Issue of graft in banking needs careful handling

Chairman of Anti-Corruption Commission (ACC) Iqbal Mahmud said in July that his Commission was keeping its eyes on private bankers and would act if evidence of corrupt practice is found. In this connection, he said, private banks are not private; these are people's banks and its money belongs to the people. He further said, the Commission would take measures against private banks if evidence of graft and financial irregularities is found. He warned that the ACC would leave no stone unturned to stop corruption in the banking sector. This is, of course, a praiseworthy decision which should have been taken much earlier.
Corruption is rampant in almost all sectors in our country and the financial industry is not free from that vice. Even the degree of corruption in the financial sector might have been much more higher than that in any other area because there is corruption where there is money. Arresting corruption must be the top most priority and the financial sector should be given more importance. In this context, the ACC Chairman's move seems to be very timely.
However, a drive against corruption in financial industry must be taken very cautiously and in a planned way. This sector is quite different from any other sector. The industry is considered as the artery of the country's economy and acts like a cardio-vascular system in the economy. So any precipitated move in this sector may cause severe damage to the economy.
AN EXCLUSIVE SERVICE INDUSTRY:  Banking is an exclusive financial industry where personalised service is the key product. From teller to credit analyst and reconciliation officer to trade finance specialist - all officers and executives of a bank are engaged in providing personalised service. This service has, however, direct and indirect influence on the country's economy. Uninterrupted and expeditious services of banks smoothen all other economic activities which are the consequential performance of banking transaction. Therefore, economic vibration is substantially influenced by banking transaction.
Today's voluminous economy is the result of the fast and modern banking system. At the same time, uninterrupted and expeditious banking services can only be provided if fearless and trustworthy atmosphere can be ensured. In theory, bankers must act on papers or evidence but in reality, they have to move on trust. Negotiable Instrument (NI) Act - 1881, which greatly governs the banking operation, has clearly stated that bankers must act in good faith and without negligence. In many situations, bankers have to act on verbal instruction of which there is no evidence. On the other hand, ACC will move based on the evidence. If two such contrary situations are not properly managed, an uneasy and fearful situation may be created in the banking industry for which no banker will feel comfortable to provide services. As a result, customers will be badly affected and such adverse situation, if created in the banking industry because of ACC's drive in eradicating corruption from the country's banking sector, will have negative impact on the country's economy.
Now-a-days, bankers are to comply with innumerable rules and regulations which include KYC (Know Your Customer), TAF (Transaction Activity Profile), Money Laundering and Terrorist Financing. In addition, if fear of ACC is created, a very frightening situation will prevail among bankers which will not be a good omen for the industry and the country as a whole. It does not necessarily mean that fight against corruption in the banking sector should not be undertaken. Of course, this drive should be carried out but very carefully so that an atmosphere of confidence is created. This should make the bankers believe that unnecessary harassment will not happen and those who will act sincerely in good faith and without negligence will not face any problem.
INDIVIDUAL CORRUPTION VS DICTATED CORRUPTION: Before initiating any drive against corruption in the banking industry, the type of corruption and its magnitude must be assessed properly. Usually two types of corruption -- personal corruption and dictated corruption -- are common in the banking industry. Personal corruption involves the employee's own interest. It arises when one or two employees are engaged in irregularities with an intention of personal gain. The frequency and volume of this personal corruption is not as high as dictated corruption. Dictated corruption arises when an influential quarter, particularly the Board of Directors and Management, influences officers and executives to violate rules and regulations while carrying out banking business.
Our country's banking industry has tremendously developed during the last two decades, but corporate governance has hardly improved. There is little practice of corporate governance in running banks and financial institutions. In theory, there is Board of Directors (BoD) and Management but in practice, a bank is run by only two mighty persons -- one is Chairman while the other is Managing Director (MD). MD exactly follows what Chairman says and the entire bank follows what MD says. In this writer's short banking career in Bangladesh, he hardly saw any officer and executive opposing MD's request. Instead, there is always a kind of competition among executives to appease the MD and therefore, they always try to expeditiously carry out his request regardless its merit and demerit.
Dictated corruption is one of the main reasons of enormously high non-performing loans in our country. However, dictated corruption is very difficult to address because those who dictate always remain behind the scene while those who act on this dictated corruption always become victims because evidence of their involvement is everywhere.
So, it is very important that ACC should develop a comprehensive plan and strategy to crack down on dictated corruption in the banking industry. This is a very critical and complicated measure; yet they will have to design some measures to establish this case and in this context, circumstantial evidence, direct and indirect beneficial interest and control mechanism can be considerable factors. Without clearly distinguishing between personal corruption and dictated corruption, tangible improvement cannot be achieved in eradicating corruption from the country's financial sector.
PENALISING INSTITUTION VS PUNISHING INDIVIDUAL: Apart from some stray incidents of fraud, banks are still considered as the safest places of keeping people's money all over the world. People always find banks as their most trusted custodians of valuable cash and assets. This has been made possible because stringent rules, regulations and proven control as well as check and balance are in place which collectively ensure the security of depositors' wealth.
Corruption in the banking sector is the result of weak control and failure to comply with rules and regulations. Allegations of corruption should be investigated from this perspective. Although one or some employees are found to be engaged in corrupt practices, ultimate onus of the alleged corruption lies with the institution itself and its key persons particularly the CEO. All over the world, institution itself is heavily penalised and its CEO is held responsible if any irregularity takes place.
The writer is a banker based in Toronto, Canada.
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