The term Insider Abuse refers to an extensive range of actions by officers, directors, employees, major shareholders, agents, and other controlling persons in banks and financial institutions. The perpetrators plan to benefit themselves or their related interests. Their action includes the following unethical practices:
1. Insecure lending practices, such as inadequate collateral and poor loan documentation.
2. Excessive deliberation of credit to certain industries or groups of borrowers.
3. Unsound loans to insiders or their related interests or business associates.
4. Improper granting of loans to Directors, insiders.
According to Malaysian Banking and Financial Institution Act 1989, there is a law on "Prohibition of credit facilities to director and officer". As mention in Section 62(1) as follows:
Unless exempted by the Bank in writing with or without conditions, or except as provided under subsection (2) or (3), no licensed institution shall give any credit facility to-
(b) anybody corporate or unincorporated, or a sole proprietorship, in which any of its directors or officers is a director or manager, or for which any of its directors or officers is a guarantor or an agent;
(c) any corporation in which any of its directors or officers has any interest in the shares of that corporation; and
(d) any person for whom any of its directors or officers has given any guarantee or other undertaking whatsoever involving financial liability.
------------------------------------------------------------------------------------------------------------------------------- Fraud and Insider Abuse (2010) http://www.ots.treas.gov/_files/422134.pdf
There is a case related to "Insider Abuse" between CIMB Bank Berhad and Abdul Aziz Bin Lome. CIMB accuse that Mr. Abdul Aziz(respondent) did not comply with the applicant's (CIMB) operating procedure as he was the credit officer of one the branch of the bank and respondent unethically approved loans to a sole proprietor.The Respondent's immediate superior was one Zamzuree bin Zakaria, the Head of Retail Business Centre in the branch of CIMB. The Applicant had charged Zamzuree with misconduct for approving facilities to sole proprietorships and companies belonging tohis family members and/or companies in which he had an interest whilst concealing and/or without declaring the existence of such relationships.
During investigation it is found that respondent Abdul Aziz together with Zumzuree involved in the approval of credit facilities and excesses to the companies. Respondent was fully aware of the CIMB credit policy and credit procedure. He knew about the relationship between the proprietors of the companies and Zamzuree but he did not disclose the relationship in the credit memorandum when he submitted the same to the lending/approving authority at the Applicant's head office for approval. Due to this respondent was dismissed from job. Later Industrial court found that punishment of dismissal was harsh to Abdul Aziz as he didn't gain any financial benefit out of this. He did it because Zumzuree was his boss and Abdul Aziz just followed the superior's instruction.
Employees of banks are expected to display a high level of honesty, integrity and sense of responsibility in the discharge of their duties and not to do any act which may jeopardize the bank's interest. As an employee entrusted with processing of applications for facilities, Mr. Abdul Aziz was expected to perform his duties honestly and in accordance with the CIMB policies. Mr. Abdul Aziz being an officer of the CIMB has breached the implied obligation of trust and confidence between him and the bank. The issue of not making any monetary gain and the respondent's length of service are
------------------------------------------------------------------------------------------------------------------------------- The Companies Commission of Malaysia. (2012, November 25). Act 372 Banking and Financial Institutional Act 1989
irrelevant. In taking into account that the Mr. Abdul Aziz had not made any monetary gain and had a clean record the Industrial Court had taken into consideration irrelevant matters and later it is approved by court to pay RM5,000.00 as compensation for the misconduct to CIMB.
Unethical Practice due to Conflicts of Interests
Now a day's banks are providing diversified services and due to this, multiple interests compete or conflict with each other in the banking sector. Sometime it is within the organization, sometime with customers and sometime with the other banks. Due to this conflict of interests, unethical practices increasing in the banking sector of Malaysia it is require to manage the conflicts of interests in order to prevent the interests of customers from being unfairly impaired
Conflict of interest basically related with some primary regulations and responsibility of banks. For example, according to Malaysian Banking and Financial Institution Act 1989,"Functions, powers and duties of Bank" Section 3(2) can be a point of conflict among the employees of the organization. The section implies that the Bank may authorize or instruct any officer or employee of the Bank to perform any of the functions, exercise any of the powers, or discharge any of the duties, of the Bank under this Act. Sometime, by imposing this kind of job in an employee can create job dissatisfaction and can provoke to do unethical tasks in the organization.
--------------------------------------------------------------------------------------------------------------------- The Companies Commission of Malaysia. (2012, November 25). Act 372 Banking and Financial Institutional Act 1989
Outlines of Conflict of Interest Management Policy (2008) http://www.standardchartered.co.jp/legal-notices/conflict-of-interest/en/index.html
Conclusion
Several factors are considered as the main contributor to the unethical issues happening such as, hubris behaviour of top management in the banking sector. Irresponsible behaviour of employees and the aim of unusually high rate of return for investment also accountable for unethical issues to continuing evolve. All of these factors are motivated by greed of human. A worthwhile way should be consider preventing unethical issues from happening that is the industry should invest heavily in the code of ethics. In addition, in order to remain competitive, fostering an ethical moral character of banking employees is necessary.
As a banker, they must uphold good moral values, and being free from abuse of trust and any malpractices. This is to ensure and establish an effective banking service, enhance corporate governance and banking ethics.
Regulatory bodies, such as the Companies Commission of Malaysia (CCM), the Securities Commission (SC) and Bank Negara Malaysia play a very important role in making sure the relevant laws and regulations cover all aspects in preventing unethical issues, improve the quality and service of banking sector.
Unethical practices in the banking sector like breach of secrecy duty and offer/acceptance of gratification can be prevent through a good corporate practice in the company. Code of ethics can be the guideline to every employee in the daily conduct. Management also can introduce whistle blowing policy to encourage employees report any wrong-doing. Whistleblower Protection Act 2010 also can be another channel for the employee and public to report any unethical practices. All this efforts can help Malaysia banking sector to become more transparent and fair.
Introduction
Ethics enable us to justify what is right from what is wrong. But, for the same matter or issue, different people have different view of ethic. Ethical issue is extremely important in banking sector. This is because of the existent of a relationship between depositor and creditor. Undeniably, no depositor would like to expose their banking information to the third party without their consent. But, this practice does happen in the real world. Therefore, the existence of ethic in banking sector is extremely important in everyday transaction. This can be achieving by creating image value such as honesty, integrity, accountability and social responsibility. Besides, personal value holds by each employee within the banking sector do contribute much to banking ethnicity. An ethic employee will ensure that they will not taking bribe and corruption by approving loan for under qualify customer. Moreover, the management of banking sector should not boost up the balance sheet and financial statement of bank to attract potential investor to invest and to mislead general public. As ethic is a sensitive issue in daily banking transaction, it is preferable that banking sector should compliance to the standard and guideline as determine by the authorize body. As consequences, for those banks whose compliance to the standard and guideline can prevent unnecessary lawsuit which may sum up to a few billions dollars. In addition, bank reputation may get affected and customer satisfaction decline as a result of unethical banking practices. Moreover, this may cause the existing customer to switch to others more ethical bank. As it is proven that the cost of attracting a new customer is seven times higher than retaining an existing customer. As a conclusion, nowadays ethical behaviour is a demanding factor in order to stay competitive in the banking sector.
Full disclosure
In the banking sector, both party involved in a transaction is necessary to full disclose the needed information to others party as require by law. This can be shown by the case of Bank of American fail to disclose the state's of Common Retirement Fund and causes the investors to lost billions when WorldCom collapsed [1] . Besides, Citigroup also being sue by their investor in Enron accounting scandal as a result of Houston Energy Company collapsed in a 2001 (Pacelle & Sidel, 2005). As consequences, Bank of America and Citigroup need to pay $460.5 million and $2.57 billion respectively to settle the lawsuit by their investors [2] . Although both of the cases happened in United States, but it is still consider unethical in the context of Malaysia. This is because according to the Central Bank of Malaysia General Guidelines for Financial Institutions, BNM/GP8 (Revised): Guidelines on Financial Reporting for Licensed Institutions stated that the minimum standard of disclose accounting report must prepare in accordance to the provisions of the Companies Act 1965 and the Malaysia Accounting Standards Board (MASB). Whereas, for listed reporting institutions, the financial reports must be prepared in accordance to the disclosure requirements of Bursa Malaysia Securities Berhad [3] . In the case of Bank of America and Citigroup as mentioned, both of the banks failed to disclose the necessary information needed by investor and causes mislead of investor to invest thereby causes investor to loss money.
Besides, Timmons (2001) stated that Bank of America also failed to inform shareholders of a $44.7 million bonus for its former CEO (as cited in Clement, 2006). In the context of Malaysia, according to Central Bank of Malaysia General Guidelines for Financial Institutions, BNM/GP7: Guidelines on the Code of Conduct of Directors, Officers and Employees in the Banking Industry stated that the employees in the banking sector should show integrity and high level of professionalism in conducting the banking daily operation [4] . This is to avoid any conflict of interest and misuse of position happened. In addition, this also help to prevent misuse of information gathered through the banking institution's operations. With referring to the case of Bank of America, the management failed to inform shareholders of a $44.7 million bonus for its former CEO is consider as unethical as it indicated that the employee in the banking sector failed to compliance BNM/GP7: Guidelines on the Code of Conduct of Directors, Officers and Employees in the Banking Industry [5] by showing integrity and high level of professionalism to their shareholders. This will indirectly causes high dissatisfaction between the bank and its shareholders.
