Anita Ramasastry and Thomas C. Baxter, The Importance of Being Honset - Lessons from an Era of Large-Scale Financial Fraud, 41 St. Louis U. L.J. 93 (1996), https://digitalcommons.law.uw.edu/faculty-articles/747
In recent years, we have seen a series of staggering losses sustained by large multinational banking organizations. The Daiwa Bank ("Daiwa"), Barings Bank ("Barings") and the Bank of Credit and Commerce International ("BCCI") are three prominent examples. Each of these institutions suffered losses in excess of $1 billion through unauthorized, fraudulent or unlawful conduct by management. In each of these institutions, there existed a key bank official who broke through what might be considered a billion dollar barrier. At Daiwa Bank's New York Branch, there was Toshihbe Iguchi, its Senior Vice President and bond trader. Barings Bank had Nick Leeson, a futures and commodities trader. In the case of BCCI, we had Agha Hasan Abedi, the President, and his trusted and capable deputy, Swaleh Naqvi.
The actions of these individuals significantly affected the operation of eachof these banks. BCCI was completely shut down and subsequently liquidated. Daiwa was forced to leave the United States. Barings became insolvent, butwas eventually rescued in an acquisition by a Dutch bank holding company,"ING." More recently, a Japanese multinational corporation, the Sumitomo Corporation, announced that a single copper trader, Yasuo Hamanaka, had concealed over $2.6 billion dollars in copper trading losses for a period of tenyears.' The recurrence of these events reveals a significant problem. The recurrence also suggests that it would be a mistake to regard these events as unique situations attributable only to the frailty of the character who caused them to happen.
The magnitude of the losses involved is most striking. It was also unsettling to learn that neither external bank regulators nor internal managers saw the concealment of the losses until they reached such astronomical proportions.In each case, the fraud was aided by the global structure of these banks.
There are many lessons to be learned from these incidents. One major lesson we would like to impart-the importance of being honest. Financial systems, financial markets and financial institutions are based upon trust and confidence. Bank supervisors need to continually assess the sufficiency of their methods. Banks, in turn, need to focus on greater cooperation and compliance with supervisors. Further, the process of supervision will not function effectively if the process is adversarial. Instead, bank supervisors need to be able to rely-for practical reasons-on the veracity of the banks whom they supervise.