Bank Negara is probing what is said to be a "massive million-ringgit fraud" over a period of time at the Kuching and Kota Kinabalu branches of a leading Malaysian bank that also has a sizeable regional presence.

NONE It is alleged that lax procedures at the bank allowed errant staff at its regional headquarters in the Sabah and Sarawak capitals to make off with at least RM10 million in depositors' funds.

It is feared that this might just be the tip of the iceberg at this particular bank.

So far, there has been no report of a similar fraud at other banks. But this possibility has not been ruled out, given the relatively easy manner in which the scam was carried out.

"The bank concerned claims that the matter is between its errant staff and their victims and has so far refused to accept responsibility," said Kuching MP Chong Chieng Jen, who has been approached for help by some of the victims.

Chong said the fraud was perpetrated by the errant bank's staff during business hours and within its premises, using its facilities and documentation.

He urged the bank concerned to make good the losses suffered by the fraud victims pending the investigation by Bank Negara Malaysia.

Any delay would be an embarrassment to the bank itself, he added, and involve the loss of goodwill and the confidence of the general public in the institution, "since word gets around very quickly".

Bank Negara gets details of fraud

Chong has since written two letters to Bank Negara on behalf of the victims who had met him. He provided Malaysiakini with copies of the letters.

His first letter to the central bank, dated May 28, 2010, shows how the alleged fraud was pulled off.

upm student memo to mp 051207 chong chieng jen The first victim who approached Chong, one Rengeht Singh, was willing to be publicly named.

The complaint is that on the advice of the errant bank officer, Rengeht handed over RM370,000 for investment in OSK Investment Bank Bhd.

There is no record of the investment in Rengeht's name and the errant bank (not OSK) denies responsibility in the matter.

Chong ( left ) has since established that Rengeht withdrew RM300,000 from his account with the bank on Feb 2, 2008, upon the advice and with the assistance of its named officer.

Two Remittance Application Forms were filled in at the bank by Rengeht and issued to him.

On June 6 last year, Rengeht dropped by the bank to inquire on his investment. The errant officer printed out a Wealth Advisor Asset Management Form of the bank, showing an investment of RM300,000 in OSK Investment Bank Bhd and dividend to date of RM27,750.

Impressed, Rengeht withdrew a further RM70,000 from the same bank upon the advice of the same officer for investment in the same financial firm. He went through the same documentation procedures as before, except this time he was asked to fill in only one form.

Chong enclosed copies of the Remittance Forms and the Wealth Advisor Asset Management issued to Rengeht for Bank Negara's perusal.

Also enclosed was a copy of the errant bank's letter to Rengeht, dated May 17, 2010, from its headquarters in Kuala Lumpur, denying any liability in the matter and pointing out that the suspect was no longer in its employ by June 6 last year. The letter only mentioned the RM70,000 investment.

The Kuching MP pointed out that CCTV records from the bank show that as at June 18, 2009, the suspect officer was still working with it that particular day, one month after it had disclaimed liability.

Bank's limited sense of responsibility

"It is impossible for the errant bank to disclaim responsibility for the act of its officer," wrote Chong.

"Just because the officer in question is now no longer working with the bank, it does not exonerate the bank of its liability for the wrongful act of its officer done during his employment."

He also alleged that it was totally irresponsible and unacceptable of the bank to deny liability for a wrong done by its officer while dealing with investment of a customer's money. It's obvious that the officer (concerned) abused his position as an officer of the bank to cheat Rengeht, he added. "The bank ought to be held responsible."

Chong urged Bank Negara assistant governor Muhammad Ibrahim "to take action against the bank and compel it to refund the RM370,000 to Rengeht and pay the dividends promised to him".

He wrote a second letter dated June 3, 2010, to Bank Negara providing copies of documents from other alleged victims of the bank.

All these victims, who were only willing to give their surnames, received the same May 17, 2010, letter as Rengeht, in which the bank denied any liability for their claims.

One victim, a Mr Lee, reportedly went through the same process as Rengeht for investment in OSK Investment Bank Bhd.

The others, according to the documentary evidence, took out bank drafts in favour of the errant bank for investment in either its own fund, in OSK Investment Bank Bhd or OSK Options and Futures Bhd.

It was reliably learnt from inside sources that the errant officer did make the investments in the various funds but in his own name and not in that of the customer who had forked out the money.

This "loophole" subsequently allowed the culprit to cash out all investments when his scam was apparently on the verge of being discovered by Rengeht.

The officer, a local Hindu Indian with a Muslim-sounding alias, was last reported to be in Indonesia, according to checks the bank reportedly conducted with the Kuching Immigration Department.

Bank Negara assistant governor Muhammad could not be contacted for comment.

It is reliably learnt that Rengeht had previously visited the errant bank's headquarters in Kuala Lumpur and Bank Negara headquarters in the federal capital, but got no help.

Subsequently, officers from Bank Negara visited him in Kuching in February this year to interview him on his allegations. When there was no further development, he approached Chong for help.

Details of the fraud at the bank's Kota Kinabalu headquarters were not immediately available.

However, inside sources in KK confirmed that the Sarawakian manager (who was named) and a senior local officer (also named) have been suspended pending an internal inquiry. It is believed that both have sought legal help to prevent their possible dismissal from service.

Meanwhile, the staff member who perpetrated the fraud at the KK bank has reportedly fled the country with at least RM5 million in funds belonging to the bank's customers.

He is said to be a local Chinese, with a Christian name, whose modus operandi was similar to that of his errant colleague in Kuching, involving the same investment bank, OSK Investment Bank Bhd.

It was also learnt from sources at the errant bank in Kuching that the Sarawak suspect had previously visited the KK branch, but it is not known for what reason.

It could not be confirmed whether both the KK and Kuching suspects knew of each other's scam or were working hand-in-glove with each other. It is not known whether they had other accomplices at their respective branches or branches of the bank elsewhere in the country.