Kleptocracy: Free-style corruption of a government official in Bangladesh

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Motiur Rahman, National Board of Revenue, NBR

Md Motiur Rahman, a former official of the National Board of Revenue (NBR), has recently been thrust into the spotlight due to a scandal involving his substantial wealth accumulation through stock market investments. His case has sparked widespread concern and raised critical questions about the means through which he amassed such wealth. The controversy has uncovered potential abuses of power and insider trading, leading to calls for stringent regulatory scrutiny and reforms.

In a revealing interview with ntv, Motiur admitted to using his expertise and insights into the capital market to make financial gains. He described how he bought shares of ailing but promising companies and later sold them at significant profits once their values increased. This strategy, while seemingly straightforward, has drawn accusations of insider trading and misuse of his influential position.

Motiur’s approach involved meeting with the owners of listed companies, identifying their weaknesses, and offering growth solutions. He would buy shares during the companies’ downturns and sell them when their values rose. Additionally, he provided consultancy services for initial public offerings (IPOs), helping companies raise public funds through share flotation. His admissions suggest a clear exploitation of his position and access to privileged information, which is explicitly prohibited under capital market regulations.

Insider trading, as implicated in Motiur’s case, involves trading based on non-public, material information, giving an unfair advantage to those with access to such information. This practice is illegal and designed to protect general investors from being disadvantaged by those with insider knowledge. Motiur’s activities not only violate capital market regulations but also betray the ethical standards expected of public officials.

The controversy surrounding Motiur’s wealth extends beyond mere accusations of insider trading. Investigations have revealed that he and his family held over 30 million shares in at least ten companies, with the actual number potentially being higher. Motiur’s journey into the stock market began in 2008, and he has since made “abnormally high” profits, particularly from the shares of Fortune Shoes.

Motiur’s involvement with Fortune Shoes is particularly illustrative of his questionable practices. He bought shares at Tk 8 each, despite their face value being Tk 10, and later sold them at Tk 54 per share. His consultancy agreement with the shoemaker owner allowed him to acquire these shares at a discounted rate, a practice that legally requires High Court approval and must be transparently documented in the company’s financial reports. However, Fortune Shoes did neither, raising suspicions of regulatory violations.

The IPO prospectus of Fortune Shoes indicated that all shareholders acquired shares at the face value of Tk 10, contradicting Motiur’s claim of buying at Tk 8. Additionally, under service rules, government officials are prohibited from working as consultants to facilitate company listings in the capital market, a role designated to licensed merchant banks.

Further scrutiny of Motiur’s investments reveals a pattern of receiving placement shares from various companies, often at advantageous terms. For instance, he and his family obtained significant shares from companies like ACME Pesticides, Associated Oxygen, C&A Textiles, Dominage Steel, Lub-rref (Bangladesh), Mamun Agro, ML Dyeing, Ring Shine, and SK Trims.

Placement shares are typically sold at face value or higher, allowing investors to profit once the shares are publicly traded. However, Motiur’s extensive holdings across multiple companies suggest preferential treatment, likely in exchange for regulatory favors. This suspicion is bolstered by the fact that some companies reportedly provide shares to influential individuals as bribes to gain regulatory advantages.

According to Faruq Ahmad Siddiqi, a former chairman of the Bangladesh Securities and Exchange Commission (BSEC), public service holders like Motiur should not engage in consultancy roles for companies seeking IPO listings. The receipt of shares at discounted prices, as in Motiur’s case with Fortune Shoes, represents a serious irregularity warranting thorough investigation.

The BSEC mandates that any company selling shares at a discount must obtain High Court approval, a step Fortune Shoes bypassed. Moreover, BSEC rules state that issue managers, responsible for IPO facilitation, must remain unaffiliated with the issuer and cannot hold any securities from the company they manage. This regulation aims to prevent conflicts of interest and ensure fair market practices.

Motiur’s case underscores significant lapses in corporate governance and regulatory enforcement in Bangladesh’s capital market. The ease with which he allegedly manipulated stock transactions and acquired shares at preferential rates exposes vulnerabilities in the system. It highlights the need for stricter enforcement of regulations and greater transparency in share allocations and trading practices.

The allegations against Motiur also reflect a broader issue of corruption and misuse of power among government officials. As investigations into Motiur and other high-profile officials continue, it is imperative for regulatory bodies like the BSEC to reinforce ethical standards and ensure accountability.

The implications of Motiur’s actions extend beyond the individual to the systemic level, where the integrity of the capital market is at stake. The regulatory framework must be robust enough to prevent such abuses, and there needs to be a concerted effort to restore trust in the financial system. The case of Motiur Rahman serves as a stark reminder of the potential for corruption within regulatory bodies and the necessity for comprehensive reforms.

In light of these revelations, there is an urgent need for reform within the regulatory and governance structures of Bangladesh’s capital market. The BSEC and other relevant authorities must take decisive action to address the systemic issues highlighted by Motiur’s case. This includes stricter enforcement of existing regulations, greater transparency in the issuance and trading of shares, and enhanced oversight of public officials’ financial activities.

Furthermore, there should be a clear delineation of roles and responsibilities to prevent conflicts of interest. Public officials, especially those in regulatory positions, should be barred from engaging in any financial activities that could compromise their impartiality. Additionally, mechanisms should be put in place to ensure that all transactions and consultancy agreements are conducted transparently and in accordance with the law.

The scandal surrounding Md Motiur Rahman is a watershed moment for Bangladesh’s capital market. It exposes the deep-seated issues of corruption, insider trading, and regulatory failure that undermine the market’s integrity. To restore public confidence and protect general investors, it is crucial for regulatory authorities to conduct thorough investigations, enforce existing regulations, and implement comprehensive reforms.

Motiur Rahman’s admissions and the subsequent investigations reveal a pattern of unethical behavior that cannot be overlooked. The government and regulatory bodies must act swiftly to address these issues and ensure that such abuses of power are not repeated. The case of Motiur Rahman serves as a critical juncture in the ongoing effort to promote transparency, fairness, and accountability in Bangladesh’s financial system.

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