Misusing corporate responsibility

Misusing corporate responsibility

Ikram Sehgal,
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Qamar Zaman Chaudhry, Chairman NAB chairing monthly coordination meeting to review latest progress on the decisions taken in the previous monthly coordination meeting held at NAB headquarter. June 13, 2017

Accountability must target (but mostly doesn’t) politicians, public officials and government departments, the lower judiciary, etc, in Pakistan. The PM appearing before the JIT because of PanamaGate is symbolic of the Supreme Court’s (SC)’s determination to bring the rule of law into governance. Criminal misgovernance has been highlighted by the JIT complaints to the SC about government institutions changing/falsifying records, using delaying tactics and not cooperating with their enquiry. While one is vehemently opposed to the PM being removed by extra-constitutional means, he could “recuse” himself while the JIT enquiry is in progress. The smear campaign against the JIT, and by extension the SC, gives fuel to those who want a Caretaker Government to ensure state institutions do not indulge in malfeasance to protect the Sharifs’ personal interests.

A truly remarkable institution, the Pakistan Institute of Governance (PICG) educates existing and would-be members of Boards of Directors (BODs) to establish corporate management related policies and to make decisions on major company issues. Their responsibilities include maintaining financial accountability of their organization, exercising due diligence ensuring that the organization is not only well-managed but remains in a financial sound situation. Board members have always to stay objective, responsible, honest, trustworthy and efficient.

Despite PICG’s efforts corruption/mismanagement in financial institutions in Pakistan has not lessened or been given due cognizance. Numerous revelations include participation in foreign bribery, accelerating levels of tax avoidance and evasion, fraudulent misrepresentation of financial products, tailoring of accounts etc despite evidence of clear abuses of corporate power. Neither the federal or provincial governments nor the statutory bodies responsible have moved to take effective action to bring white collar criminals to justice.

Board members breaching duties which harm the organization he “directs” must be personally liable for failing to comply. Because of the disparate issues, Boards require specialized Committees to be headed by a Board Member constituted with one or two other members, the CEO and concerned executives of the institutions.  Meeting periodically they shortlist recommendations for approval by the Board.   The amount of workload and time constraints makes it possible to slip matters through the Committees by deliberately leaving important matters to be rushed through at the very end.  The Board Members must (through the supervision of Committee) prevent the management from indulging in excessive spending by closely looking at cost-to- income ratios. One can accept maybe 5-10% over the industry average but 25%? A CEO of a financial institution contrived manipulating the selection of his two well qualified (but trusted friends) as independent directors. For allowing their friend free rein to run riot looting the bank, the aforementioned two “friendly” directors should be sent to jail as accessories to white collar crime. Has anyone questioned the BODs of Pakistan International Airlines, Pakistan Steel Mills for being responsible for the mess?

Also Read: The other side of the panama ruling

As CEO of Enron, Jeffrey Skilling developed a staff of executives that – by the use of accounting loopholes, special purpose entities and poor financial reporting – were able to hide billions of dollars in debt from failed deals and projects. Enron executives misled Enron’s BOD and audit in overstating Enron’s earnings by several hundred million dollars. Most of the top executives were tried and convicted for fraud. Covering up Enron’s “creative accounting” resulted in renowned international audit giant Arthur Andersen ceasing to exist. Has anyone ever take such punitive action against any audit firm or their personnel in Pakistan?

Only a handful of those who had applied criminal political pressure and their willing facilitators in the nationalized commercial banks were held accountable between 1999 to 2002 by NAB. A good majority of the honest and upright professionals in banks indulged in irregular backup activity solely due to instructions/directions or either coerced by others more influential and/or powerful for “financial considerations” for financial or personal benefit.  Some bankers took advantage of free-for-all environment “on being Instructed from above” to benefit themselves.  How do reputable audit firms having tremendous expertise and pristine reputations gloss over these fraudulent transactions?  A bank fraud can take place but it will be discovered unless the audit firm is complicit.  SBP prevents fraud and chicanery by strict oversight of banking transactions, for non-core banking issues they depend upon Board of Directors and audit firms, to control unnecessary and/or extravagant expenditures. Crooked bankers now make their money mainly through non-banking transactions with money splurged on entertainment, travel, administration, padding advertisement budgets, fraudulent schemes, mass junkets to St Petersburg, Paris. These expenditures are camouflaged by putting them under the head of “Others”,” Unquote. “Audit Committees” not uncovering such chicanery are willingly or even inadvertently aiding and abetting white collar crime.

To quote my article “Strengthening NAB’s Financial Crime Wing”, “Pakistanis are clearly the best banking professionals in the world, a few black sheep are giving the whole industry a bad name, some are not even bankers but media, HR personal, etc e.g. (the President/CEO’s travelling “entourage” from bank to bank converted into “bankers” at his sole discretion)?” unquote.  The question is how long will his loyalists survive his resignation and who in the banking industry will employ them? Accountability by the electronic and print media is avoided by using the clout of vast advertisement budgets as bargaining/blackmailing tools and projecting the personality rather than the institution.

Carrying out financial-specific accountability, NAB’s Financial Crimes Investigation Wing (FCIW) needs to be strengthened by re-structuring, under separate administrative and operational control within NAB. At present there are many retired bankers with “credit control” and “recovery” experience but they are susceptible to pressure because of career considerations, serving bankers must should not serve in FCIW.  Retired bankers having a good track record of integrity and competence must be inducted.

The corrupt usually escape accountability because of “Client-Patron relationships”.  A CEO of a financial institution asked to resign three months ago asked for time to settle “personal issues”.  The time gained was used get himself (almost) appointed through his ‘connections’ to an extremely sensitive prestigious statutory appointment. This well coordinated campaign was designed to access our funds allocated for nuclear purposes, is it a coincidence that the IAEA is based in Vienna, Austria? His well-oiled publicity machine went into overdrive to propagate the false impression for public consumption that “he had resigned to take up his new appointment”.   He has now been exposed for the fraud he was, a mole embedded in Pakistan for nuclear espionage.

The “acid test” for anyone with conscience occupying a seat of influence is to expose those misusing corporate responsibility either for personal benefit or ulterior motives whoever he (or she) may be.

The writer is a security and defence analyst.

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