Ponzi Scheme: Bank’s liability

A known German psychoanalyst, Erich Fromm (1900-1980), once wrote, that “greed is a bottomless pit which exhausts the person in an endless effort to satisfy the need without ever reaching satisfaction”.  Intriguingly, though Mr. Fromm passed away many decades ago, this line remained constant and true to this day and, definitely, until eternity.

Greed, indeed, is constant and prevalent.  Though, more often, seen and felt among politicians on their selfish attempt at perpetual hold of power, it is also true among businessmen for a constant grip of their competitive advantage even in very unethical ways.

Undeniably, today, Mr. Fromm’s line is more pronounced as some of our “get-rich-quick” enthusiasts are grieving for the loss of their hard-earned money or are spending sleepless nights staring at the prospect of losing their homes which were used as collateral to obtain money for very high-yielding investments, the Ponzi scheme.

Ponzi Schemes, actually, are not difficult to understand.  Done by Charles Ponzi in the 1920s in the USA, this Italian-born American Citizen started it with the now commonly used three basic steps.  Still true today, firstly, they convince a few investors to trust them with their money for investment purposes with beyond normal but supposedly believable interest.  Secondly, after a specified time, return the invested amount plus the agreed interest or rate of return.  Lastly, emphasizing the historical success, convince paid early investors to tell their friends of the benefits and lure them to reinvest theirs.

To recall, the Aman Futures’ scam in Pagadian had all these key elements.  Firstly, they (scammers) promised 49% interest in 17 days.  Considering that 91-day T-bills right now earns less than 1% in a year, this yield is suspiciously high but temptingly irresistible.  Secondly, they showed good initial track record by paying on time the early investors.  Lastly, they urged initial investors to tell their friends of these benefits and reinvest theirs to earn more.

Like every Ponzi scheme story, the perpetrators (or scammers) suddenly disappear.  Some are caught and imprisoned while others are still free.  Then, the victims do cry for help.  They are blaming regulators for their negligence or inefficiency.  And as the finale has always been, nothing was ever left to recover.

Surprisingly, however, as has always been too, depository banks of the perpetrators were never mentioned or were never part of any investigation.  This is intriguing because with the frequency and materiality of the amounts of money coming in and out, it will never pass any bank officer’s or teller’s senses.  As the modus operandi has been, Aman Futures opened several accounts in one depository bank’s branch.  Each account represents an account identifiable with a certain agent.  This is done purposely as easy reference for the agents’ 10% commission payments.  Since “would be investors” deposit by themselves in the bank to the account specifically instructed by their agents, then, long queues and, consequently, volumes of deposits were noticeably evident for all accounts of Aman Futures everyday.  If the bank officers didn’t bother at all, then, they must have done so for other reasons.

As we all know the BSP is implementing strict guidelines against “dirty money”.  In fact, under Circular No. 706, the BSP ordered all banks to know their clients at all times to “prevent suspicious individuals or entities from opening or maintaining an account or transacting with the [institution]”.  Moreover, banks are also instructed to report any transaction in excess of P500,000 within a banking day to the Anti-Money Laundering Council within ten (10) working days from deposit/withdrawal date.  If done religiously, therefore, scams like the Aman Futures could have been earlier detected and prevented from amassing billions of hard-earned money.

Knowing fully well, however, that banks are competing for deposit generation for liquidity and industry leadership reasons and officers are squeezing themselves into a phalanx of equally determined colleagues for some selfish desires of promotions, the general public’s welfare, meanwhile, is totally abandoned.

For your comments and suggestions, please email to [email protected].