Will Corruption Ever Be Curbed in the Banking Industry?
| Published date | 01 February 1998 |
| DOI | https://doi.org/10.1108/eb025847 |
| Pages | 358-364 |
| Date | 01 February 1998 |
| Author | Yik Koon Teh |
| Subject Matter | Accounting & finance |
Journal of Financial Crime — Vol. 5 No. 4 — Analysis
Will Corruption Ever Be Curbed in the Banking
Industry?
Yik Koon Teh
INTRODUCTION
What do people mean by corruption? Corruption
was defined by Brooks in 1910 as 'the international
misperformance or neglect of
a
recognised duty, or
the unwarranted exercise of power, with the
motive of gaining some advantage more or less
directly personal'.1
In 1936, Garrigues said that, 'Graft in the broad-
est sense is merely any act which constitutes the
avoidance by a public official of the terms of his
contract of employment with the public and the
substitution of his own interest in place of the
public interest as the controlling factor over his
conduct'.2
Nye derived a more detailed definition of cor-
ruption which is considered as classic by some
writers. He saw corruption as '... behaviour which
deviates from the formal duties of a public role
because of private-regarding (personal, close
family, private clique) pecuniary or status gains; or
violates rules against the exercise of certain types of
private-regarding influence'.3 Nye saw corruption
in terms of personal influence.
In his book 'The Sociology of Corruption',
Alatas defined corruption as the subordination of
public interests to private aims involving a viola-
tion of the norms of duty and welfare, accom-
panied by secrecy, betrayal, deception and a callous
disregard for any consequences suffered by the
public.4 Thus, corruption was viewed as the abuse
of trust in the interest of private gain.
With the definitions of corruption given above,
corruption in banking can be viewed as doing ille-
gal business at the expense of public interest for
the private gains of the bank. There are two types
of illegal business that banks can deal with:
— taking in deposits from clients running shady
businesses; and
— giving loans to clients with less than desirable
backgrounds.
BANK DEPOSITS
'Taking in deposits from clients indulging in shady
business' is a definition which immediately brings
to mind money laundering, a topic that has been
much discussed in the previous symposiums at
Cambridge. The term money laundering was first
introduced in the 1920s and 1930s by the US law
enforcement agency to describe the practice by the
Mafia of using laundromats for the purpose of
mixing their illegally obtained money with that
legally earned, thus providing the illegal proceeds
with apparent legitimacy.5 It has also been des-
cribed by the Malaysian Association of the Institute
of Chartered Secretaries and Administrators as an
offence to transfer property knowing it is derived
from a criminal activity, concealing the origin of
such property, assisting others in respect of trans-
ferring or concealing that property, acquiring and
using such illegal property. It is also an offence
aiding and abetting any person or group of people
involved in such activities. Thus, money launder-
ing is essentially '... the process by which one
conceals the existence, illegal source or illegal
application of income and then disguises that
income to make it appear legitimate'.6 The Euro-
pean Community Money Laundering Directive
defined money laundering to encompass 'any
intentional conversion, transfer, concealment, pos-
session or aiding any such action — of the pro-
ceeds of "criminal activity", whilst knowing that
such proceeds are criminally derived'.7
Generally, the process of money laundering
involves three stages:8
— placement: disguising the source of illegal or
dirty funds, for example placing in banks or
purchasing of goods and services;
—
layering
or the cleaning
process:
the launderer will
engage in a complex series of transactions
designed to further separate the proceeds from
the original source of the funds, usually using
international wire transfers to and from bank
Page 358
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