Resources
Case Studies
Falsifying client's loan application
A relationship manager of a bank was responsible for managing portfolios of his corporate clients. He noticed that one of his SME clients, Client A, had been lax checking his account statements. Without Client A’s knowledge, the relationship manager took a series of malpractice in Client A’s account, for example, fraudulently applying for an increase of credit line, forging the client’s instruction to draw funds from the credit line and transferring the money from the client’s account to an account he controlled. Later, Client A raised his doubts about the balance of the credit line, the relationship manager lied that it was caused by an error in the computer system.
On another occasion, the relationship manager also forged a loan application under Client A’s name by using another client as guarantor and forged signatures. He wanted to use the loan to settle the debit balance in Client A’s credit line to cover up his scam earlier. During the credit approval and fund transfer process, the backend staff members had their doubts but only went to the relationship manager for clarifications. The supervisor of the relationship manger also raised questions about the irregularities but he easily accepted the explanation given by his subordinate without follow-up. Later, with Client A’s persistent enquiries and complaints about the questionable credit balance to the bank supervisor, the scam by the relationship manager was finally exposed.
Case Analysis
Nearly all bank staff members who misuse customers’ funds believe that such action is only temporary and can be rectified shortly. However, crime is committed once the funds are misused and such action cannot be ‘rectified’ even if the funds are ‘repaid’ before the crime comes into light. In this case study, the relationship manager (an agent) might have violated Section 9(3) of the Prevention of Bribery Ordinance (POBO) by using forged documents to deceive his bank (the principal) in approving an increase in Client A’s credit limit and Client A’s fraudulent new loan. Also, the relationship manger could be liable for a series of other crimes including theft (transferring money from client’s account to his own), fraud and forgery.
From the perspectives of customer service, it may be desirable for a relationship manager to provide personal service and act as the bank’s single point of contact for important clients. However, if all verification/clarification of questionable or doubtful transactions are routed through the relationship manager, it will undermine checks and balances and create opportunities for manipulations by unscrupulous relationship manager.
Moreover, banks should adopt good control practices to remind supervisors to stay vigilant to potential risk of corrupt practices and make thorough enquiries into any suspected irregularities.