Fraud and Money Laundering at the Bank of Baroda: Case Study

Executive Summary

The case analysis involves fraud and money laundering at the Bank of Baroda, one of India’s leading commercial institutions. The report “Fraud at Bank of Baroda: Manage Risk or Manage Crisis” details the risk management crisis that affected the organization. The study covers the introduction and overview of the case study, assumptions and methods, business impacts, descriptions of sensitivity, risks, successes, failures, contingencies, and strategies, and a conclusion and recommendations. The analysis reveals indicators of fraudulent activities that the management and bank officials ignored and the impact of risks that the bank faced as a result. Besides, the inquiry will suggest some of the factors that led to the crisis to recommend corrective actions. 

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Introduction and Overview of the Situation

Bank of Baroda (BoB) started operating in 1908 and has grown to achieve a global presence in 25 nations with 5,250 branches and around 49,378 employees (Dhamija, 2016). The company initially opened in Gujarat, India, but has now become “India’s International Bank” (Dhamija, 2016). The financial institution had performed profitably but recently attracted media attention due to fraudulent reports. The bank is reported to have suffered a ₹3.5 billion bill discounting fraud and a ₹60 billion money-laundering scam (Dhamija, 2016). The two cases have occurred in Ahmedabad and New Delhi, respectively. The firm experienced irregularities in bill discounting transactions. Further investigations disclosed fraudulent activities in New Delhi’s branch (Dhamija, 2016). The Central Bureau of Investigation (CBI) has collected evidence from the affected branches and apprehended some involved parties connected with the fraud. The event has affected the bank’s financial performance, including a decline in stock by more than 3% and degradation to a “neutral” performer (Dhamija, 2016). The challenge reveals issues in the company’s risk management system and the need for remedies to correct the problem.

Assumptions and Methods

The bank’s board of directors should establish effective risk management to prevent fraudulent and other illegal and unethical activities that affect the bank’s performance. Executives should create a risk management system and determine the allowed risk level by implementing policies and procedures that guide operations. They should also have adequate auditing and monitoring guidelines to achieve accountability in financial activities. Fraud and money laundering reveal limitations in the risk management system. It shows that internal control systems were ineffective, allowing bank officials to ignore the measures necessary to identify and prevent negative activities. The institution failed to follow the Reserve Bank of India’s guidelines that cover customer identification procedures, customer acceptance policy, and transaction surveillance (Dhamija, 2016). Consequently, the gaps created room for money laundering through bill discounting transactions without discovering and remedying the risk. The case analysis reveals that the executives failed to protect the interests of the company’s stakeholders, including investors and customers, due to gaps in risk management.

Business Impacts

The bank should have an effective risk management system to prevent fraud and other illegal and unethical activities. The reported activities affected accountability and created a negative image of the financial institution. The irregularities revealed that the leadership had failed to protect its stakeholders from financial losses, while the institution lacked effective implementation of risk management structures. The media reported the problem, which means that many of the bank’s stakeholders, including investors and customers, became aware of the issue. Besides the negative impact on the company’s reputation, the organization experienced financial challenges due to fraud and other irregularities. For example, it encountered a decline in profitability and a growth in non-performing assets. The crisis led to the FDIC’s downgrading of the company from “outperformer” to “neutral.” In addition, the irregularities might further cause sanctions from regulators. The impact crisis might affect the company in the short and long term due to negative publicity and declining performance.

Descriptions of Sensitivity, Risks, Successes, Failures, Contingencies, and Strategies

The BoB has a structured risk management system to ensure an acceptable level and an audit committee that investigates and reports financial irregularities. However, evidence of financial fraud and money laundering revealed that the systems were not working as effectively as they should. The bank appears to have developed a risk culture that made it hard to recognize and prevent irregularities and fraud. The officials in the affected branches ignored risk management policies and procedures, which led to the financial scandal. They should have followed the measures in place to prevent illegal financial transactions (Stulz, 2015). Internal audits should have identified and reported activities, such as irregular bill discounting transactions and failure to report all the payments (Dhamija, 2016). However, they failed to follow regular transaction and account monitoring. The inadequacy allowed illegal moves, such as creating and paying fraudulent accounts.

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Conclusions and Recommendations

The BoB has suffered a negative impact because of irregularities and fraud that have affected some of its major branches in India. Consequently, the management should address the issues to enhance performance. The CEO should implement solid measures to deal with the crisis and restore confidence among the affected stakeholders, such as investors and depositors (Stulz, 2015). The bank has risk management policies and procedures but lacks an effective implementation process. Therefore, the executives should create and instill a corporate culture that supports their principles to ensure that all bank officials understand and apply them in their work. The initiative should include punitive measures as a remedy against failure to follow the risk management policies and procedures. Such an environment will ensure timely identification and reporting of any fraudulent or irregular financial activity.



Dhamija, S. (2016). Fraud at Bank of Baroda: Manage risk or manage crisis. Ivey Publishing

Stulz, R. M. (2015). Risk-taking and risk management by banks. Journal of Applied Corporate Finance27(1), 8-18.

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