Bismillah Group Scandal

Introduction:
One of the most notorious scandals in financial sector was done by an organization name Bismillah
group in between 2011 2012. This group used to produce terry towel and export them to the
overseas market. The fraudulent group Bismillah Group, in association with the bank officials,
embezzled the money through loans against trust receipts using names of fake foreign buyers. They
secured cash incentives against fake export documents, taking advantage of inland bills purchases
and overpricing non - existing export items.

Amounts & Banks that lent money to this unscrupulous group were
1. Janata bank 3.92 billion
2. Prime bank 3.06 billion
3. Jamuna bank 1.64 billion
4. Shahjalal Islami Bank 1.49 billion
5. Premier Bank 629.7 million

Among the persons who were ambiguous about this money laundering case, Durjoy and Ali,
non-paid directors of Bismillah Group, allegedly helped its high officials in conducting the scam
and fleeing the country. Bismillah Group Managing Director Khaza Solaiman Anwar
Chowdhury was the mastermind behind the misappropriation and was assisted by some high-ups
of the five banks.

According to ANTI-CORRUPTION COMMISSION. Thirteen of the accused

are proprietors and top officials of Bismillah Group and its sister concerns — Shaharish
Composite Factory Ltd, Alpha Composite Towel Ltd, Shaharish KT Ltd, Hindul Wali Ltd and
Bismillah Towel Ltd — and the rest officials of five banks — Janata Bank, Prime Bank, Jamuna
Bank, Shahjalal Islami Bank Ltd and Premier Bank.

Before preparing the probe report, the inquiry committee reviewed documents of all the five
banks and quizzed around 70 of their officials. A commission official said when the swindling
took place, many of the bank officials, who are now in the five banks, were working with the
Prime Bank. Some sources also mentioned that some govt. official is implicated with this fraud
case. Chowdhury along with many top officials of the group have fled abroad with a great
portion of the swindled amount.

Key Points:
• Mastermind behind the scam: Bismillah Group's Managing Director Khwaja Solaiman Anwar
Chowdhury.
• Embezzled Amount: Around 10.74 billion
• Allegedly embezzled the amount with the help of total 5 banks' officials between June 2011
and July 2012.
• State - owned Janata Bank is the biggest casualty of Bismallah's duplicitous ways, with its
loans to the group amounting to about Tk 400 crore.
• After an investigation into the loan scam, the Anti - Corruption Commission (ACC) in 2013
filed 12 cases against 53 people, including 13 officials of Bismillah Group and 40 bankers,
on charges of swindling over Tk 1,100 crore from five commercial banks.
• Managing Director Khwaja Solaiman Anwar Chowdhury along with many top officials of the
group have fled abroad with a great portion of the swindled amount.

Causes Behind the Scam from Banks' Side:

• Depending only on the personal relationship, bank managers sanctioned loans without
adequate collateral and proper analysis of business. In many of these cases, improper
documentation causes the loans to default.

• Some clients divert their funds for other activities as they face no proper monitoring.

• Nepotism in the loan sanctioning process often favored politically exposed persons (PEPs)
making the loan risky especially when nepotism is shown by top level management. In many
circumstances managers were deeply pressurized to disburse loans to the PEPs. In such cases,
loans had been disbursed without proper credit valuation or sanction-approach either in terms
of the viability of the project or the proper valuation of collateral.

• Sometimes, the ignorance of bank officials in the assessment of the necessity of loans leads
to loan default.

• The greed of bankers is also liable for making a vulnerable banking sector to some extent by
disbursing loans to risky clients.

Causes Behind the Scams from Clients’ Side:

• There are some habitual defaulters who are actually willfully providing wrong information to
take loans from banks without any intention of repayment. Because of imperfect information,
very often banks failed to properly identify this class of people.

• Fund diversion is one of the root causes of the creation of this kind of scams. In such instances,
management diversified the fund and their business. One type of mentionable fund diversion
is share market investment from business money. Also, funds are diverted for medical
purposes, family affairs, repaying loans taken from various sources, house building, and other
businesses etc.

• The installment size is too big or rescheduling period too small for borrowers to avail
conditions for rescheduling.

• Due to sales on credit, in many cases, small businessmen face losses in businesses. When they
fail to run businesses, they fail to recover the money from the debtors in due time (or totally
unrecovered).

• In other states, borrowers use the bank-disbursed working capital for buying fixed assets.
rather than starting businesses. Eventually, the loan becomes defaulted because of this.
Recommendations:
So, how does one get out of this messy situation/Scams? What is the remedy?

• The new banks should introduce new and innovative services and should scale up their
products for the sake of making the government decision meaningful.

• There is no denying that the quality of the sponsors largely influences the quality of operation
of banks as such sponsors play an important role in the decision - making. So, the central bank
will have to closely examine the track records of the sponsors and it must not give in to
political pressure of any sort on this issue.

• The quality of the bank directors should be maintained scrupulously.

• The central bank may concentrate its attention on the color of money of the proposed directors
who will be investing as the paid - up capital The central bank must have to play the role of a
watchdog in case of shopping the investment clients of new banks from existing banks by
approving the higher limit then the present outstanding.

• With strong and self-reliant internal control and compliance (ICC), the FIs must guarantee
appropriate KYC and due diligence to satisfactorily assess a loan proposal and flawlessly
settle market potential, value of the collateral and optimum credit needs.

• The central bank must have to be vigilant in examining the proposed investment clients of
new banks, particularly those whose cases have to be rescheduled. Getting rescheduled, the
sick clients in the existing banks become very much performing in new banks for the time
being in the backdrop of opening new banks in the market.

• The central bank needs to require to consider several other issues, prior to giving effective
permission to new banks, including ownership quality. The vital issue that deserves priority
attention of both central bank and the government is better banking coverage of the hitherto
neglected rural areas.

• On the basis of strict objective criteria, the selection and appointment of board members
should be done and there should be a mechanism in place to monitor the performance of the
board members.

• The supervisory capability of the Bangladesh Bank needs to be strengthened.

• Finally, the existing rescheduling facility needs to be made more accommodative, for a large
proportion of cases, where the default is due to genuine business failure or fund disbursement
delays by the bank.