On the morning of August 11, as Bangladesh navigated the uncertain terrain of a country that had just witnessed a mass uprising to overthrow a regime that had ruled for 15 years, a deadly shootout occurred outside the head offices of the Islami Bank in Motijheel, the financial district in the heart of the capital.

Once the country's leading bank, in recent years there has been a noticeable increase in Islami Bank's abnormal loan disbursements. Reports often surfaced about large loans being granted to a specific business group in violation of regulations. In fact, in 2024, Bangladesh's largest commercial bank faced a liquidity crisis and had to seek assistance from the Bangladesh Bank.

After the fall of the government in the face of the student-led mass movement on August 5, agitated bankers at Islami Bank had thrown out officials appointed by the S Alam Group, which had completed a covert and hostile takeover of Islami Bank with government patronage in 2017. The S Alam-appointed officials were expelled from the bank.

Several officials said that they had started a protest in front of the Islami Bank tower at 10:15am on August 11, against massive loan fraud and overall deterioration in the bank's activities under the S Alam Group's ownership. At this point, a group of S Alam-appointed officials attempted to enter the offices with about a hundred armed men.

Asked about the situation, Islami Bank SVP Dr Shawkat Ali said: "We had heard that officials appointed by S Alam would try to occupy the bank, which led to the protesting bankers standing outside its doors on Sunday morning."

The S Alam Group's officials and outsiders then attacked the group outside the city centre area, he said.

"Six of our brothers were shot," Shawkat said. "Two of them are in critical condition."

The incident served to underline the mafia-like way of doing business favoured by the coterie that had grown powerful and prosperous under the previous regime. The Chittagong-based S Alam Group took controlling stakes in six banks during the tenure of the Awami League, an unthinkable development that successive finance ministers and central bank governors under AL turned a blind eye to. The Daily Star has documented that S Alam Group-linked companies took out an eye-watering Tk 95,331 crore between 2017 and June 2024 from the six banks - over Tk 75,000 crore from Islami Bank alone. And it is likely to be more.

As these revelations came to light, Bangladesh Bank first imposed lending limits and stopped the LC operations of these six banks. This week, Governor Ahsan Mansur said the central bank will reconstitute the boards of all six banks (Islami Bank Bangladesh, Social Islami Bank, First Security Islami Bank, Union Bank, Global Islami Bank, and Bangladesh Commerce Bank) under the control of S Alam Group within a week. It didn't waste any time, completing the overhaul at four of these banks within a day.

Braced for the challenge

The interim government led by Dr Muhammad Yunus is faced with perhaps its most Herculean task in cleaning up the country's financial sector, as it hopes to focus on recovering assets embezzled abroad by corrupt individuals. Officials have confirmed that these assets are being targeted for repatriation as part of a broader initiative to bring the financial sector up to international standards.

The government emphasised its commitment to reforming the financial sector, acknowledging that the process is complex and time-consuming. A key element of this strategy will be the establishment of a banking commission tasked with investigating each implicated bank, uncovering the full extent of the corruption, and developing an action plan, according to the Chief Adviser's press wing. This plan, which can be implemented within six months, aims to overhaul the sector to ensure compliance with global banking norms.

Newly appointed Bangladesh Bank Governor Dr. Ahsan H. Mansur issued a stern warning to money launderers, declaring that those involved in illicit financial activities will be held accountable and will not be allowed to "sleep peacefully."

Speaking at a press conference at the central bank on his first day in office, Dr. Mansur pledged a relentless pursuit of those who have illegally moved money out of the country. "We will create such a situation that those who have taken the money will suffer. I will make sure that they cannot sleep with a pillow on their bed of money," he vowed.

Dr. Mansur emphasised that the fight against money laundering will not be limited to the efforts of the government or Bangladesh Bank alone. He stressed the importance of international collaboration in bringing perpetrators to justice. "International law is helpful; it must be explored," he said.

The aim of Bangladesh Bank and the government is to be capable of complying with all international standards and building a strong financial sector. However, international technical assistance and funding will be required from the beginning to the end of the activities to achieve this objective.

The reform initiative in the financial sector comes in response to revelations that unscrupulous businessmen and influential figures have embezzled vast sums from the banking sector, laundering the funds abroad through fraudulent activities. Preliminary estimates suggest the total embezzled amount could exceed Tk 1 lakh crore, and that is most likely a conservative estimate since the exact figure is still being determined.

Significant steps have already been taken, with reforms initiated in several banks already. The boards of Islami Bank, Social Islami Bank, National Bank, United Commercial Bank, Global Islami Bank, and Union Bank have been reconstituted as part of the restructuring efforts. Similar measures will be implemented across other affected banks and financial institutions.

The government has also sought assistance from foreign agencies to track and repatriate the laundered funds. As the new management teams take control, they will be responsible for gathering accurate data on the embezzled amounts and leading the recovery efforts.

Dr. Debapriya Bhattacharya, head of the committee tasked with preparing a white paper on the state of Bangladesh's economy, said on Thursday (Aug. 29) that the committee's role is to analyse the causes and extent of corruption, not to identify or "catch" the corrupt.

"This committee will explain why corruption occurs and assess its severity," said Dr. Debapriya. "However, it is not our responsibility to identify who is involved in corruption. That task falls under the jurisdiction of the government and its relevant agencies."

Dr. Debapriya made these remarks while speaking to reporters following the committee's first meeting at the General Economics Division (GED) office in Sher-e-Bangla Nagar.

He emphasised that the committee's purpose is to promote transparency in the economic landscape of the country. "Through this exercise, the current government will better understand what they have inherited to govern the country," he added.

During the inaugural meeting, the committee members discussed several key topics, including the context and purpose of the initiative, the scope and methodology of their work, the tentative structure of the final report, outreach and communication strategies, division of tasks among team members, and other related matters.

Dr. Debapriya also underscored that the committee is not responsible for implementing any reform measures. "We are not here to carry out reform activities," he said.

He further clarified that the committee will not conduct a comprehensive evaluation of the banking sector and financial institutions. "The government is planning to form a Banking Commission, which will be established in the future to address those issues," Dr. Debapriya noted.

Dr Debapriya, Distinguished Fellow at Centre for Policy Dialogue (CPD) and Convener of the Citizen's Platform for SDGs, Bangladesh, also said that the issue of bringing back siphoned money is a complex issue.

He noted that the forthcoming report from the White Paper Committee on the state of Bangladesh's economy would offer potential reform pathways for the government, helping to correct economic deviations that have occurred over the years.

"The White Paper Committee will provide guidance to the interim government on various reforms and will inform the government's reform programs," said the noted economist.

He added that the report would identify the challenges and barriers facing the economy, potentially helping to shape future government actions.

Dr. Debapriya further said that the report would offer a roadmap to prevent the recurrence of economic missteps and loopholes that have developed over time. The committee will analyse available data, and if conventional data sources are lacking, it will consider alternative data to understand the foundation of the economy.

He emphasised the importance of evaluating past policies, rules, and regulations in the context of both current and future needs, stating, "We don't want to see a recurrence of previous mistakes and incidents...what should be the ideal safeguard?"

Dr. Debapriya underscored the importance of accountability, saying, "It's more important that the perpetrators get punished...I think they are in jail now as part of it." He noted that the current government is aware of these concerns and sees no need to reiterate them.

The committee's head mentioned that the report would provide insights into the foundation and structure of the 9th Five Year Plan, steps toward achieving the SDGs, and ensuring a smooth and sustainable graduation from LDC status.

He outlined a three-pronged approach for their operations: evaluation through criticism, utilising think tanks and foreign firms, and holding discussions with stakeholders, including students and business leaders.

When asked about publishing an interim report, Dr. Debapriya said that instead of waiting for the full 90 days allocated to the committee, they would aim to release draft reports on specific segments of the economy and seek feedback from various stakeholders to refine them.

In response to another question, he clarified that the committee would not conduct an ADP portfolio analysis or project-wise evaluation but would provide recommendations to improve ADP utilisation, particularly focusing on mega projects.

Regarding the scope of their review, the economist said they would go back as far as necessary to understand the root causes of the current economic situation. "This committee is not for a full-fledged evaluation of the previous government's actions; rather, it will assist the interim government in moving forward and avoiding past mistakes," he added.

On the issue of repealing the provision for whitening black money, Dr. Debapriya said that concerns have been raised about the country's low tax-to-GDP ratio, prompting a discussion on internal resource mobilisation. He acknowledged that the practice of whitening black money could be addressed, as many consider it counterproductive.

Commenting on the alleged corruption involving billions of dollars in the financial and banking sectors, Dr. Debapriya emphasised the need to protect the rights of citizens and depositors while advocating for stricter criteria in granting licences to institutions.

He also highlighted the issue of public expenditure as part of the economic challenges, saying, "We're now analysing the status of the economy, not the trend over the years...sectors like education and health did not receive the desired allocations due to these deviations."

Take off initiated

Apart from the banks that were once controlled by the S Alam Group, Bangladesh Bank has also dissolved the Exim Bank's board and formed it anew with five members. As per a circular issued on Thursday (Aug. 29), the central bank has removed the Exim Bank chairman Md Nazrul Islam Mazumder and his wife Nasreen Islam from the board. Additionally, S Alam's cousin, former land minister Saifuzzaman Chowdhury's family, has been removed from the board of United Commercial Bank.

Meanwhile, the Chief Adviser's Office (CAO) has said work is underway to assess the amount of money laundered abroad or swindled by some corrupt businessmen and influential people in the country.

"Audit works will begin to determine the money swindled by the corrupt people (but) it can be assumed that the amount could be over Tk1 lakh crore," the CAO said in a statement this week. It said initiatives were underway already to bring reforms in the banks and financial institutions involved in such corruption and money laundering, pointing to Bangladesh Bank's work to reconstitute the boards of corrupt banks.

"Reforms in other banks and financial institutions will start as well. The actual information of the money laundered will be collected through new managements and audit works will begin to determine the money swindled by the corrupt people," the statement read.

It said the new management of the banks started works to seize the local swindlers' assets and bring the laundered money back home with support from the Bangladesh Bank's Financial Intelligence Unit (BFIU), police's Criminal Investigation Department (CID) and the Anti-Corruption Commission (ACC).

"The authorities concerned have already sought cooperation from foreign organisations in returning the laundered money to the country," the statement added.

Governor Mansur, a former senior IMF official with experience in various countries, said the promised banking commission will be formed within a month and will include foreign experts, adding, "We will also see how Sri Lanka did it."

Asked about the role played by two of his predecessors in allowing the banking sector to fall into such disarray, Mansur said, "There was a lack of good governance here. While it's not to say it won't happen in the future, it won't be under my watch. The central bank also needs reform, as it too cannot escape responsibility."

Addressing depositors, Mansur said, "Please be patient and avoid withdrawing all your money at once. Many made deposits in these banks for higher interest rates, so don't be impatient now."

"We want to ensure no deposit money is lost. We will not print money to refund deposits, as it would lead to severe inflation. Withdraw only what is necessary. The situation should improve in six months," he added, urging patience on the part of his fellow citizens.

The governor also said no depositor has lost money in Bangladesh so far. Restoring good governance in banks is crucial for depositor confidence, and initiatives are underway to achieve this. It is the job of every citizen to not get in the way.