The Bangladesh Bank (BB) has uncovered serious irregularities at Al-Arafah Islami Bank, including misuse of its corporate social responsibility (CSR) funds.

The central bank also found evidence of suspicious transactions involving two personal employees of the bank's former chairman as well as unauthorised incentive bonuses for its managing director and other senior officials.

Following the political changeover in August last year, BB dissolved the bank's board of directors led by Abdus Samad Labu and appointed a five-member interim board in place.

Labu, the preceding chairman of Al-Arafah Islami Bank, is the vice-chairman of the controversial S Alam Group and brother to its Chairman Mohammed Saiful Alam.

Evidence shows misuse of CSR funds, excessive bonus payments and suspicious transactions involving two personal employees of the bank's former chairman

Separate inspections by the central bank and Bangladesh Financial Intelligence Unit (BFIU) revealed serious financial mismanagement within the Shariah-based bank.

According to the central bank's inspection report, the Al-Arafah Islami Bank Foundation submitted an office note on December 14, 2023, seeking approval to disburse Tk 10 crore for distributing blankets.

The request was signed by the commercial lender's former chairman Labu and later approved by its Managing Director Farman R Chowdhury.

Chowdhury had suggested at the time that the matter should be presented to the board of directors for post-facto approval. But when the related memorandum was submitted, the-then board chairman Labu refused to sign it and instead instructed not to place it before the board.

Despite the lack of approval, the whole amount was transferred to an account under the Al-Arafah Islami Bank Foundation at the bank's Gulshan branch, with Labu holding the authority to withdraw funds from this account.

The funds were subsequently withdrawn through cheques signed by Labu, which were submitted by his personal chauffeur and office secretary.

The inspection report confirmed that board approval is mandatory for such CSR expenditures, but was not obtained in this case. Besides, there was no evidence of any payments made to blanket vendors.

Labu fled the country following the political changeover on August 5, when a mass uprising ousted the Awami League government.

The central bank inspection report also uncovered suspicious transactions linked to Labu's personal secretary Mohammad Piaru, as his bank account was found to contain Tk 1.5 crore.

It also was found that he was promoted every year, with his salary increasing nine times in a single year.

In response to these findings, Al-Arafah Islami Bank recently dismissed Piaru.

Additionally, the central bank inspection found that Managing Director Chowdhury and several other officials received incentive bonuses that violated regulations.

As per central bank guidelines, a bank's managing director can receive a maximum incentive bonus of Tk 15 lakh annually. However, Chowdhury received more than this limit.

Efforts to contact Chowdhury for comment were unsuccessful as he did not respond by the time this report was filed.

However, it has been confirmed that the bank's managing director and Deputy Managing Director Muhammed Nadim have returned the excess amounts they received as bonuses. Together, they refunded approximately Tk 54 lakh to the bank.

Nadim told The Daily Star he was given an amount equal to his basic salary as a bonus for his team finishing as runners-up in a football tournament organised by the Bangladesh Association of Banks.

"However, the Bangladesh Bank objected to this, so I returned the money," he said.

Regarding the excess sum paid to Chowdhury, the deputy managing director said the central bank has a specific regulation regarding how much bonus a managing director can receive.

"Since he received more than the allowed amount, he too returned the excess," Nadim added.

He also said that as investigations by the Bangladesh Bank, BFIU, and other authorities are underway, they will address any further objections accordingly should they arise.