Berhan Bank Decries Fraud over 7.2m Br CPO

Berhan International Bank (BIB) has taken to a court of law two of its clients and three of its own employees, accusing them of complicity allegedly leading to a loss of over seven million Birr.

Its lawyers filed a civil suit at the Federal High Court, on February 12, 2014, against Siman Business Plc and Soney Garment & General Trading Plc for a series of alleged fraud the Bank claims were committed through Certified Payment Orders (CPO).

CPOs are like any cheque issued by those with funds in a bank, but differ because it is the bank on behalf of its depositors who issue them, according to Zemedeneh Negatu, managing partner of Ernst & Young, who is also a certified accountant. Unlike payments in cheques, banks need to deduct the amount stated in the CPO from the client’s account before issuing it, which makes the risk of bouncing is close to none, he said.

Lawyers from the Bank are now fighting to recover from the defendants 7.2 million Br, with 16pc interest on the total amount. They claim this amount is outstanding from the series of payments the Bank made on its clients’ behalf, some of which are not included in the charge, while they had insufficient funds in their respective accounts.

Managers of Siman had ordered a 3.5 million Br CPO on June 29, 2013, from the Bank’s branch at Genet, near Mexico Square, to the benefit of its deputy general manager, Solomon Endale. However, the Company did not have sufficient funds with the Bank, the charge states, although the branch finance officer, Alemayehu Abebe, and its internal auditor, Konjit Sebebsebe, certified the CPO, claims the lawyer.

“Konjit could have reported the fraud to her superiors,” says the charge.

Siman’s deputy general manager subsequently deposited the CPO with the Cooperative Bank of Oromia (CBO), where Siman Plc has a checking account, claims the plaintiff.

The case with Siman is, however, only the tip of the iceberg, according to the statement filed to the Court.

Another company, Soney, a sister company of Siman, is also charged with taking 14.4 million Br from the same branch, with the help of an alleged  falsified CPO, signed by the same branch manager and the finance officer, on June 8, 2013. It was allegedly requested by Yideneqachew Taye, general manager of Soney Garment, the charge states.

This, according to the charge, is despite the Company having only 3.4 million Br in its account at the time of issuing the CPO to the benefit of the Federal Police Commission. The Branch Manager and the Finance Officer are also being sued for allegedly signing a falsified clearance showing that the Company had deposited the stated amount.

The branch’s internal auditor failed to report the alleged fraud, but rather signed on the CPO to certify its validity, says the charge.

“The defendants have done this in violation of the Bank’s policy on CPO payments and knowing that there was insufficient fund in the second defendant’s account,” says the plaintiff. “In allowing 11,036, 455 Br to be paid from the Bank illegitimately, they have caused enormous damage to the interest of the Bank.”

An additional four individuals are included in the legal suit, for providing guarantees on behalf of the two employees for damages caused to the Bank equivalent to around 50,000 Br.

An internal audit report, carried out by the Bank’s auditors, was submitted to the Federal High Court as part of material evidence. There have been a series of payments made in CPOs with a total value of 23.2 million Br, after companies such as Sonay, Siman and Dungo Construction Plc requested them, but without any of them having sufficient deposits to cover the orders, the audit report disclosed.

The latter, Dungo Construction, is associated in the audit report with Alemayehu Ketema, a construction mogul, who had ordered the issuance of CPOs worth 1.17 million Br to Messebo Building Materials Manufacturing Plc, although he had just 20,000 Br in his account with the Bank, the report alleges. However, neither Dungo Construction nor Alemayehu were included in the civil suit, for they have settled the case after the Bank notified them, Alemayehu told Fortune.

The Bank still claims a 16pc interest on the CPO issued on Dungo’s behalf, Bank managers disclosed to Fortune.

The internal audit report submitted to the Court alleges that the manager of its Genet Branch, Tewodros Agulalie, and the Finance manager have entered into complicity with clients such as Yideneqachew, Solomon and Alemayehu in breaching the Bank’s polices and damaged its interests.

Berhan claims that the withdrawals of these funds, through what its lawyers claim were falsified CPOs, caused it to fall short of the required deposited funds, forcing it to pay an extra 10pc interest on time-deposit from customers from the time of the withdrawal until it filed the charges. The Bank also claimed it could have earned as much as 16pc interest had it paid the withdrawn money to customers in the form of loans.

“Not only has the Bank lost its deposits upon which its pays interests to depositors, these individuals have been using the funds for free in an unlawful manner,” accuses the audit report.

Berhan asked the Court to order Siman to pay 145,753 Br, which it says it paid as interest for its customers because of the shortage caused by Siman’s withdrawal. It also appealed to the Court to order Siman to pay an additional settlement of 233,205 Br, considering that it could have earned as much as 16pc in interest. The defendant also appealed to the Court to rule that Soney should pay the unpaid six million Birr from the 11 million Br its managers have allegedly withdrawn from its branch.

In addition, Berhan Bank wants to see the Court order the two companies and its three employees to pay 348,464 Br, which it says it paid to its clients as interest after the withdrawals. The Bank finally requested that the Court order those who previously signed guarantees for the branch manager and the finance officer to pay 50,000 Br each to help it recover its alleged losses.

The Court’s civil bench is set to start seeing the case on April 3, 2014.

Nonetheless, the management of the Bank has decided to recover losses, it claims, through the civil court, despite the internal audit report urging it to report to the police for a criminal probe. The Bank has declined to explain to Fortune the basis of its decision, despite repeated efforts to solicit the views of its senior managers.


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