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Bandit bankers and brokers

These criminals exploit the trust and friendship that exist within a confined community.



The recent headlines in some of the business pages reporting of multimillion thievery by a branch manager of one of the third-tier commercial banks strategically located within an upscale suburban neighborhood is a perfect example of the kind of affinity fraud perpetrated by criminal scammers.

The commercial bank at the center of the recent controversy has assured that the amount involved as reported is not large enough to impair its capital. Other reports have it that the missing funds had not yet entered the bank’s balance sheet either as cash on the asset column or as even as deposits on the opposite. That implies that there might be little or no impact on the bank’s ability to service withdrawals. Those statements are designed to reassure the bank’s existing depositors and shareholders. They are also meant to prevent a “bank run.”

The foregoing is an accountant’s default explanation. And while it may indeed be accurate from a bookkeeping perspective, it does little to explain the anomalous and costly deterioration in the affinity relationship between a bank client and his banker.

In the industry “private banking” has become a common shibboleth. More than a motto, bankers have gone out of their way to operationalize it by separating banking operations from its marketing side. The former is where a branch would have an operations officer running the bank. For the latter, a branch manager focuses on bringing in deposits and establishing closer affinities under the “private banking” paradigm.

While affinity fraud is more commonly exercised by rogue stockbrokers, Ponzi or pyramid fraudsters and capital market scammers employing dubious “too-good-to-be-true” (TGTBT) schemes involving equity instruments or exotic products that range from precious metals to cryptocurrencies and Bitcoin, the underlying modus of their fraud is adaptable to commercial banking in a highly competitive climate.

The term “affinity” does not refer to the product or vehicle that is typically the subject of the scam. It refers to the relationship between a criminal scammer and his victims. In banking, affinity fraudsters target members of identifiable groups such as elderly clients, ethnic enclaves, nearby businesses, parishioners and neighborhood residents by posing as a member of such community, there establishing intimacies beyond the passive and coldly commercial.

These criminals exploit the trust and friendship that exist within a confined community. Typically, when a scandal is exposed, the scammer and the victim try to work things out rather than inform authorities or seek legal redress. Note the absence of charges filed in our example. Hence the term “private” or “personal” banking easily slips into the modus operandi and protects against larger scandals.

One of the most common here and in the United States is when a banker, on the pretext of private banking, seeks out the elderly, makes it a point to visit them in their homes and offers non-banking services, such as the third-party purchase of medicines, groceries and food in return for the victim’s signature on blank withdrawal slips. It is the equivalent of surrendering investments to a stock market scammer promising TGTBT returns.

Typical of most stockbroker scams, the recent bank scandal indicated that the branch manager and client had nurtured a special fiduciary relationship for some time. Unfortunately, one was a remorseless criminal psychopath.