FINANCIAL SCANDALS IN

BANGLADESH
TIME DURATION (2012-2019)

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 Table of content

SL NO Particulars Page no

01 Hallmark-Sonali Bank Loan Scandal 5

02 Stock Market Crash of Bangladesh 8

03 Hacked: The Bangladesh Bank Heist 15

04 Shahjalal Islami Bank Embezzlement 16

05 Tk 600 crore embezzled from Oriental Bank 17

06 Destiny Scam Cases 19

07 Recent ATM Scams in Bangladesh 22

08 Bismillah Group Embezzlement 27

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Acknowledgement:

In performing our report, we had to take the help and guideline of some respected persons,
who deserve our greatest gratitude. The completion of this report gives us much Pleasure.
We would like to show our gratitude Shahadat Hossain, Lecturer, University of Barisal for
giving us a good guideline for assignment throughout numerous consultations. We would
also like to expand our deepest gratitude to all those who have directly and indirectly guided
us in completing this assignment. Many people, especially team members itself, have made
valuable comment suggestions on this proposal which gave us an inspiration to improve our
assignment. We thank all the people for their help directly and indirectly to complete our
assignment.

All member of Group Number (One)

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Shahadat Hossain

Lecturer

Department of Accounting and Information systems

University of Barisal

Sub: submitting the report on financial scandals in Bangladesh time duration (2012-2019)

Dear Sir,

We are submitting the Report on financial scandals in Bangladesh, which you authorized.
This report is conceptual history in nature. In preparation of this report we followed all
your instructions and requirement.

Sincerely yours

Group: 1

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 Hallmark-Sonali Bank Loan Scandal
What happened?

In May 2012, a report from the Bangladesh Bank revealed that the Ruposhi Bangla Hotel
Branch of the state-owned Sonali Bank, Bangladesh’s largest commercial bank, illegally
distributed Tk 36.48 billion (US$460 million) in loans between 2010 and 2012. The largest
share, of Tk 26.86 billion (US$340 million), went to the now infamous Hallmark Group.
While the focus has understandably been on Hallmark, other companies also participated in
the fraud, including:

• T and Brothers, Tk 6.10 billion

• Paragon Group, Tk 1.47 billion

• Nakshi Knit, Tk 660 million

• DN Sports, Tk 330 million

• Khanjahan Ali, Tk 50 million

This is considered to be the country’s largest banking scandal. It dwarfs previous fraud cases,
such as a Tk 6.2 billion Letter of Credit fraud in Chittagong in 2007, a Tk 5.96 billion
fraudulent withdrawal from Oriental Bank in 2006, and a Tk 3 billion forgery scandal in 2002.

How did it happen?

It is alleged that the scandal resulted from collusion between officials of Hallmark and Sonali
Bank, in particular between Tanvir Mahmud, Managing Director of Hallmark Group, and
Azuzur Rahman, Manager of Sonali Bank’s Ruposhi Bangla branch.

The solution to these problems is a Letter of Credit (LC). At the behest of a garment’s
producer, a bank provides a fabric supplier with a LC that guarantees payment either at the
time of delivery or at some later date. As shown in the figure below, Hallmark is accused of
establishing fictitious companies, such as Anwara Spinning Mills, Max Spinning Mills, Star
Spinning Mills, which were shown as recipients of the LCs. These companies submitted
falsified paperwork reporting deliveries of fabric to Hallmark, which were then paid for by
the LCs from Sonali Bank’s Ruposhi Bangla branch. Because the fictitious companies and

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Hallmark had their accounts at the Ruposhi Bangla branch, on paper it looked like the branch’s
assets and liabilities were balanced out.

Why wasn’t the malpractice prevented or discovered sooner?

The first line of defense to detect the scam should have been internal audits at Sonali Bank
and supervision by Sonali Bank’s top management. Most experts and commentators have
concluded that for a fraud of this scale to occur, the bank’s top management must have been
involved in a cover-up. Early media reports based on the account of a Sonali Bank
whistleblower alleged Sonali Bank’s Deputy Managing Director made extensive efforts to
block audits of the Ruposhi Bangla branch, and eventually transferred the persistent auditors
to a branch outside Dhaka. A probe by a parliamentary committee noted that the Ruposhi
Bangla branch was certified as a “low-risk” branch by the inspection and audit team of the
bank despite violations of financial rules between 2007 and 2011. In fact, an audit wing report
went so far as to assert that the accused manager of the branch was “managing the branch
efficiently with his extraordinary talent, foresight, and banking knowledge.”

The second line of defense should have been the bank’s board of directors, whose members
claim to have had no knowledge of the malfeasance. External bankers and experts have also
regarded this claim with some skepticism, since the board of directors of a state-owned bank
should be involved in approving major loan decisions and reviewing audit findings. The
board had constituted an Audit Committee and an Asset Liability Management Committee
precisely for these reasons. Yet, the board failed to notice several red flags, including:
•
The loans to Hallmark exceeded by a large margin the cap that limits how much Sonali
Bank can lend to any single client.
•
Hallmark lacked the collateral to justify such large loans.
•
The Ruposhi Bangla branch exceeded its loan quota by almost 500%.

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What has been the fall out?

Investigations: The primary investigation has been led by the Anti-Corruption Commission,
which filed 11 cases against 27 Sonali and Hallmark officials in October 2012 and another 26
cases against 35 officials (including some of the same individuals) in December 2012.14 Among
the accused are all the heads of companies that benefited from the loan scam, including Tanvir
Mahmud of Hallmark, who has confessed and is cooperating with the authorities. As of this
writing, 19 Sonali Bank officials have been charged, including the former managing director,
two deputy managing directors, the general manager, and the leadership of the Ruposhi
Bangla branch, including the branch head Azizur Rahman. Several of the accused, including
Tanvir Mahmud, are currently in jail awaiting trial, while others are yet to be arrested.

Recovery: One major concern is recovery of the lost money, which, to put the amount in
perspective, is equivalent to 17% of the government’s education budget.15 According to the
findings of a parliamentary committee probe, of the Tk 26.86 billion loaned to Hallmark, only
about Tk 4 billion was actually invested and the remaining amount could not be traced.16
(This is the case despite early claims by Tanvir Mahmud that he had assets to cover the
amount borrowed twenty times over.)

What’s next?

The Anti-Corruption Commission’s investigations are ongoing and court cases will be held
this year. Perhaps more importantly, banking experts hope that the incident will bring about
much needed reforms in the banking sector. In particular, the incident has led to renewed
calls for:
•
Steps to remove political influence from the banking sector.
•
Changes to the way that board members and bank leadership are appointed.
•
Upgraded automation and management information systems.
•
Improved internal control mechanisms and the development of a comprehensive risk
management strategy within all banks.
•
And the creation of a fully independent Bangladesh Bank with full regulatory authority
over all of the nation’s banks.

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 Stock Market Crash of Bangladesh
What is a stock market?

Fellowes (2008, p.29) described that stock market has same features like a normal market with
buyers, sellers and agreed price. He also added that there will be a middleman who guides
investor to deal offers of buying and selling shares in the stock market We usually find stock
exchange, regulatory organizations, investors, listed companies with securities, broker
houses, merchant banks, and other intermediary organizations in a stock market with co-
operation of central bank and government of the country.

What is a stock market crash?

“Stock market crash is a sharp and unexpected decline of stock market prices for a very short
period of time, usually accompanied with the decline of many other assets’ prices” mentioned
by stockmarketcrashes.net. It causes significant capital losses of investors and speculators. The
market participants become panicked which leads to more losses.

Reasons of Stock Market crash 2010

After the recent catastrophe of share market of Bangladesh, Government of Peoples Republic
of Bangladesh had formed a high-powered committee in 2011 to investigate the issue and to
give a report to the government within two months. The committee was headed by the ex-
deputy governor of Bangladesh Bank, Mr. Khondokar Ibrahim Khaled and the committee
were named “Ibrahim Khaled share market probe committee”. The committee published a
report that was initially kept undisclosed to the general people but later on it was disclosed as
investors groups and civil society was creating pressure over the government for disclosing
it. The committee submitted a report consisting of the reasons for the crash and
recommendations with couple of case studies on 7th April, 2011. The report has identified a
group of manipulators including key officials, auditors, issuers, issue managers, brokers,
individual investors and some other stakeholders

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 Figure 1: DSE daily DGEN index of December, 2010

Figure 2: Daily DGEN index of January, 2011

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According to the Investigation report (2011) of the probe committee, reasons for the stock
market crash are following:

1. Role of market regulators and their employees: The role of SEC to control & monitor
capital market, working in favor of manipulators, approving unethical proposal and
issuing wrong directives which lead to unexpected market conditions deteriorated the
image of SEC. Investigation report mentioned some names of corrupt employees of
the market regulators who were directly or indirectly responsible in the market
manipulation. There is a job overlapping between SEC and exchanges. Such as, DSE
& SEC both organizations have surveillance department for the same job but there is
no co-ordination. Listing committee of DSE & CSE examines listing application of
company but SEC doesn’t do it properly and approve it. Placement of Mutual fund &
IPO at a price lower than the market value has become a new method of bribery for
powerful employees of regulators. There is another accusation that these senior level
employees received placement by using other`s name which is very difficult to identify.
The report admits that SEC doesn’t have enough employees for example; qualified
accountant, financial analyst and researcher to control and monitor the market.
Rahman&Moazzem (2011) identified in their study that Dhaka stock exchange is
becoming more volatile but the regulators are unable to defend it. They also suggested
increasing manpower and quality of professionals in SEC.

2. Demutualization of Exchanges: There are both elected & nominated members in DSE
and CSE. Basically, elected members run the administration due to less interest &
relation of nominated members. As a result, the players of the capital market act as
controllers. Meanwhile, controllers are inactive during unethical activities due to
conflict of interest. In the investigation report it was said that different stake holders
of capital market and civil society support & demand for demutualization of exchanges.
The meaning of Demutualization is separating controlling functions from controller’s
functions, empowering controller and taking decisions without being motivated by
the market players.

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 3. Investment of bank in the capital market: In 2009 & 10 banks and financial institutions
invested huge amount of deposit money in the stock market. As a result, share prices
sky rocketed until December 2010. When Bangladesh Bank restricted more than 10
percent investment of deposited money, increased CRR and SLR ratio, created
liquidity crisis and market crashed.

4. Pre-IPO & IPO process: Investigation committee considered that due to Pre-IPO &
IPO manipulation share prices sky rocketed and that is the main reason for the share
market crash. Manipulators illegally & unethically created a Kerb market in Pre-IPO
stage. Without recommendation by the listing committee application for IPO was
accepted. SEC did not examine abnormal asset revaluation and indicative price. As a
result, in Pre-IPO or IPO stage placement process and placement trade Kerb market
overvalued share prices. This eventually generated liquidity crisis in the capital market.

5. Uniform face value of share: During the meeting between investigation committee
and different stake holders of share market, a most important reason for abnormal
climbing of index was indicated to uniform face value of share at Taka 10. Splitting
share does not change revenue or asset of a company and should not affect the share
price. But Small investors showed their utmost interest to buy split share with their
small investment and consequently pushed the price up. Up to 62 listed companies
split their shares in 2009 & 2010. So, its abnormally increased liquidity of the market
and brought notable change in market capitalization. Investigation report shows that
MC increased 655% of companies those adopted share uniform and MC increased only
46% of those that did not adopt. From July 2009 to December 2010 the role of total
MC was 81.5% of companies which adopted share uniform and only18.5% those that
did not adopt.

6. Placement trade / Kerb market: Before issuing IPO, Issue manager or Issuer Company
sell shares to their nominated person and that is called Private placement or pre-IPO
placement. Private placement is risky because it doesn’t have accounting discloser. In
the developed countries there are some fixed rules but in Bangladesh SEC didn’t have
proper rules for it. As a result, some manipulators used it as a tool of price
manipulation. Investigation committee found that in most of the cases placement was

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 offered at less than the IPO price. Though aim of public offering is participation of
public but placement doesn’t make sure it. Eight companies issued convertible
preference share in 2009 & 10 in which average 69% went for placement. So,
participation of the public was hindered and that created placement trade or Kerb
market. Some companies distributed 50-90 percent of their paid-up capital in private
placement. However, when a company raises too much paid up capital through private
placement, the number of free-floating shares decreased. That’s why the difference
between demand & supply push share prices up. Moreover, non-listed companies
created liquidity crisis as huge investment was stuck up with these companies.
Placement created new process of trading outside of the share market and that is illegal.
By taking chance of placement many small companies raised capital from illiterate and
un-informed investors with their artificial financial reports.

7. Omnibus account: Investigation report found Omnibus accounts of ICB and merchant
banks as another major reason behind the stock market debacle. Every branch of
merchant bank operates only one omnibus account. There could be 3-10 thousand BO
Accounts under the omnibus account which are not under the surveillance of SEC. So,
information of individual accounts and its transaction are kept only with merchant
banks. As investigation reports shows that this kind of account made a lot of illegal
transactions. It publishes name of 30 big players including ICB for a lot of suspicious
transactions and says most manipulators traded from the omnibus accounts. It was also
reported at least Taka 2.5 billion has been traded from hidden or omnibus accounts.

8. Asset revaluation & Rumor: By taking chance of weak asset revaluation method
companies have overvalued their asset. In this process dishonest auditors generated
artificial audit reports. So, calculating of NAV on overvalued asset indicates wrong
signal. Some companies issued Bonus shares against unrealized gain of revalued asset
price which is a faulty accounting practice. There is rule to maintain provision against
“deferred tax” during asset revaluation to pay tax in future, but companies are not
following it. Investigation reports pointed some companies which got NAV more than
100% to 3,472% after asset revaluation.

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 9. Book building method: It’s a procedure of determining price of IPO at which it is
offered. The fair price is determined by the demand of a security from institutional
investors and their indicative price. The main aim of introducing this method in
Bangladesh stock market was to attract more firms for enlisting in the stock exchanges
through fair share pricing. However, it was found as an instrument of manipulating
market prices. Investigation report reveals that during the price discovery/bidding
stage investors manipulated share prices for placement with too high price. High price
was maintained only for the lock-in period and then investors offloaded their shares.
As a result, they pulled out a lot of profit within a short period and after that the share
price did not increase. In this process corrupted Issuer and issue manager manipulated
the price.

10. Serial and artificial trading: Some manipulators created artificial active trading
environment among themselves through bulk transaction and increased share prices.
Moreover, serial trading and price manipulation by many buy-sell orders through
different accounts and broker houses which overheated the market.

11. Issue of Right and preference share: Right Share is issued at a discount price to existing
shareholders. SEC took 4/5 months to take the decision of right issue proposal which
is mysterious. Meanwhile companies inform the market about Right issuance and
increased the share price. Moreover, issuance of Right share increase number of shares
which should decrease share price but it did not happen. Investing in Preference share
is safe to get a fixed percentage of profit. To make the share attractive companies keep
an opportunity to convert it and, in that case, it is called Convertible Preference Share.
Companies issued preference share for only 2-3 months even for 1 month which is not
common in other countries. The faults with convertible preference share were its time
period (short), convertible process and private placement. Investigation committee
found that SEC did not have proper guidelines for Right and Preference Share
issuance.

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 12. Suspicious transaction of top players: Investigation report reveals some names of
individual and institutional investors as top buyers and sellers during abnormal
increase and decrease of index in different time periods. The transactions of these
investors were suspicious and affected the market heavily and liable for abnormal rise
and fall.

13. Block placement: There was a lot of suspicious block trading of mutual funds. Some
investors got enormous amount of placement time to time.

14. Direct listing: With the approval of SEC few companies have been directly listed in
the stock exchange. These companies come to the market with inflated share prices.
Investigation report mentioned that indicative prices of these companies were
determined even 58 times more than EPS and 9 times of NAV. Though share prices
of these types of directly listed companies have been artificially determined, but SEC
or exchanges did not investigate the reason of abnormal price.

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 Hacked: The Bangladesh Bank Heist
How hackers got away with one of the biggest thefts in history, robbing Bangladesh's central
bank of more than $80m

24 May 2018 11:49 GMT Crime, Bangladesh, Corruption, Business & Economy,
Investigation

It was a daring raid. Tens of millions of dollars stolen from Bangladesh's central bank via the
Federal Reserve Bank of New York, transferred to accounts in the Philippines and then
laundered through the Philippine casino system.

The money, and the thieves, then vanished. And it was all done online. In this comprehensive
investigation spanning several countries, 101 East examines one of the biggest bank robberies
in modern times, to find out how cyber-hackers infiltrated the global banking system, and got
away with it. Tens of millions of dollars were stolen from the Bangladesh Central Bank by
cyber hackers. An infected email was possibly opened; through this way the hackers breached
the system. [Al Jazeera]

The crime stunned the then-governor of Bangladesh Bank, Atiur Rahman. "It was like a
terrorist attack, into the central bank," he says. "I couldn't believe it ... because nothing like
that ... ever happened."

The robbery prompted investigations in the Philippines, Bangladesh and by the FBI. It
revealed weaknesses in the supposedly secure global money transfer system known as
SWIFT, which banks use to move billions of dollars daily between themselves.

The stolen money was transferred to accounts in the Philippines via the Federal Reserve Bank
of New York, in New York City. [Al Jazeera]

The heist also exposed the murky banking system of the Philippines, where some of the
world's toughest bank secrecy laws make the country vulnerable to potential corruption and
money laundering. And it drew attention to the country's casinos, which are exempt from
anti-money laundering laws, and not required to report suspicious transactions. 101 East
exposes how cyber-hackers got away with one of the biggest bank thefts in history, robbing
Bangladesh's central bank of more than $80m.

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 Shahjalal Islami Bank Embezzlement
The Anti-Corruption Commission has prosecuted Shahjalal Islami Bank Limited (SJIBL)
Deputy Managing Director Md Monjerul Islam and four others for allegedly embezzling Tk
2.5 billion by opening fake letter of credit (LC), reports bdnews24.com.

The four others are former Janata Bank assistant general manager Shamim Ahmed Khan,
Senior Executive Officer Md Moshiur Rahman and former manager ASM Zahirul Islam of
the bank’s regional office and Dhaka Trading House owner Md Tipu Sultan. ACC Deputy
Director Shamsul Alam lodged a case at Motijheel Police Station on Thursday afternoon, said
the agency’s spokesperson Pranab Kumer Bhattacharya.

According to the case details, the accused misappropriated Tk 2.59 billion between 2010 and
2012 by opening an LC in Dhaka Trading House’s name at the Janata Bank’s regional office.

Monjerul Islam at the time was the bank’s deputy general manager.

But Islam on Thursday evening told bdnews24.com that the accusations levelled against him
were ‘completely baseless’.

“I am not involved with this LC and my signature was not on it. It is also wrong to say it was
a fake LC. Goods (sugar) had been imported after the LC was opened.

“I’m not sure why I’ve been implicated in this (case),” said Islam.

He claimed that everything regarding the LC in question was done following approval from
the then Board of Directors.

Saying he was only the in-charge of the Janata Bank regional office, Islam claimed it was
impossible to embezzle money being in his former position. About ACC Deputy Director
Alam, Islam said, “I told him everything in details when he spoke to me. Also, I myself have
already lodged seven cases against Dhaka Trading House on corruption charges. “Six of them
are in criminal court and the other in money loan court. He (Shamsul Alam) had sought some
documents from me, but I told him in writing that all the documents were with the courts
and I have nothing.” The SJIBL DMD says he has been implicated in the case as the documents
had not been handed over.

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 Tk 600 crore embezzled from Oriental Bank
Managing director, directors and a section of officers and employees of Oriental Bank, in a
nexus with the Orion Group, have embezzled Tk 595 crore fund of the bank (former Al-
Baraka Bank and the incumbent ICB Islami Bank). Such big misappropriation of money, first
of its kind in the country, was done in the bank's Karwan Bazar, Nawabpur, Motijheel and
other two branches through fake documents during 2003-2006, according to an investigation
by the central bank. The scam was exposed during investigations when Oriental Bank came
under the control of Bangladesh Bank on June 19 in 2006.

Banking sector people alleged that such a financial scandal occurred during the five-year
tenure of Rafiul Alam, former General Manager of the Strengthening Project of Bangladesh
Bank who served as a director of Oriental Bank on deputation. The central bank's
Strengthening Project's function is to take up short-term and long-term task force to
discipline any financial irregularities by any bank.

Alam is said to be a close relative of Moulana AKM Yousuf, former Nayeb-e-Amir of

Bangladesh Jamaat-e-Islami. During his tenure as director of the private sector bank, 22
meetings of the Board of Directors were held where no agenda of this huge embezzlement of
the bank money came up for discussion.

The central bank probe found that the bank money was withdrawn by white paper while
Karwan Bazar branch manager Ashraf Ali went to hideout taking those white papers with
him. But the forgery has been detected as the photocopies of those white papers were under
the possession of the Bangladesh Bank. A lion's share of the embezzled money was encased in
the name of One Denim Mills and One Entertainment owned by Gias Uddin Al-Mamun, a
close friend and business partner of Begum Khaleda Zia's son BNP leader Tarique Rahman.
Two officers of the administrative wing of the Orion Group, Nazia Akhter and Siddiqua,
signed most of those white papers. Under their signatures many pay orders and cash were
also deposited. Orion Group received those pay orders that were deposited in the names of
One Denim Mills, One Entertainment and Agrobirds. Obaidul Karim is the proprietor of
Orion Group who allegedly misappropriated those huge amounts of money by fake vouchers
of inter-branch transactions and showing artificial sources and deposits.

The ownership of the Oriental Bank came under the Orion Group in November, 2004.
Previously, Abul Khair Litu, a leading businessman, was the owner of this bank. During Litu's

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ownership, the bank's default loan stood at Taka 143 crore. To recover the money, the bank
lodged cases with the High Court, which is still pending. Bank owner Obaidul Karim,
Managing Director CM Kayes Samy and other 25 officers and employees are in the list of the
accused in the money embezzlement.

Bangladesh Bank applied to the government to keep Oriental's activities under suspension
under Section 77 of the Bank Company Act, 1991. However, the bank was not closed down
then at the interference of the bank's interim administrator, Mohammad Asaduzzaman, also
an Executive Director of Bangladesh Bank. The bank first started operation as Al-Baraka Bank
in 1987. This bank was earmarked as 'problematic bank' in 1994. The Orion Group and its
sister organizations bought 83 per cent of the bank stakes and began functioning as a
scheduled commercial bank under a new name, Oriental Bank, in 2004. When asked about
the allegations, Salman Karim, Managing Director of Orion Group and son of Obaidul Karim,
declined to make any comment. "I feel disturbed," he told this Correspondent.

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 Destiny Scam Cases
Destiny group was a Bangladeshi Multilevel marketing company that operated as a Ponzi
scheme. The Destiny group started out as a Multilevel marketing company. It grew to own a
newspaper and television channel. It advertised heavily and was one of the major sponsors of
Bangladesh's 40th independence celebration. It sold 50 million trees in its plantation business
that did not exist, with investors being shown pictures of trees in Sundarban forest. The trees
were sold to 1.7 million investors but according to anti-corruption commission only 5.3
percent of those trees exist. In 2014, Destiny distributors were trying to get a new license for
their multilevel marketing activities.

Reports of irregularities in the company prompted the Anti-Corruption Commission and

other government agencies to launch investigations of the company. The ACC investigation
has found 722 bank accounts in a number of banks under the name of 37 companies of Destiny
Group. Bangladesh Bank has reported that Destiny Group had laundered around 51.13 billion
takas from 2002 to 2006 through the accounts of its three sister concerns-Destiny 2000
Limited, Destiny Multipurpose Cooperative Society Limited, and Destiny Tree Plantation
Limited. In May 2014, ACC filed money laundering cases against 51 executives of the
company. The ACC has impounded 6.31-billion-taka worth of assets of the company.

According to The Daily Star Newspaper, A Dhaka court was framed charges against
Managing Director of Destiny Group Rafiqul Amin, Destiny 2000 President Lt Gen (retd)
Harun-Ar-Rashid and 49 others in two money laundering cases involving around Tk 4,200
crore. Amin and five others, now in jail, while Harun, now on bail, pleaded not guilty and
demanded justice after Judge Kamrul Hossain Mollah of the Senior Special Judge's Court read
out the charges to them. Earlier in the day, the court was rejected all the seven discharge
petitions submitted by Amin, Harun and five others. Then the court was issued arrest
warrants for Destiny Group Director Farah Diba, also wife of Amin, and 43 others as they
have been absconding.

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After that:

• The court transferred the cases to the Special Judge Court-5 for trial and fixed
September 29 to start trial of the cases.

• On August 17, the High Court directed the lower court to pass an order by August 24
on charge framing against Amin and others.

• On May 4, 2014, the Anti-Corruption Commission pressed charges against the 51

people accused in the two cases.

• They were charged with misappropriating funds through Destiny Tree Plantation
project and from Destiny Multipurpose Cooperative Society Ltd, according to the
ACC.

• The group's irregularities came under the spotlight in early 2012 after the central bank
found that it had been involved in illegal banking.

• In July 2012, the ACC filed two cases against 22 Destiny officials on charges of
laundering money.

Top officials of Destiny misappropriated about Tk 4,200 crore through its tree plantation
project and the cooperative firm and laundered this money abroad, the charge sheets state.
The officials embezzled the money in the name of paying salaries, honoraria, commission,
incentives and promotional costs. They transferred the money to their bank accounts and
those of the 20 companies under the group.

At the same time, they also misappropriated Tk 2,433 crore from 17.5 lakh investors by
claiming that they had sold 6.18 crore saplings under the tree plantation project. In reality the
group planted only 32 lakh trees, according to the ACC's findings.

In another development, the Supreme Court yesterday extended until October 31 its earlier
orders that stayed the bail of two Destiny Group top officials, including its Managing Director
Rafiqul Amin, in two money laundering cases.

The other official is Destiny Multipurpose Cooperative Society Ltd Chairman Mohammad
Hossain. On July 20, the High Court granted bail to the duo in the cases on condition that
they will submit their passports to the trial court so that they cannot leave the country before
completion of the trial proceedings of the cases. A five-member bench of the Appellate

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Division headed by Chief Justice Surendra Kumar Sinha passed the extension orders during
hearing of two separate leave to appeal petitions filed by the ACC against the HC orders that
granted bail to Rafiqul and Hossain on July 20. The apex court also fixed October 31 for
resuming hearing of the leave to appeal petitions. Following two stay petitions of the ACC,
the court on July 31 stayed the HC orders of bail until August 11 and then it extended the stay
orders until yesterday.

Sources:

• The Daily star Newspaper at August 25, 2016

• Wikipedia

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 Recent ATM Scams in Bangladesh
Introduction

With Bangladesh’s economic emergence, various business and financial sectors are enjoying
steady growth and implementing novel technologies to their business and operational
processes. The adoption of new technologies paves the way for opportunity for new
businesses. However, with new business have come new opportunities for malpractice. The
financial sector of Bangladesh, and the banking sector in particular, is one such segment
where corruption has followed closely on the heels of recent innovations. With the advent of
Automated Teller Machines (ATMs) in Bangladesh in 2003, most of the fifty-plus banks in
the country have already implemented this service, in order to facilitate cash withdrawal,
balance enquiry, balance transfer, and other services. Where there are electronic systems
however, there are bound to be malfunctions; and when these systems are dealing with
money, there usually are malpractices. A global network, ATM Security Association,
estimated annual global skimming losses of USD 2 billion as of February 2016; 98% of losses
occurred through ATMs. Moreover, now that Europe is EMV-card compliant (Europay,
MasterCard and Visa), 87% of frauds have crossed borders.

In Bangladesh, scamming incidents have been increasing since 2012. In 2012, there was a
credit-card scam valued at BDT 100 million, involving local bank officials of United
Commercial Bank Limited (UCBL). In 2013, another high-profile ATM forgery committed
by IT officials and their associates at Mutual Trust Bank (MTB), was valued at BDT 20
million. Both incidents involved locals and were discovered two years later.

From February 2016 onwards, a few significant ATM forgeries have made the headlines. This
Current Event Analysis (CEA) piece aggregates a list of recent forgeries, delves into the
domestic and foreign involvement in those incidents, provides an overview of “how it occurs”,
and reviews measures in place and potential ones, with the view towards encouraging more
stringent financial stewardship in the banking sector.

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 ATM Forgery Incidents across the Country

Table 1 summarizes all the incidents of ATM and other transactional device forgeries in 2016.
Here, ATMs scams, Point-Of-Sale (POS) terminal frauds and ATM hijackings are also listed.
The first 3 rows represent a carefully coordinated attempt by an international gang of flagged
fraudsters. The amount stolen by them was only unearthed later on, after investigations were
conducted by the Detective Branch (DB) Police and was well beyond originally estimated.
Item 4 reflects a scam representing the first-time international cards were used to commit
electronic theft. All these occurrences happened in a space of few consecutive months and
were not observed in this frequency before.
Table 1: Recent ATM Forgeries and Related Incidents
ATM forgeries
S.L. Cloning of ATM Cards ATM booth targeted Date (2016) Amounts targeted Other Details

1 Eastern Bank UCBL 1 ATM Feb 7 - 12 BDT 2.5 million

initially; 66 transactions
2 The City bank The City Bank 1 ATM Feb 6
(Total BDT 10
3 N/A EBL 2 ATMs Feb 8 million withdrawn)
Foreign origin; 150 transactions; 1st
4 Premier Bank 4 ATMs Feb 14 – 28 BDT 4 million
non-branded Malaysian financial institution international cards
BDT 575,000
Foreign origin; (BDT 66,000
5 Prime Bank 3 ATMs May 18 20 transactions
cloned cards from Riyadh Bank recovered)

ATM robberies
S.L. ATM booth targeted Date (2016) Amounts targeted Other Details
(cont.)
6 N/A DBBL Mar 3 BDT 1.2 million -
BDT 900,000
7 N/A DBBL Apr 20 (recovered) -

ATM Cards seized (from Dhaka Airport)

S.L. Incident No. of ATM Cards Date (2016) Amounts targeted Other Details
(cont.)

Bag left in front of DHL booth, from Hong

8 1,000 Mar 3 N/A -
Kong
City Bank cards illegally imported from BDT 4 million tax
9 100,000 Jun 28 -
Singapore evasion

Other Forgeries
S.L. Businesses or Banks
Incident Date (2016) Amounts targeted Other Details
(cont.) targeted
BDT 500,000 -
BDT 5.1 million
10 Through POS Machines N/A 700,000 each time
recovered from fashion
jewelry shops, fashion outlets, (combined with
outlet; comparing frauds
merchant houses and hotels Item 1-3, possibly
and bank transactions
BDT 50-60
million) deficits may help
Links to file archives
11 Turkish hacking group DBBL, City Bank, Trust Bank May N/A
posted on Social Media

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The largest heist of recent times was perpetrated by an international group of organized
European fraudsters in February 2016. Foreign nationals from Germany, Ukraine, Romania,
and UK-based Bangladeshi expatriates have been linked with this heist. Police investigation
also found connections with local policemen and citizens of significant social status, including
bank officers, businessmen and hotel-owners.

On February 12, sirens went off when 21 suspicious card transactions (subsequently, many
more) were detected by EBL from a UCBL ATM. EBL ATMs were also compromised. Initial
estimates lost were BDT 2.5 million using over 200 cloned cards using card-skimming
technology, at 6 ATMs of 26 banks. The series of incidents, which took place from February
6 to 12, forced banks to immediately shut down card facilities. The police, aided by the
Bangladesh Bank Financial Intelligence Unit, found that the German national apprehended
was linked to the other foreign nationals, including the mastermind, the UK-based
Bangladeshi, all of whom visited Bangladesh in 2014. Since then, multiple trips to the country
enabled them to expand their network through local criminal participants, persuading and
incentivizing corrupt business entities, e.g. a hotel, to manipulate POS machines. Similarly,
corrupt bank officials aided them to make false business transactions with the machines, BDT
500,000 to 600,000 at a time. As indicated in the Table, the total amount lost in the forgery
may stand at BDT 50-60 million, the greater part of it lost through POS machine forgery.

In May 2016, further ATM frauds were recorded. Reportedly having committed 20 card
skimming acts at a single Prime Bank ATM, a Chinese man was detained withdrawing BDT
66,000 using three fake cards over five attempts. The Chinese perpetrator belonged to a larger
ring. Two of the three in the ring operating in Dhaka, fled the country before Immigration
Department was notified, while the total withdrawn amount stood at BDT 575,000 from 3
ATMs around the city. These ATM cards were cloned from Riyadh Bank.

Hackers have also received temporary spotlight as a Turkish group claimed to have gained
access to 3 local banks and posted client information on social media. Upon investigation,
however, the banks found no noticeable matches with client information.

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“How It Occurs”

Fraudsters start with attaining knowledge of the local banking sector, acquiring informed
technical accomplices and get-rich-quick-motivated locals, and procuring hi-tech equipment.
Using fake IDs, the perpetrators then enter ATMs as banking technicians and install
skimming devices in the form of magnetic stripes around the card slot; this copies card
information onto the device. The PIN is swindled off using illegally installed cameras in the
ATM fascia, pointing at the PIN-pad. Sometimes a PIN-overlay copies the PIN. The miscreant
then leaves the ATM, only for their gang-member to return later to extract the device,
containing information of all the cards utilized in that slot in- between. They use the
information to clone other ATM cards obtained through other means (e.g. theft, imported
cards bypassing customs, etc.). The cloned cards are used to withdraw money in a client’s
name. Meanwhile, the POS machines are manipulated similarly duplicate (often
international) card information. Subsequently, the forged cards are used to make false
business transactions which transfer money into the shop- owners’ accounts, to be
withdrawn. The business gets a percentage from the crime-ring after handing over the
amount to them.

Financial Impact of Scams

The scams at ATM booths can have a severely negative effect on personal financial
transactions. Bangladesh Bank (BB) statistics show that in the month of February, up until
February 15, transactions valued at BDT 2.53 billion were recorded. However, until February
13, the value stood at BDT 2.38 billion. With a usual daily average of BDT 181 million,
withdrawals on February 14 saw only BDT 46 million, taking a few days to increase to the
average figure. Nervous customers are not to blame. It is incumbent of businesses, banking
or otherwise, to ensure consumer confidence, particularly in relation to new technologies.

Existing and Potential Measures for ATM Security

In light of the scams, the Bangladesh Bank (BB) has issued strict guidance to all banks to
remain vigilant and implement more contemporary security measures. Usually, in the event
of forgery, a bank suspends all debit card transactions, notifying clients. The bank’s Fraud
Control division then files a police complaint, possibly providing CCTV footage to distribute
images to land and air ports. Police and DB then conduct shadow investigations to compare
frauds linked with any past cases. To protect against skimming incidents, banks arguably

25
should have put a few contemporary measures such as PIN- shields, hiding the PIN entry,
costing BDT 1000-2000 per ATM. Costlier alternatives, ranging from BDT 25,000 to 80,000
per ATM include anti-skimming devices which protect cards. Thus far, 22 banks have
requested for the installation of anti-skimming devices at their ATMs. Although 3,000 ATMs
have these devices, recent threats have prioritized installation of these systems in all 7,500
ATMs nationwide. Banks can also adopt EMV chip cards. These create a unique transaction
code upon each transaction, which magnetic stripe cards do not. Banks ought to prioritize the
incorporation of this technology after conducting a comprehensive assessment. Even after
repeated directives of the BB, thus far, only a handful of banks have introduced EMV chips.
Furthermore, the BB has also directed all banks to be certified by Payment Card Industry Data
Security Standard (PCIDSS), an information security standard maintained by banks that
extend branded credit- card facilities. Only Q-Cash has thus far certified their business.

On a customer level, below are safety tips to minimize the risk of ATM or credit/debit card
fraud:

• Covering up PIN entry to prevent hidden camera pickup

• Only inserting cards when the ATM asks

• Checking the card scanner slot with a wiggle for lose, false panels

• Not forcing cards in

• Using familiar ATMs – avoiding doubtful spots or late hours; limiting visits

• Inspecting the ATM card slot for scratches, marks, adhesives or tape residues which
indicate tampering
• Checking balance frequently through receipts
• Not accepting external assistance
• Not leaving if ATM Card is stuck; immediately calling the corresponding bank and
awaiting instructions, even to cancel card before leaving ATM

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 Bismillah Group Embezzlement
The Anti-Corruption Commission (ACC) on Sunday filed 12 cases against 53 officials of five
banks and the Bismillah Group, a terry towel producer, for their alleged involvement in the
embezzlement of funded loans worth over Tk9.9bn.

The commission filed the cases with Motijheel, New Market and Ramna police stations under
section 4(2) and (3) of the Money Laundering Prevention Act 2012, ACC Deputy Director
and probe team head Syed Iqbal Hossain told reporters at a briefing. The list of the accused
included 13 people from Bismillah Group, 12 Janata Bank officials, eight Prime Bank officials,
seven Premier Bank officials, five Jamuna Bank officials and eight Shahjalal Islami Bank
officials.

The Bismillah group, with the help of the bank officials, allegedly embezzled around Tk5.27bn
from Janata Bank, over Tk3.26bn from Prime Bank, Tk1.54bn from Jamuna Bank, Tk1.04bn
from Shahjalal Islami Bank and Tk625.3m from Premier Bank in three years. Although the
ACC reportedly took statements from Jamil Hossain Durjoy, son of Gazipur lawmaker
Rahmat Ali, and Comilla lawmaker Mohammad Shubid Ali Bhuiyan’s son Mohammad Ali,
their names were excluded from the list of the accused as the commission said necessary
documents of their involvement were not found during the inquiry.

“The two men had taken allowances from Bismillah Group, but not on a regular basis. They
were paid directors, not shareholders. We have scrutinized documents from Bismillah Group
authority and Registrar of Joint Stock Companies, but no evidence of their directorship was
found during our inquiry, nor in the documents,” Hossain told reporters. According to the
probe report, 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.

The inquiry also found that the group laundered money abroad. The group allegedly
embezzled a total of around Tk12bn, but the commission, after its eight-month inquiry,
submitted a report on Tk9.9bn funded loan embezzlement. The accused from the Bismillah
Group are: Bismillah Towels Managing Director Khaza Solaiman Anwar Chowdhury; his
wife and Chairman Nowrin Hasib; Directors Shafiqul Anwar Chowdhury, Sarwar Jahan,
Abida Hasib, Nahid Anwar Khan and Khandker Moinuddin Ashraf; General Manager

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(commercial) Abul Hossain Chowdhury; Deputy General Manager and authorized signatory
Akbar Aziz Muttaki; and Manager (commercial) Riaz Uddin Ahmed. Among the accused, the
graft-busting agency had taken statements from only Akbar Aziz Muttaki, since none of the
other accused responded to the commission’s notices, ACC Deputy Director Hossain told
reporters. The other accused are Network Freight System Limited Chairman M Akhter
Hossain, TW Express proprietor M Moin Uddin, and Bay Yarn Limited owner Golam
Mohiuddin Ahmed. ACC sources said the MD of Bismillah Group was the mastermind
behind the misappropriation.

In primary probe, the ACC found that Chowdhury, the managing director; his wife, father
and mother were currently living in Dubai. Senior Manager Abul Hossain Chowdhury and
another top official Riaz Uddin were in Malaysia and London respectively. Others accused
in the cases the 12 people accused from Janata Bank included its Janata Bank Bhaban
corporate branch General Manager Abdus Salam Azad, and Deputy General Managers
Ajmal Haque and SM Abu Hena Mostafa Kamal, Moghbazar branch former manager
Rafiqul Alam. The eight people accused from Prime Bank include Vice President Ibrahim
Hossain Gazi and former manager Khandker Iqbal Hossain.

Sources:

012. “A Question of Public Trust.” The Star. Vol. 11(37): Sept. 21.

2 Ibid.

3 Ibid.

4 See for example, Fahmida Khatun. 2012. “State of Governance in the Banking Sector:
Dealing with Recent Shocks.” Center for Policy Dialogue: Nov. 5.

5 Inam Ahmed and Arun Devnath. 2012. “The enemy within.” The Daily Star: Sept. 4.

6 Daily Sun. 2012. “SB board blamed for Hallmark Scam.” Daily Sun: Dec. 17.

7 Ibid.

8 Rahman and Khan, “A Question of Public Trust”; Md. Noor Solaiman Jewel. 2013. “Sonali
Bank vs Hall Mark Group: An Analysis.” Financial Express: Jan. 6.

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9 Nasiruddin Ahmed. 2013. “Hallmark-Sonali Bank Loan Scam” Financial Express: January
14.

10 Daily Sun. “SB board blamed for Hallmark Scam.”

11 See for example Khatun, “State of Governance in the Banking Sector.”

12 Rashidul Hasan. 2013. “Modasser’s ‘mistake’” The Daily Star: Nov. 8.

13 See for example, Nasiruddin Ahmed. “Hallmark-Sonali Bank loan scam: A graft-ridden
nation looks for a way out.” Financial Express: Jan. 14; Jewel, “Sonali Bank vs Hall Mark
Group.”

14 FE Report. 2012. “Three Sonali Bank officials held.” Financial Express. Dec. 24.

15 Khatun. “State of Governance in the Banking Sector.”

16 Daily Sun. “SB board blamed for Hallmark Scam.”

17 Syful Islam. 2012. Small businesses pay price in Bangladesh’s biggest loan scam.”
TrustLaw: Oct. 2.
18 Ibid.

19 Ibid.

20 Ibid.

21 the Banking Sector.”

29