Resources
Case Studies
Misuse of vulnerable customers' funds
A number of elderly clients of a bank trusted the relationship manager of the bank. They often signed blank instruction forms and left them with the relationship manager for convenience (sparing them from visiting the bank for transaction). The relationship manager also kept the customer advice slips for some of the elderly clients to collect later. On one occasion, the relationship manager wrongly executed a client's investment instruction, leading to a huge loss for the client. To cover up, the relationship manager transferred money from the time deposit account of an elderly client by using the signed blank instruction form without the latter's knowledge. The relationship manager then forged bogus time deposit advices to deceive the elderly client. One day, the elderly client enquired about the irregularities of his bank account while the relationship manager was on leave. The fraud was subsequently discovered by other bank staff members.
Case Analysis
The relationship manager (agent) might have contravened Section 9(3) of the Prevention of Bribery Ordinance (POBO) by using a false document (forged customer instruction) to deceive the bank (the principal). He might also be liable of a series of other crimes including theft, fraud and forgery.
Some elderly customers may be vulnerable to exploitation as they may trust bank staff members (e.g. the relationship manager) to execute transactions on their behalves (e.g. signing blank instruction forms or giving their e-banking passwords) so as to save physical visits to the bank.
The practice of keeping account advices for customers to collect later on is vulnerable to falsification or concealing irregularities.
Furthermore, inactive, dormant accounts with a large balance or credit line are subject to the risk of exploitation, as the account owners may not monitor their accounts properly or may have changed addresses without informing the bank.
Banks should devise control measures to protect dormant accounts from possible abuse and to avoid fraud. These control measures may include alerts on unusual fund movements, verification and confirmation with the customers, requirements for supervisors’ review/ override for transactions on inactive accounts, and requirements for identification of account holder when making withdrawals in person. Moreover, implementing requirements for staff members to take annual vacation leave, arranging and introducing a backup/ second officer to vulnerable customers, and practising staff rotation (say, on a three-year basis) may also help detect irregularities and misconduct at an early stage.