Our financial system is just broken

It was good to hear the High Court blasting a section of Bangladesh Bank officials for their alleged connection with financial scams involving People's Leasing and Financial Services Ltd (PLFSL), a non-bank financial institution (or NBFI) that is now in the process of liquidation due largely to the infamous PK Halder and his associates. It was also encouraging to hear from the HC what the people have been saying all along: that the BB, the Anti-Corruption Commission and the Securities Exchange Commission have all failed to take proper actions against financial criminals in most cases.

The HC further alleged that a section of BB officials starting from general manager to deputy governor, who served the departments responsible for monitoring NBFIs, remained silent over different irregularities having obtained undue benefits from scammers between 2002 and 2019. This, too, has been on everyone's mind for a long time, despite denials from government officials from time to time. It must be added that this habit of denying the obvious is another factor that has contributed to the financial sector now being in a shambles.

What's most disappointing is that many government officials still publicly deny that there are serious problems in our financial sector, especially when it comes to the performance of regulators. In 2018, the Centre for Policy Dialogue revealed that Bangladesh had lost Tk 22,502 crore during the previous 10 years through major scams, irregularities and heists. In 2020, Transparency International Bangladesh reported that around Tk 26,400 crore is laundered out of the country every year. Yet, these officials feel no shame about lying in front of the camera, day in and day out.

The banking sector in the country has been swamped with non-performing loans. And now, it is the NBFIs that are struggling, and badly. Out of the 36 NBFIs in the country, 10 are on the verge of collapse due to various financial scams that have occurred in recent years. A number of these organisations are facing acute liquidity crisis and have requested the central bank to form a special refinance scheme worth Tk 7,000 crore—similar to the "special" arrangements that were made for the banks that have been struggling because of various scams.

So what has changed? Let's refresh our memories a bit. What is the common sequence of events when it comes to frauds in the financial sector? First, scamsters steal money from financial institutions with the help of insiders (or government officials). Somehow, the regulators never notice it as this happens. Not until it's too late. Second, the "robbers" (as a former finance minister put it) launder the money abroad, and later themselves, after which the regulators finally figure out what has happened. Once the crime has already been committed, and the main culprits have fled with the public's money, these institutions that have been allowed to be looted by its top managers/directors and due to a lack of oversight by regulators are propped back up by...*drum roll*... yes, you guessed it: more of the public's money! Is this supposed to make sense?

Where is the justice in all this? Why are the officials who failed to prevent this from happening never punished? Isn't it their job to prevent such crimes? If they are so bad at their jobs, then why do they still have them? And why are the politicians and government officials busy trying to promote the narrative that the occurrence of such scams (over and over again) isn't that big a deal, instead of spending sleepless nights trying to recover the funds that are stolen? Isn't it their job to protect the interest of the public? If they, too, are so incompetent at their job, then who are the people supposed to turn to?

The answer so far has been no one. No regulator or government ministry has done enough to either prevent these crimes from happening or to recover the funds stolen from the public exchequer—instead, the public has been made to foot the bill for their incompetence each and every time. That is why the HC's remarks were even more heartening.

However, will that change anything? Most likely not—not until public officials are held accountable for their incompetence (or involvement).

If we look at the crimes committed by PK Halder and see the massive web of criminality that he managed to put together to pull off one scam after another, we can get a glimpse of how corrupt the entire sector has become. While one man reportedly managed to hollow out multiple NBFIs with the help of around 100 people—which allegedly includes two high officials of the BB—the entire regulatory system somehow failed to detect and stop him. If one individual can pull the wool over the eyes of the entire regulatory system—even with help—then how can it be said that the current system is working?

As one expert has put it, in an environment where people can get away with committing such crimes with the help of patrons, criminals start "investing in building networks" that allows them to do exactly what PK Halder did. So what is the solution? The solution has to be to hold the regulators accountable for a change.

In that regard, while we appreciate the HC blasting the regulators, it's extremely important to take meaningful actions against them for their failures. People need to lose their jobs for incompetence, or go to jail for their involvement. Period.

Meanwhile, politicians and other government officials who blatantly deny the problem must be made answerable to the public. And finally, all of the focus must be shifted to recovering the funds that are stolen, instead of making the public—who are the only innocent party involved here—pay for it.

Eresh Omar Jamal is a member of the editorial team at The Daily Star.

His Twitter handle is: @EreshOmarJamal