Definition of Fraud:

The term "Fraud" refers to an intentional and an unethical act by one or more individuals among
the management, those charged with the governance, the employees and the third parties to
obtain an unjust or illegal advantage causing a material misstatement in the financial statements.

Features of Fraud:
1.
2.
3.
4.
5.
6.

It is Deceitful
It is Intentional
It breaches Trust
It involves Losses
Concealment of Fact
Appearance of Outward Respectability

Types of Fraud:
There are several ways to fraud.
1.
2.
3.
4.
5.
6.

Consumer fraud.
Identity fraud.
Financial statement fraud.
Credit card fraud.
Banks fraud.
Sundry frauds.

The reason behind Fraud:

There are several reason for committing fraud. Some of them are given below:
1. Absence of social Condemnation;
2. Malafide Intention;
3. Willful deviation from Laws and Practices;
4. Degradation of overall Moral Values;
5. Management inefficiency to Withstand Pressure;
6. Procedural Lapses/Bottlenecks;
7. Organized Crime;
8. Corrupt Managers;
9. Employee Scams;
10. Financial Misstatement;
11. False Accounting (e.g., bonus schemes);
12. Financial Frauds;
13. Computer Hackers;
14. Any other significant Corporate Abuse

Effects of Fraud:
Due to the present globalized hi-tech vibe in the orb of financial sector, fraud becomes a truly
worldwide industry. Fraud has devastating economic, security and social consequences. For
government it can reduce their revenue, reputation, increase cost for law enforcement, and
change the currency as well as interest rate. It can also transfer the economical power to the
criminals and increase the corruption in the country. These effects are described below in brief.
1. Loss of Revenue: Fraud diminishes government tax revenue and therefore indirectly
harms honest taxpayers. It also makes government tax collection more difficult. This loss
of revenue generally means higher tax rates than would normally be the case if the
untaxed proceeds of crime were legitimate.
2. Reputation Risk: Nations cannot afford to have their reputations and financial
institutions tarnished by an association with fraud, especially in todays global economy.
The negative reputation that results from fraud and forgery, financial fraud,
embezzlement will these activities diminishes legitimate global opportunities and
sustainable growth while attracting international criminal organizations with undesirable
reputations. Furthermore, once a countrys financial reputation is damaged, reviving it is
very difficult and requires significant government resources

3. Transferring economical power: Among its negative socioeconomic effects, fraud

transfers economic power from the market, government, and citizens to criminals.
4. Increase in corruption: The sheer magnitude of the economic power that accrues to

criminals from fraud has a corrupting effect on all elements of society. In extreme cases,
it can lead to the virtual take-over of legitimate government.
5. Effecting currency value and interest rates: Fraud can also adversely affect currencies
and interest rates as launderers sometimes reinvest funds in other countries which by
changing the amount of demand and supply of the currency change the value of the
currency. And if there are too much money invested in a country that may cause inflation,
and because of that inflation the country government may decrease the interest rate to
reduce the inflation.
6. Increase in NPL: The current situation of NPL is very alarming in Bangladesh. Because
of fraud cases such as Bismillah group the NPL is increasing too much.

Case of Bismillah group:

Bismillah group, a private ltd. Towel producing company has accused for embezzled around
10.74 billion taka from 5 banks among them one is state owned bank and other fours are private
commercial bank. Of the swindled money, Taka 990.03 crore was funded, while Taka 184.43
crore was non-funded
Serial no.
01
02
03
04
05

Bank name
Janata bank
Prime bank
Jamuna bank
Shahjalal Islami Bank
Premier Bank

Amount of taka
3.92 billion
3.06 billion
1.64 billion
1.49 billion
629.7 million

Among the persons who were ambiguous about this money laundering case, Durjoy and Ali,
non-paid directors of Bismillah Group, allegedly helped its high officials in conducting the scam
and fleeing the country. Bismillah Group Managing Director Khaza Solaiman Anwar Chowdhury
was the mastermind behind the misappropriation and was assisted by some high-ups of the five
banks According to ANTI-CORRUPTION COMMISSION. Thirteen of the accused are
proprietors and top officials of Bismillah Group and its sister concerns Shaharish Composite
Factory Ltd, Alpha Composite Towel Ltd, Shaharish KT Ltd, Hindul Wali Ltd and Bismillah
Towel Ltd and the rest officials of five banks Janata Bank, Prime Bank, Jamuna Bank,
Shahjalal Islami Bank Ltd and Premier Bank.
Before preparing the probe report, the inquiry committee reviewed documents of all the five
banks and quizzed around 70 of their officials. A commission official said when the swindling
took place, many of the bank officials, who are now in the five banks, were working with the
Prime Bank. Some sources also mentioned that some govt. official is implicated with this fraud
case. Chowdhury along with many top officials of the group have fled abroad with a great
portion of the swindled amount.

Rules broken by Bismillah group:

1. They have intentionally influenced the banks.
2. The controversial group along with its sister concerns, most of which are fake, swindled
the money with the help of bank officials between June 2006 and October last year
mostly through LTR [loan against trust receipt] using names of fake foreign buyers and
forged documents, the enquiry found. Borrowers usually do not need to put their property
as collateral to get loans from banks through LTR as such loans are given on trust
provided that some documents are maintained. By doing this fraud they have breached
the trust. The above reason made the transaction of Bismillah group as a case of fraud

Punishment for the accused persons involving Bismillah group fraud:

1. The Anti-Corruption Commission filed 12 cases against 53 top officials of five banks and
the controversial terry towel maker Bismillah Group for misappropriation of Tk 1,174.46
crore under anti-money laundering act.
2. According to ACC, if convicted under the anti-money laundering act, the accused may
get up to 10 years in prison and their moveable and immovable properties might also be
confiscated

Similar case study in India:

3. There are a lot of fraud cases in India like Goa mining, Coal Scam and a lot. But the case
which is so close to Bismillah group fraud case is Goa mining case.
4. The multi-crore Goa illegal mining scam led to the downfall of the Congress
government in the state. The agency has registered a fraud case in the Rs 35,000-crore
scam which was earlier investigated by the M B Shah Commission for alleged large scale
irregularities. Close to 80 companies involved in mining in the state have been named in
the Enforcement Case Information Report (ECIR) filed by the agency. The Shah
Commission has pegged the scam to the tune of Rs 35,000 crore in the state. The
commission had submitted its report in this case in 2012, two years after it was
constituted. This forgery case has been registered against government officials, mining
companies and entities identified and mentioned in the report of Central Empowered
Committee (CEC) appointed by the Supreme Court and the Justice Shah Commission
report including the report of the Public Accounts Committee of Goa.

Punishment for fraud in India:

1. Whoever commits the offence of fraud shall be punishable with rigorous imprisonment
for a term which shall not be less than three years.
2. The imprisonment may extend to seven years.
3. The person who committed fraud shall also be liable to fine which may extend to five
lakh rupees.

Law to prevent fraud in Bangladesh:

Bangladesh Penal Code, Foreign Exchange Regulations Act- 1947 (FERA) Income Tax
Ordinance- 1984 Money Laundering Prevention Act- 2002 (MLPA) and Anti- Corruption
Commission (ACC) Act- 2004, the Bank Companies Act- 1991 and The Companies Act - 1994
are the suitable Laws to prevent such crimes. While there is always scope for improvement in the
Legal Framework, the blame cannot be impute squarely on those Acts and Regulation.
Bangladesh has changed its anti money laundering system to prevent money laundering and
fraud. In February 2012, the national parliament approved a new bill as to the prevention of the
crime of money laundering and fraud. The Money Laundering Prevention Bill-2012 did not
only replace the previous Money Laundering Act 2009 but also is one of the major steps to
throw of financial terrorism. Though it didnt work too well as there were two major money
laundering cases happened one is the Hallmark group, in which case the laundered 35.47 billion
taka. And another one is Bismillah group, in their case they have laundered approximately 10.74
billion taka.

Offence of fraud and punishment in Bangladesh:

1. For the purposes of this Act, fraud shall be deemed to be an offence.
2. Any person who commits or abets or conspires to commit the offence of money
laundering or fraud, shall be punished with imprisonment for a term of at least 4(four)
years but not exceeding 12(twelve) years and, in addition to that, a fine equivalent to the
twice of the value of the property involved in the offence or taka 10(ten) lacks, whichever
is greater.
3. In addition to any fine or punishment, the court may pass an order to forfeit the property
of the convicted person in favor of the State which directly or indirectly involved in or
related with fraud or any predicate offence.
4. Any entity which commits an offence under this section shall be punished with a fine of
not less than twice of the value of the property or taka 20(twenty) lacks, whichever is
greater and in addition to this the registration of the said entity shall be liable to be
cancelled.
5. It shall not be a prerequisite to charge or punish for fraud to be convicted or sentenced for
any predicate offence.
6. Offences under this Act shall be cognizable, non-compoundable, and non-bailable.

The court may, on the basis of a written application by the Anti Corruption Commission or any
person or organization authorized by it, issue an order to freeze or attach the property, within or
outside the country, involved in money laundering or any other offence.

Rules for Banking companies, financial institutions and intermediaries to

prevent fraud in India:
1. Every banking company, financial institution, and intermediaries shall
a) Maintain a record of all transactions, the nature and value of which may be
prescribed, whether such transactions comprise of a single transaction or a series
of transactions integrally connected to each other, and where such series of
transactions take place within a month.
b) Furnish information of transactions referred to in clause a) to the director within
such time as may be prescribed.
c) Verify and maintain the records of the identity of all its clients, in such manner as
may be prescribed.
2. The records referred to in sub-section 1. Shall be maintained for a period of ten years
from the date of cessation of the transactions between the clients and the banking
company or financial institution or intermediaries, as the case may be.

Responsibilities of Bangladesh Bank against fraud:

The Act gives Bangladesh Bank broad responsibility for prevention of fraud and wide ranging
powers to take adequate measures to prevent fraud facilitate its detection, monitor its incidence,
and enforce rules and to act as the prosecuting agency for breaches of the Act. The
responsibilities and powers of Bangladesh Bank are, in summary
1. Bangladesh Bank should be kept free from all Political pressures.
2. Legal and Operational Independences of Bangladesh Bank should be ensured;
3. Establish an Ethical Standards Committee (ESC) in every Banks.
4. To investigate into all fraud offences. Supervise and monitor the activities of banks,
financial institutions and other institutions engaged in financial activities.
5. Call for reports relating to fraud from banks, other institutions engaged in financial
activities analyze such reports and take appropriate actions.
6. Provide training to employees of banks, other institutions engaged in financial activities
on prevention of fraud.
7. To authorize any person to enter into any premises for conducting investigations into
fraud offences.

8. Persons authorized by Bangladesh Bank to investigate offences can exercise equal

powers of an Officer in Charge of Police Station under the Code of Criminal Procedure.
9. To do all other acts in attaining the objectives of the Act.
10. The Courts will not accept any offence under the Act for trial unless a complaint is
lodged by Bangladesh Bank or any person authorized by Bangladesh Bank in this behalf.

References:
1. Money Laundering Prevention Act, 2012
2. THE CONSEQUENCES OF MONEY LAUNDERING AND FINANCIAL CRIME by
John McDowell and Gary Novis.
3. Prevention of money laundering act-2002, India
4. http://archive.thedailystar.net/beta2/news/acc-sues-53-bismillah-group-officials-bankers/
5. http://www.dhakatribune.com/law-amp-rights/2013/nov/04/tk99bn-scam-bismillah-group