RCBC dysfunction an unwitting conspirator in Bangladesh heist

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Ben D. Kritz

Ben D. Kritz

ALTHOUGH the progress of ongoing investigations by agencies with actual law enforcement functions has not been disclosed, what has been revealed so far in the entertaining but forensically deficient Senate hearings into the $81 million money-laundering scandal strongly suggests that RCBC bank as an organization was not privy to or an active participant in the plot to rob the central bank of Bangladesh.

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Ironically, it would be better for the banking and financial sector of the country, and maybe even for RCBC itself, if it had been an intentional conspirator. That would be a much easier problem to solve than the comprehensive dysfunction that made RCBC an unwitting part of the scandal.

Consider this: As far as we know at this point, setting up the bank accounts that would receive the stolen funds, which happened in May of last year, was the first step in the entire plot to rob Bangladesh Bank; of all the banks in all the world, as one of my banker friends pointed out some time ago, the plotters chose to open those accounts at RCBC. And they did that a full eight months before they even broke into Bangladesh Bank’s systems.

What gave the conspirators that much confidence in the all-important receiving end of their process that they could set it up and forget about it until it was needed months later? One or two rogue managers in one branch office was certainly not enough; the plotters had to know that the system the money would have to pass through was too weak to prevent the money-laundering, that there were either enough people in key positions who could be compromised, or that processes and oversight were so sloppy and prone to error that they could be overcome.

Again, the amount of time that passed between the setting up of the accounts in May 2015 and the actual robbery on February 4 this year indicates a great deal of confidence on the part of the conspirators, and suggests that their choice of RCBC was not based at all on the right people being in the right places, but rather known vulnerabilities in the bank’s systems. It is not even certain that Bangladesh Bank was the target when the spurious accounts at RCBC were set up; the forensic investigation on the Bangladesh side so far has only been able to determine the intrusion into the bank’s systems occurred sometime in mid-January this year. Regardless of what the conspirators had in mind eight months prior to that, making the assumption that people in the bank—especially if they were not actually in on the plot—would still be in the same positions later would be too big a risk.

If RCBC as an organization—which is another way of saying, “RCBC’s top management”—was a party to the plot, which is the accusation disgraced branch manager Maia Deguito made against CEO Lorenzo Tan, it would indicate that the bank’s processes are basically sound, but that they were just being bypassed or intentionally thwarted. That problem would be easily solved by the bank’s simply ridding itself of the offending parties, and replacing them with ones committed to strictly following procedures. It has become fairly obvious through hours of Senate testimony and other revelations, however, that no one above the lowly level of Maia Deguito had any idea what was afoot, and simply had no control over the situation. The conspirators knew that was the environment at RCBC, which is why they were confident in their choice of that bank as the landing place for their stolen loot.

One sobering conclusion this suggests is that the potential for misuse of the banking system on a large scale is much higher than we realize. RCBC is not organized differently than any of its peers in the Philippines, and does not operate according to a different set of rules. If the problems that beset RCBC are viewed as having been the result of the wrong people having been in place, that means the only thing that clearly prevents something similar from happening in another Philippine bank is having the right people in place. People are a variable—they have different levels of skill and ambition; they move from one job to another; they retire; they die.

Relying on a variable to ensure the soundness of a system, whether in a single bank like RCBC or across the entire banking sector, is risk-taking to the point of recklessness. Of course, people are necessary to the system, but the system has to be robust enough not to collapse entirely and permit something like the largest single bank robbery in history from taking place if one or two bad ones find a place in it.

RCBC has a lot to do to repair its battered reputation, beginning with finding (and paying premium compensation to) a high-profile and ethically-ironclad replacement for its presumably soon-to-be former CEO Tan. Beyond that, however, the BSP and the country’s political leadership needs to reflect on the state of banking governance and management in general, and find ways to plug the gaps that almost overnight turned the country’s reputation for having a sound banking system on its head.

ben.kritz@manilatimes.net.

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11 Comments

  1. Why didnt BB go to Fed directly on this? Im not very familiar with facts but I suspect because BB is not wholly innocent on this issue. I think as far as I have read, US Fed maintains that as far as they are concerned they acted on an instruction to remit from BB that was by all accounts “authentic”. The negligence was in BB itself when some personalities were able to hack their system and get the swift codes. Should BB now be allowed to shift the blame on Fed on this? (these are just assumptions, to be clear) of course, it is a little different for RCBC since there was involvement from a staff eho was able to open fake accts. But i do honestly believe that RCBC’s worst crimes are really of procedural lapses. The branch manager’s really the big fish in their part of the sea, regardless of how much of a “victim” she and media would eant you to believe

  2. Jose Magbanua on

    Dear Manila Times editor and management,
    Please investigate RCBC securities, Inc. A subsidiary of RCBC bank. That stock brokerage obviously misled its clients who were defrauded by one of its staff so that the clients will not get compensated for the money and shares of stocks stolen from them. Take note there is a CMIC and SEC arbitration that can help the customers but no mention of it in the news article below: http://www.rappler.com/newsbreak/investigative/126717-rsec-scam-rcbc-scandal-money-laundering.

  3. Having worked for RCBC for 7 years 34 years ago, I still cannot believe that a payment stop order was not enforced. The amount is staggering 81 million dollars. During my time, everybody in the branch knows who deposited the very big deposit. Specially a payment stop order was made. I still believe that the head office officers are in cahoots with Deguito. The head office will send an officer to the branch to make sure the order was implemented. It is not sleeping on the job, it is making sure the monies were withdrawn on time.

  4. A small branch of RCBC does not have 81m usd cash ready everyday. You go to your bank and ask : how much time needed for a large sum of USD CASH withdrawl will take? Ask about 5 million USD.
    You will find they will tell you tomcome next working day. Why? Because they need to bring the cash… Yes.
    Now how RCBC allowed that huge amount of money to be taken after a stop payment order from Bangladesh Bank?

    • Exactly. I have to jump through hoops to withdraw $1k. Any bank so dysfunctional that $81 million walks out the door this easily will not be in business for long. Sounds to me as if the writer is crafting and elaborate apology for RCBC.

  5. Amnata Pundit on

    The system becomes dysfunctional because of the people running it, period. So the people behind the system are either incompetent fools or WITTING CONSPIRATORS. But unwitting conspirators, these highly educated bank officials? Tell me another.

  6. Nice article and agree. If the ‘proper’ systems are in place, in would make it extremely difficult for any ill-intentioned group to override no matter how far back planning was made. The key word is PROPER, which includes ability to detect tell-tale signs of POTENTIAL for fraudulent transactions at the onset (ie, not YET necessarily fraudulent transactions), and prevent further transactions; multi-level; involves authorization by role+level (not by person/s). I had the chance to work on such – a multinational project which implemented a known global financial software tool (applicable in any known industry). If Phl banking system does not have this kind of PROPER system checks, then indeed the RCBC-Bangladesh case is an example that came to light.

  7. Every Dick and Harry, or Duterte and Mar, knows that one of the reasons drug lords and jueteng lords are deeply and strongly entrenched is because the tens of millions of pesos they rake in can find safe haven in our banks.

    I once asked a former branch manager of a big bank how much money circulates in our community. One billion and half a month, he said. I pushed for my second question. Because we have a few of them back here, “what percentage of that belongs to jueteng lords?” Sixty percent was his quick computation. My last question reveals why RCBC’s $81-million headache was bound to happen. “What about AMLC?” He sheepishly replied, “the unwritten and unspoken SOP is, the head office don’t care how I woo depositors. Just don’t get caught. Or else, I take the full brunt.” This time, Deguito it is. Hopefully, she is the last.

  8. Agree 100%…Here are the facts : #1 RCBC will not be criminally liable, but must be heavily fined for banking lapses #2 RCBC “Know Your Customer” policy is ineffective, the main purpose of which is for the banks not to be a conduit for dirty money #3 RCBC’s exercise of due diligence is inscrutable, SWIFT messages if ambiguous should be analyzed further, and knowing the transfer came from Federal Reserve Bank, common sense to make it top urgent priority, and no excuse #4 RCBC failed to follow up the fake depositors accounts, giving the perpetrator an opportunity use RCBC as a conduit for money laundering scheme. Conclusion…RCBC must return the full amount of $81 Million to the people of Bangladesh and RCBC can go after Philrem and the Casinos for the recovery of some money. #5 Philippine regular must show the global banking community that if a Philippine bank fails to follow strictly the guidelines set by AMLC, there will be a very painful consequence.

    • The only problem is- No such stop payment order came from Fed Reserve or BB. What RVBC got was a free format unauthenticated message from bB asking to “stop payment” on a transaction requested by BB. As far as RCBC is concerned, BB is a third-party to the transaction. Imagine what will happen if you propose any third party can ask to stop payment on a transaction made by someone else. What BB should have done was go to Fed about the case and Fed to issue the stop pyment order to RCBC

    • Im sorry edit: what RCBC got was a free format unauthenticated message to “stop payment” on a transaction issued by US FEDRESVE OF NY