BCCI and White Collar Crime - Essay Example

--------------------------- --------------------------- --------------------------- --------------------------- BCCI and White Collar Crime Introduction Bank of Credit and Commerce International (BCCI) was considered to be the major industrial bank that was set up in Pakistan in the year 1972. Agha H. Abedi taking capital from Sheikh Zayed bin Sultan, emir of Abu Dhabi founded BCCI with a mission to have mystic banking facility. In 1970s it expanded very rapidly pursuing asset growth seeking high net deposits. Within a short span, by the end of 1976, BCCI expanded into 108 branched worldwide with asset rising from $200 million to $1.6 billion. Its steep growth helped to attain a journey of asst of $4 billion within 8 years spreading in 46 countries Kerry, S & Brown, S (1992). But, success was not the only step for BCCI's fate. Price Waterhouse was asked to carry inquiry in March, 1991. It was 24th June, 1991 when they submitted the Sandstorm Report to Bank of England stating that BCCI had engaged in fraud case. BCCI involving with Invisible Crime Main capital base to BCCI were virtual oil-rich Arab leaders who acted to be the investor but, in reality they were working as nominees. Bank since its beginning attracted people to deposit their funds by pretending that they have more capital which in reality was not true. It used to use the deposits in order to meet the expenses. Even it forced its own shareholders to participate in this drama. Major actions that resulted into frauds by BCCI were enlisted by New York District Attorney. According to them the important points are: Middle East personalities included their names and funds to BCCI as an investor which in effect turned to be flaw because their funding was based on guaranteed no-risk return instead of actual sponsor at risk. Since beginning BCCI involved with wrong activities and to keep their mistake closed they used to pay bribe and kickback to other bank agents and finance companies (People v. BCCI, 1991). After getting the request from Bank of England, Price Waterhouse presented its report on BCCI known as Sandstorm Report. As per the report, BCCI committed several mistakes and did many unofficial activities that are out of one company's ethics. Price Waterhouse persons collected records from banks of various countries, reviewed them and interviewed in some cases, finally formed one draft keeping all key points there. During their scrutiny they found that BCCI did not record $600 million of BCCI's deposit. It first knocked the Price Waterhouse audit persons. Among the other types of frauds described by audit include: manipulation of their account at the time of non-performing loan, fabricated profit, hidden losses, setting up of untrue loans for repurchasing shares, cheating of deposits, unreal transactions and charges, showing nominees as capitalists, illegal repurchasing platform for shareholders, bad investment, missing of standardized procedure of records, artificial customer loans and most important fallacious audit confirmation (Price Waterhouse, 1987). After losing money for the reason of poor lending operations, instead of accepting provisions for losses they just simply cheated them. Apart from that BCCI used to manipulate their accounts. Actual reason for this manipulation was make the bank appear to be a good profitable and reputed institution than it was which helped it to get security for its deposits. With these approaches when condition of BCCI was worse, made it worst after the loss of $500 million in 1985. That loss was only due to commodity trading undertaken through Capcom. Along with the numbered accounts in order to manipulate accounts through back-to-back transactions they used to use "managers ledgers." It was such a bad activity that the person keeping the records even forgets which person made which transaction. In most of the cases, none of the authority was able to identify either the name of borrower or credit officer responsible for controlling the accounts (Price Waterhouse report to BCCI, 1986). Price Waterhouse in early 1986 found out that huge amount of loss has been incurred by BCCI which was not recorded. Though at the beginning they thought it as lacking of skill but, later on they also got to know the reason behind this as to inflate the income in the long run. Even, Z. Akbar who was the treasury official proved to be the responsible for this massive loss in 1986, accepted the responsibility and gave statement that loss had happened in last year due to foolish commodity assumption, as suggested by BCCI. Through this BCCI did not lose its reputation before public. Another most important issue was ICIC or "Bank within A Bank". Official motto of ICIC was to provide fund for BCCI officers' pension. It is suspected that there was some hidden conspiracy behind this ICIC as Abedi created many such banks with same abbreviation like, International Credit and Investment Company Overseas, Ltd.; International Credit and Investment Co., Ltd.; International Credit and Commerce (Overseas) Ltd.; ICIC Holdings of Grand Cayman etc. Purposes of ICIC are listed below: Managing the transactions which were unrecorded at BCCI making them untraceable. There were certain transactions that were not noted down in BCCI with an intention to fraud. These dealings were processed in ICIC. Various nominees were selected in ICIC whose job is to buy share of BCCI. Funds were disordered in such a way to cover up its actual nature so that BCCI does not get harmed through this (Price Waterhouse report to BCCI, 1991). Bribery was another important issue. In some cases bribe was not direct but the way it has been processed seems to be a punishable offence. BCCI paid two of Gulf Emirs for being used their names as nominees for the purchase of first American. In other case it occurred directly as paying Central Bank Officials in return for Central Bank deposits in Peru. Supporting terrorism and arms trafficking also play one role to kick out BCCI from its market. Being a financial centre with its branches all over world, terrorist organizations liked to prefer BCCI for making deal with money. Pakistan's procurement of nuclear weapons was financed by BCCI through BCCI Canada which is a best example of arms trafficking. All these evidences lead to the closing of BCCI worldwide altogether on July 5, 1991. White Collar Crime and Victims Edwin Sutherland coined the term White Collar Crime in 1939 during his speech in American Sociological Society. He defined that term as the crime committed by the person of high social status in the course of his occupation. Still there is misunderstanding with the actual reasons that turns to be of this type but, more specifically it encompasses a variety of non-violent crimes usually committed for financial gain in commercial sectors. It generally includes: computer and internet fraud, credit card fraud, antitrust violation, phone and telemarketing fraud, bankruptcy fraud, healthcare fraud, insurance fraud, mail fraud, environmental law violation, tax evasion, securities fraud, public corruption, bribery, money laundering, trade secret theft and insider training etc. Maxwell fraud is an example of such white collar crime. Bishopsgate Investment Management (BIM) was a company owned by Maxwell which used to manage the pension funds of Maxwell-run companies. During 1991, three of BIM's directors signed to use pension funds worth 430 million to buy shares but these shares were after then used for bank loans (Bower, 1994). But the fraud was that the borrowed assets were not returned to pension funds. After the disappearance of Maxwell on 5th November 1991, approximately thirty thousands pensioners were affected with the news that their pension fund has been used for collateral bank loans. The main victim of this type of white collar crime is the common public who are associated directly with the organization. In BCCI case, the customers affected most that used to deposit their money in BCCI and later on, found nothing has been recorded. Other than them there were also some employees who were not aware of the fraud process but, in the long run they also lost their job. Conclusion This paper extensively described the BCCI white collar crime case. The ways through which it cheated the whole world and also in what extend it has been done have been outlined. As another example of white collar crime, Maxwell Fraud is taken into consideration that deceived thirty thousands of pensioners from their pension money. From the discussions it can be noted down that normal public are feeling more risky now while doing any sort of transaction with bank or financial institution. As it is likely to reveal to the individual that the regulators generally offer investors inadequate protection and compensation hence, an experience of victimization may cause an individual to distrust the financial regulators. It is a crime and government must take proper step to bring down the rate of invisible crime below a certain level to make common people's lives comfortable. References Kerry, S & Brown, S. The BCCI Affair. A Report to the Committee on Foreign Relations. United States Senate. 1992. Price Waterhouse. Draft Report on Sandstorm SA. Under S. 41 of the Savings Act of 1987. Price Waterhouse. Report to BCCI. Internal Control Report. April 28, 1986, p. 3. Price Waterhouse. Report to the Director on ICIC Group. June 17, 1991, Sec. 1. Bower, T. Maxwell. The Outsider London: Mandarin Paperbacks. 1994. Read More