Report on

Corporate Governance failure on different

national and international event

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 Course Title
Corporate Governance and Social Responsibility

Submitted To:

Md. Noyon Islam

lecturer, Finance

Submitted By:

“The Research Hive”

Section-A

Bachelor of Business Administration

Date of Submission: 3rd May, 2024

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 Group Profile

Serial no Name ID
01 Kazi Efaz Abdun Naser 21-44382-1
02 Sanjida Akter Akhi 21-44492-1
03 Mohita Mubashera Zaman 21-44380-1
04 Mrittika Debnath Mom 22-46406-1
05 Nusrat Jahan Shimu 22-46338-1

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Date: 31-08-2023

Md. Noyon Islam

lecturer, Finance. Faculty of a Business Administration
American International University-Bangladesh
Kuratoli, Dhaka.

Subject: Submission of different corporate governance failure international or

national events report
Dear sir,
With due respect we are the student of Bachelors of Business Administration. It’s a
grate pleasure for us to be able to handover the result of our research report on
“Corporate governance failure in different national and international events” which
was assign to us and also this report is a overall knowledge that we gather in corporate
governance and social responsibility course.

We tried our level best to preparing this report and all the information of this report
are based on the different cases and we tried to gather as much knowledge as we can
also we include relevant issues.

We are grateful for your kindness towards us. Please feel free for any query and
clarification that you would like us to explain again. Hope you will appreciate our
hard work and if there have any error please excuse. Thanks for your support.

Sincerely yours,
“The Research Hive” group
Department: Bachelor of Business Administration (BBA)
American International University-Bangladesh (AIUB)

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 Acknowledgement
At first, we would like to thank almighty ALLAH for helping us and giving us the
strength to complete this report within time. Of course, we are extremely grateful to
our course instructor, MD. Noyon Islam; our mentor and our INSPIRATION who was
always very supportive and helpful throughout the report. He has always tried to
widen our imagination and take it to another level where there is no boundary of
creativity. Thank you, sir, for mentoring us in such a nice way so that we can see
everything in a new perspective. It was a new experience for all of us. We have made
a lot of mistakes during the whole process, but mistake is the key to success we
assume. It was a wonderful journey for all of us to do this course and gather so many
practical experiences and we are sincerely THANKFUL to our respected faculty MD.
Noyon Islam for helping us and encouraging us to challenge our limits. Our all group
member’s efforts also have made the assignment so informative and resourceful. We
are very delighted to present this report.

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 Executive Summary
This comprehensive report examines several high-profile corporate scandals and
governance failures spanning national and international events. The focus areas
include the Meta-verse Foreign Exchange (MTFE) scandal, the Habib Group scandal,
the Rupali Bank scam, the BASIC Bank scandal, the Rana Plaza disaster, the
Wirecard scandal, the First Republic Bank scandal, the Bank of Punjab crisis, and the
European Public Prosecutor’s Office (EPPO) tax scandal.

The MTFE scandal, an example of egregious ethical breach, involved a Dubai-based

app that duped innocent investors in Bangladesh, Nigeria, and Sri Lanka with
promises of high returns, operating as a Ponzi scheme. Lack of regulation oversight,
insufficient user protection measures, and transparency issues contributed to
catastrophic losses for investors.

The Habib Group scandal exposed financial mismanagement, employee disputes, and
closure of subsidiaries, impacting various industries and markets. Corporate
governance failures included defaulting on loans, conflicts of interest, and lack of
transparency, resulting in job losses and economic instability.

The Rupali Bank scam highlighted deep-seated corruption within the banking sector,
with managerial and ethical lapses leading to fraudulent loan allocation and cronyism.
The scandal undermined public confidence, caused heavy financial losses, and
hindered economic growth.

The BASIC Bank scandal highlighted significant failings in corporate governance,

including inadequate oversight, lack of transparency, and non-compliance with
regulatory requirements. Financial losses, economic instability, and legal
repercussions ensued, affecting multiple stakeholders.

The Rana Plaza disaster illustrated severe corporate governance failure, as unsafe
working conditions and disregard for employee safety led to a tragic collapse, causing
loss of life and injury. Lack of oversight, failure to address warnings, and supply
chain responsibility issues contributed to the catastrophe.

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The Wirecard scandal involved deliberate misrepresentation of financial statements,
market manipulation, and inappropriate auditing practices, resulting in massive
financial losses for investors and damage to regulatory credibility.

The First Republic Bank scandal, characterized by high uninsured deposits, lack of
liquidity, and credit ratings downgrades, impacted stakeholders through financial
instability, job losses, and consolidation in the banking industry.

The Bank of Punjab crisis exposed poor risk management, corruption, and
government oversight failures, leading to bankruptcy and loss of public trust.
Regulatory reforms and improved governance measures are needed to rebuild
confidence in the banking sector.

The EPPO tax scandal highlighted corporate governance failures in supervising and
preventing fraudulent activities, resulting in financial losses, economic instability, and
legal consequences for those involved.

The Danske Bank money laundering scandal, spanning from 2007 to 2015, revealed
significant failures in anti-money laundering controls and corporate governance,
particularly in its Estonian branch. The scandal involved laundering billions of dollars
primarily from Russia, leading to severe reputation damage, regulatory fines, and
management changes. Despite subsequent reforms, it underscores the critical need for
robust compliance measures and effective oversight to prevent illicit financial
activities and maintain trust in the banking sector.

In conclusion, these scandals underscore the critical importance of robust corporate

governance, transparency, and accountability in preventing fraudulent activities,
protecting stakeholders, and preserving trust in financial systems. Regulatory reforms,
enhanced oversight, and ethical business practices are essential for restoring
confidence and integrity in both national and international markets.

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 Index
1. National Events:…………………………………………..09
1.1 Meta-verse Foreign Exchange (MTFE) Scandal…………………...10
1.2 Habib Group Scandal……………………………………………….11
1.3 Rupali Bank Scam…………………………………………………..13
1.4 Basic Bank Scandal…………………………………………………14
1.5 Rana Plaza…………………………………………………………..17

2. International Events:……………………………………...20

2.1 Wirecard Scandal……………………………………………………21

2.2 First Republic Bank Scandal………………………………………..22
2.3 Bank of Punjab……………………………………………………...23
2.4 European Public Procecutor’s Office (EPPO) Tax Scandal………..24
2.5 The Danske Bank Money Laundering Scandal……………………..26

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National Events

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 Meta-verse Foreign Exchange (MTFE) Scandal

Overview
Starting from 2016 to the end of 2021 MTFE an example of ethical breach has been
the unrevealed villain in Bangladesh who played with innocent people’s emotion and
robbed around USD 1 billion by that time. MTFE (short for Meta-verse Foreign
Exchange Group) was a Dubai-based app that positioned itself as a Shariah-compliant
platform for cryptocurrency, forex, commodities, and stocks. It enticed individuals in
Nigeria, Sri Lanka, and Bangladesh by promising unusually high returns on
investments. The app gained popularity through a referral program, functioning
essentially as a “Ponzi scheme” which means paying old investors from the money
generated from new investors. Thousands of people, including those at the upazila or
village level in Bangladesh, invested crores of taka into MTFE and became destitute.

How MTFE worked

MTFE influenced users with money-making promises and a referral system. Users
were encouraged to bring in new investors and were rewarded with bonuses in return.
The app claimed to be registered in Ontario, Canada, but it had no official presence in
Bangladesh. MTFE operated outside the jurisdiction of the commerce ministry, as it
did not involve actual buying or selling like e-commerce.

Corporate Governance Failures

 Lack of Regulation Oversight: Although the transaction of cryptocurrency is

banned in Bangladesh due to lack of proper regulation scammers came here and
stole the money which was a complete failure.

 Insufficient User Protection Measures: MTFE app did not have any identity
verification protocols or monitoring process suspicious transactions. With no
knowledge of identifying and avoiding scams users were thrown to the
uncertainty of falling the fraudulent schemes that eventually happened.

 Transparency and Disclosure Issues: Companies involved in operating meta-

verse platforms failed to provide transparent and accurate information about the

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 risks associated with virtual currencies and financial transactions within the
virtual environment. The lack of transparency and disclosure misled users into
making uninformed investment decisions, increasing their possibility to scams.

Impact of the scam

On August 17,2021 the MTFE Android app suddenly collapsed, freezing the balances
of hundreds of thousands of people worldwide. Victims faced catastrophic losses, and
the precise scale of the scam remains undetermined. The mystical nature of MTFE's
operations made it challenging for government agencies to take responsibility.

Habib Group Scandal

Overview
The Habib Group is a prominent Bangladeshi industrial conglomerate. Founded in
Chittagong in 1947, it employs over 20,000 people and has various interests in textiles,
aviation, cement, steel, real estate, insurance and banking. inherited by his three sons,
Mahbub Ali, Yakub Ali, and Yasin Ali, in 1981 who expanded the business in other
areas such as garments. In 2009, Habib Group sponsored the Port City League
Twenty20 championship in Chittagong. In 2010, Habib Group launched Regent
Airways. The Daily Star-DHL awarded Habib Group the Enterprise of the Year award
in 2014. In June 2017, Regent Airways announced plans to expand destinations in the
Middle East and the purchase of three Boeing 737. Regent Airways was financially
hit during the COVID-19 pandemic in Bangladesh along with other airlines in 2020
after travel was restricted and flights were forced to cancel. It cancelled the lease of
two Boeing 737 to save costs. The airline had 1.89 billion due to Civil Aviation
Authority of Bangladesh.

How Habib group worked

Habib Group's operations in Bangladesh are multifaceted. The group has a strong
presence in the textile and garment sector, owning and managing multiple textile mills
and garment factories. These facilities produce a wide range of products, from yarn
and fabric to finished garments for both domestic and international markets. Habib
Bank Limited (HBL) is a major player in Bangladesh's banking sector. It offers a

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range of banking services, including retail banking, corporate banking, trade finance,
and treasury services. The group has investments in real estate development,
including commercial and residential properties. Beyond these core sectors, Habib
Group diversifies its investments into other industries, such as telecommunications,
energy, and logistics.

Corporate governance failures

 Financial Mismanagement: Defaulting on loans worth 40 billion BDT from 30
financial institutions indicates poor financial management and risk assessment
practices within the group. Moreover, Legal actions, such as arrest warrants
issued against directors in a dishonored cheque case, point to potential fraudulent
or irresponsible financial practices.
 Employee Disputes: Protests and hunger strikes by textile workers demanding
unpaid wages highlight potential labor management issues and failure to adhere
to labor laws and regulations. Besides, Confiscation of bank accounts due to
unpaid dues by the government reflects a failure to fulfill financial obligations,
possibly indicating liquidity or solvency issues.
 Closure of Subsidiaries: The closure or impending closure of 31 subsidiaries
suggests broader systemic issues affecting the group's viability and sustainability.

Impact of corporate failure

The corporate failure or scandal of the Habib Group has far-reaching implications
across economic, social, and regulatory spheres. Economically, the collapse disrupts
industries and markets, leading to job losses, decreased investor confidence, and
potential instability. Reputational damage not only affects the group itself but also its
affiliated businesses, impairing their ability to attract customers and investors. Legal
consequences, including litigation costs and regulatory penalties, drain resources and
hinder recovery efforts. Ultimately, the loss of trust among stakeholders, including
customers, suppliers, and investors, compounds the challenges faced by the group and
its affiliates, prolonging the recovery process and intensifying the overall impact of
the scandal.

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 Rupali Bank Scam
Overview
In 2022, Rupali Bank Limited (RBL), a state owned commercial bank that is in a
serious crisis, occurred leading to many deep level problems surfaced within the bank.
However, Rupali Bank, which was implemented in 1972 with a wide-ranging
conception, failed to set up the basic banking networks and the economy growth due
to weak monitoring, poor risk management, and the internal corruption.

Corporate Governance Failure

The Rupali Bank scandal of 2022 has demonstrated evidently that multiple
managerial and ethical disciplines among top executives were compromised, as
clearly exhibited in the lack of internal control mechanisms included. Investigations
have showed deep inconsistencies in loans broadcast, where fraudulent allocation is
when the funds are diverted. In reality, managers worked together with powerful
debtors who were able to falsify the due diligence procedure, stealing assets when
they needed. Immorality and mismanagement of funds were furthered with the
practice of cronyism where people connected their projects with representatives of the
institutions who grant loans based on connections not on the merit of the projects.

Impact of the Scam

The controversy created by the Rupali Bank scandal is still fresh in the ears of
Bangladeshis thus leaving a serious question on the bank credibility. The management,
corruption, and other irregularities not only threated the bank's stability but also
severely damaged public confidence and caused heavy financial losses. The investors,
depositors and the creditors get hit as Rupali Bank's assets fall in value. This
negatively impacts the economy at large as there are less investors keen to invest and
those who do still proceed with caution and commercial enterprises find it
increasingly difficult to access the required credit.

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 Basic Bank Scandal
Overview
The BASIC Bank loan scandal represents a significant episode of financial
malpractice within Bangladesh's banking sector. Lasting from 2009 to 2013, it
involved top managers allegedly orchestrating a scheme to illegally obtain loans
totaling nearly Tk. 4,500 crore. What's striking about this situation is that over 95
percent of these fraudulent loans were sanctioned by the bank's board, exceeding Tk.
1.5 crore in each case, a threshold requiring board approval.
The investigation revealed multiple irregularities in the loan approval process,
including funds being transferred to accounts of firms owned by close relatives of the
chairman, and loans being granted without proper documentation, credit risk
assessment, or verification of collateral. Such lapses point to serious deficiencies in
governance mechanisms within BASIC Bank.
The Bangladesh Bank, through its Financial Intelligence Unit, conducted an extensive
inquiry, culminating in a 47-page report detailing the loan approval and disbursement
process violations. The report highlighted systemic failures within BASIC Bank's
board and credit committee, which disregarded negative observations from branch
offices and approved loans without due diligence.
Consequently, the managing director of BASIC Bank was dismissed in May 2014 for
presiding over the irregularities. Despite the evidence presented, questions arose
regarding the political connections of certain individuals implicated in the scandal,
particularly the then-chairman of BASIC Bank, who was not made an accused in any
of the cases filed by the Anti-Corruption Commission.
In response to the scandal, the Anti-Corruption Commission filed 56 cases in 2015,
accusing a total of 110 individuals and organizations, including bank officials,
borrowers, and surveyors, of gross loan irregularities. However, the perceived lack of
accountability for high-ranking officials raised concerns about the integrity of the
investigation and the potential influence of political backing in the banking sector.
Overall, the BASIC Bank loan scandal underscores the importance of robust
governance, transparency, and accountability in the banking industry to prevent
fraudulent activities and protect the interests of depositors and the broader economy.

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 Basic Bank’s corporate governance failure
Significant failings in corporate governance within the bank are highlighted by the
BASIC BANK loan scandal, which resulted in widespread financial misconduct and
fraud. There are a number of crucial areas where corporate governance fails including:

1. The board of directors charged with supervising the bank’s activities and
guaranteeing compliance with legal requirements, did not take adequate care when
granting loans. They take large amount of loans which is above 1.5 crore taka. And it
is required board approval. And the board sanctioned almost 95% fraudulent loans.
This means board has lack of scrutiny and oversight

2. Before approval the loans paper basic bank cannot identify the actual reason behind
this. They are failed to manage the proper risk assessment and due diligence process.
They pass the loans without checking the or verifying the ownership of the mortgaged
properties, they also failed to collecting proper documents. This lack of assessment
drag the bank into financial risk and doing fraudulent activities.

3. The controversy exposed instances of nepotism and conflict of interest in BASIC

Bank’s management. And the different funds are transferred the bank’s chairman
family member accounts. These actions erode public confidence and compromise the
integrity of the bank’s decisions making procedures.

4. Basic bank governance mechanisms lacked transparency and accountability

allowing for the concealment of fraudulent activities. The failure to address negative
observations from branch offices and the approval of loans without following due
diligence procedures indicate a disregard for transparency and accountability
standards.

5. BASIC bank failed to comply with regulatory requirements and standard which is
set the Bangladesh central bank. The management of the bank disregarded rules
pertaining to internal controls, risk management, and loan approval procedures, which
helped to keep fraudulent activity going.

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 Impact of the Scam
The loan scandal involving BASIC bank illustrates a corporate governance
breakdown that can have serious consequences for multiple stakeholders, ultimately
affecting people and society in multiple ways:

1. Financial loss: there are some who are faces financial loss badly like depositors,
shareholders, investors in BASIC Bank. And the banks fraudulently activities also
affect the bank’s financial performance that can result the company share values
decrease, dividend reduce for shareholders.

2. Economic instability: BASIC bank scandal can contribute to broader economic

instability. It losses the creditors or shareholders confidence to invest in a bank and
also decreases the depositors confidence, leading to capital fight and also economic
downfall. Small and cottage industries which rely on institutions like BASIC Bank for
financing may face difficulties accessing credit, hindering their growth and
contribution to the economy

3. Increase unemployment: there are so many people who are connected in the
BASIC bank they losses their job and the another reason is to losses job which is
economic instability and financial losses and faces socioeconomic challenges.

4. losses trust and confident: The loss of faith and confidence in public institutions
and the banking industry may be the biggest long-term effect. The public's confidence
in the honesty and dependability of financial institutions is weakened when corporate
governance shortcomings are exposed. It will take a lot of work to put reforms into
place, increase transparency, and hold those accountable for the wrongdoing
accountable in order to rebuild this trust.

5. Legal and Regulatory Repercussions: Individuals implicated in the scandal,

including bank officials, borrowers, and surveyors, may face legal and regulatory
consequences. Legal proceedings, such as criminal investigations and prosecutions,
could result in fines, penalties, and imprisonment for those found guilty of financial
misconduct.

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 Rana Plaza
Overview
Rana Plaza was constructed on the swampy ground without proper building permits or
adherence to safety regulations. The building's owner, Sohel Rana, added extra floors
without obtaining proper authorization, leading to structural weaknesses.
On the morning of April 24, 2013, cracks were noticed in the building's walls,
prompting an evacuation of the shops and bank on the lower floors. However, the
garment factory workers were ordered to return to work, as their employers feared
financial penalties for missed orders. Tragically, the building collapsed later that
morning, killing over 1,100 people and injuring thousands more.
How they worked
Rana Plaza consisted of several floors housing multiple garment factories, each
producing clothing for various international brands. The complex was built hastily,
without proper permits or adherence to safety regulations, and it was structurally
unsound.
inside the factories, workers, predominantly women, were engaged in the production
of clothing items such as shirts, pants, and jackets. These garments were made for
well-known global brands and retailers, catering to the demand for fast fashion.
Workers in Rana Plaza faced appalling labor conditions, including long hours, low
wages, and lack of adequate breaks. Health and safety standards were routinely
ignored, with reports of overcrowded workspace, insufficient ventilation, and unsafe
machinery.
Prior to the collapse, cracks had been noticed in the building's structure, prompting an
evacuation of some businesses. However, factory owners pressured workers to return
to their jobs, dismissing concerns about the building's safety. The tragic collapse
occurred just days later, leading to the deaths of over 1,100 people and injuring
thousands more.

Corporate Governance Failure

The Rana Plaza disaster in 2013 stands as one of the most tragic examples of
corporate governance failure in recent history. Here's an elaboration on how it
unfolded:

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Building Collapse: The Rana Plaza, an eight-story commercial building in Bangladesh,
collapsed on April 24, 2013. It housed several garment factories, shops, and a bank.
The collapse resulted in the deaths of over 1,100 people, mostly garment workers, and
injured thousands more.
Unsafe Working Conditions: Before the collapse, there were visible signs of structural
issues in the building. Cracks had appeared in the walls, and workers reported
concerns about the safety of the building. Despite these warnings, factory owners
continued operations, prioritizing profit over the well-being of their employees.
Failure of Oversight: One of the key elements of corporate governance is oversight to
ensure that companies operate ethically and responsibly. In the case of Rana Plaza,
there was a clear failure of oversight at multiple levels. Government regulators failed
to enforce building safety codes, while international clothing brands sourcing from the
factories neglected to ensure proper working conditions for the workers producing
their goods.
Supply Chain Responsibility: Many international clothing brands outsourced their
manufacturing to factories in countries like Bangladesh, where labor costs are lower.
While these brands benefitted from the cheap labor, they often turned a blind eye to
the working conditions in these factories. The Rana Plaza disaster highlighted the
need for greater accountability and responsibility throughout the entire supply chain.
Lack of Accountability: Following the collapse, there was a widespread outcry for
accountability. However, identifying and holding accountable those responsible for
the disaster proved challenging. Factory owners, government officials, and
international brands all pointed fingers at each other, deflecting blame and avoiding
responsibility.
Calls for Reform: In the aftermath of the tragedy, there were widespread calls for
reform in the garment industry. This included demands for better building safety
standards, improved working conditions, increased transparency in the supply chain,
and greater accountability for all stakeholders involved

Impact of the event

The Rana Plaza disaster sparked global outrage and brought attention to the unsafe
working conditions and exploitation of garment workers in Bangladesh. It led to calls
for improved safety regulations, enforcement mechanisms, and corporate

18
responsibility in the global supply chain. Various initiatives and agreements were
launched to address these issues, such as the Accord on Fire and Building Safety in
Bangladesh and the Alliance for Bangladesh Worker Safety.
The Rana Plaza collapse had far-reaching consequences, affecting not only the
victims and their families but also the global fashion industry. It prompted consumers,
brands, and retailers to reconsider their sourcing practices and prioritize ethical and
sustainable manufacturing processes. Additionally, it raised awareness about the need
for transparency and accountability throughout the supply chain.

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International Events

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 Wirecard Scandal
Overview
Wirecard AG was a German payment processor and financial services provider. The
company gained prominence as a European tech champion, but its reputation
unraveled due to a massive accounting scandal that started in 2015 but exposed in
2020. During this period they have faced persistent allegations of fraud and financial
irregularities. However, in June 2020, the scandal reached its peak when Wirecard
announced that €1.9 billion in cash was missing from its accounts. Eventually, they
admitted to false reporting of profits and inflated financial statements and finally got
filed for insolvency, leading to a remarkable collapse of a once high-flying company.

Corporate Governance Failures

 False-filed financial report: Wirecard intentionally misrepresented the financial
statements of their company and published a report that showed highly profitable
outcome and increased assets compared to preceding years which does not have
any real time existence.

 Market Manipulation: As Wirecard increased their valuation falsely, their share

price increased in the market that helped the insiders of the company to earn
money although at the end outside investors lost their money after Wirecard
declared bankruptcy.

 Inappropriate Audit: The audit committee of Wirecad and the external auditors
of the company also committed crime as they preferred self interest over the
reliability of their opinion in the market. Their false report provoked a lot of
investors to invest in Wirecard as they thought it is a profitable company with no
unethical activities. This is also a breach of ethics.

Impact of the Scandal

The victims of the Wirecard scandal included investors who lost money, creditors
who faced financial losses, employees who lost jobs, customers and partners who
suffered disruptions, and regulatory authorities whose credibility was damaged.

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 First Republic bank scandal
Overview
First Republic Bank was founded in 1985 by James H. Herbert II to focus on jumbo
mortgages, CDs, and savings accounts. The bank operated in San Francisco,
specializing in lending for luxury homes, second homes, condos and co-ops, and
investment properties. In the late 1990s, First Republic expanded into a full-service
bank and added new services and markets on the West Coast and East Coast. Over
the following decades, First Republic built its reputation on having fewer customer
accounts with more individualized service and continued to focus on high-net-wealth
clients.

Reasons of corporate governance failures

 High proportion of uninsured deposits: With over 67% of its deposits being
uninsured, the bank faced significant risk when depositors started to withdraw
their funds, leading to a run on deposits.
 Lack of liquidity: First Republic Bank relied heavily on net interest income
from less liquid investments such as real estate loans and municipal securities,
which didn't earn competitive interest rates.
 Credit ratings downgrades: Repeated credit agency downgrades raised
concerns about the bank's ability to resolve liquidity, funding, and profitability
challenges.
 Mistrust in regional banks: Following the collapses of other banks and credit
ratings downgrades, investors became increasingly wary of keeping uninsured
deposits with regional banks.

Impact of corporate failure

The failure of First Republic Bank had significant repercussions on its stakeholders
and the broader financial system. Depositors, especially those with uninsured funds,
faced uncertainty and potential loss of their deposits, leading to anxiety and financial
instability. Employees of the bank were impacted by potential job losses as the
institution underwent restructuring and cost-cutting measures. This loss of
confidence can have cascading effects, affecting lending activities, economic growth,

22
and overall financial stability. Additionally, the acquisition of First Republic Bank
by JPMorgan Chase demonstrates the consolidation trend in the banking industry,
potentially reducing competition and altering the landscape for consumers and
businesses.

Bank of Punjab
Overview
By 2023, Bank of Punjab, one of the banking giants in Pakistan, had been involved
closely in a badly managed affair. The bank faced problems, such as deviations from
its loan policy, embezzlement and inefficient risk management that led to the
exposure of within the organization’s systemic weakness. The weak loan management,
inclusion of compliance issues and lack of internal rules that were all attributed to
failure of the bank gave rise to doubts about the integrity of the banking sector in
Pakistan.

Corporate Governance Failure

Last year in 2023, the Bank of Punjab was in trouble primarily because of the poor
risk management system that was implemented, a host of corruption cases, and a no
show of public control. There was no proper risk management structure and control
mechanism so risky lending practices and financial misconducts were enabled which
eventually drew the bank to financial insolvency and insecurity. This issue was made
worse by breaking the standards of regulations which clearly showed government and
oversight system failures.

Impact of the Scam

The bankruptcy of the bank of Punjab in 2023, greatly affected the global banking and
credit sector in Pakistan. The shareholders and the depositors of banks received
financial losses, while regulating authorities launched investigations to come up with
a mechanism for these institutions deficiencies. The collapse badly demonstrated that
the regulatory policies and practices which required stronger risk management,
compliance and board oversight in the banking the sector. In order to reinforce trust

23
and peace, the bank must restructure risk management systems, as well as improve the
existing compliance measures for a culture in between transparency and
accountability. While these authorities should also introduce measures with strict
regulation to prevent such bad governance failures in order to preserve the integrity of
the banking system.

European Public Prosecutor’s Office (EPPO) Tax Scandal

Overview
On February 28, a major crackdown led by the European Public Prosecutor’s Office
(EPPO) in Munich and Cologne, with support from Europol, resulted in the arrest of
14 individuals allegedly involved in a EUR 195 million VAT fraud scheme spanning
17 countries. Over 180 searches were conducted simultaneously across multiple
countries, leading to the seizure of assets worth millions, including smartphones, a
yacht, cash, cryptocurrency, luxury vehicles, jewelry, and gold.

The investigation revealed a sophisticated criminal ecosystem orchestrated by the

suspects, revolving around fraudulent chains of missing traders. The suspects
allegedly utilized these schemes to defraud millions through the sale of small
electronic devices like smartphones. Additionally, it was discovered that the same
group was involved in a similar VAT fraud scheme in 2020, this time related to the
sale of protective face masks.

The arrests followed years of investigative efforts by various German Tax

Investigation Offices, supported by Europol and Eurojust. Europol provided analytical
support and deployed secure communication channels during the operation. Eurojust
facilitated judicial cooperation among EPPO and national authorities, hosting
coordination meetings and facilitating the exchange of information and execution of
legal orders.

24
 Corporate governance failure
The absence of supervision and due diligence among the businesses engaged in the
VAT fraud scheme constitutes a corporate governance failure in this instance. These
businesses handled large sums of money and operated internationally, but they
neglected to put in place the right controls and procedures to stop fraud.

The organizers created fraud scheme which is very complex network, dishonest
network of missing traders, taking advantage of jurisdictional and legal loopholes to
avoid paying taxes. This is basically point out corporate governance failure to set
established transparent and accountable business practices. This company are doing
fraudulent activities, particularly they have lack of integrity and ethical responsibility.
They violated moral and legal obligation by engaging in deliberate schemes to evade
paying VAT, eroding public confidence in corporate governance principles.

Impact of the scam

After corporate governance failure people faces different types of impact:
1. Financial losses: some people faces fraud like government, some customers
shareholders, business people and they faces financial losses. In the VAT scheme 195
million EUR is reduced and the result completely impact in the government tax
revenue and also reduced the public services.
2. Economic instability: corporate governance failure are impact by the economic
instability by eroding trust in the financial system. That can effect through job losses,
reduce shareholder investment returns and also impacting overall economic growth.
3. Legal and regulatory consequences: The people accountable for the corporate
governance breach could be subject to fines, legal action, and even criminal
prosecution. Legal actions can be expensive and time-consuming, with consequences
for both the offenders and innocent parties involved.
4.Reputation Damage: Companies involved in corporate governance failures may
suffer irreparable damage to their reputation. This damage can impact their ability
attract customers, investors, and business partners, leading to long-term financial
consequences.

25
 The Danske Bank money laundering scandal
Overview

The Danske Bank money laundering scandal is one of the largest financial scandals in
history. It involves the Estonian branch of Danske Bank, which allegedly facilitated
the laundering of billions of dollars, primarily from Russia, through its accounts
between 2007 and 2015. The scandal brought to light significant shortcomings in
Danske Bank's anti-money laundering controls and raised questions about the
effectiveness of regulatory oversight. Numerous investigations and legal proceedings
have followed, resulting in significant financial penalties for Danske Bank and
reputational damage to the institution.

How they worked

Danske Bank, like many other banks, offered various financial services such as
savings accounts, loans, mortgages, investment options, and more. They operated
both online and through physical branches, providing customers with access to their
accounts and services through multiple channels like mobile apps, internet banking,
ATMs, and in-person interactions. Additionally, they adhered to banking regulations
and standards to ensure the security and reliability of their operations.

Corporate Governance Failure

The corporate governance failure in Danske Bank is a complex issue stemming from a
lack of oversight and control mechanisms within the bank's leadership. It primarily
revolves around the massive money laundering scandal involving its Estonian branch.
Here's an elaboration:

 Poor Risk Management: Danske Bank failed to adequately assess and manage
the risks associated with its operations, particularly in its Estonian branch. This
allowed illicit funds, primarily from Russia and other ex-Soviet states, to flow
through the bank unnoticed for years.
 Weak Compliance Culture: There was a lack of emphasis on compliance and
regulatory adherence within the organization. Employees and management either

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 turned a blind eye to suspicious activities or were unaware of the extent of the
problem, indicating a systemic failure in the compliance culture.
 Ineffective Oversight: The bank's board of directors and senior management
failed to provide effective oversight and challenge the decisions made by lower-
level staff. There were shortcomings in monitoring and reporting mechanisms,
which allowed the illicit activities to continue unchecked.
 Regulatory Failures: Regulatory authorities, both in Estonia and Denmark, also
failed to adequately supervise Danske Bank's activities. There were lapses in
regulatory enforcement and coordination, which allowed the situation to escalate
to the extent it did before being uncovered.
 Reputational Damage: The scandal resulted in significant reputational damage
to Danske Bank, leading to loss of customer trust, investor confidence, and
substantial financial penalties. It also triggered investigations and legal actions
from authorities in multiple jurisdictions.
 Management Accountability: Ultimately, the responsibility for the failure rests
with the bank's senior management and board of directors. They are accountable
for the oversight and governance of the organization, and their inability to prevent
or detect the money laundering activities reflects a profound failure in their duties.
 Reforms and Remediation: In response to the scandal, Danske Bank
implemented various reforms and remediation measures to improve its
compliance culture, risk management practices, and governance structure.
However, rebuilding trust and restoring its reputation will be a long and
challenging process for the bank.

Impact of the event

The Danske Bank money laundering scandal had significant repercussions, tarnishing
the bank's reputation, leading to regulatory fines, and resulting in changes in
management and oversight. It highlighted vulnerabilities in anti-money laundering
systems across the financial sector and spurred increased scrutiny and regulation.
Additionally, it eroded public trust in the banking industry and emphasized the
importance of robust compliance measures to prevent illicit financial activities.

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