From the Archives: PK Halder and the incredible landscape of our financial system

Image: Kazi Tahsin Agaz Apurbo

Prashanta Kumar Halder's financial misadventures and subsequent escape from the country with Tk 3500 crore, which made the headlines recently, has brought into the fore Bangladesh's struggles with systemic irregularities in its financial sector.

While the case of PK Haldar has exposed the loopholes in the financial sector, it is not the first time such a thing has happened. In fact, bad debt and money laundering remain some of the persistent ills rotting the financial sector at its core. According to a report published by Transparency International Bangladesh (TIB) earlier this year, around USD 3.1 billion (Tk 26,400 crore) is laundered out of the country every year.

And perhaps the greater problem is that while we talk about these individual cases and ask for justice to be delivered by bringing the financial criminals to book, we mostly ignore the problems within the system that enable such frauds and criminals to escape the net of justice.

This one man, in a Bollywood style manoeuvre, exploited not one or two, but at least four non-banking financial institution (NBFI), namely: People's Leasing and Financial Services, International Leasing and Financial Services Ltd, Reliance Finance Limited and FAS Finance and Investment Ltd. He also exploited some other banks, or at least exploited his friends working in senior management positions in those banks, to siphon money to various companies that existed only on paper, which eventually ended up abroad.

PK Halder and his relatives and associates, working in management positions at various NBFI and other companies, dried up these leasing companies and razed them to the ground. And all this happened not in one night, but over a prolonged period of time, and despite the stringent regulations that govern the financial sector. Or perhaps under the very noses of the regulators?

One might be pardoned for wondering why it took the regulators and several financial crime units of this country almost a decade, and why it took a drive against illegal casino operators, to uncover a financial scam of this scale.

"The amount and the crudeness of the process that has been exposed may be shocking to many, but the reality is that this is just the tip of the iceberg. He benefited from a cancerous dysfunctionality of the system caused by a two-way malignancy. One, by those who have pushed the financial sector to the brink of collapse—the big shots who have captured the state to a level that among those who dictate terms for the banking and financial sector are the swindlers, launderers and defaulters, not the laws, rules or regulations. Second, such grand corruption is never a one-way street. The hero in question could have never done this without inefficiency, real or manipulated, and indeed a win-win game involving those whose job it is to prevent and control it. It is the latter's collusion, protection and promotion that brought the sector to the state it is in today," said Dr Iftekharuzzaman, Executive Director of TIB, with reference to the curious case of PK Halder.

Similar thoughts were echoed by Zahid Hussain, former lead economist for World Bank, who suggested that without patronage, it is not possible to evade the stringent laws we have in place to stop such exploits.

Terming PK Halder's exploitations as fraud, Zahid Hussain further suggested that in an environment where people can get away after committing such crimes with the help of patrons, criminals start "investing in building networks so that they can find themselves on the right side of this inequality." And perhaps this relationship building mechanism fuels the system that enables exploitation and financial fraud.

According to Zahid Hussain, there is another aspect that leads to such crimes: "selective application of the existing regulations". He says that the practice of selectively applying the rules and regulations in case of certain individuals while others walk away scot free for the same crimes, emboldens criminals with the assurance that with the right kind of patronage, they too can escape the hands of the law. Since we have set a precedence of bringing to account big shot criminals who have in the past committed such crimes, why can we not do it uniformly for all?

This concern has also been shared by Dr Iftekharuzzaman, who said "Unscrupulous law breakers including the corrupt, swindlers and money launderers get away for many reasons, not least because of the incompetency, procedural delays and complexities in the investigative and prosecution processes, but because of the culture of precedence granted to the identity—especially political affiliation, status and connection—of the individuals. Hence, examples of big fish being brought to the net are rare. Not that it didn't happen in Bangladesh. It did at least in one case when stolen assets were repatriated from Singapore, although it was a relatively small amount. Be that as it may, if one swindler could be brought to justice, the relevant authorities should face the mirror and try to seek an answer to the question—why not many more?"

While some of the laws and regulations in place might need amendments to modernise them and make them more time relevant, appropriate and consistent application of the existing laws and regulations can also address the ills of the financial sector, believes Zahid Hussain.

One might add here that to make the Banking Companies Act more time relevant, amendments have already been proposed, as suggested by documents available on the website of the Bank and Financial Institutions Division under the Ministry of Finance. The amendments suggested in these documents propose constructive reforms, especially in aspects that can lead to more transparent corporate governance practices. Although this amendment proposition seems to have taken a backseat in policy level dialogue due to the sudden outbreak of the ongoing global health emergency, one would only hope that the policymakers would soon turn their attention to these much needed reforms in the financial sector.

That PK Halder—or his associates for that matter— are not alone in this grand scheme of things, is clear to all. Former managing director of at least one local bank and director of another had received crores of Taka in payments from various shadow companies controlled by PK Halder in many instalments. PK Haldar was himself the managing director of NRB Global Bank. Although it remains a mystery how such a fraudster escaped the stringent scrutiny of the regulators when he was cleared to get appointed as MD of NRB Global Bank, it is only a tiny piece of the puzzle.

Politicians belonging to different prominent political parties, industrialists and nobodies like PK Halder, have all from time to time been found guilty of committing financial malpractices. But this has not stopped them or others from committing such crimes. Perhaps the financial criminals have found magical powers to evade the long arms of the regulators and law enforcers, as has happened in the case of PK Halder, who now sits on a bed of money in the safety of Canada, while helpless, innocent people of this nation are struggling to make ends meet, especially during the pandemic. When the government itself is grappling with the global health crisis.

It is high time the regulators and policymakers took this issue of financial crimes seriously and rooted out the people and the loopholes that enable such crimes. The financial sector of this country has been under stress for some time now, and the pandemic has only made the situation worse. The administration cannot afford to allow such fraudulent activities and exploitations to go on for long. With the people and the nation succumbing to the economic challenges posed by the pandemic, the regulators and the policymakers must do all they can to dismantle this system of exploiting public resources. Otherwise, the financial sector, already crumbing under external pressure, is doomed to collapse. The financial sector is stuck between a rock and a hard place in this man-made disaster, and in need of emergency evacuation.

Tasneem Tayeb is a columnist for The Daily Star.

Her Twitter handle is: @TayebTasneem

(This article was first published in The Daily Star on September 2, 2020)