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Monday, June 13, 2016

The Great Bangladesh Central Bank Heist of 2016: So Whose Heads Have Rolled in RCBC?

Last March 22, 2016, in a post entitled "The Great Bangladesh Central Bank Heist of 2016: Whose Heads Should Roll in RCBC?", we speculated on who in RCBC might not survive the aftermath of the largest banking scandal to ever hit the country.

We came up with a hit list of names and why they could or should be on that list based on publicly available information available in news reports, SEC disclosures, downloadable annual reports, as well as corporate websites.

We examined RCBC's organizational chart to come up with a list of possible multiple points of failure in RCBC's compliance system (and given a banking scandal of this magnitude, there were many points of failure).  So, we came up with this list:

  • Branch Level 

  • Retail Banking Group 

  • BASE60 

  • Compliance Office 

  • Internal Audit 

  • Legal and Regulatory Affairs 

  • President & CEO 

  • Audit Committee

  • Based on this list, we then came up with this list of names:

    • Raul Victor B. Tan, EVP, former Head of Retail Banking Group
    • Ma. Fe P. Salamatin, FVP, current Compliance Officer and Head of its Regulatory Affairs Division
    • Ruth Mendez Aninon, FVP, current Head, Compliance Testing & Monitoring Department, Compliance Office, Regulatory Affairs Division
    • Ana Luisa S. Lim, FVP, current Head of Internal Audit Group
    • Maria Celia H. Fernandez-Estavillo, EVP and Corporate Secretary, Head of the Legal and Regulatory Affairs Group
    • Lorenzo Tan, President & CEO
    • Armando M. Medina, Chairman, Audit Committee
    • Medel T. Nera, Member, Audit Committee
    • Francisco C. Eizmendi, Jr., Member, Audit Committee

    Since then, there has been a rash of departures from the bank, which may or may not be related to the scandal.

    One of the first to go, aside from the top officers of RCBC Jupiter Branch, was Raul Victor B. Tan, Treasurer and EVP and former Head of the Retail Banking Group who resigned from the bank, effective April 20, 2016, for personal reasons.  According to the SEC disclosure, RCBC's internal investigation had "previously cleared Mr. Raul Tan of any participation in or breach of banking policies with respect to the $81M money laundering issue."

    Next was RCBC President & CEO Lorenzo Tan, who only promised to and did go on leave, resigned, probably not as an admission of guilt or an act of contrition but as an expression of honor, of putting his institution ahead of himself." According to the bank,

    "an internal investigation into the alleged USD 81 million money laundering had cleared Mr. Tan of any breach of bank rules and policies. He resigned to give the Board a free hand in directing the course of the Bank’s future.”
    Mr. Tan's resignation was effective on May 6, 2016. His replacement was announced by the bank a mere ten days later. Current DBP President Gil Buenaventura will step into Lorenzo Tan's role on July 1, 2016.

    On May 16, Jennie F. Lansang, the bank's Senior Vice President, resigned.  Her's profile shows that she now serves as the Chief Information Officer of a rival bank, Philippine Bank of Communications (PBCOM).  Her Linkedin profile shows that she served as the Chief Technology Officer (CTO) & Concurrent Head for Shared Technology Services for RCBC from January 2013 to May 2016. It is unclear what Ms. Lansang's role was in the selection and implementation of RCBC's Base60 AML Monitoring System, which was launched during her tenure as RCBC's CTO and which was supposed to generate timely Anti-Money Laundering reports for RCBC's board and senior management.

    Will there be more changes to come? Absolutely, especially as incoming President Gil Buenaventura finds his footing in the bank, and brings in his own team, or sidelines many of the Lorenzo Tan-installed executives and officers of the bank. We hope that President Buenaventura revamps RCBC's supposed "culture of compliance" which failed the bank so miserably.

    We hope that the board's Audit Committee, which we highlighted as another point of failure in the bank, becomes more diligent in its oversight of the bank's compliance with the many legal and regulatory requirements the bank is burdened with.  Specifically, we hope that Audit Committee member Francisco C. Eizmendi improves his appalling Audit Committee attendance record:

    • 2015: 9 out of 15 Audit Committee Meetings (60.00%)
    • 2014: 8 out of 13 Audit Committee Meetings (61.54%)
    • 2013: 8 out of 15 Audit Committee Meetings (53.33%)
    Given Mr. Eizmendi's advanced age (80), perhaps he should retire if he cannot meet the physical demands of attending Audit Committee Meetings on a more consistent basis.  Mr. Eizmendi has been more diligent in attending general board meetings:
    • 2015: 9 out of 17 general board meetings (82.35%)
    • 2014: 15 out of 16 general board meetings (93.75%)
    • 2013: 19 out of 20 general board meetings (95.00%)
    Board members are generally busy people. As such, many of the committee meetings are often scheduled on the same day as the general board meeting, most likely for the convenience of the board members.  Assuming this is the practice in RCBC, then there is no reason for Mr. Eizmendi's poor Audit Committee attendance record.  The fact that Mr. Eizmendi's record has been poor for three years running indicates that he may only give lip service to the oversight functions of the Audit Committee at a time when the full attention of all Audit Committee members is sorely needed.

    The "tone" of the bank starts at the top, not just at CEO level, but also at board level.  If this does not change, we fully expect the bank to continue as is, emphasizing economic efficiency over compliance until the next scandal erupts, possibly bringing down the bank with it for good.

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