Hall-Mark, Sonali scam nets highest arrest yet

By Syed Tashfin Chowdhury DHAKA - Police investigating Bangladesh's biggest-ever embezzlement case have detained the chairwoman of Hall-Mark Group, the highest-level arrest so far in a scandal threatening to suck in leading political figures as well as top officials at state-owned Sonali Bank, the country's largest commercial lender. Jesmine Islam, who in 2008 failed to win a parliamentary seat running under the banner of the now ruling Awami League, was placed on a five-day remand on Friday. Hers is one of 11 cases, involving 27 bank and company officials, so far filed by the Anti-Corruption Commission in connection with the Sonali Bank scam, which covers embezzlement and fraudulent loans worth more than US$400 million. Two other Hall-Mark Group executives were arrested earlier this month for allegedly misappropriating 15.68 billion takas (US$192 million) of depositors' money that the little-known conglomerate is said to have swindled from a Sonali Bank branch. Charges against those arrested so far include money laundering and corruption. As a consequence of credit facilities given on the back of allegedly fraudulent paperwork related to Hall-Mark, Sonali Bank now needs to pay up to 57 branches of 26 commercial banks in Bangladesh a sum of around $195 million. This scale and nature of the scandal has created distrust between commercial and state-owned bank authorities, with many commercial lenders holding back on giving money against certain credit facilities related to state-owned banks, hitting the business of even reputed exporters. The case has attracted widespread criticism for the time taken to make arrests. Despite its name, the Rapid Action Battalion (RAB) did not start pulling in those allegedly involved until it arrested Hall-Mark managing director Tanvir Mahmud and group general manager (commercial) Tushar Mahmud on October 7, five months after the news of the fraud became public. In May, the central Bangladesh Bank found that Sonali Bank directors and senior management were involved in financial irregularities in which companies, including Hall-Mark Group, swindled a total of 35.47 billion takas out of the bank's Ruposhi Bangla Hotel branch in the capital. Bangladesh Bank told Sonali Bank to take action against 31 of its officials, which led to an audit of the Ruposhi Bangla branch. The audit found utter negligence in the provision of unauthorized loans on the part of the manager and assistant general manager. News of the central bank's report was broken by Prothom Alo, a leading newspaper, the same month. When other dailies and television channels began digging, information surfaced that the Ruposhi Bangla branch officials had colluded with Hall-Mark to provide the funds. The values of assets owned by HallMark were intentionally inflated, the reports said. Some alleged the involvement of Prime Minister Sheikh Hasina's health affairs adviser, Syed Modasser Ali, in influencing the loan sanctions. The Anti-Corruption Commission joined the fray in July, forming a six-member committee that questioned 78 people, including Hall-Mark executives, Sonali bank officials and others whose names had surfaced including the PM's adviser. Hall-Mark started off in the readymade garments industry in 2007 and loans and guarantees from Sonali helped it to grow in the past two years to the extent of having 80 "factories" - although half of these are

now known to have existed only on paper. The total loans that Hall-Mark allegedly embezzled in collusion with Sonali Bank officials since 2010 amount to 26.86 billion takas. That amount was found by the central Bangladesh Bank to be outstanding after Hall-Mark paid off 4 billion takas. An additional 9 billion takas were disbursed to five other companies. ACC deputy director Mir Mohammad Zainul Abedin Shibli, describing the scandal as the "biggest misappropriation" in the country's banking history, said part of the scam involved credit facilities known as inland bill purchases "fraudulently showing some of the Hall-Mark officials as owners of various businesses". Hall-Mark allegedly obtained short-term cash loans, backed by fraudulent collateral in the form of factories and land, and non-funded loans, which involve guarantees, letters of credit and other documents which can be sold on. A company taking a non-funded loan is supposed to pay back the money involved after the related import of machinery and products once these are sold or used in production. Hall-Mark group general manager (commercial) Tushar Mahmud, admitted to the Daily Star newspaper that the company diverted 15.68 billion takas in short-term loans into long-term investments, said, "It takes a long time to get a project loan. We know the way we've utilised the working capital for long-term investments is not proper." His company owes Sonali Bank around 7.01 billion takas in non-funded loans, mostly in the form of guarantees against letter of credits. Hall-Mark managing director Tanvir Mahmud initially told the media while visiting the ACC office that he had "20 times more wealth than the loan that was taken". By September he had toned down his boast of wealth to request that the authorities give him 20 to 30 years to repay the outstanding amount owed. It is unlikely that the entire amount will be recovered, Salehuddin Ahmed, a former Bangladesh Bank governor told Asia Times Online, as "Sonali bank cannot even recover money through collateral as most of the documents provided by Hall-Mark were forged. As such, most of this money is already out of the banking system." He believed some of the loans may become a "bad debt" for Sonali bank, as has been the fate of most cash fraud in Bangladesh over the past few decades, including the Omprakash Agarwal loan scandal of 2002. That year, Omprakash Agarwal, an Indian national engaged in yarn and textiles dyes imports in Bangladesh since 1977, disappeared after taking loans worth 3 billion takas from five private banks. Other incidents include misappropriation of 6 billion takas by a man named Nurunnabi in Chittagong in 2007 through a false local letter of credit and the embezzlement of 6 billion takas withdrawn without cheque from Oriental Bank in 2006. That case remains unsolved. Salehuddin said funds in such fraudulent loans are usually siphoned out of the country. This money cannot be traced and recovered as "during such situations, the attorney general from Bangladesh would need to write to the attorney general of the country to which the money may have been siphoned to. In Bangladesh, this process has not been effective due to the lack of coordination between the central bank,

the anti-corruption commission, the attorney general's office and the foreign affairs ministry. So money laundered has not been recovered much." Meanwhile, Bangladesh Bank on Sunday relaxed restrictions it had made on the issuance of letters of credit that it had imposed after the Sonali Bank scandal broke, but it will continue to require local branches to obtain prior approval from head offices on issuing inland bill purchases, the financial device allegedly involved for much of the Hall-Mark scam. Syed Tashfin Chowdhury is the Editor of Xtra, the weekend magazine of New Age, in Bangladesh. (Copyright 2012 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing