Reserve heist and BB's lawsuit in US court 

Nironjan Roy | Published: February 16, 2019 21:16:52 | Updated: February 18, 2019 21:14:05

Bangladesh Bank (BB), belatedly though, has moved to a right direction by filing lawsuit with US Federal court against RCBC (Regal Commercial Banking Corporation) for recovering its USD 81 million forex reserve hacked from Federal Reserve Bank of New York. After this incident, I wrote many articles in this newspaper wherein I have specifically mentioned that legal action is the only legitimate option to recover the heist money. As an active member of US based ACAMS (Association of Anti Money Laundering Specialists), I have learnt that financial crime and money stolen through fraudulent activity is not uncommon at all. In most cases, money fraudulently transferred is recovered through legal process and on that point Bangladesh Bank is now in the right direction. We will now have to wait until the legal proceeding ends. However, BB will have to remain well prepared to provide all out support to take the legal proceeding at its desired ending. A certain degree of caution is also necessary in going about the case.

AVOID MAKING UNNECESSARY NOISE: Now that the matter is pending with the court, BB must refrain from talking about this issue. We believe BB and other concerned bodies, especially the media, will be cautious in speaking on the case, if they are at all required to do so. Another important thing that should be kept in mind is that since legal battle has now started, not only RCBC's image but also Philippine's country image is involved, so the country and the bank will now stand in the same line in order to protect image. It is obvious that they will now work together, so whatever comes in our country's media may be monitored and collected by RCBC and the Philippino authorities as documents for presenting to the court in order to defend themselves. So, concerned bodies including the BB, the government and the media must be cautious. 

ASSIGNING WELL-CONVERSANT OFFICIAL:  In any court case, the plaintiff's role is very important. Although the designated lawyer will move the case, the plaintiff is still required to present the case in the court in an articulated manner. So, the role of the officer designated by BB as plaintiff is very crucial and the officer-designate must be well prepared and conversant about the whole affair. In this connection, all relevant documents related to the chain of the entire activity must be collected. Even all news and articles related to this incident published in both Bangladesh and Philippine's media should be collected and thoroughly read so as to be conversant about this incident. The officer must be thorough about the role and responsibility of remitting bank, here BB; custodian bank, Federal Reserve; intermediary banks who eventually passed that money to RCBC's account; finally the paying bank, RCBC. If the officer responsible as plaintiff is well conversant about all the relevant issues, he / she would be able to successfully tackle examination and cross-examination which is very crucial in winning the case.

PAYING BANK'S (RCBC) RESPONSIBILITY IS MORE IMPORTANT: We have to keep in mind that RCBC and / or their lawyer will try to blame BB saying that this fraud has occurred due to BB's failure and RCBC has been a victim of the situation. Such allegations bear no weightage.  Standard payment system followed across the world states that it is the prime responsibility of paying bank to ensure the genuineness of the beneficiary. Before making any payment, it is the paying bank which must ensure that the beneficiary is legally and genuinely entitled to receive the payment they are going to make.  It is standard practice that if bank, which receives money through fraudulently or mistakenly transmitted message, cannot ensure the genuineness and legal entitlement of the beneficiary, it must hold that money, communicate with the remitting entity and finally decide on the matter. On the basis of this fundamental principle and understanding among the transacting banks, the entire payment system is carried out worldwide. Fed may have many instances where money has been mistakenly or fraudulently transferred but subsequently returned back by the receiving entity as they could not ascertain the genuineness of the beneficiary. Even, every paying bank is required to stringently maintain and comply with TAPC (Transaction Activity Profile of Customer) and any amount widely inconsistent with TAPC is never paid to customer's account, rather held for verification / double checking. In the present situation, RCBC has not only failed to apply due diligence, but also intentionally allowed settlement of the money in their bank premises by opening fictitious account.

ROLE & RESPONSIBILITY OF THREE INTERMEDIARY BANKS: Another important point is the role of intermediary banks who in this case are: Wells Fargo Bank, The Citibank and the Bank of New York. They eventually credited money to the NOSTRO (Foreign bank's account) account of RCBC. US law does not allow any US bank to maintain NOSTRO account or transact with noncompliant banks. Even, in spite of the proven money laundering case in the Philippine's court, RCBC is still continuing to maintain its NOSTRO account with US bank and conducting US dollar transactions, so proper diligence was compromised at these US banks. Had those three intermediary banks been meticulous in applying due diligence, RCBC would not have allowed that fraudulent transaction at their branch premises and the fraud could have been avoided. By maintaining NOSTRO account of RCBC and conducting USD transaction with it, these three large US banks have exposed reputational risk of the Federal Reserve and the USA as well.  So, the role of those three intermediary US banks should also be important issues for the legal proceeding.

ENQUIRY REPORT AND BB'S STAND: Another important document is an enquiry report prepared by the enquiry committee formed by the government with former Governor, Md. Farashuddin heading the committee. RCBC and its lawyer will most likely ask BB to produce this report to the court, because they are fully aware that usually the enquiry conducted by domestically constituted committee finds the fault of victim bank and if so, RCBC will try to find a way to shift the blame to BB based on that report's findings. Although, we do not know the TOR (Term of Reference) of that committee, yet we understand that the way enquiry was conducted and report was submitted, cross-border implication was not taken into consideration. BB should specifically discuss this report issue with their lawyer in NY.

CASE STUDY AT ACAMS CONFERENCE IN 2016: There is another issue which should not be ignored at all. After the reserve heist, annual conference of ACAMS (Association of Certified Anti Money Laundering Specialists) was held in September 2016 where BB reserve heist was included as a case study. As a member of this association, whenever I came to know about this case study, I sent an email to the ACAMS requesting to drop the case study because the matter was not settled yet. Bangladesh Bank was trying to recover their stolen money, so the unsettled case should not be included as a case study. Soon after my personal protest to ACAMS, I wrote one article in this newspaper wherein I put forward suggestion to BB for lodging official complaint to ACAMS with the request to refrain from discussing this issue in their conference. Since I was not able to personally attend that conference, nor I received any reply from ACAMS, I am not sure whether ACAMS conference dropped that case study or went on with their schedule. Regardless of the outcome of that conference, BB should have preparation to tackle this issue in case it is raised during cross examination.

Nironjan Roy is a banker based in Toronto, Canada.


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