Saturday, 17 February 2018

Punjab National Bank Fraud

Punjab National Bank Fraud  
Important Lessons for the Banking Professionals and Industry!

Management Lessons from The Punjab National Bank Scam / Fraud.
The Punjab National Bank is in news. Firms trading in diamond defrauded the bank using LC and LOU issued by the bank.
 The total sum involved is a mind boggling US $1.8 Billion as on date (may go up further).
Several decades ago there was this rogue banker whose fraudulent trades led to collapse of Barings Bank.- United Kingdom’s oldest merchant bank ( sum involved was US $1.4 Billion).
Periodically many other banking scams and frauds have come to light.
Important factors which contributed to such a massive scam or fraud.
Audit Failure –There has been a serious audit failure. The external and internal auditors could not detect such a massive irregularity. 
I am reminded of the famous statement!  The dog did not bark! – (In Silver Blaze - a story by Sir Arthur Conan Doyle- Sherlock Holmes finds that curious and this helps in solve the case).
Technology is only a tool. Here the bankers could avoid core banking system and use other tools to carry out the scam (SWIFT in this Case).
HR Failure- The fact that one or two bankers could avoid transfer norms and held on to their respective posting for long extended period showed internal management system failure or collusion.
Failure of Business Intelligence. The bank did not have proper analysis of risks and threats to its business model. 
Failure of Internal Controls - That a  single branch and low level management professionals  were authorized to  issue such huge LC and LOUs is an indicator of management system and controls failure.
Hope organizations learn from mistakes. A sound banking and financial ecosystem is a must for every country and international trade and business.