2022
ABDUL FASIEH
SAP 6775
CORPORATE GOVERNANCE
ASSIGNMENT 1
List and Discuss 10 Corporate Scandals of Pakistani companies.
1. Crescent bank
2. Islamic investment bank
3. Bankers’ equity
4. Pakistan steel mills
5. Indus’s bank
6. Hascol petroleum
7. Taj company
8. PTCL
9. Mehran bank
10.Zarco exchange
1.Crescent bank:
Crescent standard investment bank limited-(csibl) was the largest investment bank listed on all
stock exchanges in Pakistan, so when he told a huge loss of rs2.1 billion ($ 35.5 million) exercise
and December 31, 2005, the market was taken by surprise. There had been rumors that all was not
well and that the regulator of investment banking, the securities and exchange commission of
Pakistan (secp) had sent a team to investigate the affairs of the bank. The bank had reported in
their annual reports that all internal control mechanisms for good governance provided by the secp
were in place and all (internal and external) auditors said they were satisfactory. However, when
subjected to an investigation, it was revealed that the internal management was involved in a
variety of acts of misrepresentation and concealment. The case relates to the weakness of the
structure of the system of governance in Pakistan. The fact is that no amount of internal and
external controls may adopt internal management conspire to perpetuate a fraud. The entire board
of directors and ceo Anjum Saleem of crescent standard investment bank were legally stopped
from running their offices on evidence of suspected fraud and irregular
accounting. External auditors had predicted a missing amount of over rs.6 billion, apart from illegal
maintenance of parallel accounts, concealment of bank assets, un-authorized massive funding of
group companies, unlawful investments in real estate and stock market, etc. The secp took legal
action against the companies’ officers, although much of the actions taken were criticized as
insufficient.
2.islamic investment bank:
After failing to recover a bank guarantee of rs493 million, which added up to rs634 million after
mark-up, deposited in the iibl, the supreme court had held a week-long inquiry and later directed
the national accountability bureau (nab) to register a corruption reference against 14 accused
including the head of iibl and ex-registrar apex court for their involvement in the financial scam.
The supreme court has directed national accountability bureau (nab) to initiate separate case
against javed Iqbal Qureshi of Islamic investment bank limited (iibl) for committing fraud by
submitting a cheque of Rs 50 million to the highest court. The cheque was dishonored by the
Muslim commercial bank limited even after it was submitted to the bank repeatedly. According to
supreme court of Pakistan, javed Iqbal Qureshi, chief operating officer (coo) of iibl and ex-registrar
of the apex court m. A. Farooqui were arrested in Islamic investment bank limited (iibl) financial
scam involving more than Rs 600 million. Islamic investment bank was listed at the kse in 1990.
In all of the 14 years since, the bank has disbursed just a single cash dividend at five per cent in
2003. That was to pull itself out of the 'defaulters counter' of the kse. Under the listing regulations,
all companies are required to pay a dividend at least once in five years. The current market price
of the 10-rupee share in the bank stands at a discount of 30 per cent.
3.Taj company:
Taj company was incorporated in Lahore under the companies’ act (1913) on May 14, 1929, as a
public limited company. It started with a small capital but in a very short time it covered a very
big distance. It was because there was a big space in the market regarding printing and publishing
of the holy Quran. The taj company was involved in poor corporate governance practices. The
company was running a scheme through which it was able to receive huge amounts of deposits
illegally. What was far more disappointing was the religious affiliation the company had attached
with its name. Even 15 years after their fraudulent practices have been stopped; the company still
owes heavy liabilities to over 25000 people. Most of the people lost their savings as they became
victim of attractive marketing campaigns launched by unscrupulous elements, who offered
lucrative profits on their investment. After raising heavy deposits, these elements suddenly closed
shops and disappeared. The company managed to attract many private investors and collected huge
number of illegal deposits. Since the company’s fraudulent activities emerged almost 20 years ago,
more than twenty-five thousand investors are still waiting for the recovery of the investments they
made in the company. In another high-profile case the entire board of directors and ceo of a bank
were stopped from running their offices because they were involved in suspected fraud and false
accounting practices.
4.bankers’ equity:
Development finance institutions (dfis) are specialized development organizations that are usually
majority owned by national governments. Dfis invest in private sector projects in low and middle-
income countries to promote job creation and sustainable economic growth. Fraud at banker’s
equity limited (bel) is one of the biggest financial scams in the banking history of Pakistan. It
shows how senior management at bel misused their powers and financial authorities to divert
public funds to personal benefits in collusion with private stock exchange brokers and other senior
officials of bel by making bogus entries and fake transactions in bel record. On dec 4, 2001, in
Karachi, an accountability court sentenced on Tuesday Rauf b. Qadri, former chief of the bankers’
equity limited, to a seven-year term for financial fraud. Judge dr. Qamaruddin Bohra also imposed
a fine of rs1 million on the former banker, who would have to undergo an additional one-year term
in case of default on the payment. The same court had earlier ordered the release of co-accused
Ashfaq y. Tola, former president of the bel, after he voluntarily returned Rs 1 million. The accused
persons were entrusted with bank affairs and having dominion over financial matters have
committed criminal breach of trust and accused Ashfaq tola is solely responsible for falsification
of the account books of the bank, thus they are liable to be punished”, the judge observed. The
judge also disqualified for 10 years for seeking or from being elected, chosen, appointed, or
nominated as a member or representative of any public body or any statutory or local authority or
in service of Pakistan or of any province under section 15 of the nab ordinance, 1999.
5.pakistan steel mills:
The Supreme Court is dissatisfied with the progress made by the Federal Investigation Agency
(FIA) in investigating the Rs50 billion corruption scandal at the state-owned Pakistan Steel
Mills. Justice Javed Iqbal said “The FIA has made zero progress in the case.” Justice Raja
Fayyaz said that FIA officials are corrupt and dishonest and spare the wealthier accused while
arresting only poorer, less well-connected suspects. The three-member bench then ordered the
FIA to immediately arrest Riaz Lal, one of the suspects, despite being told that he was abroad.
The government of Pakistan has spent over Rs70 billion in bailing out the steel mills over the
past three years. In 2005, the Musharraf administration had concluded a contract to sell PSM to
foreign investors for $362 million but was prevented from completing the transaction when the
Supreme Court blocked the deal. The three-member bench was hearing a petition filed by the
AlJihad Trust alleging that Qazi Javed was not qualified to serve as NAB chairman despite having
been deputy chairman when the position fell vacant.
6.hascol petroleum:
The hascol petroleum ltd (hpl), a share of which was worth rs313 on June 29, 2018, has now been
declared defaulted by the Pakistan stock exchange (psx); the psx added the company to the
defaulters’ list. After three years, its share was being traded at rs8.26 last Friday. Hascol is the
second-largest oil company in Pakistan, which has now defaulted around rs60 billion. Despite such
a significant financial default in Pakistan’s history, the government did not initiate any inquiry or
investigation against the company. The company, in its statement, has accepted that the internal
auditors of hpl submitted evidence to its board of directors (bods) regarding the ‘false purchase
orders ‘and misappropriation in the company during 2019.the hpl chairman alan duncan released
the statement in a letter to the securities and exchange commission of Pakistan (secp) and Pakistan
stock exchange (psx) said, “the company’s internal auditor received a whistleblower statement and
evidence from within the company that in 2019 a series of false purchase orders were created and
entered into the company’s books. The internal auditor, as required by the procedure, referred the
matter to the board audit committee, which, at its meeting last week, concluded that there is
sufficient evidence in support of the accusation to justify referring the matter to the full board of
directors. Recently, the management of the psx has put the name of hascol petroleum ltd on the
list of defaults for failure to comply with the rules and regulations of the exchange. Hence, the
share trading of the company has been suspended at psx. The company’s basic allegation failed to
hold the annual general meeting for the shareholders and the submission of annual audit accounts
for the year 2020.
7.ptcl privatization:
The privatization of ptcl was also a big corporate scandal. An ex-senior vice president has claimed
the privatization as Pakistan’s biggest financial fraud. Ptcl former official further commented that
the deal was closed on 2.6 billion dollars including u-phone & paknet, however only u-phone had
enterprise value of more than 6 billion dollars which does not include assets of u-phone. Moreover,
pricing decisions were made through old records instead of determining current market value,
which means, it was like buy one get 2 free offers. It has been reported further that in September
2006, when Etisalat had refused to honor the deal, they were offered a secret price discount of 394
million dollars along with commitment to lay off 20,000 employees and to bear the 50% cost of
layout. Supreme court of Pakistan has already given decision against the privatization of pso and
Pakistan steel and if ptcl’s privatization gets challenged on true facts, it will bring horrifying
results.
8.mehran bank:
The most horrific failure of corporate governance in the history of Pakistan. The scandal
commonly known as Mehran gate scandal is one of the worst financial scams of 1990s that rocked
the financial pillars of the country. Mehran bank was incorporated on October 31, 1991, as a public
limited company and its shares were quoted on Karachi and Lahore stock exchanges. The bank
began its formal operations from January 22, 1992.yunus Habib was the founder and the chief
operating officer (coo) of the bank. He started his career in banking as a clerk in Habib bank in the
late 1960s. He was retired from Habib bank for indulging in unethical banking practices. After that
with the help of his political allies and benefactors, he founded a private bank named Mehran bank.
The national accountability bureau (nab) has recovered rs1.6 billion in the famous Mehran bank
scandal case by selling benami property of defunct bank’s chief Younus Habib in Islamabad. The
amount is stated to be the country’s biggest-ever single cash recovery in a willful loan default case.
In addition, the Younus Habib group will also pay rs420 million. According to the nab, Younus
Habib, former chief operating officer of the defunct bank, had offered to settle his liability through
the sale of his benami property and accordingly entered into a settlement agreement of rs1.6 billion
with the national bank of Pakistan. The Mehran bank had been doing badly since its very beginning
in January 1992, and banking experts attributed this poor performance to Younus Habib’s penchant
for `extra-curricular banking activities. At the time of Mehran bank scandal, securities and
exchange commission of Pakistan (secp) had not devised any formal code of corporate governance
(the secp manual for corporate governance was developed in 2000). However, general corporate
governance principles were adopted locally for corporate governance affairs and banking laws
were enacted.
9.axact:
The axact scandal a billion-dollar scam and challenges to ethical business conduct
In May 2015, New York times (nyt) reported involvement of axact in fraud and scam after
collecting sufficient evidence from its ex-employees and conducting further investigation. It came
on forefront that axact was issuing fake degrees through their several online universities’ websites.
Pictures and testimonials of students and faculty members on websites were of paid actors and
these universities had no existence in real and American toll numbers given on websites belonged
to call centers in Karachi. Students worldwide took admissions in their online schools and
universities. Rather than undergoing classroom lectures and examinations, they were conferred
certificates and degrees. People being victim of this scam were forced to enroll in English learning
and testing courses and were tricked into paying fees by frequently threatening them for
accreditation certificates with fake signatures of mr john Kerry, American secretary of state. There
were at least 370 websites generating tens of millions of dollars estimated revenue each year from
all around the world. Axact immediately responded to the allegation by nyt by making videos,
denouncements, appealing to court, and staging protests (called ‘dharna’ in native language) at
public places. They regarded this story as frivolous, based on false accusations, and just a biased
creation of the mind produced without taking the company’s opinion. Ethics and values of axact
have become questionable as a result of allegations of fake degrees’ production. Government of
Pakistan has taken stiff measures as federal bureau of investigation (FBI) is working on this
international scam as most of the fake universities’ accounts were USA based. Their clients’ list,
revenue reports, exports proceeds, and high pay packages are in question and need to be justified.
The scandal had jeopardized the income of at least 2,000 local employees at axact. In the wake of
the scandal, instantly several online websites went offline or altogether disappeared. According to
law enforcement officials, Shoaib Ahmed sheikh (ceo), and four other axact executives are accused
of crimes like fraud, forgery, and illegal electronic money transfers and are charged against
violations of money laundering act, Pakistan ‘s electronic crimes’ act, etc.
10.zarco exchange:
Failure of corporate governance in a well-known and progressing foreign exchange company in
Pakistan the fraudulent transactions at the ZARCO Exchange, a renowned global money transfer
chain operating in Pakistan through their local partner ZARCO group is a well-known group of
companies in the global field of financial services with offices in the USA, UK, Pakistan and
Canada. ZARCO stands for reliability and authenticity as there is a substantial compliance with
the local laws and regulations in every territory where it operates. ZARCO Exchange was formed
in June 2003, with its head office in Lahore, when the State Bank of Pakistan (SBP) issued working
license to Lakhte Hasnain, the CEO and owner of the ZARCO. It was regulated by the SBP under
the Exchange Companies Ordinance, 2002. The company offered its customers the advantage of
the largest network of online branches, franchises, and payout locations both in the urban and rural
areas of Pakistan and collaboration with trusted money transfer companies worldwide. The
operations of ZARCO Exchange in Pakistan were said to be following both the internationally and
locally applicable laws and regulations. While working on a campaign against hawala
(undocumented/informal fund transfers) business, initiated on the directives of SBP, the Federal
Investigation Agency (FIA) booked six foreign exchange companies and their owners. Amongst
these was ZARCO. The FIA report stated that the Chief Executive of ZARCO illegally transferred
Rs. 1,870 MN (PKR) to his bank accounts abroad, while his company performed Foreign
Telegraphic Transfers (fts) of $346.71 MN under the hawala business between January and
November 2008. The report asserted that the hawala business resulted in the loss of capital and
depletion of foreign exchange reserves of the country. ZARCO was therefore confirmed to have
violated the rules set out by the SBP. In February 2009, Western Union detached itself from
ZARCO after the FIA reports surfaced.2 Interestingly, in early August 2009, a complaint was
registered by the ZARCO Exchange CEO. He alleged that his company’s employees embezzled
Rs. 1.25 bn (PKR) through ‘dummy accounts. Consequently, FIA raided the head office of
ZARCO Money Exchange Company at Lawrence Road in Lahore and took into custody all the
records relating to money transfer on August 8, 2009.3 All 727 branches of ZARCO Money
Exchange company across the country, including its head office, were closed, while nine company
employees named in the FIR were arrested.
