We need harsh laws to curb increasing fraud – bankers

Bankers are calling for vigilance and joint efforts to deter white collar crimes in the financial sector. This follows revelation last week that the National Bank of Rwanda lost about Rwf63m to fraudsters early this year.

Bankers are calling for vigilance and joint efforts to deter white collar crimes in the financial sector. This follows revelation last week that the National Bank of Rwanda lost about Rwf63m to fraudsters early this year.

According to central bank officials, the fraudsters manipulated the bank’s internal systems to dip their hands into official accounts at the bank.

But John Rwangombwa, the governor National Bank of Rwanda, assures the public that the bank has learnt its lesson, saying it is currently upgrading its systems “to be able to detect and prevent fraud of this nature in the future”.

Sources at the bank intimated to Business Times that with the new technology, it will not be possible for anyone to wire money from the bank without following certain procedures.

About six months ago, a Kenya Commercial Bank (KCB) Rwanda teller was arrested by Police for stealing $50,000 (about Rwf32m). Also, according to sector watchers, most banks are suffering fraud losses silently. 

Statistics from Rwanda National Police indicate that over 200 fraud cases have been documented in the last two years.

Commercial banks have been alerting customers about the increasing rate of the vice though most are reluctant to admit they have suffered losses due to fraud in the past. 

According to the report “Global profiles of the fraudster; White-collar crime - present and future”, released last week, weak internal controls were responsible for 54 per cent of the 559 bank fraud cases investigated last year. Of these frauds, 51 per cent were committed by top executives.

With fraud cases increasing in the country (according to the “Global profiles of the fraudster; White-collar crime - present and future” survey that was done by KMP), bankers are now calling for strong customer vigilance and strong internal systems in the banking sector.

Maurice Toroitich, the Kenya Commercial Bank Rwanda (KCB Rwanda) managing director, advises the public to avoid being exposed to fraudsters by keeping their bank documents safely and constantly monitoring their deposits.

“While it is true that over relying on the same kind of technology leaves you exposed to fraud as a bank, most fraud is likely to occur when customers do not take pre-cautionary measures when making transactions,” he argues. “The risk of fraud increases when one discloses vital information, including passwords, to friends and relatives; they become susceptible to fraud.” 

Toroitich urges bankers to work together to address the problem jointly before it gets out of hand.

“If one bank is defrauded, it could be a matter of time before another bank falls victim. That’s why working together in designing appropriate measures is critical,” he says.   

James Gatera, the Bank of Kigali boss, notes that though electronic banking platforms ease access to services, they could be a source of fraud if customers don’t take precautionary measures.

“Fraud is a big concern, especially when it comes to electronic banking platforms like Automated Teller Machines (ATMs). The receipts contain valuable information about a client that a fraudster can easily use to steal from them. That’s partly why we are discouraging customers from printing out receipts at ATMs besides environmental conservation promotion.” Gatera says. 

Gatera points out that ensuring verification of customer’s details is one vital way of fighting fraud from the sector.

Rwanda National Police spokesman ACP Damas Gatera, assures the public that the Police unit in charge of financial crimes is on red alert to smoke out anybody involved in such vices. He says the Police are collaborating with regional security agencies to apprehend any culprit who escapes to seek refuge in neighbouring countries.

Experts and bankers urge policy-makers to tighten the law against fraud, saying the current one is still very lenient.

According to Article 310 of the Penal Code (on fraudulent use of payment systems), a person who uses a credit card or any other similar means of payment while insolvent or refuses to reimburse what was improperly obtained, is liable to up to three years in jail and/or a fine of Rwf2m to Rwf5m.

This according to Mark Bunyi, a senior forensic expert at KPMG, is not deterrent enough, “instead enhances the vice”.

John Ndunyu, the KPMG country director, warns that fraud is becoming common in the country. 

“We are seeing increased tendency of fraud by collusion, especially in the banking industry,” Ndunyu said during the launch of firm’s 2013 fraud report in Kigali last week.

Thoithi Muniu, the director of forensic services at PricewaterhouseCoopers, recently warned that most banks were vulnerable to fraud because of the varying loopholes in their information and technology systems. 

Muniu says some banks never conduct fraud risk assessment, giving fraudsters a leeway to fleece them unnoticed. 

Last year, the East Africa Bribery Index reported that cases of bribery, corruption and fraud in the bank are on the increase. The survey ranked local banks sixth most corrupt institutions in the country with aggregate 22.8 of 100 aggregate.

An independent survey conducted by auditing firm, Deloitte in 2012, indicated that banks across the region were losing over $245m (about Rwf166.7b) to fraudsters.

Justin Rurazi, the central bank ICT department director general, urges banks to conduct regular quality assurance checks on their systems, develop strong data management systems and conduct security and systems’ awareness among employees to deter fraud.

“It’s also important to understand what motivates workers to commit fraud to be able to find long-term solutions, especially when the crime is organised internally,” Rurazi said.

Experts argue that workers steal from their employers because they are poorly remunerated. 

“Paying a person in charge of billions of francs a few hundred thousand francs could be counterproductive and demoralising. This could eventually tempt the workers to steal customer deposits,” the experts point out. 

Peter Rwema, the head of research and development at the microfinance association, says bank fraud is becoming a serious issue that need to be handled with an iron hand before it gets out of hand.

Rwema urges industry stakeholders to promote business ethics, trust and integrity in their operations as one of the ways to minimise the vice. “Also, checks and balances need to be embraced so as to detect and prevent fraud,” he says.

 

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