CorporateEthicsandFinancialCrime PDF

Banking Research Series 2017
A Compilation of Research Workshop Papers
Paper-One
Corporate Ethics and
Financial Crime in Banks:
Bangladesh Perspective
Bangladesh Institute of Bank Management

Section - 2, Mirpur, Dhaka – 1216
Banking Research Series 2017
Published: July 2018
Editorial Team : Dr. Barkat-e-Khuda

: Dr. Toufic Ahmad Choudhury
: Dr. Shah Md. Ahsan Habib
Coordination Team : Dr. Shah Md. Ahsan Habib

: Md. Nehal Ahmed
Support Team : Sharmina Nargish

: Md. Al-Mamun Khan
: Sujan Kumar Ghosh
: Tarannum Purween
Graphics & Design : Md. Nasir Uddin
Published by Bangladesh Institute of Bank Management (BIBM)

Plot No. 4, Main Road No. 1 (South), Section No. 2
Mirpur, Dhaka-1216, Bangladesh
PABX : 9003031-5, 9003051-2
Fax : 88-02-9006756
E-mail : bibmtraining@bibm.org.bd
ahsan@bibm.org.bd
Web : www.bibm.org.bd
Printed by Nahida Art Press, 64/F, R.K. Mission Road Dhaka-1203, Bangladesh.
The views in this publication are those of authors only and do not
necessarily reflect the views of the institution involved in this publication.
Forewords
Bangladesh Institute of Bank Management (BIBM) has introduced a number of

research-based discussions/workshops on contemporary financial and banking issues
in its annual training calendar from 2010. In these discussions and workshops, a
keynote paper is usually prepared by the faculty members of the BIBM, highlighting
issues which called for wider dissemination to and discussion with a mature audience
of banking professionals. After thorough deliberations on the relevant issues, a number
of recommendations are usually derived on different aspects of the topic which are
incorporated into the final version.
We published the first Banking Research Series in 2011. The present compendium, the
seventh of the Banking Research Series that combines eight papers, we hope, would
attract attention of not only bankers, but other professionals like credit analysts,
economic consultants, economists, development practitioners as well as the academic
community. BIBM would also welcome comments, critiques and suggestions on the
publication.
Dr. Toufic Ahmad Choudhury

Director General
Contents
Abbreviations i
Executive Summary iii
1. Introduction 01
2. Understanding Relevance of Corporate Ethics for Preventing Financial 03
Crime – Literature Review
2.1 Concepts of Corporate Ethics and Unethical Behaviors in Workplace 03
2.2 Ethics in Banking and Code of Ethics 05
2.3 Financial Crime in Banks and Relevance of Ethics 07
2.4 Addressing Financial Crime in Banks by Promoting Ethics 11
3. Review of the Regulatory and Institutional Set-up for Addressing 14
Financial Crime and Ethical Concerns in the Context of Banks of
Bangladesh
3.1 Regulatory and Institutional Set up to Address Financial Crime in 14
Banks
3.2 Policies and Codes to Promote Corporate Ethics of Banks in 17
Bangladesh
4. Understanding Unethical Corporate Practices as the Reason for Financial 20
Crime in the Banking Sector of Bangladesh – Survey Observation
4.1 Two-third of Banks Faced Some Forms of Financial Crimes in Recent 20

Time
4.2 Bank Employees Face Actions for the Incidences of Financial Crimes 21
4.3 Weak Internal Controls, Lack of Awareness, and Dishonest 22
Employees are among the Major Causes of Financial Crimes-
Suggested Initiatives in Banks’ Survey
4.4 Unethical Behaviors by the Co-employees in Banks-Perception Survey 25
on Bankers
5. Cases on Unethical Corporate Practices as the Reasons of Financial Crime. 29
6. Issues and Challenges to Improve Corporate Ethical Practices as a 37
Measure to Address Financial Crime in Banks in the Country
References 41
Appendix 47
List of Tables
Table-3.1: Inspection Conducted in FICSD during 2015-16 16
Table-3.2: Bank wise (top 6 banks) inspections conducted by FICSD in 16
2015-16
Table-3.3: Disclosure of Ethical Codes in Annual Reports 19
Table-4.1: Causes (Internal/ External) of Financial Crime in Bangladesh 22
Table-4.2: Ranking of the Reasons of the Involvement of Bankers with 23
Financial Crime
Table-4.3: Unethical behavior towards Employees by the Co-employees 25
Table-4.4: Unethical behavior towards the Organization by the Employees 26
Table-4.5: Unethical Behavior towards Customers by the Employees 27
List of Figures
Figure-2.1: Top 5 Broad Types of Commonly Reported Crimes in the 08
Financial Sector of the Global Economy
Figure-4.1: Financial Crime faced by Banks in Bangladesh during the Period 20
2014-16
Figure-4.2: Action Taken by Banks in Bangladesh against Officials in 22
Connection with Fraud during 2014-16
Figure-4.3: Causes of Increase in Financial Crime in the Banking Sector of 28
Bangladesh (Employee Perception)
List of Boxes
Box-3.1: Summary of Corporate Governance Guideline 18
Box-3.2: Key Coverage of the Code of Conduct Guidelines of Bangladesh 19
Bank
Box-3.3: Areas of Core Values and Ethical Code of Conduct 20
Box-4.1: Initiatives Undertaken to Address Financial crime and Improve 24
Corporate Ethics in Banks
Box-4.2: Suggested Initiatives to Address Financial crime and Improve 24
Box-4.3: Suggested Initiatives to Reduce Financial Crime in Banks 28
(Employee Perception)
Abbreviations
ACC Anti-Corruption Commission
ACFE Association of Certified Fraud Examiners
AML Anti-Money Laundering
BAMLCO Branch Anti-Money Laundering Compliance Officer
BB Bangladesh Bank
BBC British Broadcasting Corporation
BFIU Bangladesh Financial Intelligence Unit
BRPD Banking Regulations and Policy Department
BSEC Bangladesh Securities and Exchange Commission
CBS Core Banking Solution
CDD Customer Due Diligence
CEO Chief Executive Officer
CFO Chief Financial Officer
CG Corporate Governance
CMMS Review Corporate Memory Management System
CSR Corporate Social Responsibility
FCB Foreign Commercial Bank
FICSD Financial Integrity and Customer Services Department
FSB Financial Stability Board
ICCD Internal Control and Compliance Division
KYC Know Your Customer
LC Letter of Credit
LD Loan Deposit Ratio
MLPA Money Laundering Prevention Act
NBFIs Non-Bank Financial Institutions
NGO Non-Government Organization
NOC No Objection Certificate
NIS National Integrity Strategy
NPL Non-Performing Loans
PCB Private Commercial Bank
SB Specialized Bank
SOCB State Owned Commercial Bank
SWIFT Society for Worldwide Interbank Financial Telecommunications
UNO United Nations Organization
VAD Vigilance and Anti-fraud Division
Banking Research Series-2017 i

ii Banking Research Series-2017
Executive Summary
Robust ethical practice in a corporate entity is crucial for pursuing sound business
operation and safeguarding assets. Employees should have very limited incentive and
fortitude to undertake unethical practices in an environment with integrity and
strong ethical culture. This is particularly essential in a banking environment where
assets are managed by the agents and management decisions are guided and influenced
by a panel that represents a small section of financial contributors. Global banking
industry has been coming across a surge in financial crimes. Practically, all key
stakeholders like Board, employees, clients, external organized crime groups or
influential sections and those with whom banks have business dealings might be
engaged in such crimes. These crimes range from fairly simple operations carried out
by individuals or small groups to highly sophisticated rings seeking funding for
criminal enterprises or terrorism. Several drivers including globalization, the
proliferation of banking channels, rising transaction volumes and technological
advancements have introduced new opportunities for financial crimes (Derek 2016).
Offenders are more sophisticated than ever and criminals continuously probe banking
organizations’ defenses through innovative techniques. Alongside big banks, small
banks are easy prey for criminals, as many lack robust systems to fend off threats.
Given the dynamism in the approach of financial crimes, it became a critical challenge
for banks to catch up with the development.
Banking sector of Bangladesh is increasingly facing the difficulties of financial crimes.

In spite of some notable improvement in the loan default status over the years, some
banks have still been struggling with high volume of non-performing loans (NPL)
when cyber frauds and other forms of sophisticated financial crimes are adding to the
burdens of the banking sector. It is true that all NPLs cannot be tagged with financial
crimes; however, there is growing body of literature (Venkatesh 2016) that termed
willful default as a criminal act. Various forms of asset misappropriation and money
laundering threats came up also as critical concerns. It is crucial to understand that
financial crime may have a destructive and devastating effect on the banking system of
the country. On the way to addressing the challenges of financial crimes, banks in the
country are mainly complying with growing requirements of the Central Bank. Truly,
these are extremely necessary for ensuring long-term stability and sustainability of the
banking sector. However, probably banks and other stakeholders are not adequately
focusing on the issues of developing and improving ethical corporate practices to
address the crime incidences as a long-term preventive factor. On this background, the
Banking Research Series-2017 iii

paper identified following research questions: Are unethical corporate behavior of the
internal stakeholders contributing to the growing financial crimes in the banking
industry? Are the corporate ethical codes and standards working for banks? What
initiatives and incentive structure might help improving corporate ethical practices and
thus contribute in preventing financial crime in the banking industry of Bangladesh?
On the way to finding the answers of the research questions, the research workshop
paper identified the following objectives: to understand the financial crime in global
and Bangladesh context, and examine the relevance of unethical corporate practices
as one of the responsible factors; to examine the corporate ethical codes, standards and
their applications in the banking industry of Bangladesh; and to identify the issues and
challenges that needs to be addressed to improve corporate ethical practices as a
measure to address financial crime in the country.
The paper is based on primary and secondary information. Secondary data were
gathered mainly from global crime surveys conducted in recent time and publications
on ethical issues, selected journals, publications and reports published by banks,
Bangladesh Bank and BIBM. Two questionnaires were used to collect primary
information from Internal Control and Compliance Department of banks, and bank
executives. Annual reports of 49 banks were consulted to identify the areas of core
values and ethical code of conduct in Banks. A number of case studies are included in
the report to attain the objectives. The paper adopted a relatively slim definition of the
financial crime i.e. ‘the non-violent crimes in the banking sector that results financial
losses’, by limiting the scope of the definition of ‘economic and financial crime’ by
UN (2015).
Occurrence of unethical behavior adversely affects work environments in banks and

traditional internal controls hardly prevent unethical behavior because human behavior
is influenced by a multitude of factors. To manage ethical behavior, a bank should take
the necessary time and allocate resources to look at formulating internal policy and
identifying behavioral factors that influence employees’ behavior in the organization.
Regulator has got a crucial role to play in this connection. Attention to these factors
contributes to a better understanding of financial crime and unethical behavior and can
help create more efficient internal control and compliance system. There are evidences
that, along with others, irrational profit targets, short-term approach and the following
aggressive banking might be a key source of unethical behaviors in banks. The bank
should determine the profit target rationally by giving due consideration to the
previous performance of the bank, performance of the banking sector, changing cost
iv Banking Research Series-2017

and risk structure and overall global and national economic scenario. Bank should
pursue long-term sustainability target rather than short-term ambitious profit target,
which negatively changes the risk management structure and culture of the bank. This
will also reduce the unethical and risky behavior of the bank employees. Fixation of
profit target may also be brought under the monitoring mechanism of Bangladesh
Bank.
Employees are required to know every new rules or policies undertaken in a bank. A
banker must also clearly understand what accepted ethical behavior is and what is not.
Code of Conduct must be a written down clear, consistent, motivating set of
guidelines. It might be wise to draft a basic set of general rules that act as guidelines
instead of trying to regulate everything. A living code is expected to be not too long,
has motivating texts, and is well implemented via communication and inspiring
awareness programs. Though banks are generally having a set of Code of Conduct, as
they claimed, generally these are not clearly communicated to the bank employees.
Communicating employees about the right behavior helps setting the right examples.
Codes can be communicated by letters or emails; separate intranet site; a section in the
in-house magazine; making them available at busy locations in the bank (such as the
reception, waiting rooms and the cafeteria); special information events; and mobile
apps etc. Regular awareness programs, story-telling strategy might be helpful for
banks. Awareness program should also be undertaken for the members of Board and
senior management.
If unethical behaviors are not recognized and acted upon, a bank runs the risk that
further incidents will occur. Apprehension of misconduct should, first and foremost, be
dealt with by direct bosses. Employees can be hindered by barriers when it comes to
raising certain issues, particularly if these are of a structural nature or if their
immediate superior is part of the problem. Especially in larger organizations, the
establishment of a safety net is important in this respect. Smaller banks sometimes
struggle with setting up a formal reporting procedure for employees to voice concerns
on possible misconduct. Every bank should have a proper reporting procedure on
possible misconduct. Promoting ethical practices require positive and negative
incentives. In a corruption-ridden system, an attempt to curb corruption can achieve
only modest success to start with, but with prolong vigilance and threat of punishment,
the behavior patterns may start to change. Exemplary punishment may discourage
internal perpetrators in getting involved in criminal and unethical activities. Unbiased
application of laws and regulations may also help in this regard.
Banking Research Series-2017 v

It is commonly argued that ensuring transparency and promoting employee
engagement might contribute significantly in preventing financial crimes and
promoting ethical behaviors. Establishing transparency through structures and
processes is a crucial strategy to foster an ethical organizational climate, which is
really important to regain customer confidence. Corporate values need to be connected
with measurable indicators and certain behavioral indicators might be included in the
performance appraisal system. However, for effectiveness, there must be a system of
fair treatment. Existing literature also confirmed a link between employee engagement
and the creation of an ethical climate. Friendly and engaging corporate culture that
helps increases positive peer relationships and a favorable working environment. A
dedicated department or unit may be established in banks for organizing informal staff
gatherings on a regular basis, which can help to increase peer relationships and reduce
unethical activities.
Role models facilitate the attainment of ethical behavior and ethical leadership
encourages ethical leadership in subordinates and colleagues. It is mainly about
network leadership, and regional and managerial leadership at all levels of banks. The
way ethical leadership flows from the top to employees is a new area of research and
needs further investigation. Demonstrating leadership role modeling and their
approaches fuel an ethical working environment. In this connection, corporate
governance practices are the key. It is practically at the center of developing ethical
corporate culture and motivation of the employees, which is the key to address
financial crimes.
vi Banking Research Series-2017

Corporate Ethics and Financial Crime in Banks: Bangladesh
Perspective
1. Introduction
Robust ethical practice in a corporate entity is crucial for pursuing sound business
operation and safeguarding assets. Employees should have very limited incentive and
fortitude to undertake unethical practices in an environment with integrity and
strong ethical culture. This is particularly essential in a banking environment where
assets are managed by the agents and management decisions are guided and influenced
by a panel that represents a small section of financial contributors. In recent times, the
essence of creating an environment is lauded globally that encourages corporate
ethical practices and offer tough disincentive to the financial crimes in banks.
Global banking industry has been going through a surge in financial crimes, and the
associated risks that are generally realized either by the banks own workforces or by
customers or by external forces or by their combinations. Practically, all key
stakeholders like Board of Directors, employees, clients, externally organized crime
groups or influential sections and those with whom banks have business dealings
might be engaged in such crimes. The ongoing evidence demonstrates that economic
crime is very much a diversified global issue, both in type of crime and across
markets. These crimes range from fairly simple operations carried out by individuals
or small groups to highly sophisticated rings seeking funding for criminal enterprises
or terrorism. Several drivers, including globalization, the proliferation of banking
channels, rising transaction volumes and technological advancements have introduced
new opportunities for financial crimes (Derek 2016). Offenders are more sophisticated
than ever and criminals continuously probe banking organizations’ defenses through
innovative techniques. Alongside big banks, small banks are easy prey for criminals,
as many lack robust systems to fend off threats. Given the dynamism in the approach
of financial crimes, it became a critical challenge for banks to catch up with the
development. If the perpetrators get advantage of deficiency in bank management in
terms of ethical corporate practices and culture, the risks become even higher. It is
evident that the issues of corporate ethics received special impetus following the most
recent financial crisis; however, unlike propagated by media, ethical banks are not a
response to the crisis but a result of a social movement that started in the 1970s
(Tischer 2013). But, probably for the first time, the stakeholders are associating
financial frauds and crimes with the unethical behaviors of banks and raising voice so
strongly to the essence of corporate ethics in banking.
Banking Research Series-2017 1

Similar to the banking sector of developed and developing economies, the banking
sector of Bangladesh is increasingly facing the difficulties of financial crimes. In spite
of some notable improvement in the loan default status over the years, some banks
have still been struggling with high volume of non-performing loans (NPL) when
cyber frauds and other forms of sophisticated financial crimes are adding to the
burdens of the banking sector. It is true that all NPLs cannot be tagged with financial
crimes; however, there is growing body of literature that termed willful default as a
criminal act (Venkatesh 2016). Also, various forms of asset misappropriation and
money laundering threats came up also as critical concerns. It is crucial to understand
that financial crime may have a destructive and devastating effect on the banking
system of the country. On the way to addressing the challenges of financial crimes,
banks in the country are mainly complying with growing requirements of the Central
Bank. Truly, these are extremely necessary for ensuring long-term stability and
sustainability of the banking sector. However, probably banks and other stakeholders
are not adequately focusing on the issues of developing and improving ethical
corporate practices to address the crime incidences as a long-term preventive factor. In
this context, the paper identified following research questions: Are unethical corporate
behavior of the internal stakeholders contributing to the growing financial crimes in
the banking industry? Are the corporate ethical codes and standards working for
banks? What initiatives and incentive structure might help improve corporate ethical
practices and thus contribute in preventing financial crime in the banking industry of
Bangladesh?
In an attempt to find answers to the above research questions, the research workshop
paper identified the following objectives: one, to understand the financial crime in
global and Bangladesh context, and examine the relevance of unethical corporate
practices as one of the responsible factors; two, to analyze the corporate ethical codes,
standards and their applications in the banking industry of Bangladesh; and three, to
identify the issues and challenges that need to be addressed to improve corporate
ethical practices as a measure to address financial crime in the country.
The paper is based on both primary and secondary data. Secondary data were gathered
mainly from global crime surveys conducted in recent time and publications on ethical
issues, selected journals, publications and reports of banks, Bangladesh Bank and
BIBM. Two questionnaires were used to collect primary data from the Internal Control
and Compliance Department of banks, and selected bank executives for opinions. A
total number of 20 government controlled banks, private banks and foreign banks
responded from the ICC; and around 200 bank executives responded to the opinion
2 Banking Research Series-2017

survey. Annual reports of 49 banks were consulted to identify the areas of core values
and ethical code of conduct in banks. A number of case studies are presented in the
report to gain further insights.
In this report, the term ‘business ethics’ and ‘corporate ethics’ are used
interchangeably. The paper adopted a relatively slim definition of the financial crime
i.e. ‘the non-violent crimes in the banking sector that results financial losses’, by
limiting the scope of the definition of ‘economic and financial crime’ by UN (2015).
The study heavily relied on case studies to draw inferences as precise data on several
crime incidences are hardly disclosed considering their sensitivities. Mainly, the
ethical behavior of the two direct stakeholders (Employees and Board Members) are
considered for data analyses. The paper has been finalized after incorporating the
comments of the designated discussants, participants and experts of the banking sector
in a research workshop.
The paper is organized into six sections. Section-2 is about conceptual discussion and
literature review on financial crime and ethical issues in the global context.
Institutional and legal arrangements for promoting corporate ethics to address financial
crimes in the context of Bangladesh are discussed in section-3. Section-4 analyses
survey data on the nature of financial crimes and relevance of corporate ethics in the
context of the banking sector of Bangladesh. Several cases are accommodated to link
financial crime and corporate unethical behaviors in banks in section-5. And finally
section-6 puts forward recommendation to address certain relevant challenges.
2. Understanding Relevance of Corporate Ethics for Preventing Financial

Crime – Literature Review
2.1 Concepts of Corporate Ethics and Unethical Behaviors in Workplace
Generally ‘Ethics’ is conceptualized as a set of principles used to determine what is
‘right’ when it comes to the conduct or behavior of an individual, corporate or a
society as a generally accepted norms (Askew et al. 2015). However, obviously the
notion of “generally accepted” norms varies between organizations, countries, and
contexts (Fein and Weibler 2014). In the context of business ethics, Johnson and
Scholes (1999) offered three perspectives and levels: macro level – the role of
business in the society; corporate level – corporate social responsibility and ethical
issues faced by individual corporate entities; and individual level – the behavior and
actions of individuals within organizations. The concepts are interrelated.

Corporate ethics, also referred to as business ethics, is the application of the same
types of ethical principles used to determine ‘right’ conduct of individuals that is
transferred to professional settings; and covers all ethics-related issues that come up in
the context of doing business (Schell and Natalie, 2009). Ethical behavior of
employees heavily depends upon corporate culture, and a strong ethical culture is
considered essential to make banks less prone to misconduct (Vigeoeris Rating 2017).
Employees in organizations emphasizing ethical values behave ethically, because the
corporate culture shapes ethical behavior (Birtch & Chiang 2014). Ethical issues often
emerge during the conduct of business when there are clashes between profit-
maximizing activities, and the underlying belief that social responsibility is integral to
the process of doing business. It applies to all aspects of business conduct, and is
relevant to the conduct of bank management, employees, and board as well (Francis
2000).
Unethical behavior in workplace is a matter of serious concern and might be a key

origin of malpractices. Unethical behavior can be defined as behavior that is illegal or
violates the moral standards of society (KPMG 2015). The unethical behaviors might
be with the customers, the colleagues, and other stakeholders. Unethical behavior
towards colleagues involves behaviors such as sexual harassment, discrimination, not
respecting employees’ privacy, or violating wage, overtime or benefit rules. Unethical
behavior towards the organization includes behaviors like stealing or misappropriating
assets, misusing confidential or proprietary information, or falsifying/ manipulating
financial reporting information. Unethical behavior by employees can not only affect
colleagues or the organization itself, but it can also cause harm to customers or the
general public. Still, the line between ethical and unethical behavior is not always easy
to draw, and the task is even more difficult if we take into account the differences in
moral standards between societies and cultures (Peterson 2002). It is very crucial to
understand under what circumstances unethical behavior at the workplace is more
likely to occur. Generally, one would think that unethical behavior occurs because
there are people with low morals who see an opportunity due to a lack of proper
internal controls. However, the published research findings have shown that the
possibility of unethical behavior at the workplace is influenced by a variety of factors-
two specific factors that came up in the surveys are employees’ work relations and
colleagues’ behavior (KPMG 2015).
Global evidences reveal that the frequency of unethical behavior at the workplace is
increasing. The Association of Certified Fraud Examiners (ACFE) regularly publishes
reports about occupational fraud and abuse. According to the ACFE Fraud Report

(2016), a typical organization loses 5 percent of its revenues to fraud each year; most
occupational fraudsters are first-time offenders; the victim organizations decided not to
refer their fraud cases to law enforcement, with fear of bad publicity being the most-
cited reason; over 8 percent of the victim organizations were fined as a result of the
fraud. Other available surveys on fraud and unethical business practices are based on
reports by board members, executives, and managers reveal that only a small fraction
of cases of unethical behavior eventually are brought to (criminal) court (KPMG
2015). The study noted that many incidents are probably never detected, or at least not
detected officially by a person in charge of addressing and investigating unethical
behavior.
2.2 Ethics in Banking and Code of Ethics

In the context of banks, Alamgir (2015) conceptualized ethics by trust, efficiency,
openness, transparency and accountability, development and community involvement.
Cooperative behavior promotes trust. Cooperative behaviour is rooted in a deep
concern for the welfare of others, which allows individuals to develop relationships
and trust (Weisel & Shalvi 2015). In the context of ethical banking, the task of banking
system should extend beyond the mere enforcement of a fiduciary relationship
between depositors and borrowers to ensure that it is discharged efficiently and
honestly and should attempt to ensure that the resources entrusted to their care are used
in a just manner. Morals in banking operations require integrity on the part of owners
and directors, senior management as well as junior officers dealing directly with
depositors and borrowers. Accordingly, integrity in banking operations requires
integrity on the part of owners and directors, senior management as well as junior
officers dealing directly with depositors and borrowers (Sobhan 2000). The approach
benefits society and social relationships. It is recognized that trust and morals in
banking are clearly linked to the ethical practices. Morality is the basis of human
social relations (Kouchaki et al. 2013). And, moral disengagement is a prerequisite for
unethical behavior and refers to cognitive reasoning that leads to unethical conduct
without emotional stress (Martin et al. 2014).
According to Islam (2011), there are four pillars in ethics in banking: First, banks
must comply with all laws, rules and regulations that are usually framed in any country
to ensure soundness of operations and to enhance confidence of the society. Second,
banks must ensure fair and equitable treatment of all stakeholders. Third, banks must
ensure full, truthful and transparent disclosure of their financial health. Fourth, banks
must behave as socially responsible corporate citizens.

Fair and equitable treatment of
transparent disclosure of their
responsible corporate citizens

Compliance with laws, rules
Ensure full, truthful and
Must behave as socially

all stakeholders
and regulations
financial health
Pillars of Ethics in Banking
Source: Based on Islam, 2011
From the perspective of ethical behaviors, the major actors in banks function in three
capabilities – corporate, collective and personal and thus, it includes Corporate Ethics
– ethical responsibilities of banks as corporate entities are limited to compliance with
law; Collective Ethics – application of ethical principles in the management decision
making that refers both to external subjects and the environment and ethical relations
within the institution itself; and Personal Ethics – involves adherence to ethical
principles and norms by all stakeholders in a bank. Such stakeholders may be divided
into two categories: direct and indirect. The direct stakeholders include all employees,
from director to doorman while the indirect stakeholders include depositors, creditors
and others having any transaction with the bank (Khan 2009).
In the context of the banks, ethical duties can be enforced in three ways. First, ethical
obligations are imposed by the society in the form of law, rules, regulations and moral
suasion of the central bank. Second, ethical guidelines may be prescribed by codes of
conduct adopted by a bank individually or by an association of banks collectively.
Finally, laws and codes are not enough; they must be supplemented by the voice of
conscience. Individuals in banks enforce laws and codes. The ultimate ethical
responsibility lies, therefore, with the persons who run the bank. (Khan 2009).
Codes of ethics have been one of the primary policy responses to large scale acts of
corporate crime (Gill 2015). A code of ethics is a code of conscience based on
fairness, honesty, courtesy, self-restraint, and consideration of others. Basically, it is

based on a collective sense of right and wrong. An ardent deontologist asserts that a
code of ethics ought not simply to be a set of assertions; instead it should clearly
express the philosophical, political and ethical principles on which it rests. Here
honesty is the best policy (Rahman 1999). In the context of banks, ethical standards
may be expressed in a company’s formal conduct requirements, or contained in
generally stated principles that guide a company’s preferred conduct or behavior. In
the banking industry, code of ethics are implemented for employees and as a whole for
the bank management. For the management, standards and ethical codes in banking
industry are commonly directed by the regulator through fair practice code giving due
consideration to taking care of the interest of stakeholders, disclosures and customers
right. It is important to have ethical behavior in governance which goes far beyond
company law or banking laws (Kumar 2007). A comprehensive study by Schell-
Busey (2009) demonstrated that code of ethics had a significant positive effect on
individual ethical judgments, intentions, and behavior. The study also argues that
values can be taught in work situations through the use of codes. Sims (1994) insisted,
“one of the more perverse methods for achieving more ethical behavior is the
establishment of a company code of ethics”; while Francis (2010) however believed,
“the existence of a corporate code of ethics would not, in and of itself, ensure ethical
behavior on the part of its employees, since codes work to the extent that they reflect
and support the corporate culture”. Employees learn what is considered acceptable and
appropriate conduct by observing the behavior of top management. It is also argued
that only presence of code does not ensure effectiveness; however, in the absence of
corporate ethical codes, there are greater possibilities of tendencies among individuals
to rate their own beliefs and behavior as more ethical than those of their peers and
managers (Schell-Busey 2009). As a whole, such code that also includes governance
issues aims to ensure good ethical behavior in matters relating to decision making and
management. The candid opinion is that, code of corporate governance is required and
in addition, the rights and equitable treatment of shareholders’ interest, and that of
other stakeholders, the role and responsibilities of the board, the integrity and ethical
behavior of all concerned, the disclosure and transparency of operators should be put
in mind when creating the code of corporate governance (Adeyanju 2014).
2.3 Financial Crime in Banks and Relevance of Ethics

There are evidences that financial crime or scams in banks and financial institutions
are on rise. A recent BBC report noted that a financial scam was committed once every
15 seconds in the first half of the year 2016, prompting a new campaign to highlight
the risks. More than one million cases of card, cheque, phone or online fraud were
recorded from January to June that was a 53 percent rise on the same period compared

to last year (Habib et al. 2017). The shapes and forms of financial crime threats as well
as their degree of severity have transformed over the years, partly due to the
increasingly globalized/borderless financial systems coupled with new technologies.
The financial crimes can be segregated into different forms from different dimensions.
In the Global Economic Survey- financial services insight 2016, PwC (2016) classified
financial crimes into: asset misappropriation, accounting fraud, cybercrime, money
laundering, and bribery and corruption (figure-2.1); and found high instances of asset
misappropriations and growing cases of cybercrimes and money laundering.
Figure-2.1: Top 5 Broad Types of Commonly Reported Crimes in the Financial

Sector of the Global Economy (Number of Institutions Faced)
70%
60%
60%
49%
50%
40%
30% 24%
18% 18%
20%
10%
0%
Accounting Fraud Asset Cybercrime Bribery & Money Laundering
Mispropagation Corruption
Source: PwC 2016
Financial scams are amongst the common news in the media. Media reports and
surveys have been regularly coming up with the information of innovative scams.
Financial scams and crimes are becoming so common that news of email scams, online
scams, invoice fraud, cheque and bank draft scams, identify theft, etc. do not surprise
us. Rather, a survey observed (Schaffer 2015), with ever higher dependence on e-
banking, mobile payments, and the ability to do banking using social networks, risks
will continue; cyber-attacks will continue to menace financial institutions; and hacking
attempts, losses, and prevention expenses are likely to increase with the rise in mobile
banking applications, vulnerabilities of financial call centers, and the increased
sophistication of social engineering attacks (Schaffer 2015).
In the context of a number of banking sectors of developing countries, high percentage

of non-performing loans has been among the key concerns and some of these are
clearly the case of asset misappropriation. Though not always, in many instances these
are the outcomes of financial frauds or crimes. Sometimes, it is not easy to identify the

willful defaulters from the defaulters with genuine reasons. Thus, in most instances,
the stakeholders do not term these as financial crimes, and generally willful default is
not regarded as a criminal offence. However, the situation is changing now, and there
are growing demands to term willful default as a criminal act and to frame stringent
regulation to handle this financial crime to save banking and financial sector. For
example, in India, in recent days, mounting bad loans and high default rates by large
companies have drawn criticism from experts and regulators, and there are growing
demands from different quarters to frame strong laws to deal with cases of diversion of
fund and willful default by treating these as serious financial crimes (Venkatesh 2016;
Lele 2016).
It is recognized that several internal and external actors are engaged in financial crimes
and fraudulent activities. PwC (2016) survey observed that whether it is financial fraud
or other economic crimes in other sectors, incidences of external organized crimes by
the external actors have gone up. The survey added, still more than half of internal
perpetrators originate from middle and senior management, but junior management
also contributed a great deal to the perpetration of internal fraud in some regions. In
the context of some developing countries, it is the board, top management, influential
groups and even the regulatory agencies that are doing wrong or not doing enough to
prevent financial crimes, and thus resulting in moral hazard and willful defaults.
Regarding the interrelations of ethics and financial crimes in banks, ethics is related to
all types of crimes in banks and financial crimes are clear examples of ethical lapses,
but all ethical lapses are not crimes. And strong ethics programs help direct and
preventing crimes in banks (Clifton 2013). The current state of banking ethics, the
enormous size of banks and the banks’ inability to detect real-time fraud all contribute
to the ongoing failures in preventing serious banking crimes. The president of New
York Fed, William Dudley, in 2013, acknowledged that ‘the deep-seated cultural and
ethical failures at many large financial institutions’ had been a result of the growing
size and complexity of banking structures, as well as a result of bad incentives. Some
recent banking scandals underscore why a structural reform of the banking system is
urgently needed and corporate ethics should get due emphasis (Zaidi 2015). For
example, from 2005 to 2007, Barclays manipulated the LIBOR, allowing traders to
make profits on derivatives. These traders worked with other banks so that the interest
rates remained coordinated at low levels, thus misrepresenting the actual rates. In
2012, the bank was fined USD 435 million by UK and US regulators for its
manipulation of Libor and Euribor interbank rates. Such manipulations affected USD
350 trillion in securities. As of May 2015, global banks have paid over USD 9 billion

in fines, with many traders and brokers being fired, barred and forced to resign. In
2007, four banks, known as ‘the cartels’, through online chat rooms and coded
language rigged the key currency marker – ‘the fix’ - in an effort to increase their
profits. In 2015, regulators in the US, UK and Switzerland fined six of the biggest
banks USD 5.8 billion in penalties. Citigroup, Barclays, JPMorgan and Royal Bank of
Scotland were fined by the US after pleading guilty to charges of manipulating the
price of US dollars and euros. In 2012, Wells Fargo, the largest residential home
mortgage originator in the United States, agreed to pay at least USD175 million to
settle US Department of Justice accusations. It was accused of discriminating against
qualified borrowers of color, giving them more costly subprime loans or charging
them higher fees. In 2014, the Bank of America was required to pay USD 16.65
billion. After a series of investigations, big banks like JPMorgan Chase, Deutsche
Bank, Morgan Stanley, UBS and Citigroup were penalized for individual offenses
related to the events of 2008 and agreed to settlements. A London-based bank was
accused in 2012 of allowing drug cartels to launder billions of pounds through its US
division. The bank paid a record fine of USD 1.9 billion for ignoring warnings and
violating safeguards that could have stopped the laundering of money from Mexico,
Iran and Syria at an early stage. Between 2006 and 2009, according to the US
Department of Justice, the bank had failed to supervise and check USD 670 billion in
wire transfers and USD 9.4 billion in cash transactions from its Mexico bank
operations. In the context of the Nigerian banking industry, Ikpekan and Ayeni (2012)
observed, the banking industry specifically the deposit money banks have witnessed
insider abuse, frauds, greed, poor internal controls etc. and has led to interventions by
Central bank of Nigeria. These acts resulted from unethical behavior from employees
and management. The evidence generated from this study reveals that many Nigerian
Banks and Bankers are aware of the Code of Ethics and Professionalism in the banking
industry but not all Nigerian banks have adopted the Code. It was also found that
unethical behavior is responsible for distress in banks. The sanctions for
unethical/unprofessional conducts appear to be too weak.
Attempting to investigate the collaborative roots of corruption, the researchers

designed a die-rolling experiment outlining the choice between collaboration and
honesty. Results showed that where both participants financially benefited from lying,
collaborative unethical behaviour rose by about 500 percent compared to honest
behaviour; and unethical behaviour, or corruption was up by about 100 percent where
only one participant received financial gain (Weisel & Shalvi, 2015). Empirical
evidence shows that a concern for money increases self-serving employee behavior
(Beus & Whitman 2015). Another study confirms these findings by demonstrating that

exposure to money triggers individuals’ unethical intentions (Kouchaki et al. 2013).
Another study showed that the desire for financial success and status in banking
employees leads to increased dishonest behavior (Cohn, Fehr, & Marechal 2014).
Findings from these studies indicate the urgent need for banks to create an
environment that encourages ethical behavior, without incentives for financial gain or
even to force others to become partners in unethical conduct. Organizational leaders
may facilitate unethical behavior for the sake of organizational goals (Campbell &
Göritz 2014). The study observed that corrupt organizations create a mutually
beneficial link between organizational goals and employment; and managers in these
firms differentiate between reality and the code of ethics and emphasize success,
results, and performance. Sometimes even good intention fails to deliver and backfires.
Financial institutions often provide employees with high benefits to generate
commitment and satisfaction, and money-oriented reward system may cause unethical
behavior (Beus & Whitman 2015). And many banking managers lack strategies to
create an ethical organizational environment (Hurley et al. 2013).
2.4 Addressing Financial Crime in Banks by Promoting Ethics

The most recent global financial crisis severely damaged customers’ trust and growing
scandals in the banking industry left public trust in banks greatly diminished
(Llewellyn 2014). There are ongoing efforts to stabilize the fragile system by making
banking more transparent and accountable. In spite of all initiatives, customers’
confidence in banks remains low and financial institutions face competition from a
growing shadow banking sector involving nonbank financial intermediaries (European
Central Bank 2016). In February 2015, the Financial Stability Board (FSB) published a
letter to the G20 Finance Ministers and Central Bank Governors highlighting that “the
scale of misconduct in some financial institutions has risen to a level that has the
potential to create systemic risks”1. The FSB noted that “fundamentally, it threatens to
undermine trust in financial institutions and markets.” Again, two years later, in March
2017, the FSB reaffirmed in a letter to the same audience that “numerous instances of
misconduct in the financial industry in recent years have damaged confidence in
financial institutions and undermined trust in markets. The implications of misconduct
can be far-reaching, limiting the potential of finance to serve real economies and to
foster global economic growth.”2 In such circumstance, the academics and industry
participants questioned the sole reliance on external banking regulation and industry
1 Financial Stability Board (FSB) - FSB Chair’s Letter to G20 on Financial Reforms – Finishing the Post-
Crisis Agenda and Moving Forward - 4 February 2015.
2 Financial Stability Board (FSB) - Chair’s letter to G20 Finance Ministers and Central Bank Governors
ahead of their Baden-Baden meeting - 17 March 2017

leaders draw attention to a reassessment of values and change of corporate behavior in
addition to external regulation (Nienaber et al. 2014). The group chairman of a global
financial services company encourages banks to transform into ‘trusting organizations’
through the adoption of behavioral values (Flint 2013). Development and welfare
approach should be promoted in banks for ethical development. Superficial CSR
engagement has negative implications. Firms neglecting CSR related industry
standards face the loss of reputation (Eccles et al. 2014). CSR activities enhance firm
value only if substantiated by corporate behavior and the study observed a negative
relationship between advertising and CSR where CSR messages did not mirror the
organization’s reputation.
An experiment investigating ethical behavior in individuals indicated that voluntary

regulation produced more unethical behavior compared to conditions of no regulation
or full regulation (Gino et al. 2013). There are opinions that ethical failures and lapses
in banking supervisions are becoming common because the people involved rarely
face criminal charges. In addition to reducing their size and finding new ways to
enforce anti-fraud rules, banks should consider encouraging their employees to report
observed misconducts anonymously. By doing so, banks could detect frauds at an
earlier stage, thereby minimizing the costs of banking crimes and retaining the trust of
the public (Zaidi 2015). Continzent (2016) found that governance, leadership and
professional ethics are key issues that need to be addressed. The tone set by the board
and senior management is a key to driving an organization’s crusade against financial
crime. Senior bank officials need to set accountability standards, establish policies and
controls, promote transparency by working closely with regulators, provide incentives
for promoting compliance, and show zero tolerance toward potential internal and
external risks. It is crucial to drive behavior change internally and externally (for
clients and the public) to help shape the right attitude and moral responsibilities
towards financial crimes (Loy 2015). The heart of any economic crime is poor
decision, which is driven by human behavior. So, it stands to reason that the answer
should start with people. That means not only instilling clear processes and principles
for employees, but also creating a culture where compliance is hard-wired to values –
and to the overarching strategy of the organization (PwC, 2016). Deloitte (2014)
believes alongside other initiatives, banks shouldn’t underestimate the cultural and
operational change program required to take a more holistic approach to financial
crime. This should begin with setting the tone at the top of the organization and
continue by working diligently toward buy-in from stakeholders, having a clear and
effective communications program, and allowing sufficient resources for training staff
and managing workforce transitions. Story-telling is a culturally and contextually

sensitive way of illustrating an identity (McMahon & Watson, 2013). Researchers
identified story-telling as an effective tool to increase employee engagement (Gill
2015).
To address the financial crime and promote ethical practices, financial regulators and
industry bodies have launched several initiatives to reduce the risk of further
misconduct, by launching cultural reform initiatives and improving accountability and
controls. In May 2015, the FSB launched a misconduct action plan to address these
issues through a range of preventative measures, focusing on: One, improvement in
the financial institutions’ governance and compensation structures to reduce
misconduct risk; Two, improvement of global standards of conduct in the fixed
income, commodities and currency markets, through codes of conduct and related
regulatory and enforcement tools in wholesale markets; and Three, reforms to major
financial benchmark arrangements to reduce risks of their manipulation. Indeed, the
rationale behind this action plan is based on the conviction that “the use of fines and
sanctions acts as a deterrent to misconduct, but preventative approaches are also
needed that can mitigate the risk of misconduct through improved market organization,
structure and behavior of market actors.” (FSB 2016).
Ethical programs must be linked to material incentives in order to be effective (Nitsche

2017). In a corruption-ridden system, for example, an attempt to curb corruption will
come up against entrenched work culture and can achieve only modest success to start
with. But, with prolonged vigilance and threat of punishment, the behavior patterns
may start to change. As the incidence of corruption gradually declines, the cost-benefit
calculations of corruption will also change because of higher chance of detection and
the punishment and reputation loss when detected (Mahmud 2005). It is recognized
that ensuring transparency has no alternative. Establishing transparency through
structures and processes is a crucial strategy to foster an ethical organizational climate,
which is really important to regain customer confidence (Manganaris et al. 2016).
Huang, Gardner & Moayer (2016) believe that corporate values need to be connected
with measurable indicators. Additional corporate values should be stipulated in the
code of conduct, employee handbook, induction program, and employee training.
Scholars are now recognizing the importance of integrating soft and hard factors.
Existing literature also confirmed a link between employee engagement and the
creation of an ethical climate (Curtis 2015). The studies showed that in a friendly and
engaging corporate culture, which resulted in a family atmosphere, a dedicated
department should organize informal staff gatherings on a regular basis. Research has
shown that employee engagement increases with positive peer relationships and a

favorable working environment (Anitha 2014). Top management’s essential role in
creating an ethical environment confirms insights gained from existing literature. Role
models facilitate the acquisition of ethical behavior and ethical leadership encourages
ethical leadership in subordinates (Brown & Treviño 2013). The way ethical
leadership flows from the top to employees is a new area of research and needs further
investigation (Wang et al. 2016). In a recent doctoral research, Nitsche (2017)
summarized on the ways to address current ethical concerns in banks, organizational
practices should aim at improving transparency, employee engagement, demonstrating
leadership role-modeling and connecting soft and hard approaches to manage values
will fuel an ethical organizational environment.
3. Review of the Regulatory and Institutional Set-up for Addressing

Financial Crime and Ethical Concerns in the Context of Banks in
Bangladesh
3.1 Regulatory and Institutional Set up to Address Financial Crime in Banks
Regulatory provisions and institutional set up are crucial for addressing financial crime
in the banking and financial sector of any country. Regulatory provisions associated
with financial crimes could be associated with different banking activities and
services, operations and institutional set up. Especially regulations and set of rules
related to the issues of due diligence, internal control and compliance, credit default,
risk management process, and money laundering are particularly relevant. As the
regulatory and supervisory authority, Bangladesh Bank (BB) has several departments
and units that are directly and indirectly associated with handling financial crimes and
frauds in the banking sector of the country. Probably Anti-Money laundering (AML) is
the area where most of the financial crime related regulatory provisions were installed
in recent time.
At the institutional set up, each and every bank of the country has an ICC division
responsible for overseeing internal audit, monitoring and compliance issues, as
required by the rules issued by the BB. Ensuring the operational independence of
internal control and compliance and internal audit functions are crucial for preventing
financial crime in the banks. As per the latest amendment3 in the regulatory guidelines,
internal audit is supposed to be independent, and free from other units of the bank.
However, real independence of audit is still a far cry since it is under the senior
management. Absence of effective internal controls can be very costly for the bank
through inviting erroneous decisions and creating the opportunity of fraudulent
3 BRPD circular no.6 dated September 4, 2016.

activities. Bangladesh Bank has specific guidelines for internal control and compliance
of banks. Moreover, risk management guidelines and provision for Customer Due
Diligence (CDD) are also related to the prevention of several crime issues. CDD
combines the Know Your Customer (KYC) procedure, transaction monitoring based
on the information and data or documents collected from reliable and independent
sources. In the context of addressing money laundering, the Bangladesh Financial
Intelligence Unit (BFIU) guidelines4 require even stringent KYC requirements. There
are also legal measures in several regulations (Bank Company Act, 1991, Artha Rin
Adalat Ain-2003, The Public Demands Recovery Act 1913, The Bankruptcy Act 1997
etc.) and the BB circulars to address the challenge and malpractices associated with
loan defaults.
The BB has established Corporate Memory in electronic form to store all detected
fraudulent activities of the financial sector. The main objective of this corporate
memory is to refrain fraudsters and miscreants to be involved in financial services. The
contents of this memory, along with other issues, are the gross violation of prudential
compliance by banks or its employees, serious complain against bank employees,
banks employees’ involvement in loan scams and other fraudulent activities. This also
includes penalties and punishment imposed by Bangladesh Bank. All banks can get
access to this database before hiring its employee. BB uses this database while giving
NOC in appointing Managing Directors or Deputy Managing Directors. The BB also
installed a “Whistle Blower Protection” mechanism. If anyone has the knowledge that
some illegal activity is going on or misappropriation of public fund or a fraud is
happening and decide to inform the appropriate authority, then s(he) can get protection
as per the regulation Public-interest Information Disclosure Act (Provide Protection),
2011. Under this provision, the informant or bank officials are protected. Under
section 28(b) of Anti-Corruption Commission Act, 2004 the informant is protected to
make him/her public.
Vigilance and Anti-fraud Division (VAD) of FICSD keeps vigilant eyes on the
banking sector of Bangladesh to prevent and minimize corruption and fraud-forgeries
through conducting special inspections. Many of the special inspections were carried
out on the basis of complaints received from various sources, while some were carried
out pro-actively or as per the instruction of the higher authority. A comprehensive
analysis representing number of inspections conducted by FICSD in the financial year
4 Money Laundering and Terrorist Financing Risk Management Guideline, BFIU, 2015.

2015-16 is given below (Table 3.1). The highest number of inspections (19) was
conducted in the Farmers Bank Limited (Table 3.2).
Table 3.1: Inspection Conducted in FICSD during 2015-16

Name of Bank Group No. of Special Inspection
State-owned Commercial banks (SOCBs) 12
Specialized Banks (SBs) 0
Private Commercial Banks (PCBs) 71
Foreign Commercial Banks (FCBs) 2
Total 85
Source: Bangladesh Bank
Table: 3.2 Bank wise (top 6 banks) inspections conducted by FICSD in 2015-16
SI. No. Name of Banks No. of Special Inspections
1. Farmers Bank Limited 19
2. National Bank Limited 08
3. Agrani Bank Limited 06
4. NRB Commercial Bank Limited 04
5. BRAC Bank Limited 04
6. Southeast Bank Ltd. 04
Source: Bangladesh Bank
In 2015-2016, special inspections conducted by the VAD unearthed a number of

fraudulent transactions and malpractices in banks which prevented those from getting
worse. Good governance and internal control system of banks are considered the first
line of defense against fraud-forgeries and malpractices. Constant vigilance and on-
going special inspections of the department played supportive role to strengthen the
corporate governance and internal control systems of banks. With a view to ensuring a
transparent, stable and sound financial sector the FICSD will continue to play its role.
The BB continued its efforts to improve the performance of the banking sector and
working to ensure a sound, efficient and resilient financial system. In FY16, it adopted
a number of policy measures to emphasize risk management and corporate governance
in the banks, periodic review of stability of the individual bank as well as the whole
banking system, stress testing, monitoring of large borrowers, fraud-forgeries and
strengthening internal control and compliance through self-assessment of anti-fraud
internal controls, etc. The BB has also undertaken a number of measures in the recent

years to establish good corporate governance in the banking sector. These include a
"fit and proper" test for appointment of chief executive officers of PCBs, specifying
the constitution of audit committee of the Board, enhanced disclosure requirements,
etc. In continuation of the above reforms, the roles and functions of the board and
management have been redefined and clarified with a view to specifying the powers of
the management and restricting the intervention of directors in day-to-day
management of the bank.
3.2 Policies and Codes to Promote Corporate Ethics in Banks in Bangladesh

Government of Bangladesh formulated its National Integrity Strategy (NIS) in October
2012 as a comprehensive good governance strategy to prevent corruption and improve
national integrity in all sphere of life. The NIS has identified 10 State Institutions and
6 Non-state Institutions for implementation of its action plans for prevention of
corruption and ensuring integrity. The state institutions are Parliament, Executive and
Public Service, Judiciary, Election Commission, Office of the Attorney General,
Office of the Comptroller and Auditor General, Public Service Commission,
Ombudsman, Anti-Corruption Commission and Local Government. Non-state
Institutions are Political Parties, Private Sector, NGOs and Civil Society, Family,
Educational Institutions and Media. Subsequently, an NIS unit has been formed at
each ministry and a National Integrity Advisory Committee has been formed with the
Prime Minister as its Chair. The overall purpose of a National Integrity Strategy is to
provide a system of governance that creates trust among citizens. The Government has
also formed an Ethics Committee in every ministry. The banking industry is very
much within the fold.
The Bangladesh Securities and Exchange Commission (BSEC) issued its first circular
in 2006 (No. SEC/CMRRCD/2006-158/134/Admin/44), which has been re-circulated
on 7 August, 2012 for the stock exchange listed companies in Bangladesh to enhance
corporate governance in the interest of investors and the capital market. The CG
conditions are imposed on ‘comply’ basis. The summary of the CG issues that are
relevant for the publicly listed banking companies, linking to corporate code of
conduct and ethics are explained in Box-3.1.

Box-3.1: Summary of Corporate Governance Guideline
Board shall lay down a code of conduct of all Board members and annual compliance
of the code to be recorded; An independent director, who has been convicted for a
criminal offence involving moral turpitude, shall not be appointed. Moreover, an
independent director shall be a knowledgeable individual with integrity who is able to
ensure compliance with financial, regulatory and corporate laws and can make
meaningful contribution to business; The CFO and/or the Company Secretary shall not
attend such part of a meeting of the Board of Directors which involves consideration
of an agenda item relating to their personal matters; The Audit Committee shall assist
the Board of Directors in ensuring that the financial statements reflect true and fair
view of the state of affairs of the company and in ensuring a good monitoring system
within the business. Further, the Audit Committee shall immediately report to the
Board of Directors on (i) conflicts of interests; (ii) suspected or presumed fraud or
irregularity or material defect in the internal control system; and (iii) suspected
infringement of laws, including securities related laws, rules and regulations; No
partner or employees of the external audit firms shall possess any share of the
company they audit at least during the tenure of their audit assignment of that
company; The CEO and CFO shall certify to the Board that (i) they have reviewed
financial statements for the year and that to the best of their knowledge and belief
these statements do not contain any materially untrue statement or omit any material
fact or contain statements that might be misleading; (ii) there are, to the best of
knowledge and belief, no transactions entered into by the company during the year
which are fraudulent, illegal or violation of the company’s code of conduct.’
Source: Based on BSEC Circular, 2012
Code of Conduct for Banks and NBFIs has been introduced by the BB on November 6,
2017 to implement NIS in the financial sector of Bangladesh. Instilling integrity, high
ethical standards, efficiency and responsibility in the financial sector of Bangladesh is
the prime objective of introducing this code. According to the circular issued in this
respect, all scheduled banks are required to prepare their own code of conduct in line
with this code by December 31, 2017. After formulation and completion, banks are
required to start practicing or implementation properly and effectively of their own
code of conduct in their day-to-day activities by January 1, 2018. This code is
applicable for all the persons working in the banks and financial services industry of
Bangladesh in the capacity of owner, director, employee, advisor, consultant, supplier
and other stakeholders. After implementation of this code, it is mandatory for all the
concerned persons to act in an honest, fair and legitimate manner. The key coverage
includes the key relevant issues (Box 3.2).

Box-3.2: Key Coverage of the Code of Conduct Guidelines of Bangladesh Bank
This code covers areas like identification of stakeholders, basic professional and
intuitional obligations, code of conduct for employers responsibility towards
stakeholders, property and information of bank and NBFIs, use of position, conflict of
interest, engagement in other employment, private trade or employment, external
pressure, acceptance of gifts and foreign awards, fair treatment of counter parties, anti-
money laundering, accuracy of records and reporting, fraud or illegal activities, work
environment, team work, Diversity, employees grievance, compliance with laws rules
regulations, fair and equal employment opportunity, harassment, Zero-tolerance to
violence, special responsibilities of suppliers, fair treatment of customers, privacy and
security of customer information, transparency or accuracy of financial tax and other
reporting, interacting with print electronic and social media, guidelines for speak up
policy, personal investment and insider trading, arranging seminar or workshop or
training, Digitalization of business process, employee conduct outside the office
premises, grooming etiquette and compliance with dress code, Post employment
activities and responsibilities, responsibilities of ethics committees to uphold code of
conduct, recognition and award, disciplinary procedures and action and compliance
with code of conduct.
Source: Based on BB Circular, 2017
Concerning the code of conduct in banks, the survey found that all of the banks have
ethical code of conduct (as claimed by the sample banks). However, all these are not
disclosed in the banks’ annual reports. This study examined annual reports of banks to
measure disclosure level of core values and ethical code of conduct. Total 49 banks
including 6 State Owned Commercial Banks (SOCBs), 36 Private Commercial Banks
(PCBs), and 7 Foreign Commercial Banks (FCBs) were surveyed. The survey resulst
showed that 83 percent SOCBs disclose about their ethical code of conduct as their
strength while 56 percent PCBs disclose about their position in ethical code of conduct
in their annual report. Surprisingly, no FCBs disclose their ethical code of conduct in
their annual report (Table-3.3). After examining the annual report of 49 banks, the
study found some areas of core values and ethical code of conduct of the banks (box-
3.3). The details are given in Appendix-1.
Table-3.3: Disclosure of Ethical Codes in Annual Reports

Bank Groups Sample Disclosure Percentage (%)
SOCBs 6 5 83%
PCBs 36 20 56%
FCBs 7 0 0%
Total 49 25 -
Source: Annual Reports of Banks

Box-3.3: Areas of Core Values and Ethical Code of Conduct
▪ Personal ethical code of conduct
▪ Workplace code of conduct and responsibilities
▪ Marketplace ethical code of conduct and responsibilities
▪ Ethical code of conduct while dealing with customer
▪ Ethical code of conduct while dealing with regulators
▪ Ethical code of conduct while dealing with regulators
▪ Employment ethical code of conduct
▪ Ethical code of conduct while dealing with shareholders
▪ Ethical code of conduct for corporate citizenship
▪ Ethical code of conduct for Islami Shariah
4. Understanding Unethical Corporate Practices as the Reason for Financial

Crime in the Banking Sector of Bangladesh – Survey Observation
4.1 Two-third of Banks Faced Some Forms of Financial Crimes in Recent Time
Facing some types of financial crimes or fraudulent activities by banks are not unusual
in both the global and the Bangladesh context. As observed from a recent study by
BIBM (Figure-4.1), about 65 percent banks in Bangladesh responded that they faced
one or more financial crime incidents in their banks during the period 2014 to 2016. It
is, however, surprising to note that around 35 percent of the banks did not face any
financial crime occurrences during the aforementioned period. Though it appears to be
a very positive sign that the banks did not experience any loss due to financial crime
occurrences, it is not unlikely that the banks are shy to disclose information about
crime incidents. Moreover, some credit related malpractices are yet to be regarded as
financial crimes by the banks of the country.
Figure-4.1: Financial Crime faced by Banks in Bangladesh during the Period

2014-16
No, 35%
Yes, 65%
Source: Habib et al. (2017)

The survey of the study pointed out that general banking; credit; and IT are the three
most vulnerable areas from the point of view of financial crime. Especially, the
number of credit card related frauds which increased considerably during 2016-17. Of
the different types of financial crimes, loan, deposit, and cheque related frauds are
most commonly experienced fraud incidences by banks in Bangladesh. Nature of loan
related frauds include creating loan in the name of non-existent borrowers, fund
diversion, collateral valuation, directed lending, fake title deed, change in loan limit
and expiry date, etc. The data on willful defaults in the context of banks are not
generally maintained and reported, and are not recognized as financial crimes. There
are several instances of unauthorized withdrawal of deposits. Cheque frauds are mostly
committed through the alteration in the material parts of a cheque, such as date,
amount, and signature. During 2014-16, about 65 percent banks faced loan related
financial crime incidents; around 65 percent deposit related; and approximately 60
percent cheque related financial crime (Habib et al. 2017). The BIBM study also
observed growing incidences of international trade related, and cyber or card related
fraudulent activities. International trade related frauds generally take the form of over
invoicing, under invoicing, fake documents, and non-repatriation of export proceeds.
In several instances, banks have been facing challenges because of the non-
performance or breach of contracts by the traders; however, these are not included in
the data provided by the banks. IT related frauds or cyber frauds are increasing
throughout the world and Bangladesh is not an exception to this. As regards the nature
of information technology related frauds, most in the country are committed in relation
to debit or credit card (Habib et al. 2017). The study also found, in several instances
banks received complaints on bribery, dishonesty and malpractices.
4.2 Bank Employees Face Actions for the Incidences of Financial Crimes
According to the BIBM survey (2017) data presented in Figure-4.2A, 65 percent of the
banks took action against the officials involved with financial crime incidents in their
banks during the period 2014 to 2016. In other words, cent percent of the banks that
reported financial crime took action against their employees. This is so because 35
percent of the sample banks reported that they did not experience any financial crime
during the period 2014 to 2016.

Figure-4.2: Action Taken by Banks in Bangladesh against Officials in
Connection with Fraud during 2014-16
A: Percentage of Banks Taken Action B: Nature of Action Taken against Bank
against their Officials in Connection with Officials in Connection with Fraud
Fraud
• Recovery of defrauded amount
• Suspension of the concerned
officials
• Dismissal of the concerned officials
No,
35% • Handover the officials to the police
• Promotion and increment held up
Yes, • Termination.
65%
• Filing criminal suit
• Demotion to lower grade
• Issue of warning letter
• Curtailing service benefits
• Administrative and disciplinary
action
4.3 Weak Internal Controls, Lack of Awareness, and Dishonest Employees are
among the Major Causes of Financial Crimes- Suggested Initiatives in Banks’
Survey
According to the BIBM survey on financial crime (Habib et. al, 2017), about 70
percent of the survey respondents opined that the weak internal control system and
non-independent internal audit is a cause of financial crime in the Bangladesh.
Unfortunately, 55 percent banks indicated that dishonest practices of employees are
amongst the key causes of financial crime in banks. This study also found similar
picture.
Table-4.1: Causes (Internal/ External) of Financial Crime in Bangladesh

Causes (Internal/ External) of Financial Crime in Bangladesh Percentage
Weak internal control system and non-independent internal audit 70
Lack of awareness of the bank officials about rules and regulations 60
Involvement of bank officials in crime or dishonest practices 55
Degradation of morality, ethics and integrity 50
Inadequate IT system and security 45

Lengthy and complex legal procedure 40
Political influence and other undue influences 35
Absence of exemplary punishment to the perpetrator 30
Lack of proper supervision and poor MIS 25
Non-banking relations between employee and customer 20
Regarding the reasons, the survey found that ‘lack of awareness about the nature and
ways of financial crime’ is the number one reason for the involvement of bankers with
the financial crime followed by ‘lack of corporate ethics’ as the most important reason
of financial crime in banks in the country.
Moreover, ‘lack of motivation to protect financial crime’, ‘poor compensation to the

employees’, and ‘lack of exemplary punishment’ are the major reasons of involvement
of internal people in financial crime in banks. Also, lack of integrity of the accused
individual employees, and poor corporate governance are the other reasons of internal
people involvement in financial crime of banks in Bangladesh.
Table-4.2: Ranking of the Reasons of the Involvement of Bankers with Financial

Crime (Banks’ Survey)
Lack of Awareness about Crime 1
Lack of Corporate Ethics 2
Lack of Motivation 3
Poor Compensation 4
Lack of Exemplary Punishment 5
Others (Specify): Lack of integrity of the accused individual employees 6
Poor corporate governance
Source: Survey Data
Some reasons and issues of rankings identified in Tables 4.1 and 4.2, are directly or
indirectly associated with the unethical behaviors and corporate unethical practices in
the banks. Considering the gravity of the problem, some initiatives are already there in
the banks to address financial crime and improve corporate ethics, as claimed in the
bank surveyed of the study (Box 4.1). The bank survey suggested certain initiatives to
address financial crime and unethical corporate behaviors in banks (Box 4.2)

Box-4.1: Initiatives Undertaken to Address Financial crime and Improve
Initiatives Undertaken to Address Financial Crime: Exemplary punitive action for
irregularities and forgery identified by the Internal Control & Compliance Division;
Review Corporate Memory Management System (CMMS) introduced by Bangladesh
Bank before appointing any official for the bank; Enhanced security features in Core
Banking System and other applications currently in use; Taken disciplinary action or
initiated legal proceedings against perpetrator; Ensured IT security system;
Introduced a ‘fraud detection and prevention policy’; Constant vigilance over the
transactions of all CBS users by ICCD; Systems in place with staff awareness to
detect unusual issue; Encourages employees from top level for whistleblowing on
probable financial crime; Circulated the punitive action to all employees regarding
the same for maintain the corporate ethics.
Initiatives Undertaken to Improve Corporate Ethics in Banks: Training and
awareness sessions regarding the Ethics and Code of Conduct; Introduction of
Integrity Awards for the employees; Formed Committee on Moral, Ethics and
Integrity regarding the National Integrity Strategy; Risk register and Speak up policy
by Senior Management so that any official can express his/her concern or escalate
any risk issue; Aware about corporate ethics at the time of joining; Formation of
Ethics committee at both Head Office and Branch level; Follow up tracking,
reporting and evaluation at head office and branch level.
Source: Based on Bank Survey Responses
Box-4.2: Suggested Initiatives to Address Financial crime and Improve

Suggested Initiatives to Address Financial Crime: Ensure exemplary punishment;
Banks can introduce more updated software to detect financial crime; Strengthening
of the law and order agencies to reduce ‘Predicate Offence’; Strengthening AML
division/ICCD; Need to establish compliance culture in bank and rewarding
employees; Maintenance of comprehensive database of deceitful employees and
customers in Bangladesh Bank; To reduce financial crime Bank should check
employee’s family background and borrower’s past track record. Bank can also
introduce whistle blowing culture in this regard; Adequate awareness about crime
through increasing the number of training to address and understand financial crime
in banks; Improvement of motivation and compensation; All the punitive action may
circulate to the employees for any irregularities/forgery by the employees;
Monitoring of transactions and activities through system software.

Suggested Initiatives to Improve Corporate Ethics in Banks: Aware about
corporate ethics at the time of joining; Checking family background of the candidates
at the time of recruitment and selection; Training on corporate ethics and moral
development; Issuance various circulars/instructions regarding the matter; Implement
code of conduct at operational level; Rewarding and punishing for ethical and
unethical practices; Establishing transparency; Improvement of controlling,
monitoring & supervision on different areas of Bank; Integrity Awards for different
areas; Ethical standing should be treated well in performance appraisal of employee.
Source: Based on Bank Survey Responses
4.4 Unethical Behaviors by the Co-employees in Banks-Perception Survey on

Bankers
There are three dimensions of unethical behavior by bank employees- unethical
behavior towards co-employees, organization, and customers. Unethical behavior
towards employees by the co-employees is not uncommon. Table-4.3 summarizes the
perception of the respondents about unethical behavior towards bank employees by
their co-employees. The table also shows the different forms of unethical behavior that
occurs in different degrees in banks of the country.
Table-4.3: Unethical behavior towards Employees by the Co-employees

Particulars In Percentage (%)
Never Rarely Sometimes Frequently Regularly
Violating employee
wage, overtime, or 37 23 31 5 4
benefit rules
Discriminating against
41 33 21 3 2
employees
Breaching employee
37 38 20 3 2
privacy
Engaging in (sexual)
harassment or creating a
53 31 15 1 0
hostile work
environment
Violating workplace
health and safety rules or 39 29 28 4 0
principles
Source: Based on Survey Data

Perception of the respondents about unethical behavior towards organization by the
bank employees is summarized in Table-4.4, which shows the different forms of
unethical behavior that occurs in different degrees in banks of the country. About 40
percent of the respondents opined that organizational resources are wasted or abused
sometimes in their banks.
Table-4.4: Unethical behavior towards the Organization by the Employees

Wasting, mismanaging, or
abusing organizational 19 31 40 7 3
resources
Engaging in activities that
20 30 39 8 3
pose a conflict of interest
Breaching computer,
network, or database 53 29 12 6 0
controls
Stealing or
45 36 15 0 4
misappropriating assets
Abusing or misusing
confidential or proprietary
50 39 10 1 0
information of the
organization
Falsifying or manipulating
51 30 17 2 0
financial information
Providing inappropriate
information to analysts and 50 33 11 5 1
investors
Trading securities based on
62 20 12 3 3
inside information
Regarding unethical behavior towards customers by the bank employees, about 21

percent of the respondents opined that bank employees sometimes engage in false or
deceptive marketing services, about 17 percent respondents reported that bank
employees rarely resort to taking bribes, 10 percent reported sometimes and 3 percent
reported frequently (Table 4.5).

Table-4.5: Unethical Behavior towards Customers by the Employees
Engaging in false or
deceptive sales and
marketing practices 49 28 21 2 0
(e.g., creating unrealistic
expectations)
Breaching customer or
67 25 7 1 0
consumer privacy
Addressing customer
complaints honestly and 15 12 19 13 41
effectively
Taking bribe for undue
70 17 10 3 0
advantages and services
Violating contract terms
69 21 7 3 0
with customers
Lack of transparency
regarding cost of 60 22 15 2 1
services
Regarding the causes of increase in financial crime, respondents identified lack of

corporate ethics as the prime cause. Figure-4.3 shows different causes of increase in
financial crime in the banks. About 73 percent of the respondents opined that lack of
corporate ethics is the main cause of financial crime in the banking sector followed by
lack of exemplary punishment, lack of awareness about crime, lack of motivation and
poor compensation. Some other reasons behind financial crime, as cited by the
respondents, include poor governance, lack of transparency and accountability,
political pressure, poor IT education and IT security, unhealthy competition among
banks and misuse of power. Bank executives suggested certain initiatives to improve
ethical practices in banks (Box -4.3).

Figure-4.3 Causes of Increase in Financial Crime in the Banking Sector of
Bangladesh (Employee Perception)
80 73%
70
58%
60 53%
50%
50
40
30 27%
20
10
0
Lack of Corporate Lack of Exemplary Lack of Awareness Lack of Poor
Ethics Punishment about Crime Motivation Compensation
Box-4.3: Suggested Initiatives to Reduce Financial Crime in Banks

(Employee Perception)
▪ Corporate ethics should be promoted by creating awareness amongst employees
▪ Employees should be positively motivated and encouraged to refrain them from
crime
▪ Employee recruitment in banks should be merit based and be transparent and fair
▪ Training on ethical values, regulatory compliance should be enhanced
▪ Immediate exemplary punishment should be given for committing financial crime
▪ Creating ownership interest among employees
▪ Sound banking environment should be created and unhealthy competition should
be reduced
▪ Creating awareness among all stakeholders about financial crime and the
consequences of committing crime.
▪ Undue administrative, political, other interference should be treated as crime
▪ Mandatory leave should be ensured and strictly implemented
Source: Survey on Bank Executives

5. Cases on Unethical Corporate Practices as the Reasons of Financial
Crime.
Following cases of financial crime and malpractices show several evidences of lack of
ethics and unethical behavior on the part of bank employees and board members. In
some cases, bank executives or board members themselves were the offenders; and in
some instances, external perpetrators realized their ill motives with the support of the
direct bank stakeholders (mini cases 5.1 to 5.12).
Mini Case-5.1: Involvement of Bank Manager in Fictitious Transactions

Mr. Zamil, a manager of Bank ‘X’, opened an account with Bank ‘Y’. Sudden huge
volume of transactions by the account holder drew attention of the BFIU. In reply of
the inspection team, the BAMLCO informed that the client’s father-in-law was very
affluent and a portion of the transacted money was gifted by Mr. Zamil’s father-in-
law. While investing the matter it was revealed that Mr. Zamil concealed his actual
profession in the account opening form. Instead of declaring himself as a banker, he
stated him as private service holder. He also mentioned that the source of fund was his
father-in-law. The inspection team found, BDT 50 million was transacted in that
account in a year and most of the transactions were related to stock buy-sell.
Examining the transaction vouchers, it was revealed that the account was credited
from the accounts of several borrowers of that branch instead of his father-in-law’s
account. The inspection team also found that the branch manager Mr. Zamil suddenly
deposited BDT 20 million into his fake account. Further analysis found that the money
was supposed to be deposited to a newly created term deposit account for a client. The
new client Mr. Hashem was given a term deposit receipt amounting to BDT 20 million
without creating a corresponding term deposit account. Rather the money was
deposited in a fake account of the branch manager. The manager then transferred BDT
20 million to the stock market. The BFIU team also conducted a comprehensive
inspection on Mr. Zamil’s bank branch and found that Mr. Zamil (client of Bank ‘Y’
and a branch manager of Bank ‘X’) opened 13 FDR accounts of worth BDT 40.4
million under fictitious names. Mr. Zamil also disbursed loans to his associates’
accounts keeping those FDRs as lien. From his associates’ accounts, he then
transferred approximately BDT 50 million to different stocks, banks and real estate
companies. He embezzled about BDT 114 million using frauds and irregularities
which were unearthed by the BFIU inspection team.
The above case clearly revealed that the bank manager was directly involved in
fraudulent activity which is a complete violation of the code of conduct as a banker. In
this case, we observed moral and ethical degradation by a bank employee, which is
completely unacceptable. This fraudulent activity happened due to the unethical
behavior of the bank employee which ends up with a serious financial crime.
Source: Author’s Preparation based on Bangladesh Bank Data

Mini Case-5.2: Involvement of Top Management and Board Members in
Sanctioning Loan without Following the Proper Approval Process
Bank ‘X’ approved loans amounting approximately BDT 50,000 million to various
borrowers. While conducting the regular inspection of Bank ‘X’, BB audit team
detected 62 suspicious transactions on different loan accounts. Among the 68 branches
of the Bank ‘X’, two branches located in Dhaka (namely branch ‘P’ and branch ‘Q’)
have been found to have link with those suspicious transactions. The team also
revealed that fund was diverted through this suspicious transaction. The bank’s top
management, senior officials of the head office, officials of credit department and
officials at the branch level were found to collaborate with the loan scam. The
inspection team forwarded this matter to BFIU for further investigation. BFIU
inspection team found that majority of the loan amount disbursed by branch ‘P’ and
‘Q’ were classified as bad loan by the bank. While investigating the reason of
classification, the team revealed that the bank disbursed loans to the nonexistent
companies and loans were disbursed without proper documents. It was also detected
that the loan approved just after the opening of the accounts without observing the
transaction behavior of the borrower. In some cases, Board of Directors of the bank
approved the loans before the branch sent the proposal to the bank’s head office. It was
also observed that the surveyor overvalued borrowers’ property without considering
market price. Bank’s top management was aware about all these activities but they did
not take any action. All the loans sanctioned by branch ‘P’ and ‘Q’ became classified.
A number of irregularities were observed in the above case. Some of the major
irregularities are disbursement of loan to the nonexistent companies, no action against
fund diversion, improper documentation, overvaluation of security and most
importantly Boards involvement in approval of loan without the proposal. The above
scenario depicts serious unethical activities by the key stakeholders (bank employees
and the Board members) which cause the fraudsters to perform severe financial crime.
Mini Case-5.3: Indirect Lending to the Board Member

Mr. Jashim, Chairman of ‘ABC’ Bank started building a large multistoried shopping
complex named XYZ Shopping Complex in a small town away from Dhaka. The cost
of the project was approximately BDT 500 crore. The demand for such a big shopping
complex project which is far away from the capital city was very low. People of the
area were not that much interested to purchase or rent such commercial spaces.
However, ABC Bank, with the influence of Mr. Jashim over the Board, provided long
term housing loan facility from different branches of the bank for purchasing

commercial space at the XYZ Shopping Complex. The purchaser who avails loans
were mostly connected to the Chairman and his companies, with unacceptable credit
worthiness. Some of the borrowers were employees of different other companies
owned by the Chairman of the bank. In fact, housing loans were disbursed to the XYZ
Shopping Complex of the Chairman without explicitly mentioning his name as the
borrower. Thus Mr. Jashim, the chairman of the bank, managed to get loans from his
own bank by selling the commercial spaces at a price which was much higher than the
actual market price. Further, the long term housing loans were disbursed within one or
two days of the application without proper due diligence on the part of the branches of
the bank. In some cases, the loans were disbursed before formal approval of the Head
Office, although post-facto approval was given by the Head Office. It was later found
that total loan disbursed from different branches of the ABC bank for purchasing
commercial space of the XYZ Shopping Complex of the Chairman (ultimate
beneficiary of the bank loan) comes to around BDT 600 crore. As expected, most of
the purchaser-cum-borrower defaulted on the loans after the grace period of six
months was over, while the Shopping Complex was still under construction. ABC
Bank rescheduled the loans by extending the grace period and repayment period. It
was highly unlikely that loans would be repaid timely as the bank disbursed loans
mostly in the name of borrowers who were not the ultimate beneficiary and the amount
disbursed was well above the actual need (over-financing) and ability of the
borrowers.
The case clearly describes indirect lending which is not only the violation of BB
regulation but also the violation of ethical norms. The entire process of loan approval
and disbursement was materially flawed and unethical as the concerned persons were
aware about the facts. This unethical practice by the key stakeholders (bank employees
and the Board members) of the bank causes a serious loss for the bank, which is
nothing but a financial crime in the eye of law.
Mini Case-5.4: Default Occurs Because of Lack of Due Diligence Before

Sanctioning the Loan
Mr. Azman, the owner of Rasna enterprise, opened a current account in the name of
his company in Padma Bank. Immediately after opening the account, the company
applied for a CC loan of BDT 40 crore, LC limit of BDT 50 crore and LTR limit of
BDT 8 crore. After four months of account opening, Padma Bank increased the CC
loan limit from BDT 10 crore to BDT 45 crore.

There was no record of how the requirement for CC loan of the customer was
determined. The proposal for credit approval was sent by the branch to Head Office
without supporting documents and due diligence. The Credit Risk Management
Division (CRMD) of the Padma Bank prepared memo for the Board without proper
analysis and due diligence. The loan eventually approved by the Board. Looking the
transaction pattern, it was observed that Mr. Azman used to withdraw fund in cash.
Also an amount of BDT 10 crore was diverted to Surma Bank to repay a loan of Mr.
Biplob. At one stage the loan became classified and Padma Bank started to investigate
the reason. After carefully scrutiny, it was later revealed that Mr. Biplob was the real
beneficiary of the loan provided by the Padma Bank and Rasna enterprise was merely
a name-plate only enterprise. The address of Mr. Azman and Mr. Biplob were same.
Although Mr. Azman was shown as the owner of the Rasna enterprise, a piece of land
valuing BDT 30 crore was mortgaged in favor of Surma Bank for the loan by Mr.
Biplob. Interestingly Mr. Biplob was also the personal guarantor of the loan of Mr.
Azman. Finally Padma Bank tried to recover the money but failed, and the bank
eventually filed lawsuit under Money Loan Court Act.
The incident happened due to the negligence by the bank employees both at branch
level and Head Office levels. A number of lapses were observed while increasing the
loan limit. Ensuring due diligence before sanctioning any loan is an integral part of
the business practice and violation of these is nothing but the violation of the ethical
code of conduct. This unethical business practice helped the borrower to perform the
financial crime which could have been easily avoided with ethical behavior by the
bank employees.
Mini Case-5.5: Default Loan Because of Related Party Lending

Mr. Karim is a businessman and director of ABC Bank. He recently established BG
enterprise whose main business is to import capital machinery and raw materials. Mr.
Karim applied to Fantasy Bank for a loan of BDT 160 crore in favor of BG enterprise
for importing capital machinery and raw materials. Fantasy Bank was a newly
established bank and its strategy was to takeover loans from other banks. Fantasy Bank
approved a loan of BDT 150 crore to BG Enterprise without assessing the production
capacity, market size, risk of the company’s existing exposure (BDT 500 crore) to
other banks, debt servicing capacity and financials of the company. Mr. Karim offered
a piece of land as mortgage valuing BDT 5 crore. Although status of loans was regular
with other banks, it was later revealed that BG enterprise used to manage debt
servicing at different banks by diverting fund of one project to another, taking out loan
from one bank to repay another bank.

Fantasy Bank again raised CC limit for BG enterprise to BDT 200 crore. Fantasy Bank
approved a new line of credit for BDT 120 crore to AG enterprise, a connected
company of BG enterprise. A director and a consultant of AG Enterprise were on the
Board of Fantasy Bank as alternate directors and credit was approved by the Board in
their presence. Eventually the loan became classified.
The above case is a story of related party lending which is completely unethical. Bank
cannot approve such kind of lending as it creates the conflict of interest which is also
reflected in the case. In this case the bank not only facilitates a related party lending
but also provided the loan without proper assessment of the credit worthiness of the
borrower. The ultimate result is the credit default which simply happens because of the
ethical misconduct of the bank employees.
Mini Case-5.6: Fraud Incidence by Two Big Groups in agreement with Bank
Employees
Bangladesh Bank unfolded major financial frauds relating to two big groups. The first
scam was originated a small branch of the largest State-owned Commercial Bank. The
stated bank branch gave away a huge sum of money in the form of advances on the
basis of fake documents demonstrating gross negligence to banking practices and
norms by way of opening inland back to back LC on fake documents, giving
acceptance to those credits and purchasing fake bills in the name of a number of
groups of companies/firms including that group; fictitious transactions were shown
between the companies of the same group within the branch. The same technique
applied in case of buying foreign bills also. BFIU conducted a series of inspections in
the concerned bank branches on money laundering compliance issues and fund
movement. BFIU analysts were able to identify 39 officials of the bank who were
involved in the loan scam and 250 accounts linked to it.
Another serious fraud took place by another group that siphoned-off more than a
billion BDT using fraudulent export documents and took advances against those
documents. The group known to have taken loan from a number of banks against the
export documents and local documentary bills which were later proved as fakes.
Bank employees are supposed to protect the interest of the bank by ensuring proper
due diligence, performing proper evaluation before selecting the borrower, confirming
appropriate documentation before sanctioning the loan and ensuring monitoring for
timely recovery of the loan. These are also described in their code of conduct. The
above cases revealed that fraudulent activities were conducted in collaboration with
bank employee, which is a serious ethical misconduct.

Mini Case-5.7: Beneficiary Shifted to Hundi due to Embezzlement of Remittance
by the Bank Employee
Mr. Zahid is an employee of a private office in Kuwait for last 10 years. His family
members are staying in ‘Tala’ thana of Satkhira district. Zahid send remittance for his
family and his father used to go to Surma Bank in Tala thana for collecting the fund. In
one instance, Zahid’s father reached the bank with required documents for
withdrawing an amount of Tk. 90,000 which was send by his son. But the bank
manager denies giving him the money. He claimed that Zahid’s father has already
withdrawn the amount from the bank. After long argument with the manager, Zahid’s
father found that the money is actually withdrawn by using fake signature. He also
revealed that both the cashier and the manager were involved in this fraudulent
activity. Zahid’s father filed a case against them to recover the money and the
investigation process is going on. Zahid is frustrated about this incidence and he has
decided not to send any remittance through banking channel as it seems not safe
anymore.
The above scenario is a true picture of unethical behavior of the bank employee. Both
the cashier and the bank manager committed a crime by embezzling the money which
is the violation of the code of conduct of a bank employee. Such incidence causes
mistrust on banks on the part of the customers and encourages the existing client to
divert to the illegal channels.
Source: Author’s Preparation based on Survey Data
Mini Case-5.8: Absence of KYC Helped Misappropriation of a Company’s Fund

Mr. Hakim, the accountant of XYZ private company, opened a bank account in the
name of the company. As the accountant of the company, he started depositing the
cheques that he received from its clients. Mr. Hakim deposited cheques worth BDT
25.4 million and withdraw BDT 25.2 million cash from the account within two years.
Two years later the company came to know that some of their clients’ cheques were
missing. After rigorous investigation it was found that the missing cheques were
collected through another account of XYZ company. In this connection, it was also
revealed that a fake account in the name of XYZ company was opened in a bank and
was being maintained by Mr. Hakim of XYZ company. The concerned bank, knowing
the matter, submitted an STR against the fake account to BFIU. BFIU analysis
revealed that the fake account was opened using fake documents like fake MoU, fake
MoA and fake Certificate of Incorporation of the company. The account holder (Mr.
Hakim) also submitted fake National ID Card. Besides, Mr. Hakim presented himself
as the managing director of the XYZ company and two other persons as the directors.
BFIU identified that the bank did not follow the common due diligence measures

specially KYC while opening and maintaining the account of Mr. Hakim.
We know that fulfilling the KYC requirement is a must for the bank while opening and
maintaining the bank account. In this case we observed serious lapses from the bank
which is completely unacceptable and unethical. This fraudulent activity happened due
to the negligence and unethical behavior of the bank employee which eventually
creates the opportunity to the fraudsters to conduct a serious financial crime.
Mini Case-5.9: False Reporting for Hiding the Real Picture of the Bank
ABC Bank was on the spree of reckless lending resulting in high Loan to Deposit
Ratio (L/D Ratio). BB instructed the bank to reduce its high L/D ratio below a certain
level. BB inspection team visited three branches and found that the branches were
concealing part of their loan portfolio. The concealed part of the portfolio was actually
advances to various investment banks (approximately Tk.100 crore). The branches
under inspection transferred the advances to Head Office through General Account.
Head Office of the bank showed the advances as “Investment”. Thus ABC Bank was
able take following three benefits by manipulating accounting disclosures: Showed a
favorable L/D Ratio; Complied with BB’s instruction; and Bank Treasury showed high
performance.
In this case, the bank takes the opportunity to show a better performance with the help
of false reporting which is clearly unethical. Accounting disclosure is meant for true
statement and the stakeholders can get the correct picture of the company from the
disclosure. False reporting not only depicts the fabricated picture of the company but
also display the violation of regulatory norms.
Mini Case-5.10: Dubious Transactions Through Collaboration Between Banker

and Industrialist
Mr. Bablu was a senior banker of a Commercial Bank in Bangladesh and working with
its Exchange House operating in a foreign country. Mr. Imon a Bangladeshi
industrialist, owner of two steel mills, appointed the banker (Mr. Bablu) as CEO of his
overseas company (registered in a foreign country). The banker neither resigns from
his previous job nor inform to his employer bank, rather working secretly with the
foreign company. The banker’s wife is also an employee of that foreign company. To
establish the foreign company, money was sent from two other foreign countries
through exchange house. There was an import related complaint about the steel mill.
To investigate the issue, relevant information was collected from banks and customs

house. After investigation, it was revealed that Bangladeshi still company opens seven
L/C amounting USD 67 million (Approximately) to import raw materials and
interestingly the exporter was his foreign company. It was also found that banker’s
wife signed the pro-forma invoice in favor of foreign company for the LC opened with
Bangladeshi steel company. The senior banker (Mr. Bablu) opened a foreign currency
(FC) account in Bangladesh and for this regard, the industrialist was the introducer of
that account, indicate a beneficial relationship with them. To be a director of a NRB
bank, non-resident Bangladeshi must have to send foreign remittance in banking
channel. The senior banker sent foreign currency to his FC account from abroad. But
SWIFT message showed that both the senior banker and the said industrialist are the
sender of the remittance. It was also revealed that the banker is the director of a new
NRB bank in Bangladesh. But the relation between the banker and the industrialist was
dubious and probably the senior banker is a dummy director of that bank. There was
every chance of over invoicing by which money sent to the foreign country and again
back to the senior bankers FC account. Finally, all the relevant papers were sent to
Ministry of Finance as per their request and Anti-Corruption Commission (ACC) for
further investigation/necessary legal action as per MLPA 2012.
The case revealed how a banker can involve in performing dubious transactions.
Unethical activities such as opening FC account in favor of the industry, sending fund
from abroad in false name, acting as a dummy director of a bank etc. were committed
by the bank official. These are all unethical behavior from a banker’s point of view,
which eventually helped to conduct a financial crime.
Mini Case-5.11: Credit Card Fraud with the Assistance of Bank Employee
Credit card division in charge and his supporting officials of a bank issued twenty
cards to their relatives and friends. Cardholders have withdrawn funds using their
cards from ATM machines and through cheques provided against their cards. In every
case the cards account were credited by cash deposits. But the cash amount was not
actually deposited at any branch of the bank rather credit card division in charge and
his close allies fraudulently arranged to show cash deposit to those credit cards
accounts. The fraudulent activities were continued for some days and the group
embezzled about BDT 10 crore.
The case reveals the fraudulent activity by the bank employee, which is unethical and
illegal. The banks officials conducted financial crime by embezzling the banks fund.

Mini Case-5.12: Removal of Note from the Bundle by the Teller
The customer was withdrawing BDT 500,000 for making payment to his local
suppliers. A teller, while disbursing ten bundles of 500 taka note to a valued customer
(Mr. Abbas), removed 2 notes from one bundle and 3 notes from another bundle
consciously and delivered the money to the customer. Mr. Abbas received the money
with good faith and without counting the bundle, he left the bank. On the same day,
customer disbursed BDT 100,000 (two bundles) to one of his suppliers Mr. Bulbul. In
the next morning, Mr. Bulbul came and complained to Mr. Abbas that there were 2
notes short in the given bundle. Mr. Abbas then counted the remaining bundles and
found that 3 notes were short in another bundle. Subsequently, Mr. Abbas complained
to the branch manager and asked for repayment of the 5 notes of 500 taka
denomination. The branch manager asked the concerned teller but he denied the claim.
The teller also made false allegation against the customer. Branch manager collected
the CCTV footage of the day for further investigation and confirmed the removal of
the notes by the teller. Subsequently, the teller was terminated.
In this case the teller was directly involved in stealing the money. He made a financial
crime by violating the norms of a teller. Being a teller, he must be ethical while
handling the cash. This unethical behavior also affects the bank reputation.
Source: Author’s Preparation based on Survey Data
6. Issues and Challenges to Improve Corporate Ethical Practices as a

Measure to Address Financial Crime in Banks in the Country
First, occurrence of unethical behavior adversely affects work environments in banks

and traditional internal controls hardly prevent unethical behavior because human
behavior is influenced by a multitude of factors. To manage ethical behavior, a bank
should take the necessary time and allocate resources to look at formulating internal
policy and identifying behavioral factors that influence employees’ behavior in the
organization. Regulator has got a crucial role to play in this connection. Attention to
these factors contributes to a better understanding of financial crime and unethical
behavior and can help create more efficient internal control and compliance system.
There are evidences that along with others, irrational profit targets, short-term
approach and the following aggressive banking might be other reason of unethical
behaviors in banks. The bank should determine the profit target rationally by giving
due consideration to the previous performance of the bank, performance of the
banking sector, changing cost and risk structure and overall global and national
economic scenario. Bank should pursue long-term sustainability target rather than

short-term ambitious profit target, which negatively changes the risk management
structure and culture of the bank. This will also reduce the unethical and risky
behavior of the bank employees. Fixation of profit target may also be brought under
the monitoring mechanism of Bangladesh Bank.
Second, employees are required to know every new rules or policies undertaken in a
bank. A banker must also clearly understand what accepted ethical behavior is and
what is not. Code of Conduct must be a written, clear, consistent, motivating set of
guidelines. It might be wise to draft a basic set of general rules that act as guidelines
instead of trying to regulate everything. A living code is expected to be not too long,
has motivating texts, and is well implemented via communication and inspiring
awareness programs. Though banks are generally having a set of Code of Conduct, as
claimed, these are not clearly communicated to the bank employees. Communicating
employees about the right behavior helps setting the right examples. Codes can be
communicated by letters or emails; separate intranet site; a section in the in-house
magazine; making them available at busy locations in the bank (such as at the
reception, waiting rooms and the cafeteria); special information events; and mobile
apps, etc. Regular awareness programs and story-telling strategy might be helpful for
banks. Awareness program should also be undertaken for the members of Board and
senior management.
Third, it is evident that if signs of possible misconduct or unethical behaviors are not
recognized and acted upon, a bank runs the risk that further incidents will occur.
Apprehension of misconduct should, first and foremost, be dealt with by direct bosses.
Employees can be hindered by barriers when it comes to raising certain issues,
particularly if these are of a structural nature or if their immediate superior is part of
the problem. Especially in larger organizations, the establishment of a safety net is
important in this respect. Smaller banks sometimes struggle with setting up a formal
reporting procedure for employees to voice concerns on possible misconduct. Every
bank should have a proper reporting procedure on possible misconduct. Promoting
ethical practices require positive and negative incentives. In a corruption-ridden
system, an attempt to curb corruption can achieve only modest success to start with,
but with prolonged vigilance and threat of punishment, the behavior patterns may start
to change. Exemplary punishment may discourage internal perpetrators in getting
involved in criminal and unethical activities. Unbiased application of laws and
regulations may also help in this regard.

Fourth, it is commonly argued that ensuring transparency and promoting employee
engagement might contribute significantly in preventing financial crimes and
promoting ethical behaviors. Establishing transparency through structures and
processes is a crucial strategy to foster an ethical organizational climate, which is quite
important to regain customer confidence. Corporate values need to be connected with
measurable indicators and certain behavioral indicators might be included in the
performance appraisal system. However for effectiveness, there must be a system of
fair treatment. Existing literature also confirm a link between employee engagement
and the creation of an ethical climate. Friendly and engaging corporate culture that
helps increases positive peer relationships and a favorable working environment
should be promoted. A dedicated department or unit may be established in banks for
organizing informal staff gatherings on a regular basis, which can help to increase peer
relationships and reduce unethical activities.
Fifth, role models facilitate the attainment of ethical behavior, and ethical leadership
encourages ethical leadership in subordinates and colleagues. It is mainly about
network leadership, and regional and managerial leadership at all levels of banks. The
way ethical leadership flows from the top to employees is a new area of research that
requires due consideration. Demonstrating leadership role modeling and their
approaches fuel an ethical working environment. In this connection, corporate
governance practices are the key. It is practically at the center of developing ethical
corporate culture and motivation of the employees, which is the key to address the
financial crimes.

References
Adeyanju, O. D. (2014), “Code of Ethics and Professionalism: Implication for Bank

Failure in Nigeria”, Research Journal of Finance and Accounting, Vol. 5, No. 19.
Alamgir, M. (2015), “Ethics in Banking: A Human Folly or Systematic Failure”,

Fifteenth Nurul Matin Memorial Lecturer on Ethics in Banking by Bangladesh
Institute of Bank Management (BIBM), Dhaka.
Anitha, J. (2014), “Determinants of Employee Engagement and Their Impact on

Employee Performance”, International Journal of Productivity and Performance
Management, No.63.
Askew, O. A., Beisler, J. M. and Keel, J. (2015), “Current Trends of Unethical

Behavior within Organizations”, International Journal of Management& Information
Systems, No. 19, Available at: www.cluteinstitute.com/journals/international-journal-
of-management information-systems-ijmis/
Association of Certified Fraud Examiners (2016), Global Fraud Study, Available at:
http://www.acfe.com/rttn2016/about/executive-summary.aspx
Beus, J. M. and Whitman, D. S. (2015), “Almighty Dollar or Root of All Evil? Testing
the Effects of Money on Workplace Behavior”, Journal of Management, Advance
online publication.
Birtch, T. A. and Chiang, F. F. (2014), “The Influence of Business School’s Ethical

Climate on Students’ Unethical Behavior, Journal of Business Ethics.
Brown, M. E. and Treviño, L. K. (2014), “Do Role Models Matter? An Investigation

of Role Modeling as an Antecedent of Perceived Ethical Leadership”, Journal of
Business Ethics, No. 122.
Campbell, J. L. and Göritz, A. S. (2014), “Culture Corrupts! A Qualitative Study of

Organizational Culture in Corrupt Organizations”, Journal of Business Ethics, No.
120.
Clifton L. A. (2013), Fraud vs. Ethics, Available at: cliftonlarsonallen.com
Continzent (2016), “Financial Crime: How Financial Institutions Can Mitigate Risk
and Improve Compliance”, Continzent Reports, USA.
Cohn, A., Fehr, E. and Maréchal, M. A. (2015), “A Culture of Gambling? Evidence

from the Banking Industry (Working Paper)”, Retrieved from University of Zurich,

Department of Economics, Available at: http://www.econ.uzh.ch/static/
workingpapers.php
Curtis, M. (2015), Discussion of “Ethical Climate, Social Responsibility and Earnings

Management”, Journal of Business Ethics, No. 126.
Deloitte (2014), “Insight on Financial Crime: Challenges Facing Financial

Institutions”, Deloitte Development LLC. UK.
Dahlen, D. (2016), “Cyber Crime and Fianncial fraud Trends”, US Bank (february),
USA.
Eccles, R. G., Ioannou, I. and Serafeim, G. (2014), “The Impact of Corporate

Sustainability on Organizational Processes and Performance, Management Science,
No. 60.
European Central Bank (2016), Financial Stability Review, Available at:

http://www.ecb. europa.eu/pub/fsr/html/index.en.html
Fein, E. and Weibler, J. (2014), “Review and Shortcomings of Literature on

Corruption in Organizations in Offering a Multi-faceted and Integrative Understanding
of the Phenomenon”, Behavioral Development Bulletin, Vol. 19(3).
Financial Stability Board (2015), “Measures to Reduce Misconduct Risk”, Progress

Report – 6, November.
Flint, D. (2013), “Improved Corporate Culture and Ethics in the Financial World”,
Speech presented at City Week, London, United Kingdom. Paper retrieved from:
http://www.cityweekuk.com/events/city-week-2015/event-summary
Francis, C. C. (2010), “Corporate Governance in the Nigerian Banking Sector: An

Ethical Analysis of the 2009 Regulator Intervention and Operators Behaviors”,
Pennsylvania: University of Pennsylvania.
Francis, R.D. (2000), “Ethics and Corporate Governance” University of New South
Wales: University of New South Wales Press Ltd.
Gill, R. (2015), “Why the PR Strategy of Storytelling Improves Employee

Engagement and Adds Value to CSR: An Integrated Literature Review”, Public
Relations Review, No. 41.
Gino, F., Krupka, E. L. and Weber, R. A. (2013), “License to Cheat: Voluntary

Regulation and Ethical Behavior”, Management Science, No. 59.

Habib, SMA., M. N. Ahmed, S. N. Islam, A. C. Pandit, Z. Nayn and K. Hossain
(2017), “Addressing Financial Crime in the Banking Sector of Bangladesh”, Banking
Research Series-2016, BIBM
Huang, F., Gardner, S. and Moayer, S. (2016), “Towards a Framework for Strategic
Knowledge Management Practice: Integrating Soft and Hard Systems for Competitive
Advantage”, VINE Journal of Information and Knowledge Management Systems, No.
46.
Hunkin, J. S. (2002), “Ethics in Business and Everyday Life”, Canada: Gale Group,
September-October, Research Journal of Finance and Accounting, Available at:
www.iiste.org.
Hurley, R., Gillespie, N., Ferrin, D. and Dietz, G. (2013), “Designing Trustworthy
Organizations”, MIT Sloan Management Review, Vol. 54(4), pp. 75-82. Retrieved
from: http://sloanreview.mit.edu
Ikpekan, O. A. and Ayeni O. (2012), “The Impact of Ethics and Professionalism in the
Nigerian Banking Industry”, Department of Banking & Finance, Covenant University,
Ota, Ogun State.
Islam, A.B.M.M.A. (2011), “Ethics in Banking”, Eleventh Nurul Matin Memorial

Lecturer on Ethics in Banking by Bangladesh Institute of Bank Management (BIBM),
Dhaka.
Johnson, G. and Scholes, K. (1999), Exploring Corporate Strategy (5th. Edition),

Prentice Hall, London.
Khan, A.A. (2009), “Ethics in Banking”, Ethics in Banking - essays in Honor of Nurul
Matin, by Bangladesh Institute of Bank Management (BIBM), Dhaka.
Kouchaki, M., Smith-Crowe, K., Brief, A. and Sousa, C. (2013), “Seeing Green: Mere
Exposure to Money Triggers a Business Decision Frame and Unethical Outcomes”,
Organizational Behavior and Human Decision Processes, No. 121.
KPMG (2015), “Fraud & Ethics at the Workplace in Switzerland”- A Survey Report,
Geneva,
Sallie B Middlebrook (2014) Defining Basic Business Ethics Concepts:

https://toughnickel.com/business
Kumar, R. (2007), “Corporate Governance and Ethics - Challenges and Imperatives”,

a Circular by Central Vigilance Commissioner, New Delhi, pp. 33

Lele, Abhijit (2016), “All You Need to Know about Willful Defaulters, Business
Standard, Mumbai February 24, 2016: http://www.business-
standard.com/article/finance/
Llewellyn, D. T. (2014), “Reforming the Culture of Banking: Restoring Trust and

Confidence in Banking”, Journal of Financial Management, Markets and Institutions,
No. 2.
Loy, Vincent (2015), “Understanding Financial Crimes”, Available at:

https://www.startupbootcamp.org/blog/2015/10/understanding-financial-crime/
Mahmud, W. (2005), “Ethics in Banking”, Ethics in Banking - essays in Honor of

Nurul Matin, by Bangladesh Institute of Bank Management (BIBM), Dhaka.
Manganaris, P., Beccalli, E. and Dimitropoulos, P. (2016), “Bank Transparency and

the Crisis”, British Accounting Review, Advance online publication.
Martin, S. R., Kish-Gephart, J. J. and Detert, J. R. (2014), “Blind Forces: Ethical

Infrastructures and Moral Disengagement in Organizations”, Organizational
Psychology Review, No. 4.
McMahon, M. and Watson, M. (2013), “Story Telling: Crafting Identities”, British

Journal of Guidance & Counseling, No. 41.
Nienaber, A., Hofeditz, M. and Searle, R. H. (2014), “Do We Bank on Regulation or

Reputation? A Meta-analysis and Meta-regression of Organizational Trust in the
Financial Services Sector”, International Journal of Bank Marketing, No. 32.
Nitsche, Svenja (2017), “Creating an Ethical Organizational Environment in Banking”,

Collection of Walden Dissertation and Doctoral Studies, Walden University.
Peterson, D.K. (2002), “The Relationship between Unethical Behavior and the
Dimensions of the Ethical Climate Questionnaire”, Journal of Business Ethics, Vol.
41(4), pp. 313-326
PwC (2016), “Global Economic Crime Survey”, Financial Services Industry Insights,
Available at: www.pwc.com/crimesurvey-fs
Rahman, M. H. (1999), Ethics in Banking”, Ethics in Banking - essays in Honor of

Nurul Matin, by Bangladesh Institute of Bank Management (BIBM), Dhaka.

Schell-Busey and Natalie Marie (2009), “The Deterrent Effects of Ethics Code for
Corporate Crime: A Meta-Analysis”, A Ph. D Dissertation, Faculty of the Graduate
School, University of Maryland, USA
Schaffer, H. (2015), “Cyber Fraud and Risk Management”, Bottomline Technologies,

USA.
Sims, R. R. (1994), “Ethics and Organizational Decision Making: A Call for

Renewal”. Westport: Quorum Books, pp. 13- 204.
Sobhan, R. (2000), “Reporting Justice to Banking in Bangladesh”, Ethics in Banking -

essays in Honor of Nurul Matin, by Bangladesh Institute of Bank Management
(BIBM), Dhaka.
Tischer, D. (2013), “Swimming against the Tide: Ethical Banks as

Countermovement”, Journal of Sustainable Finance & Investment, No. 3.
Venkatesh, M. (2016), “Banks Want Willful Default to be Treated as a Criminal

Offence”, Hindustan Times, New Delhi Jan 26, India.
Vigeoeiris Rating (2017), “Responsibility and Ethical Culture in Banking and

Finance”, Available at: www.vigeo-eiris.com
Wang, Z., Xu, H. and Liu, Y. (2016), “How does Ethical Leadership Trickle Down?
Test of an Integrative Dual-process Model”, Journal of Business Ethics. Advance
online publication.
Weisel, O. and Shalvi, S. (2015), “The Collaborative Roots of Corruption”.

Proceedings of the National Academy of Sciences, No. 112.
Zaidi, D. (2015), “Five Scandals That Show Why We Need Structural Reform in the
Banking Industry”, Available at: http://www.truth-out.org/news/item/33884-five-
scandals-that-show-why-we-need-structural-reform-in-the-banking-industry

Appendix
Areas of Core Values and Ethical Code of Conduct

(Source: Annual Report of Banks)
Personal Ethical Code of Conduct
➢ Be role model for ethics
➢ Honesty, integrity, sincerity, diligence
➢ Punctuality and well-dressed
➢ Free from intimidation and harassment
➢ Not accepting any business position
➢ No outside employment
➢ Not to act as agent of insurance
➢ No personal representation to director
➢ No lending activities/no borrowing from other colleagues
➢ No support to political candidates
Workplace Code of Conduct and Responsibilities

➢ Protect and enhance company’s assets
➢ Understand and comply with laws
➢ Treat colleagues with respect and dignity
➢ Support company’s commitment
➢ Comply with travel and expense policy
➢ No investment in the business of the bank’s clients/gambling
➢ Retain key and classified corporate documents
➢ No insider trading, workplace violence
➢ No direct personal relations to directors
➢ No drug abuse
➢ Non-smoking
➢ No bribery
➢ Speak up/Shall whistle blow to his line manager or HRD
➢ Preventing conflict of interest
➢ Free from outside pressure
Marketplace Ethical Code of Conduct and Responsibilities

➢ Protect company’s trademark
➢ Not buy or sell securities
➢ Make only factual and truthful statement
➢ No communication to press/media
➢ Combating with anti-money laundering and financing of terrorism

Ethical Code of Conduct while Dealing with Customer
➢ Customer centric/Open mind and loyal
➢ Safeguard the privacy, confidentiality and security of customer data
➢ Protect confidential information
➢ Follow strict ethical principles
➢ Fair treatment to all customer
➢ Speedy service to all customer
➢ Deal with transparent
➢ Free financial advice
➢ Deal quickly with customer complaints
➢ Listen to customer complaints and issues
➢ Give competitive return to depositors
➢ Keep promise to the customer
➢ Take competitive service charge
➢ Not to accept gifts or donation from the customers any other parties
Ethical Code of Conduct while Dealing with Regulators

➢ Transparent
➢ Compliance
➢ Safeguard information
Employment Ethical Code of Conduct

➢ Diversity, equal employment opportunity and freedom from harassment
➢ Defined duties and responsibilities
➢ Work together
➢ Zero tolerance for dishonesty
➢ Competitive package
➢ Good work environment
➢ Freedom of opinion
➢ Health and safety
➢ Professionalism, honesty, integrity
➢ Respect to society
➢ Respect to national interest
➢ No discrimination in terms of sex, race, and ethnicity/equal employment
opportunity
➢ Follow proper procedure for grievance

Ethical Code of Conduct while Dealing with Shareholders
➢ Full and accurate disclosure
➢ Giving stable dividend
➢ Equal treatment to shareholder
➢ Ensure fairness and accuracy of financial data
➢ No speculation of stock
Ethical Code of Conduct for Corporate Citizenship

➢ Respond to all public or corporate enquiries timely
➢ Extend all-out assistance for business communities
➢ Emphasis on green banking/ financing to environmental project
➢ Doing CSR
➢ Ensure good Corporate Governance
➢ Protecting natural environment
➢ Financial inclusion
Ethical Code of Conduct for Islami Shariah

➢ Trust in Almighty Allah
➢ Adherence to shariah
➢ Transparency and accountability
➢ Welfare banking
➢ Equity and justice
➢ Shariah Foundation of ethics
➢ Adopting the good and articulating the truth
➢ Fearing to Allah
➢ Truthfulness
➢ Faith Driven conduct
➢ Trustworthiness

Discussion Summary of the Research Workshop
Bangladesh Institute of Bank Management (BIBM) organized a research workshop on

“Corporate Ethics and Financial Crime in Banks: Bangladesh Perspective” on
December 14, 2017. The workshop was chaired by Dr. Toufic Ahmad Choudhury,
Director General, BIBM. Honorable Deputy Governor of Bangladesh Bank and
Chairman, BIBM Executive Committee Mr. Abu Hena Mohd. Razee Hassan was
present in the workshop as the Chief Guest. Mr. S.A. Chowdhury, Former A.K.
Gangopadhaya Chair Professor, BIBM, Mr. Helal Ahmed Chowdhury, Supernumerary
Professor, BIBM, Mr. Mohammed Nurul Aminm, Former Managing Director & CEO,
Meghna Bank Limited and Mr. Ahmed Kamal Khan Chowdhury, Former Managing
Director & CEO, Prime Bank Limited was present in the workshop as designated
discussants. A number of participants from different banks, faculty members of BIBM,
and journalists attended the workshop.
Professor Dr. Toufic Ahmad Choudhury, Director General, BIBM delivered his
address of welcome. After the welcome address, Mr. Abu Hena Mohd. Razee Hassan,
Deputy Governor, Bangladesh Bank delivered his speech as the chief guest. Later on,
Dr. Shah Md. Ahsan Habib, Professor and Director (Training), BIBM presented the
paper on the above mentioned issue. Other members of the research team were Mr.
Md. Nehal Ahmed, Professor, BIBM, Dr. Mohammad Tazul Islam, Associate
Professor, BIBM, Mr. Atul Chandra Pandit, Associate Professor, BIBM and Mr.
Kamal Hossain, Joint Director, BFIU, BB. After presenting the paper, designated
discussants provided their valuable comments on the paper. A number of issues were
raised by the different participants from various banks regarding the corporate ethics
and financial crime in the banking sector of Bangladesh. The relevant comments from
the discussants and the participants are summarized below
Mr. Abu Hena Mohd. Razee Hassan, Deputy Governor, Bangladesh Bank
First of all, he thanked BIBM for organizing the research workshop titled “Corporate
Ethics and Financial Crime in Banks: Bangladesh Perspective”. He also appreciated
the researchers for their effort to bring the issues relating to corporate ethics and
financial crime in the context of the banking sector of Bangladesh.
Global banking industry has been coming across a surge in financial crimes and the
associated risks that are generally realized either by the banks’ own workforces, or by
customers or by external forces or by their combinations. Offenders are more
sophisticated than ever and criminals continuously probe banking organizations’
defenses through innovative techniques. Alongside big banks, small banks are easy
prey for criminals, as many lack robust systems to fend off threats. The banking sector
of Bangladesh is increasingly facing the difficulties of financial crimes. In spite of
some notable improvement in the loan default status over the years, some banks have
still been struggling with other forms of financial crimes. Moreover cyber frauds and
other forms of sophisticated financial crimes are adding to the burdens of the banking
sector.
In the context of banks, ethics is conceptualized by trust, efficiency, openness,

transparency and accountability, development and community involvement. In the
context of ethical banking, the task of banking system should extend beyond the mere
enforcement of a fiduciary relationship between depositors and borrowers to ensure
that it is discharged efficiently and honestly and should attempt to ensure that the
resources entrusted to their care used in a just manner. Morals in banking operations
require integrity on the part of owners and directors, senior management as well as
junior officers dealing directly with depositors and borrowers.
As the institutional set up, each and every bank of the country has an ICC department
responsible for overseeing internal audit, monitoring and compliance issues, as
required by the rules issued by the BB. There are also legal measures in several
regulations (Bank Companies Act, 1991, Artha Rin Adalat Ain-2003, The Public
Demands Recovery Act 1913, The Bankruptcy Act 1997 etc.) and BB circulars to
address the challenges and malpractices associated with loan defaults. Moreover,
Government of Bangladesh formulated its National Integrity Strategy (NIS) as a
comprehensive good governance strategy to prevent corruption and improve national
integrity in all sphere of life in October 2012. BB issued circulars on fit and proper test
for selection of Board and top management; and corporate governance. Very recently
on November 06, 2017 BB issued a comprehensive circular on code of conduct for
Banks and NBFIs to implement National Integrity Strategy (NIS) in the financial
sector of Bangladesh.
He requested all the participants to participate actively in the discussion of the research
workshop. He also urged the research team to incorporate the comments of the
participants and discussants in the final version of the paper. He strongly believed that
policy makers and bankers will use findings of the paper in policy formation. He again
appreciated the endeavor of BIBM for undertaking such topic for conducting research.

Mr. S.A. Chowdhury, Former A.K. Gangopadhaya Chair Professor, BIBM
In this present world everybody is moving towards capitalist economy from socialist
economy. Capitalist economy is one of the important causes of financial crime.
Various forms of social imbalance are being created in this form of economy which
ultimately leads to financial crime.
Corporate ethics and financial crime are related. In the absence of appropriate code of
ethics, financial crime can happen. Bangladesh Bank can take the initiatives to ensure
proper code of ethics. BSEC has a code of conduct but that is not related to ethics. So,
ethical code of conduct can also be initiated. Disciplinary processes related to
stakeholders are required to be implemented.
Performance appraisal systems of the employees are there in the banking system of
Bangladesh. But these are related to operational performance. There is no option for
ethical performance which can be incorporated in the appraisal system. Reward can be
given to the ethically sound bank employees.
Financial ombudsman can be appointed to reduce the financial crime. Ethically sound
instances can be circulated among all the stakeholders of a bank so that everyone is
positively motivated by the instances and do not get involved in committing financial
crime.
Mr. Helal Ahmed Chowdhury, Supernumerary Professor, BIBM

It is not possible for the regulator to monitor every aspect of the banking sector. In
some cases regulations are there but nobody is following it. So the bank itself should
do the work. Bank should segregate between Do’s and Don’ts. Bank employees should
look at others’ attitude and lifestyle which can be helpful for finding any misdeed or
unethical activity. It is, therefore, the right time to know thyself.
Professional development program is needed for increasing the knowledge and skills.
Role model is really very important in corporate life. Everybody must identify the
appropriate role model whom can be followed in real life. The senior management
must protect the junior and provide necessary support so that they can raise voice
against any misdeeds and prevent financial crime.

Mr. Mohammed Nurul Amin, Former Managing Director & CEO, Meghna Bank
Limited
Seed of financial crime is cultivated in good time of the business. The result may be
observed in bad time. That’s why everybody should remain vigilant about good time in
business. Lack of honesty is the root cause of unethical corporate practices and
financial crime in the banking sector of Bangladesh. There are a number of
stakeholders in the banking business. Stakeholders should become aware about the
ethical corporate practices so that financial crime can be mitigated. Training of the
stakeholders is crucial in order to make them conscious about what is right and what is
wrong.
A number of good examples regarding the ethical corporate practices are there in the
banking sector of Bangladesh. However, in most of the cases only bad examples are
cited or discussed. In order to motivate the bank employees, circulation of the good
examples is needed. It will not only encourage the bank employees but also it will
create consciousness among the people which may help to reduce the financial crime.
Mr. Ahmed Kamal Khan Chowdhury, Former Managing Director & CEO, Prime
Bank Limited
The paper focused on the various aspects of corporate ethics and financial crime. But
operational issues can be incorporated in the paper. Besides, harassing female bank
employee is an issue which can also be incorporated in the paper.
The origin of the financial crime is the unethical behavior. So reducing unethical
behavior by the bank employee is a must for minimizing the financial crime. Now how
can it be ensured? Centralized banking system can be a solution for this problem. In a
decentralized banking system all the responsibilities lie with the bank manager. It is
almost impossible for a bank manager to ensure full compliance of all the activities of
the branch. In a centralized banking system duties are segregated and responsibilities
relied upon the concerned officer. So accountability can be ensured which force the
concerned person to perform ethically. This centralized system can ensure the
minimization of unethical behavior which eventually helps to reduce the financial
crime in the banking sector.
Mr. Yasin Ali, Supernumerary Professor, BIBM

Ethics means sense of good and sense of bad. It is important that bankers should have
the sense so that they can segregate between good and bad. Actually ethics must come
from the family because that is the best learning ground. It is very difficult to provide
lesson of ethics to an adult matured person.

Laws and regulations are prepared when some gross violation of ethics occurred.
Violation of ethics is not possible in one day so is the restoration of ethics. So, proper
application of regulation is a must for preventing the violation of ethics. If ethical
violation can be avoided the possibility of financial crime can reduced.
In case of appointing a bank employee, bank should select the employee of right trait.
In this regard a mechanism is required to be established. Bangladesh Bank may
undertake strong initiatives to strengthen the ethical standard.
Summary of the Comments from the Participants

▪ Internal Control and Compliance Department has clear roles and responsibilities in
order to prevent financial crimes in the banking sector. So bank should perform in
line with ICC guidelines to uphold corporate ethics and minimize financial crime.
▪ In Bangladesh, employee designation and salary structure of the banking sector are
not similar. This dissimilarity is the cause of financial crime. Ensuring similarity
in this case may reduce financial crime.
▪ Bank is target oriented. But the top management sets the irrational profit target in
some cases which is really very difficult to achieve. Bank employees sometimes
get involved in unethical corporate practices in order to achieve the target which is
a root cause of financial crime.
▪ Lack of proper training of the leader is also a cause of increase in financial crime.
▪ There are some specific rules and regulations for sanctioning loans among
borrowers in every bank. But these are violated in some cases which may create
the financial crime.
▪ It is not possible for a bank employee or for bank manager to reduce financial
crime. It should be an integrated effort for fighting against financial crime.
▪ Enforcement of law is crucial to ensure corporate ethics.
▪ Central bank need to be strengthened to ensure corporate ethics.
▪ Proper incentive structure should be designed in order to reduce financial crime.
▪ Day to day operational guideline is required.
▪ Specific program needs to be designed to uphold the moral values or to prevent the
moral degradation. The training institute of bank or BIBM can play vital role in
this regard.
▪ Example needs to be established regarding the punishment of the perpetrator so
that everyone can be aware about it.
▪ List of willful defaulter can be published so that they cannot get further facility
from the bank.

About the Authors
Dr. Shah Md. Ahsan Habib is adorning the post of Professor Selection Grade and
Director (Training) at Bangladesh Institute of Bank Management (BIBM). He is the
Coordinator of BIBM-Frankfurt School Joint Certification program and Director of
Certified Expert in Credit Management (CECM) and Certified Expert in Trade
Services (CETS) Program. He obtained Ph.D Degree in International Finance from
Benaras Hindu University, India and pursued Post-Doctoral Fellowship from
Syracuse University, USA on Green Banking under Senior Fulbright Scholarship. He
is a Member of the Governing Board of Dhaka School of Bank Management (DSBM)
and the Treasurer of Development Research Network (D.Net).
Md. Nehal Ahmed is a Professor of Bangladesh Institute of Bank Management

(BIBM). He did B.Sc. (Hons.) and M.Sc. in Statistics from the University of Dhaka. He
is the assistant coordinator of BIBM-Frankfurt School Joint Certification program
and coordinator of Certified Expert in Credit Management (CECM). He also obtained
MBA in Finance from the University of Dhaka. He is a Certified Expert in Risk
Management (CERM) from Frankfurt School of Business and Management, Germany.
Dr. Mohammad Tazul Islam is an Associate Professor of Bangladesh Institute of

Bank Management (BIBM). He did BBA and MBA in Management from University of
Chittagong. He obtained Ph.D Degree (Business Administration) from Kobe
University, Japan.
Atul Chandra Pandit is an Associate Professor of Bangladesh Institute of Bank

Management (BIBM). He is the assistant coordinator of BIBM-Frankfurt School Joint
Certification program and coordinator of Certified Expert in Credit Management
(CECM). He obtained BBA and MBA degree with major in Accounting and
Information Systems from the University of Dhaka. He is a Certified Expert in Risk
Management (CERM) from Frankfurt School of Business and Management, Germany.
Kamal Hossain is a Joint Director of Bangladesh Bank and working at Bangladesh

Financial Intelligence Unit (BFIU). He is an MBM Graduate from BIBM and a
Certified Anti-Money Laundering Specialist (CAMS).

CorporateEthicsandFinancialCrime PDF

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

CorporateEthicsandFinancialCrime PDF

Uploaded by

Copyright:

Available Formats

Banking Research Series 2017

A Compilation of Research Workshop Papers

Bangladesh Institute of Bank Management

Published: July 2018

Editorial Team : Dr. Barkat-e-Khuda

Coordination Team : Dr. Shah Md. Ahsan Habib

Support Team : Sharmina Nargish

Graphics & Design : Md. Nasir Uddin

Published by Bangladesh Institute of Bank Management (BIBM)

Bangladesh Institute of Bank Management (BIBM) has introduced a number of

Dr. Toufic Ahmad Choudhury

4.1 Two-third of Banks Faced Some Forms of Financial Crimes in Recent 20

Banking Research Series-2017 i

Banking sector of Bangladesh is increasingly facing the difficulties of financial crimes.

Banking Research Series-2017 iii

Occurrence of unethical behavior adversely affects work environments in banks and

iv Banking Research Series-2017

Banking Research Series-2017 v

vi Banking Research Series-2017

Banking Research Series-2017 1

2 Banking Research Series-2017

2. Understanding Relevance of Corporate Ethics for Preventing Financial

Banking Research Series-2017 3

Unethical behavior in workplace is a matter of serious concern and might be a key

4 Banking Research Series-2017

2.2 Ethics in Banking and Code of Ethics

Banking Research Series-2017 5

transparent disclosure of their

responsible corporate citizens

Ensure full, truthful and

Must behave as socially

Source: Based on Islam, 2011

6 Banking Research Series-2017

2.3 Financial Crime in Banks and Relevance of Ethics

Banking Research Series-2017 7

Figure-2.1: Top 5 Broad Types of Commonly Reported Crimes in the Financial

Source: PwC 2016

In the context of a number of banking sectors of developing countries, high percentage

8 Banking Research Series-2017

Banking Research Series-2017 9

Attempting to investigate the collaborative roots of corruption, the researchers

10 Banking Research Series-2017

2.4 Addressing Financial Crime in Banks by Promoting Ethics

ahead of their Baden-Baden meeting - 17 March 2017

Banking Research Series-2017 11

An experiment investigating ethical behavior in individuals indicated that voluntary

12 Banking Research Series-2017

Ethical programs must be linked to material incentives in order to be effective (Nitsche

Banking Research Series-2017 13

3. Review of the Regulatory and Institutional Set-up for Addressing

3 BRPD circular no.6 dated September 4, 2016.

14 Banking Research Series-2017

Banking Research Series-2017 15

Table 3.1: Inspection Conducted in FICSD during 2015-16

In 2015-2016, special inspections conducted by the VAD unearthed a number of

16 Banking Research Series-2017

3.2 Policies and Codes to Promote Corporate Ethics in Banks in Bangladesh

Banking Research Series-2017 17

18 Banking Research Series-2017

Table-3.3: Disclosure of Ethical Codes in Annual Reports

Banking Research Series-2017 19

4. Understanding Unethical Corporate Practices as the Reason for Financial