Business Fraud and Its Impact on Bangladesh’s Economy

On September 5 of this year, hundreds of aggrieved depositors staged a sit-in and hunger strike at the office of Ahmadeia Finance and Commerce MCS Limited, Kafrul to demand money owed.

A victim named Abdur Rahim deposited 34 lac takas in Ahmedia Finance in 2021. The company paid dividends for the month of January and February. Since March last year, the company has not returned the principal amount, let alone the dividend. Abdur Rahim died of a stroke due to worry about not getting the principal amount back.

Now the question arises: will you be willing to invest after seeing the case of Abdur Rahim and the fraud of Ahmedia Finance? Before one answers the question, one needs to learn about financial literacy and also about business fraud which will enable one to answer the raised question logically.

Now to define fraud we need to see it in the broadest sense. Fraud can encompass any crime for gain that uses deception as its principal modus operandi. Force, trickery, or larceny — all offenses that employ trickery are frauds. Thus, deception is the linchpin of fraud.

Yet, all frauds involve some form of deception, not all deceptions are necessarily frauds. Under common law, four general elements must be present for a fraud to exist:

1. A materially false statement

2. Knowledge that the statement was false when it was uttered

3. Reliance of the victim on the false statement

4. Damages resulting from the victim’s reliance on the false statement

The impact of business fraud in Bangladesh is at a very young stage compared to the historical context. To better understand the concept of economic crime, it is necessary to see the history of this fact. This type of crime started only at the beginning of the twentieth century. By the middle of the same century, it got “strengthened” and became a phenomenon by the end of the twentieth century and particularly at the beginning of the twenty-first century.

Bonger (1905) was among the first researchers who made the difference between “street” crime and “economic” crime. Later on, Sutherland (1940) defined “white collar criminality” as being closely related to the upper classes showing there really existed another crime (from the upper classes) punished by the criminal law but criminology had not paid any scientific attention until that time.

While Bonger (1905) considered an economic crime as a crime on the property, Sutherland (1940) considered this crime as a crime of white collars. The phrase “white collar criminality”, as economic crime, was acknowledged by Sutherland in his famous work entitled “White Collar Criminals” published in 1940. Sutherland’s theory was practically based on the investigation of the criminal activities of 70 of the largest 200 companies in the United States.

So, this is a short glimpse of the history of acknowledging ‘economic crime’. Since “history repeats itself”, historical economic crime is happening at present in Bangladesh. Now, we will see some business fraudulent cases in Bangladesh and their impact on the macro-level:

We all know PK Halder, former MD of NRB Global Bank, who is a fugitive and wanted in Bangladesh for swindling over Tk 1,000 crore or more from different non-bank financial institutions (NBFIs). Through dozens of fake organizations, Halder and his associates misappropriated money from the NBFIs and accumulated properties outside of Bangladesh, resulting in thousands of investors, and depositors now on the streets. Bangladesh’s monetary structure is getting shamed by the international community. NBFI’s audit cost has risen after PK Halder’s scam.

According to an investigative report of Jamuna TV on March 11, 2022, Ishaq Ali Moni sometimes becomes a newspaper editor and sometimes a corporate officer. Ishaq was always being decisive for financial gain and targeted different organizations. With time, he was deceiving one after another by arranging various fake institutions. Ishaq became a grand master of deception. Okapia handset company is also a victim of his fraud. He laundered more than 1,000 crore takas. And the consequences are even scarier. Many startups and businesses have closed down due to Ishaq’s fraud. From small furniture shops to technology companies, everyone got played by occurring crores of liabilities.

Yet, these scammers’ activities are not hitting our subconscious mind hard because our day-to-day life is occupied by market manipulators. Price hike of daily commodities has become a way to maximize the profits of unethical businessmen. The egg and sugar markets are fabricated by such market misconduct. Hence, general citizens are the sufferers as they are getting deprived of necessary nutrition. This market volatility is increasing day by day.

The bitter examples don’t end here. On August 7, 2022, RAB arrested 3 people for smuggling 190 thousand of Yaba pills hidden inside the oil tank of a cargo truck. This incident has brought serious challenges to the industrial supply chain. Now, various industries have to invest more to keep and maintain their supply chain secure from any illegal interference.

3 years ago in June 2019, a red alert was issued by banks in ATM booths only for foreigners because some foreigners were involved in stealing money from different booths. Even in 2022, some foreigners are still involved in ATM booth fraud. Hence many users have started to avoid ATM booths because of poor security systems. Banks are now facing challenges to provide ATM services.

Again, in march 2022, CID arrested five members of an online betting racket, involved in money laundering abroad through virtual currency and e-transactions earned from various gambling websites such as Bet365 and 9 Wickets. These online betting sites are hampering the sports industry of Bangladesh. Players’ careers are being destroyed. Huge sums of currencies are laundered every day.

These cases are just a few of the many cases. If we look into the real estate sector of Bangladesh, we will find major economic irregularities. Bangladesh Financial Intelligence Unit conducted a sectoral risk assessment of the real estate sector. They made 5 major observations which are:

1. Real Estate Sector lacks a single authority for licensing

2. Licensing authorities for real estate do not have authority for AML (Anti Money Laundering) or CFT (Combating the Financing of Terrorism) supervision

3. Internal control mechanism is well coordinated.

4. There is no record of administrative enforcement actions taken in the past by law enforcement authorities regarding non‐compliance with AML requirements in the real estate sector.

5. There is no record of convictions, and criminal enforcement actions taken in the past by law enforcement authorities regarding non‐compliance with AML requirements in the real estate sector.

These major lacking will hit the country’s economy badly if the stakeholders do not install a proper AML framework in the real estate sector.

In 2014, robbers entered the vault of a Sonali Bank branch by digging a long tunnel and fled with 16 crore takas while a different gang robbed 38 lac takas from the vault of another branch exactly in the same way. All these would be black money after the robbery. Yet the provision is there so they can use this money to buy houses or apartments without any questions being asked about their source of earnings. Thus, a large sum of black money is mixed up with the regular market economy of Bangladesh.

Now if we shift our attention to the tourism industry of Bangladesh, a gang rape case was filed at Cox’s Bazar in march 2022. The incident left the country in shock and there was a massive decline in tourist numbers immediately afterward. The hotel business and local markets faced terrible economic losses. Bangladesh is facing a dollar crisis now and, in this situation, the tourism industry could have played a great role. But crime like this would prevent the growth of the tourism industry.

A proper national monetary policy on managing economic crime has to be restructured effectively. The commercial advertisement of bkash “Hello, I am Nahid from Bkash” is not a fun thing anymore because such fraudulent phishing has turned into serious threats. Recently, in a press release, it was declared that the Police Bureau of Investigation (PBI) is going to be empowered to check and identify money laundering. Surely it will be a good initiative to mitigate the country’s financial crimes.

This is important that we acquire financial literacy and stay aware of fraudsters. Otherwise, we may just end up being another example like Abdur Rahim (given at the starting point of the article). According to a report, Sonia Bashir Kabir, founder and managing partner at SBK Tech Ventures and SBK Foundation, said, “We have required devices, infrastructure, and connectivity for MFS (mobile financial services), but a lack of awareness and literacy is the reason for fraud”. So, it is needless to say financial literacy has become a must.

Abrar Mahmud is an undergraduate student at the Army Institute of Business Administration, Savar.