Bangladesh Bank is awaiting legal approval to take action against Nagad

Bangladesh Bank is awaiting the interim government to implement the Payment and Settlement System Act, 2024, which will enable the central bank to take legal action against mobile financial service provider Nagad Ltd over alleged operational irregularities. Nagad, which entered the market in 2019, initially positioned itself as a financial arm of the Bangladesh Post Office. It continues to operate under a temporary license issued by Bangladesh Bank. Following the formation of the interim government, Bangladesh Bank appointed an administrator for Nagad in August due to concerns over operational and financial misconduct. This action was taken under Section 31 of the Payment and Settlement System Act, which was passed in July. However, Section 1, Subsection 3 of the act specifies that it will come into effect once a gazette notification is issued, which has yet to occur. A central bank official directly involved in the process stated that the concerned division will soon issue the gazette with the effective date. Without this gazette, questions about the legality of the administrator’s appointment may arise. While legal steps could be pursued under the Payment and Settlement System Regulation, 2008, and the Bangladesh Mobile Financial Services (MFS) Regulation, 2022, the new act provides more clarity for enforcing legal action. In response to the administrator’s appointment, a Nagad director filed a writ petition with the High Court on September 10, challenging the appointment's compliance with the act. Last week, the High Court imposed a two-week status quo on all Nagad activities, preventing the administrator and management from taking any actions beyond regular business operations. Alleged Irregularities at Nagad: The administrator’s investigation revealed several irregularities, including a Tk 600 crore deficit caused by the creation of non-existent e-money, a significant financial crime. Additionally, unauthorized withdrawals totaling Tk 1,711 crore were made over the years through 41 distribution accounts intended for government allowances. The administrator has recommended legal action against the Nagad officials involved in these irregularities. Since the administrator’s appointment, Nagad CEO Tanvir A Mishuk and several senior officials have not been reporting to the office. BB Forensic Audit: Bangladesh Bank is preparing to appoint auditors for a forensic audit of Nagad’s previous operations, along with the regular audit for the fiscal year 2023-24. A forensic audit investigates and analyzes a firm’s financial records to uncover evidence that may be used in legal proceedings. Last month, the central bank published advertisements inviting foreign auditors to participate in the tender process.