should strictly Banks should use
follow the RBI guidelines advanced technologies
& Proper checks and like artificial intelligence,
balances should be put in machine learning &
place. blockchain.
Internal
audit system Accountability
Banks should strengthen There should be strict
their internal audit system accountability for the
& There should be a actions & Stringent
system of rotation of staff punishment should be
in sensitive positions. meted out
 Consequences

Loss of
Financial
public trust
instability

Reputational Legal action

damage
 Conclusion
Strong internal
controls
Adherence to
regulations
Advanced tech

Transparency

Accountability
 Thanks!

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