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Money Laundering Prevention Act, 2012-A case Study

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Money Laundering Prevention Act, 2012-A case Study

1.Introduction                                                                                                                                                                                                                                       The growth in money laundering has become a serious threat to Bangladesh’s rising economy, hindering economic good governance and social justice The GFI ranked Bangladesh among the top 30 countries globally with around 20% of its international trade value being siphoned out of the country every year. The alleged hot spots are the UK, USA, Canada, Saudi Arabia, Singapore, Malaysia, Switzerland, Thailand, Australia, Hong Kong and so on. Unsurprisingly, the exponential growth in money-laundering has become a serious threat to Bangladesh’s rising economy, hindering economic good governance and social justice. It has turned into a safe avenue for white-collar criminals, i.e., business tycoons, corrupt politiciains, public officials and their criminal enterprises. Individuals and institutions with such heinous criminal records are politically and socially influential, roaming freely without remorse, which is enabled by questionable political dynamics as well as deplorable enforcement of legal norms in curbing such offence. A  not-for-profit Swiss Foundation under Basel University, Bangladesh is among the top 40 countries in the world in terms of risk for money laundering and terrorist financing. [1]The country ranked 38th among 141 countries on the Basel Anti-Money Laundering Index of 2020. Moreover, the US-based International Consortium of Investigative Journalists (ICIJ) published – in the Panama Papers in 2016 and the Paradise Papers in 2017 – a long list of Bangladeshi money launderers. Bangladeshi media also reported many names of money launderers at various times. 

2. Definition

Money Laundering is to ensure that the money that has been acquired illegally appears to have been obtained legitimately. In simpler terms, it is the process of turning the profit of illegal activity into a legitimate income. Money laundering, which is the process of concealing the proceeds of crime and integrating them into the legitimate financial system, is also a method used to hide the nature, source, location, situation, and movement of a crime or to give a legal image to the proceeds of crime. Electronic money provides an easy way to transfer value without revealing its identity, such as untraceable banknotes. Money can also be streamed through online auctions and sales, gambling websites and converted into real, usable, and untraceable “clean” money. The newest form of money laundering involves cryptocurrencies like Bitcoin. While not entirely anonymous, they are increasingly used in racketeering schemes, drug trafficking, and other criminal activities due to their relative anonymity compared to more traditional forms of currency. 

3. How Does Money Laundering Work?

Money laundering is essential for criminal organizations to use illegally obtained money effectively. The money laundering process usually consists of three steps: placement, layering, and integration.

Placement: The first entry of illegal money into the financial system is its settlement.

Layering: This step hides the source of money through a series of transactions and bookkeeping tricks.

Integration: The money laundered is withdrawn from the legitimate account to be used, and the money is returned to the criminal from the legitimate source.

Not only these three methods of money laundering but also There are methods other than. To illustrate; 

Fake Export: It is a method frequently used in recent years in Europe. It can make it appear as exporting to any country on paper.

Stock Market: Money can be laundered and displayed as a business by buying a stock or buying bonds through brokers.

Antiques and Paintings: Antiques or paintings are taken with money that cannot be transferred. Later, these are sold against foreign currency, and money is laundered.

4. Money Laundering Prevention Act

First anti-money laundering legislation of Bangladesh is the Money Laundering Prevention Act, 2002. It was replaced by the Money Laundering Prevention Ordinance 2008. Subsequently, the ordinance was repealed by the Money Laundering Prevention Act, 2009. In 2012, government again replace it with the Money Laundering Prevention Act, 2012. Money laundering is considered an offence, because it has potentially devastating economic, security, and social consequences. It is an avenue for drug dealers, smugglers, terrorists, illegal arms dealers, corrupt public officials, and others to operate and expand their criminal enterprises. It can also adversely affect collection of government revenue and deprives the government of due revenues.

The Government of Bangladesh promulgated the Money Laundering Prevention Act, 2002. Subsequently, in order to meet emerging international standards, subsequent amendments were made in 2008 and 2012. The main objective of the 2012 Act is to tackle the illegal money transfer to different countries. In order to exercise the powers, and perform the duties, vested in Bangladesh Bank, a separate unit named Bangladesh Financial Intelligence Unit (BFIU) has been established within Bangladesh Bank.

The Money Laundering Prevention Act, 2012 has elaborated the types of reporting agencies required to report suspected transactions to Bangladesh Bank. Reporting organizations coming within the purview of mandatory reporting include, among others, banks, financial institutions, insurers, money changers, any company or institution which remits or transfers money or money value, stock dealers and stock brokers, portfolio managers, security custodians, asset managers, non-profit organizations, non-government organizations, cooperatives, real estate companies, dealers in precious metals and stones, trust companies, lawyers and accountants. Bangladesh bank has significant powers and responsibilities in restraining and preventing the offence of Money Laundering.

5. Cases

In Habibur Rahman Mollah vs. State and Another,2010

The appellant Habibur Rahman Mollah, ex-member of Parliament, submitted his statement of wealth including the members of his family to the Durnity Daman Commission in pur­suance of its letter under memo dated 29th May, 2007 directing him to submit as such. The Commis­sion upon scrutiny for his wealth statement having suspected the statement as not true, made a thorough enquiry and it was said that he had concealed his wealth and submitted a falls return and that he had acquired property worth Taka 2 crore and odd by corrupt means. Accordingly an officer of the Com­mission lodged an first information report with the Ramna Police Station on 3rd October, 2007 against him for alleged commission of offences punishable under sections 26(2) and 27(1) of the Durnity Daman Commission Ain, 2004 read with Rule 15Gha (5) of the Emergency Powers Rules, 2007. The Commission investigated into the matter and having allegedly found disproportionate to the appellant’s known source of income was of the opin­ion that he had committed offence punishable under the said provisions of law and accordingly submit­ted a police report re-commending for prosecution of the appellant under the aforesaid provision on 20th April, 2008.[2]

In Md Shamsuddin  Lambu vs State,it has been argued by Shahabuddin Ahmed, J that this power “may be exercised only in those cases which are not covered by any specific provision of the Court. The inherent power of the Court is undefined and indefinite and, as such, it must be exercised very sparingly and with great cau­tion[3]

Abdul Quader Chowdhury vs State,. In this case it has been reiterated that the inherent jurisdiction should not be invoked where some other remedy is available. The jurisdiction given by section 561A is not an alternative or an additional jurisdiction but it is a jurisdiction preserved in the interest of justice to redress grievances for which no other procedure is available or has been provided by the Code. This power cannot be utilized as to interrupt or divert the Ordinary Course of Criminal Procedure.[4]

6. What Is The Effect of Money Laundering on Society?

If money laundering is not controlled and these crimes continue to be committed, this situation’s social and political costs can be severe. In addition to these costs, money laundering’s economic and political impact can weaken the social fabric, collective ethical standards, and ultimately the democratic institutions of society. In countries transitioning to democratic systems, this criminal influence can undermine the transition process.

In his address to a seminar,[5] Finance Minister Mustafa Kamal said that it is not only that money laundering “creates macroeconomic distortion”, but it is “largely destroying our country in various ways”. Those were some strong words. And if we look at the data, in the context of Bangladesh, using strong words to describe the curse of money laundering is necessary. A number of reports released by Global Financial Integrity (GFI) in recent times have pinpointed Bangladesh as being among the worst affected countries to the scourge of trade-TBML. [6]According to GFI’s President Raymond Baker, “Illicit financial flows are the most damaging economic problems faced by the world’s developing and emerging economies.” This means we are among the countries worst plagued by one of the biggest problems (among all the problems) out there that developing countries are having to deal with.

According to GFI, [7] USD 61.6 billion were siphoned out of Bangladesh between 2005 and 2014, which is equivalent to 25 percent of its GDP in FY 2016-17. Between 2008 and 2017, Bangladesh lost a staggering USD 7.53 billion per year on average to trade invoicing, which accounted for 17.95 percent of Bangladesh’s international trade with all its trading partners during the period. In a more recent report, GFI revealed that USD 5.9 billion was siphoned out of Bangladesh through trade invoicing in 2015 and that Bangladesh is one of the top 30 countries in terms of illicit financial flows. Similarly, Transparency International Bangladesh (TIB) reported this year that some USD 3.1 billion or Tk 26,400 crore is being illegally remitted from Bangladesh every year. Though it is lower in comparison to the GFI’s estimates between 2008 and 2017, even this amount would have deprived the government exchequer of about Tk 120 billion as revenue each year, which is significant.

In 2002, Bangladesh became the first country in South Asia to promulgate the Money Laundering Prevention Act in line with the recommendations from the Financial Action Task Force (FATF), an intergovernmental organisation which combats money laundering. But experts have criticised the government’s effort to implement the recommendations. Among those that are unconvinced with the government’s work is the Asia/Pacific Group on Money Laundering, the global body that ranks countries. In 2016, the organisation even warned the government that Bangladesh was in danger of being branded as a “risky” country when it comes to money laundering and terror financing.

Yet, according to Dr Iftekharuzzaman, Executive Director of Transparency International Bangladesh, money laundering still enjoys impunity in Bangladesh. In a recent article for The Daily Star, he wrote: “Any crime is bound to flourish when laws and regulations are not enforced and violators are not held accountable. This is exactly what has been happening with money laundering in Bangladesh.” Though there has been a decrease in total deposits by Bangladeshis in Swiss banks, as recently revealed by the Swiss Banking authorities, Dr Iftekharuzzaman highlighted that it was more likely due to money launderers preferring other destinations, rather than the amount of money being laundered from Bangladesh actually decreasing.

Only recently, the Nikkei Asian Review did a story on how the Directorate General of Health Services quoted prices paid for procurement of medical personnel safety goggles at USD 59 a pair, which is almost five times more than its market rate. Other purchases of medical gowns, software, website development and audio-visual clips under an emergency coronavirus project were similarly excessively billed.

Similarly, grain imports from Canada jumped up from USD 438 million in 2018 to USD 1.08 billion in 2019, representing a 128.31 percent rise. [8]But according to the Bangladesh Bank’s statistics, the country-wise import payments for grain do not match with the Canadian figures. According to the BB,[9] import payments to Canada in the fiscal year 2017-18 stood at around USD 500 million only. Therefore, it is quite likely that at least some part of that huge discrepancy occurred due to money laundering. As the finance minister himself said, money laundering causes various economic problems. According to one senior BB official quoted by an English daily, one such problem came in the form of the price of the US dollar seeing an upward trend in Bangladesh earlier in the year, when its price was actually declining in the international market. In the words of the official, “The price of the dollar has increased against the taka because of a rise in money laundering… The Bangladeshi currency is being sent to Malaysia, Singapore, Australia, and Canada.”

7. What Should Businesses Do, To Prevent Money Laundering?

Tax evasion should be prevented in all steps from production to consumption, and significant money movements should be monitored. Local governments should be fully authorized in the areas of. The media should fully support the fight against organized crime and should not broadcast to legendary mafia members. In the private sector, cartels should be prevented, and the underground economy should be reduced by eliminating tax-free earnings as much as possible. Businesses can protect themselves from financial crimes and strengthen AML compliance processes using AML software such as Sanction Scanner. 

Years ago, India used to top the charts of GFI reports. However, after WikiLeaks disclosed its massive offshore banking problem, and following significant criticism of the government’s failure to address it, policy reforms in the country along with an annual automatic exchange of banking information with Switzerland—letting India access information on bank accounts held by Indian citizens in that country—led to nearly a 50 percent drop in Indian deposits in Swiss banks over a one-year period. There is no question that launderers probably found other ways to launder their money. But by increasing their cost of laundering money, the Indian government did disincentives money laundering to some extent. Meanwhile, our government has decided that it will once again provide people the opportunity to whiten black money during the budget announcement. This, according to experts, incentivises money laundering. Besides that, lack of regulatory monitoring and supervision of financial activities of individuals and enterprises is allowing criminals to hide their actual financial reports. And in the absence of proper coordination between agencies (domestic and international), preventing financial crime becomes even more difficult.

Sadly, Bangladesh meets almost all the requirements necessary to make it a perfect victim of large scale money laundering—including the fact that its government’s policies have fallen far short of disincentives money laundering and have, in fact, facilitated it at times. That has mostly happened because, as Dr Iftekharuzzaman wrote, the perpetrators of the crime have usually been “tied to the power structure” and hence have often “determined the terms” that have allowed them to get away with it.

8.Conclusion

It is not only that money laundering “creates macroeconomic distortion”, but it is “largely destroying our country in various ways”. Those were some strong words. And if we look at the data, in the context of Bangladesh, using strong words to describe the curse of money laundering is necessary. A number of reports released by Global Financial Integrity (GFI) in recent times have pinpointed Bangladesh as being among the worst affected countries to the scourge of trade-TBML.According to GFI’s President Raymond Baker, “Illicit financial flows are the most damaging economic problems faced by the world’s developing and emerging economies.” This means we are among the countries worst plagued by one of the biggest problems (among all the problems) out there that developing countries are having to deal with.

[1] Annual report,  of the Basel Institute of Governance, 2020

[2] Habibur Rahman Mollah vs. State and Another,2010, 62DLR(AD),233

[3] Md Shamsuddin  Lambu vs State, 40 DLR (AD) 69

[4] Abdul Quader Chowdhury vs State, 28 DLR (AD) 38

[5] National Strategy for Prevention of Money Laundering and Combating Financing of Terrorism 2019-2021 in November 2019

[6] Trade Based Money Laundering

[7] Global Financial Integrity

[8] Statistics Canada,2019

[9] Bangladesh Bank

Money Laundering Prevention Act 2012: Case Study 

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Money Laundering Prevention Act 2012: Case Study 

Introduction

Money laundering is a menace to our society where a person is involved in illegal activity and due to such activity; he earns money and tries to spend it in a lawful manner. In Bangladesh, the Prevention of Money Laundering Act 2012 provides provisions for the violator who involves themselves in illegal activities. The economy of any nation is undermined when there is an increase in money laundering which is a criminal offense, and hence, it is important to stop such activity which causes financial backlash. 

What is Money Laundering

A person who is involved in illegal activities, like, child abuse, bribery, corruption, terrorism, etc and by such activities if he is earning money or asking someone on his behalf to get involved but such earnings are shown as in the accounts as legally earned money, then it is known as money laundering. For Instance, A is involved in a business of selling clothes but the source from where he gathered investments is through an illegitimate source that is from unlawful means and the money which is gathered from such act he invests it in his apparel business through this the illicit money turns into licit money. This whole process from illicit money to licit money is called money laundering.

The followings are the way under which illegally earned money turns legal: 

The criminal transfers money into any financial institutions that are in the banks. 

When any amount of money is going to be stored in the bank they ask about the source of the obtained money. So, when money is obtained from an illegal source they hide the illegitimate earning source by showing other legitimate investments for instance, by showing their shares in any company and due to their share they are earning profits, etc. 

When finally the money is accepted by the bank it turns into legal money and they can withdraw their money anytime.  

Cases of money laundering

Tariqur Rahman Case:

On 7 June 2007, a money laundering case was submitted against Rahman and his friend and business partner Giasuddin Al Mamun by the Bangladesh Anti Corruption Commission at a court in Dhaka. In a verdict given on 18 November 2013 by the court, Rahman was acquitted in the case involving BDT 20.41 crore. The Bangladesh Anti Corruption Commission member Mohammad Shahabuddin rejected the verdict, saying: “Tarique and Mamun had equal footing in the crime. So, legally there was no scope to differentiate.

BNP officials and leaders claimed that this judgement is a proof of his innocence and he had no involvement with corruption, and that all the cases against Rahman were “politically motivated”.

On 21 July 2016, Rahman was found guilty by the Bangladesh High Court overturning a lower court verdict that acquitted him earlier. He was sentenced to seven years of imprisonment and fined Tk 20 crore by the Court. One interesting thing to note in this case here is right after delivering the controversial not-guilty verdict, the lower court judge fled the country. Rahman’s money laundering case was the first case in the country’s history where an FBI agent testified and produced evidence against a defendant in Bangladeshi court.

On 3 November 2008, a leaked US Embassy cable said that the embassy in Dhaka believed Rahman was “guilty of egregious political corruption that has had a serious adverse effect on US national interests”.

Bangladesh Bank case

$951 million. Exactly this is the amount that has been attempted to steal from Bangladesh Bank by the hackers. This much of amount has been attempted to steal from the Bangladesh central bank’s account with the Federal Reserve Bank of New York within February 4 to 5. At that time, Bangladesh Bank was closed. The perpetrators managed to compromise Bangladesh Bank’s system, to observe how transfers are done, and gained access to the bank’s credentials for payment transfers, which they used to send about three dozen requests to the Fed Bank to transfer funds to Sri Lanka and the Philippines. 35 transactions worth $851 million transfer were prevented by the banking system but five requests were granted; $20M to Sri Lanka and $81 million lost to the Philippines, entering the Southeast Asian country’s banking system on February 5, 2016. This money was laundered through casinos and some later transferred to Hong Kong. 

Sri Lanka Events

The $20 million fund to Sri Lanka was intended by hackers to be transferred to Shalika Foundation, a Sri Lanka-based non-profit organization. The hackers misspelled “foundation” in their request to transfer the funds, spelling the word as “fandation”. This spelling error gained suspicion from Deutsche Bank, a routing bank which put a halt to the transaction in question after seek clarifications from Bangladesh Bank.

Philippine Events

The money transferred to the Philippines was deposited in five separate accounts with the Rizal Commercial Banking Corporation (RCBC), and later found to be deposited under fictitious identities. The funds were then transferred to a foreign exchange broker to be converted to Philippine pesos, returned to the RCBC and consolidated to an account of a Chinese-Filipino businessperson. The conversion was made from February 5 to 13, 2016.NThe four U.S. dollar accounts involved were earlier opened with the RCBC in May 15, 2015, which remained untouched until February 4, 2016.In February 8, 2016, during the Chinese New Year, Bangladesh Bank through SWIFT informed RCBC to stop the payment, refund the funds and to “freeze and put the funds on hold” if the funds had been transferred. Chinese New Year is a non-working holiday in the Philippines, and a SWIFT message from Bangladesh Bank containing similar information was received by RCBC a day later. By this time, a withdrawal amounting to about $58.15 million was already processed by RCBC’s Jupiter Street Branch. The Governor of Bangladesh Bank requested Bangkok assistance on February 16regarding the recovery of its $81 million funds saying that the SWIFT payment instructions issued in favor of RCBC in February 4, 2016, to be fraudulent.

Malware in Bangladesh Bank Software

DHAKA, Bangladesh–Hackers who last month stole more than $100 million from Bangladesh’s account at the Federal Reserve Bank of New York had been remotely monitoring activity at the South Asian nation’s central bank for several weeks and may have breached as many as 32 computers at the bank, a report from private investigators said. The hackers introduced malicious code, known as malware into the Bangladesh bank’s server, which allowed them to process and authorize the transactions, according to an interim report from Fire Eye Inc.

Resignation from Bangladesh Bank Governor

Bangladesh Bank Governor Atiur Rahman has resigned after this incident. Fazle Kabir, a former finance minister, has been chosen as Rahman’s replacement.

Hallmark Scandal

The largest banking scandal to date in the history of Bangladesh is the infamous Hallmark Scandal that was carried out by the collusion between officials of Hallmark and Sonali Bank, in particular, between the Managing Director of Hallmark Group, and the Manager of Sonali Bank’s Ruposhi Bangla branch. The Hallmark group that began launching garments in 2007 becomes the owners of 80 factories in 2012, at least 40 of which are on paper though. Most of these factories were built with the short-term loans. Hall-Mark bought 36 decimals of land from Janata Housing at Hemayetpur in 2006 and set up its first factory, Hall-Mark Fashion, there in 2007, the year it started banking with Sonali Bank’s Ruposhi Bangla Hotel Branch. In 2008, the group set up Bobby Fashion, Wall-Mart Fashion, Hall-Mart style, Boby Denim and Hall-Mark Design wear with Sonali Bank loan. There was no factory built during 2009-2010. But in 2011, it suddenly got huge money and set up 27 factories in a year (Dhaka Mirror, 2012). Hall-Mark itself is aware that it has done wrong by diverting short-term loans (Inland Bill Purchase-IBP) into project loans, which are long term in nature, but lender Sonali Bank seemed not to notice it. The project in Hemayetpur, some 30 km north west of the capital, is built on a 100-acre land, a large portion of which was bought with Sonali Bank loan. According to Hall-Mark, its net liabilities to Sonali Bank stood at Tk. 2,268 crore, of the sums, Tk. 1,567 crore is funded loan, meaning the amount has been taken in cash. The remaining amount is non-funded loan, mostly in the form of guarantee against Letter of Credit (L/C)(Siddique,2017). Bangladesh Bank has found out that the Hallmark Group along with five other companies applied for further loan and eventually got the approval for their loans with forged documents with the Sonali Bank(Manik, 2012). A Bangladesh bank investigation in May’ 2012 found that the group’s total liabilities to be Tk. 2,686.14 crore and all of the Hall-Mark loans were against IBP, which is a short-term credit facility utilized as working capital. But the hitherto little-known company used these loans for buying land and building factories (Dhaka Mirror, 2012). Bangladesh Bank (BB) reports showed that the Ruposhi Bangla Hotel Branch of the state-owned Sonali Bank distributed Tk. 36.48 billion in the form of loans from 2010 to 2012 and the largest portion of this loan that is Tk. 26.86 billion went to a single company known as the Hallmark Group (Sabet and Ishtiaque, 2013). The question arises as how did they carry out this huge loan scam and where those funds were allocated by the group. Investigations by two famous daily newspapers of Bangladesh, The Daily Star and Prothom-Alo, have shown that the whole process of the loan scamming was done mostly through the opening of Letter of Credit (LC) in favor of Hallmark by giving guarantee of payments to many fictitious suppliers based on the documents most of which were fake. Hallmark was alleged to establish fictitious companies, such as Anwara Spinning Mills, Max Spinning Mills, Star Spinning Mills, which were shown as recipients of the LCs. These companies submitted falsified paperwork reporting deliveries of fabric to Hallmark, which were then paid for by the LCs from Sonali Bank’s Ruposhi Bangla branch. Because the fictitious companies and Hallmark had their accounts at the Ruposhi Bangla branch, on paper it looked like the branch’s assets and liabilities were balanced out (Rahman and Khan, 2013; Jewel, 2013).

BASIC Bank Scandal

 The BASIC Bank Limited (Bangladesh Small Industries and Commerce Bank Limited) was one of the finest state-owned banks of Bangladesh up until recently when some serious allegations were made against the top managers of the bank regarding loan scamming from the period of 2009 to 2013 by the economic intelligence unit of Bangladesh Bank. BASIC Bank establishes as a banking company under the companies Act 1913 and launched its operation in 1989. It was incorporated under the Act on the 2ndof August, 1988 and started its operation from the 21stof January, 1989.The Bank was established as the policy makers of the country and felt the urgency for a bank in the private sector for financing Small Scale Industries. At the outset, the Bank started as a joint venture enterprise of the BCCI Foundation with 70 percent shares and the Government of Bangladesh (GOB) with the remaining 30 percent shares. However, the Government of Bangladesh took over 100 percent ownership of BASIC on 4thJune 1992.Thus, it becomes a state-owned bank though it is not nationalized and it operates like a private bank as before. Basic Bank is unique in its objectives and it is in fact a blend of development and commercial banks. The Memorandum and Articles of Association of the Bank stipulate that 50 percent of loan-able funds shall be invested in small and cottage industries sector (BASIC Bank website, 2018). Bangladesh Bank reports revealed that nearly Tk. 4,500 crore was taken illegally in the name of loans from the bank with the direct connection from the chairman of the bank at that time along with the help of other board of directors. What was really surprising in this situation is that of the Tk 4,500 crore swindled out of the bank, more than 95 percent was sanctioned by the board. In each case, the loan amount was more than Tk 1.5 crore, a sum the management cannot approve without the board’s approval (Khan and Uddin, 2018).Bangladesh Bank (BB) however, unearthed several anomalies in the loan sanctioning process by the Board of Directors of the bank. The report of Bangladesh Financial Intelligence Unit (BFIU), the anti-money laundering unit of the central bank, in 2014 showed that around Tk. 20 crore was transferred to bank accounts of two firms, owned by a close family member of the Chairman, from several companies that got loans from BASIC Bank through scams. Another important thing to notice on this point is that in 2010, BASIC Bank approved a loan of Tk 5.60 crore to BS Trading before the firm even opened its account with the bank. The loan amount was raised to Tk 33 crore in 2012. The branch concerned, however, didn’t show any reason for increasing the amount. It didn’t even verify the ownership of the property that was mortgaged against the loan. Besides, no credit risk grading was done before approving the loan though it was mandatory. No documents of the mortgaged land were collected (Alo, 2017). This means there existed some serious irregularities in the governance mechanisms of the bank at that period. The BB team filed a 47-page long report, which includes a list of borrowers, giving almost a minute-detail account of how the loans were approved and then withdrawn in clear violations of the rules. A serious governance failure was identified in this report of BB as it said that BASIC Bank’s board and its credit committee at the headquarters ignored the negative observations from the bank’s branches on a number of loan proposals, and approved those without following due diligence.In May 2014, the central bank fired BASIC Bank managing director for presiding over a period of serious irregularities at the state-run bank. Bangladesh Bank found him to be culpable in seven counts, including lack of sound management, failure to protect depositors’ interest, and loan irregularities. In the aftermath of this incident Anti-Corruption Commission (ACC) filed 56 cases in 2015 accusing a total of 110 people and organizations for gross loan irregularities worth over Tk 4,500 crore. Of the accused, 27 were bank officials and the rest were borrowers and surveyors, according to the ACC(The Daily Star, 2016).Despite those paper evidences and practical allegations against the then chairman of the bank, he was not made an accused in any of the cases filed by ACC which raised questions regarding his political backings in this scam.

Recommendations

Money laundering has potentially devastating economic, security, and social consequences. Money laundering is a process vital to making crime worthwhile. It provides the fuel for drug dealers, smugglers, terrorists, illegal arms dealers, corrupt public officials, and others to operate and expand their criminal enterprises. Money laundering diminishes government tax revenue and therefore, indirectly harms honest taxpayers. It also makes government tax collection more difficult. In order to combat Money Laundering:

  • Banks should at all time pay particular attention to the fundamental principle of good business practice “know your customer (KYC)”. Having a sound knowledge of a customer’s business and pattern of financial transactions and commitments is one of the best methods by which Bank and its Officials will recognize attempts at money laundering. It is not only a principle of good business but is also an essential tool to avoid involvement in money laundering.
  • Thus efforts to combat money laundering largely focus on those points in the process where the launderer’s activities are more susceptible to recognition and have therefore to a large extent concentrated on the deposit taking procedures of banks i.e. the placement stage.
  • Institutions and intermediaries must keep transaction records that are comprehensive enough to establish an audit trail. Such records can also provide useful information on the people and organizations involved in laundering schemes.

Conclusion:

Money laundering is the biggest fear for financial institutions at this moment. The entire industry in the world or any separate country must understand that financial crime needs to be understood, analyzed and fought proactively. All of us should combat against money laundering because it diminishes government revenue, distorts assets and commodity prices and leads to misallocation of resources. The loss of creditability and investor confidence that such crises can bring has the potential or destabilizing financial system, particularly in smaller economies like Bangladesh.

Money Loan Court Act, 2003: A Case Study

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Money Loan Court Act, 2003: A Case Study

Introduction:

Banks are the customers of the public money. People generally deposit their money to the banks for proper investment and transaction. Therefore, banks lend and invest this money to the borrowers. Thus, the banking transaction goes on. But sometimes the problem arises when some borrowers become defaulters of repayment of the borrowed money and the banks fall in a critical situation. For that reason, a proper legal process is highly required for the recovery of the money. And thinking the matter, the government has enacted a special law in 2003 for the proper and speedy realization of the money from the defaulter borrowers. This special law is called the Money Loan Court Act,2003 (properly known as Artha Rin Adalat Ain).The Money Loan Court Act,2003 enacted specially for the financial institutions to recover the defaulted money from its defaulter borrower. 

Objective of this Study:

  • To acquire the theoretical as well as practical knowledge on the law.
  • To be acquainted with the fundamental, essential and relevant provisions, rules, regulations, case laws etc. On the subject.
  • To know the power and functions of this court and also the court process on this Act.
  • To know safeguards for the banks and bankers under this law.

Historical Background:

The overall development of Bangladesh depends on economic development. Since no one in this country has enough capital, financial institutions have to take help. Financial institutions again maintain their existence by bringing money from one or other institution and investing money at some interest to the customers. Although financial institutions can raise funds, they just fail to do so on time and it is not possible to recapitalize. The jurisdiction of the public Demands Act of 1913 is limited and the finance Debt Ordinance of 1989 has been able to deal with this situation. In order to deal with such a situation, the finance Credit Court Act was enacted in 1990 to maintain the existence of the country’s financial institutions and to conti8nue the development work of the country. This law was amended in 1990, 1992, 1997. Despite such amendments, it was not possible to make the law suitable for the time and need. Therefore, Finance Court Act of 1990 was amended and this Finance Court Act was enacted in 2003.This law plays a vital role in speedy disposal of cases and issuance of decrees.

Concept and Features:

  • Money Loan Court Act, 2003 is primarily legal instrument dealing with bank and non-bank financial institution loan defaulters, which prescribes mechanisms for the banks and financial institutions to get reimbursed.
  • The Act provides for the establishment of a separate court for dealing with money loan cases, which can only be filled by a bank or a non-bank financial institutions.
  • The Money Loan Courts which in 2003 to help expedition resolution of disputes between banks and their clients over loan repayment, are overburdened.
  • There are Sixty sections in this Act.
  • This Act plays a vital role in speedy disposal of cases and issuance of decrees.
  • Opportunities have been set aside for settlement of disputes in various cases.
  • This law has provision for Appeal and Revision.
  • The first Financial Court Act was enacted in 1990 and the present act was enacted thirteen years later. There have been many cases in these long thirteen years. All those cases settled according to the law of 1990. Therefore,  although the law of 1990 is invalid, there still a need for pre-2003 cases to be disposed of in accordance with the law of 1990
  • The bank can file a suit against the defaulter borrowers but the borrowers can not file any suit against the banks under this law.

Power and Functions of Money Loan Court, 2003:

Money Loan Court Act, was enacted by the legislature of Bangladesh to address loan recovery process by financial institutions or banks. This court has some power and functions, which mentioned below:

  • Any suit those are relating to recovery of lending by the financial institution shall be filed in Money Loan Court under this Act and disposed of in the said court.
  • The suit for filing under this Act shall be registered as Money Lending Suit.
  • Financial institution, mortgage of immovable property taken against given loan for selling and foreclosure of that property and issue any mortgage suit under the Transfer Property Act and the Code of Civil Procedure, 1908.
  • To have a mortgage suit for foreclosure of a suit.
  • The loan realizable by money loan court be payable to the Government under the PDR, 1913
  • Local jurisdiction shall be determined by the District Judge.
  • Money Loan court having local jurisdiction.
  • The Money Loan Court shall be deemed as a civil court.
  • The inherent powers of the court to pass any complementary order shall not be limited by anything in order to carry out of the purposes of justice.

Power and Functions of Money Loan Court, 2003:

Money Loan Court Act, was enacted by the legislature of Bangladesh to address loan recovery process by financial institutions or banks. This court has some power and functions, which mentioned below:

  • Any suit those are relating to recovery of lending by the financial institution shall be filed in Money Loan Court under this Act and disposed of in the said court.
  • The suit for filing under this Act shall be registered as Money Lending Suit.
  • Financial institution, mortgage of immovable property taken against given loan for selling and foreclosure of that property and issue any mortgage suit under the Transfer Property Act and the Code of Civil Procedure, 1908.
  • To have a mortgage suit for foreclosure of a suit.
  • The loan realizable by money loan court be payable to the Government under the PDR, 1913
  • Local jurisdiction shall be determined by the District Judge.
  • Money Loan court having local jurisdiction.
  • The Money Loan Court shall be deemed as a civil court.
  • The inherent powers of the court to pass any complementary order shall not be limited by anything in order to carry out of the purposes of justice.

Problems and Prospects:

Banks are custodians of the public money. People generally deposit their money to the banks for proper investment and transaction. Therefore, banks lend and invest this money to the borrowers. Thus, the banking transaction goes on. But sometimes the problem arises when some borrowers become defaulters of repayment of the borrowed money and the banks fall in a critical situation. According to the Bangladesh Bank statistics a total number of cases were awaiting disposal in the money loan courts across the country until June, 2019. According to the Supreme Court statistics, until June, 2019, at least 21849 cases were awaiting disposal in the money loan courts across the country. There are some problems are given below:

  • Above sources said, a large number of cases have remained pending for many years, mainly due to the weakness of the existing  laws, lack of required number of judges, courtrooms, and complexities in case management.
  • The section -17 of this Act mandates disposal of the cases within a maximum of 120 days, in reality, courts cannot dispose cases within this timeframe.
  • Courts take a much longer time in hearing and disposing petitions of the defendants.
  • The defendants file a writ petition in the High Court Division against any interim order of the lower court. The High Court Division in many cases, by issuing a stay order put off the proceedings of the lower court until disposal of the writ petition.
  • Disposal of a writ petition is a lengthy process. If the order of the writ petition goes against the defendant, then appeals against the order of the writ petition. The case thus keeps travelling from one bench to another, one court to another.
  • The main intention of the defendants is to keep the case pending at the stage of hearing in the lower court and they rake undue advantage of the legal bureaucracy.
  • If they file an appeal against the decree of the lower court, they shall have to deposit 50 percent of the decreed valued to the lower court. That’s why defendants are usually willing to file an appeal against the decree of a lower court.
  • Many cases under the money loan court Act, 2003 take even 8-10 years to settle.
  • Besides, many bank loan defaulters using their political influence manage to delay the legal procedure of the cases were filled against them for an indefinite period of time.
  • The number of money loan court is insufficient in comparison with the number of cases.
  • A legal Adviser’s negligence and dishonesty can also contribute to slow disposal 

Prospect:

If we truly get benefits from the laws pertaining to recovery-

  • Legal bureaucracy must be handled.
  • To get rid of procedural delay and backblocks of the banks cases, it appears to crucial to form a separate bench in High Court Division of the Supreme Court for speedy disposal of writ petitions filed by the defendants.
  • This bench will only hear and disposal of writ petition and appeals. In this way, writ petition and appeals will be disposed of an accelerate way and the disposed cases will be increased.
  • On the other hand, section -4 of the money loan court Act, 2003 should be made functional by establishing one or more Money Loan Courts with sufficient number of dedicated judges in each district for the trial of cases constituted by the banks and financial institutions
  • Necessary amendments to law may be done so that bank’s CR cases for bounce cheques or any kind of money recovery cases can be lodged and tried with this dedicated court.
  • The loan recovery process must be made functional and the banker, the legal system and the administrative bodies should play their due roles to make it happen. The related law and the legal system has significant role in this process.
  • Making of law doesn’t make any changes, if it’s not applied. In fact, any law in force is toothless if it’s not effectively implemented.
  • The application of law against the defaulters would create examples and thereafter wilful defaulters would think twice. At the same time, corrupt bankers should not be spared by termination or dismissal from the job only, they should be penalised and punished as per the law.
  • But for all the above strategies to work, the government must show stern political commitment and goodwill against wilful defaulters.

Case Laws:

[IFIC Bank Ltd. & others Vs. M/S Beximco Holding Ltd. & others 13 BLT(HCD)23]

Impugned Judgment and decree passed under section -13(1)

Judgment: If there is no specific admission made in the written statement as contemplated in section -9(5) of the Act, the court can’t  come to conclusion as regards the said fact of the case.

[ IFIC Bank Limited Vs. M/S Marinar Fashions Wear Pvt.Ltd. & others 15

BLT(HCD) 425]

Whether on issuance of the certificate of title in favour of the decree holder, the execution case has already been disposed of and the court hasgot nothing further to do in this respect.

Judgment : Sub section-7 envisages vesting of ownership of the property of the judgment debtor upon the decree holder. The said vesting of ownership includes delivery of possession of property.  Without the delivery of possession, execution cannot be disposed of.

Conclusion

Money loan Court Act, 2003 is primarily legal instrument dealing with bank and non- bank financial institution loan defaulters, which prescribes mechanisms for the banks and financial institutions to get reimburesed. The Act provides for the establishment   of a separate court for dealing with many loan cases, which can only be filed by a bank or an nonbank finanial institutons.

The money loan courts which in   2003 to help expedition resolution of disputes between banks and their clients over loan repayment are overburdened. For that reason, a proper legal process is highly required for the recovery of the money. And thinking the matter, the Government has enacted a special law in 2003 for the proper and speedy realization of the money from the defaulter borrowers.

References:

  1. Class lecture
  2. Bare ACT, Money Loan court  ACT-2003
  3. www. elearning.bdjobs.com

MARINE INSURANCE IN BANGLADESH – A CASE STUDY

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MARINE INSURANCE IN BANGLADESH – A CASE STUDY

Table of Contents

  •  Introduction
  • Nature and Scope of Marine Insurance
  • Historical Development of Marine Insurance
  • What is Marine Insurance
  • Existing law in Bangladesh
  • Features of Marine Insurance
  • Classification of Marine Insurance
  • Classification of Marine Insurance Policy
  • Principles of Marine Insurance
  • Present situation of Marin Insurance in Bangladesh
  • Why is Marine Insurance a contract of indemnity?
  • Marine Insurance v. Fire Insurance
  • Case relating to Marine Insurance
  • Evolution
  • Recommendation
  • Conclusion
  •  References

MARINE INSURANCE IN BANGLADESH:

A CASE STUDY

INTRODUCTION:

Bangladesh economy holds huge risk in every sector because the country often faces natural disasters like flood, cyclone, draught and hurricane. There are also other factors like political strikes and economic issues like inflation, high interest rate, tax policy, deregulation etc. That depend the risks for the economy.

Insurance a system of spreading the risk of one to the shoulders of many. It is a contract whereby the insurers, on receipt of a consideration known as premium, agree to indemnify the insured against losses arising out of certain specified unforeseen contingencies or perils insured against. Insurance is a business began almost a century back. Insurance business gained momentum in East Pakistan during 1947-1971. When 49 insurance companies transected both life and general insurance schemes. These companies were of various origins British, Australian, Indian, West Pakistan and local.

The rule of insurance as a financial intermediary is particularly important in countries like Bangladesh with low levels of financial penetration. However, there are various types of insurance policy in Bangladesh. Marine Insurance is one of them. Marine insurance is the oldest form of insurance. Insurance was introduced to the world by the concept of marine insurance. It may be called as an origin of insurance business. Marine insurance is a contract of indemnity against the losses of account of perils of sea. The object of marine insurance is to make good losses exposed to the seafarers due to sea condition, war, pirates, weather, diseases, spoilage, etc.

In this assignment we will discuss overall about ‘Marine Insurance’. So, the bottom line of this assignment is “Discussion of Marine insurance in Bangladesh with case reference.”

NATURE AND SCOPE OF MARINE INSURANCE:

We have already mention that, Marine insurance was the earliest form of insurance. It was the oldest risk hedging instruments our ancestors used to mitigate risk in medieval times.

The term marine originates from the fact that goods intended for international trade were traditionally transported by sea. Despite what the name implies, marine insurance is applicable to all modes of transportation of goods. When the goods are sent by air, their insurance is also known as marine cargo insurance.

Marine insurance is a type of insurance that covers cargo losses or damage caused to ships, cargo vessels, terminals and any transport in which goods are transferred or acquired between different points of origin and their final destination. Providing protection against transport related losses, this voyage policy provides a haven for shipping companies and couriers because it protects them from costly potential losses while transporting goods by water.

Despite following laws and safety regulations, transporters can’t control natural occurrences that might disrupt the cargo or vessel. Things like weather hazards, encounters with pirates and cross border conflicts are very common in water transportation and the damages associated with these situations can cause a significant financial hardship for ship owners. This is where a marine insurance policy comes to the rescue, protecting the interests of shipping corporations and transporters by providing them with insurance coverage needed to defend against possible losses.

HISTORICAL DEVELOPMENT OF MARINE INSURANCE:[1]

The origin of insurance is lost in antiquity. However, there is no evidence that insurance in its present form was practice prior to the twelfth century. A brief chronological historical development of the marine insurance is given below:

Marine insurance was the earliest well-developed kind of insurance having its origins in the Greek and Rome. In Bangladeshi context, marine insurance very relevant since Bangladesh is a maritime nation and the seaports are busy with loading and unloading cargoes carried by local and international flag-bearing vessels.

This type of insurance probably began in Northern Italy sometime during the 12th &13th century and gradually the concept was rather transferred to or taken over by the United Kingdom. During the 13th or 14th century the Italian merchants went to UK and along with the merchandise carried with them the trading customs including the concept of marine insurance.

Marine insurance as such was not being practiced as a separate specialized entity during that time since it was the merchants who used to transact marine insurance business side by side with their general trading activities.

WHAT IS MARINE INSURANCE?

A simple definition of the word insurance would be “Protection against future loss.” marine insurance is another variant of the general term ‘insurance’ and as the name suggests is provided to ships, boats and most importantly, the cargo that is carried in them.

Marine insurance is very important because through marine insurance, ship owners and transporters can be sure of claiming damages especially considering the mode of transportation used.

Incidents like piracy and possibilities like cross-border shoot-outs also pose a major threat when it comes to water transportation and therefore in order to avoid any loss because of such events and happening, in the interest of the corporation and the transporter, it is always beneficial to have a back-up like marine insurance.

Another important aspect of having marine insurance is that a transporter can choose the insurance plan as per the size of his ship, the routes that are taken by his ship to transport the cargo and many such minor points which could go a great length in affecting the transporter majorly.[2]

EXISTING LAW IN BANGLADESH:

The concept of insurance is still very much at its youth in Bangladesh along with the South East Asian region in general. As the need of time, the Parliament of Bangladesh passed a new Insurance Act 2010 in order to reform and update the insurance sector in Bangladesh.

Since just after passing a new act to substitute the old, the previous Insurance Act 1938 became inactive due to pass the Insurance Act 2010. This act contains 160 sections under seven chapters. It provides the provisions applicable to insurer, insured, punishment for violation of the law.

Despite of marine insurance is an important division of insurance, there is no Bangladeshi law to regulate the provisions of marine insurance. In Bangladesh, the provisions of contract act, customary rules and tradition are applicable. To some exceptional cases, the British Marine Insurance Act of 1906 is applied.[3]

FEATURES OF MARINE INSURANCE CONTRACT:

There are some essential elements of marine insurance. Moreover, Marine insurance is a legal contract. For that without general elements, there are some essential elements of marine insurance.

  • Elements of general contract:[4] In marine insurance contract, there are all elements of general insurance contract. Which kinds of contract are including in general contract:
  • Two parties: In contract of marine insurance, there are two parties. One party is insurance company and another party is insurance holder.
  • Offer and acceptance: Like general contract, an insured offered to insurer for accept his policy. If a policy is accepted then contract is accomplished.
  • Legal consideration: As natural contract, insurer makes confirmation to insurance holder for deducting risk by money. It is given from insurer to insurance holder.
  • Capacity of contract: Both parties should stay capacity of contract under section 11 of Contract Act, 1872.
  • Legal object: The contract should be legal contract.
  • Green consent: Both parties have to give consent with freedom.
  • Certainty: Insurance subject should be certainty.
  • Written: Contract must be written.
  • Insurable interest: The insurable interest is the pecuniary interest where by the policy holder is benefited by the existence of the subject matter and is prejudice by the death or damage of the subject matter.
  • Utmost good faith: As the under writer knows nothing and the man who comes to him to ask to insure knows underwriter without being asked of all the material circumstances, this is expressed saying it is a contract of utmost good faith.
  • Compensation for damage: Insurance is a contract of indemnity under which insurance company agrees to pay a certain sum of money to compensate loss caused the occurrence of uncertain event inconsideration of certain periodical payment premium.
  • Proximate cause: Some kinds of peril are caused by happened waste that is called proximate.
  • Proportionate contribution: If any waste is happened which did not count over all, its peril fulfills by proportionately.
  • Subject matter of insurance: In marine insurance way of ships, ships product, ships rent, etc. Are known as a marine insurance subject matter or insurance.
  • Period: There are two kinds of marine insurance policy. One of specific sea journey base and another one is time base.
  • Warranties: There are some conditions in marine insurance contract such as,
  • Ships neutrality,
  • Journeys time,
  • Safety time,
  • Properties neutrality,
  • Ability to ships journey,
  • Legality of sea journeys,
  • No late journey.

So, these are the essential elements of marine insurance that are part of a legal marine insurance. An ideal marine insurance contract should be followed by these elements or must have these elements.

Classification of Marine Insurance:[5]

  • Hull Insurance: Hull insurance mainly caters to the torso and hull of the vessels along with all the articles and pieces of furniture on the ship. This type of marine insurance is mostly taken out by the owner of the ship to avoid any loss to the vessel in case of any mishaps occurring.
  • Liability Insurance: Liability insurance is that type of marine insurance where compensation is sought to be provided to any liability occurring on account of a ship crashing or colliding and on account of any other induced attacks.
  • Freight Insurance: Freight insurance offers and provides protection to merchant vessels corporations which stand a chance of losing money in the form of freight in case the cargo is lost due to the ship meeting with an accident. This type of marine insurance solves the problem of companies losing money because of a few unprecedented events and accidents occurring.
  • Marine Cargo Insurance: Cargo insurance caters specially to the marine cargo carried                                 by ship and also pertains to the belongings of a ship’s voyages. It protects the cargo owner against damage or loss of cargo due to ship accident or due to delay in the voyage or unloading. Marine cargo insurance has third-party liability covering the damage to the port, ship or other transport forms resulted from the dangerous cargo carried by them.

Classification of Marine Insurance Policy:[6]

The different types of marine insurance policies are detailed below:

  • Voyage Policy: A voyage policy is that kind of marine insurance policy which is valid for a particular voyage.
  • Time Policy: A marine insurance policy which is valid for a specified time period- generally valid for a year-is classified as a time policy.
  • Mixed Policy: A marine insurance policy which offers a client the benefit of both time and voyage policy is recognized as a mixed policy
  • Open or Unvalued Policy: In this type off marine insurance policy, the value of the cargo and consignment is not put down in the policy beforehand. Therefore, reimbursement is done only after the loss of the cargo and consignment is inspected and valued.
  • Valued Policy: A valued marine insurance policy is the opposite of an open marine insurance policy. In this type of policy, the value of the cargo and consignment is ascertained and is mentioned in the policy document beforehand thus making clear about the value of the reimbursements in case of any loss to the cargo and consignment.
  • Port Risk Policy: This kind of marine insurance policy is taken out in order to ensure the safety of the ship while it is stationed in a port.
  • Floating Policy: A marine insurance policy where only the amount of claim is specified and all other details are omitted till the time the ship embarks on its journey, is known as a floating policy. For clients who undertake frequent trips of cargo transportation through waters, this is the most ideal and feasible marine insurance policy.
  • Single Vessel Policy: This policy is suitable for small shipowner having only one ship or having one ship in different fleets. It covers the risk of one vessel of the insured.  
  • Fleet Policy: In this policy, several ships belonging to one owner are insured under the same policy.

Principles of Marine Insurance:[7]

The generally used principles of marine insurance includes six principles. But the principle of good faith is considered an essential mandate commonly agreed among all the parties involved. It states that when two parties, the insured and the insurer, agree, all the cargo details shall be provided with utmost honesty.

Along with the principle of good faith, here are the other five:

  1. Principle of Indemnity: This principle differentiates the marine insurance policy from a speculative product for capital markets. For instance, a put or call contract can be used in the capital markets for both hedging’s and for making profits. However, there are various types of marine insurance plans specifically designed to protect against losses. Hence, the payable claims will never exceed the loss incurred by the insured entity.
  2. Principle of Insurable Interest: this principle can be equated with the common phrase of ‘skin in the game.’ it means that that insurer must have some interest in the safe arrival of the goods at the end of the transit cycle. If the goods arrive on time and undamaged, the insured entity stands to benefit, and if they do not reach at their stipulated time in their described condition, the same entity stands to bear a loss. If the insured entity’s loss or gain is not immediately borne, it should at least reasonably expect to bear or attain it soon. This way the insurance cover protects the ‘interest’ of the insured entity.
  • Principle of Proximate Cause: If you get creative and thinking like a philosopher, you can practically establish some form of speculated causality between any two events. Using this, your insurance claim as an entity can be attributed to almost any reason, giving you an unreasonable advantage against the insurance company.
  • Principle of Subrogation: Subrogation is the follow-through principle for the indemnity principle. It limits the scope to profit from an insurance contract. After disposing of the damaged goods, the net amount exceeding the actual price of the goods post the claim must be returned to the insurer.
  • Principle of Contribution:  Marine insurance often covers such complex transits that there might be an overlap between two insurers. It is not unfathomable to imagine two insurers insuring the same cargo under two separate jurisdictions or policies. if the cargo gets damaged and the claims are playable, the insurers are supposed to split the claim liabilities.

Present Situation of Marine Insurance in Bangladesh:

The economy of Bangladesh has rapidly been shifting from agricultural to the services sector. The rule so played by the service sector is burgeoning as well. Insurance is one of the ingredients of the financial services industry has a lot to play if it is promoted properly. In this comprehensive and ultimate guide on the insurance sector of Bangladesh, it will walk us through the itineraries of the market.

In spite of the stable growth rate of the Bangladesh insurance industry in the last few years, the expansion of the insurance business, particularly the non-life sector, has experienced a downward trend in the year 2016 because of poor investment and slowdown of economic activities led by the political unrest. The experts have the fear of what the industry was likely to have the similar experience in 2019.

According to the statistics of Bangladesh Insurance Association (BIA), the total premium income of private sector life insurance companies rose from Tk. 62,429 million in 2013 to Tk. 66,879 million in 2014. The gross premium income of non-life private sector insurance companies increased from Tk. 21,038 million in 2013 to Tk. 22,670 million in 2014 with a growth rate of 7.76%. In Bangladesh, the marine insurance is considered to be the lifeguard for the non-life insurance business. Marine insurance completely depends on imports which has continuously being disturbed by the political unrest but the market is expected to improve in 2020.[8]

Why is Marine Insurance a Contract of Indemnity?

The principle of indemnity is the backbone of insurance law and policy. Indemnity means putting the person in the position he would have been if no damage had been incurred. Besides providing compensation it also ensures that the insured doesn’t gain from the insurance contract by merely providing the amount with respect to the actual loss.

Marine insurance is also an indemnity contract where the insurer undertakes to pay the insured for the damages suffered during a marine adventure. Going by its definition, a marine insurance policy aims to reduce the financial loss occurring to an insured’s property during maritime transport. It covers any loss or damage suffered by the insured cargo due to accidents and mishaps that might happen. The insurer legally committed to providing financial indemnity arising out of accidents as well.

“The insurer is liable to pay to the value of loss agreed upon; only when it is proven that the proximate cause of the peril is insured. Therefore, the principle of indemnity does apply to marine insurance policies.”

In simple words, a marine insurance contract can be defined as a legal agreement in which the insurer gives a formal undertaking to indemnify the insured against the loss agreed upon. The insurer will indemnify the insured to the extent specified in the insurance contract.

The extent of indemnify our insurance coverage is subject to the following conditions:

  • That onus of proving the event lies on the insured,
  • The financial indemnity is subjected to the extent, borne by the insurer and the market value of the property,
  • Financial indemnity is provided only for insured proximate causes.

In the case of Ricards vs Forestal land, Timber and Railways co, Lord Wrights has said that:
‘The purpose of both courts and the legislature was to give effect to the notion of indemnity, which is the fundamental principle of insurance, and to apply it to the various complexities of fact and law in relation to which it would function.’[9]

So, we can say that- Marine Insurance is also called a contract of indemnity.

Marine Insurance v. Fire Insurance:

The differences between Fire Insurance and Marine Insurance are given below:

  • Fire insurance is an insurance contract where in the insurer commits to compensate the insured in case of any incident happening with the subject matter due to fire or any such event. On the contrary, marine insurance refers to a contract, where in the insurance company promises to compensate the insured in case of loss cost two sheep cost to ship or cargo due to perils of sea.
  • Fire insurance is an insurance that covers the risk of fire. It covers goods or property of the insured person. On the contrary, marine insurance is one that encompasses risks associated with the sea. The subject matter covered here, is the ship, cargo and freight.
  • In fire insurance, that insurable interest must be present both at the time of taking policy and when the loss occurs. As against, in case of marine insurance, the insurable interest must be there only at the time of loss.
  • The claim in case of fire insurance is the amount insured, or the actual loss sustained whichever is less. In contrast, the compensation would be the cost of the goods plus a reasonable margin.
  • In fire insurance contract the moral responsibility of the insured is an important condition, whereas if we talk about merit insurance, there is no clause relating to the moral responsibility of the sheep or cargo owner.
  • The amount of the policy cannot exceed the value of subject matter covered under the fire insurance contract. On the contrary, the market value of the sheep or cargo would be the policy amount in case of marine insurance.
  • Fire insurance is the most popular insurance. On the other hand, marine insurance is the oldest type of insurance.

Cases relating to Marine Insurance:[10]

  • Case name: ‘Pimco Shipping Pty Ltd v. Hermann and Moeher Trading Pty Ltd [1987]

FACT: The plaintiff owned and operated a coastal vessel. In 1978 goods carried by the vessel were damaged in transit and as a result the owner of the goods sued the plaintiff and were awarded damages. The plaintiff claims that at the time of that shipment the defendant was the actual owner of the vessel and brought suit on the basis that the defendant indemnifies the plaintiff for damages.

DECISION: Action dismissed.

HELD: The indemnity action by the plaintiff is time barred pursuant to the Sea-Carriage of Goods Act Art. III, r. 6 which provides that suit in respect of loss of or damage must be brought within one year after delivery of goods or when the goods should have been delivered. In the original proceeding the owner of the goods was granted default judgement against the plaintiff here. The 2nd defendant in that case was the company that had been formed to buy the vessel. However, at the time of the loss the present defendant was the actual owner of the vessel as the corporation had not yet been formed. The personal defendant should have, but was not added as a third party in the original action. Because there was no liability on the part of the defendant to the owner of the goods established within the time limitation period, the plaintiff cannot now seek indemnification outside of the time period. Indemnity may not be awarded without the support of liability on the part of the indemnitor to the injured party.

  • Case name: ‘Dominion Insurance Ltd v Westpac Banking Corporation [1998]’

FACT: The plaintiffs were the owner of the insured vessel and the bank who held the mortgage on the vessel and was named payee on the policy. The defendant was the insurer. The plaintiff had insured the vessel with the defendant since October 1990. There had been 3 renewals of the coverage in October 1991,1992 and 1993. The vessel was damaged beyond repair in March 1994. The insurer defendant denied coverage on the basis that no insurance premiums had been received since the October 1993 renewal.

DECISION: for the Plaintiff

HELD: The fact that no premiums have been paid does not affect he existence of the contract. The court looked at the Renewal notices and at the history of dealings between the parties. As to the Renewal notices, while they demanded payment, there was no clear statement that coverage would be canceled if payment was not received. As to the dealings between the parties, the court found that previous claims had been paid as credit for owing premiums so clearly in the past it had been the practice to renew without the payment of premiums.

  • Case name: ‘Richards v. Forest Land, Timber and Railways Co. Ltd. [1941]’

In this case, it was observed that- “The Act is merely dealing with a particular branch of the law of contracts- namely, those of marine insurance. Subject to various imperative provisions or prohibitions and general rules of the common law, the parties are free to make their own contracts and to exclude or vary the statutory terms.

The object both of the legislature and of the courts has been to give effect to the idea of indemnity, which is the basic principle of insurance, and to apply it to the diverse complications of fact and law in respect of which it has to operate. In this way, the law merchant has solved or sought to solve, the manifold problems which have been presented by insurances of maritime adventures.”

Evolution:

We think that Marine insurance provides multiple benefits to the owners and transporters of the goods. The policyholder will get full financial coverage if any accidents occur during the transportation period. Marine insurance also gives financial coverage against any theft or hijack. The policyholders also attain some financial coverage if the goods get damaged by bad weather conditions like rain or snow. Marine insurance also covers some degree of compensation for injury, illness, or death of any transporter on-board the ship. The policyholder can also claim coverage for mishandling of cargo or mistakes in transport. But the insurance premium fee indeed adds a little cost to the shipment. As a result, the price of transportation cost increases a bit. But compared to the risk involved in a shipment, it is very low. It is advised to read the fine prints in the insurance agreement paper.

Recommendation:

While applying the principle of contribution, it is important to ensure that all the applicable conditions are complied with. Otherwise, it might create confusions as up to what amount the insured will be indemnified and the ratio of contribution on the part of insurers.

The insurable value of the property so insured needs to be calculated. In cases involving unvalued policies, it may serve to resolve the calculation of indemnity. In cases of valued policy where the value is not conclusive, such as where there is a constructive total loss, it can also help to calculate reimbursement. It will also help to fix a norm while agreeing on a value in a valued policy.

The requirement of a valid abandonment is a prerequisite to a claim for a constructive total loss. The assured after getting reliable information of the loss, within a reasonable time frame, has to send a notice of abandonment to insurer for getting the compensation. The information gathered by the assured shouldn’t be of doubtful character. If in any case the assured fails to send the notice, the loss would be considered as a partial loss.

The arguments considering similarity in the insurable interest cases of one category to those of another must be dealt with caution and the facts of each case must be carefully examined so that the generalizations are not drawn.

 Conclusion:

The aim of marine insurance was to encourage the ship’s owner and the buyer and seller of goods to operate their respective business while at least to an extent relieving themselves of the burdensome financial consequences of the loss or damage to their property as a result of the numerous threats of the high seas.

In other words, maritime insurance adds an integral aspect of financial security in order to ensure that the possibility of misfortune during shipping is not an inhibitory factor in the conduct of foreign trade. Although marine insurance is a boon for the Bangladesh economy, it is also essential that all terms and conditions of the agreement are complied with in order to remove all the ambiguities that may arise in future.

References:

  1. http://toptenbrandlist.blogspot.com/2012/01/history-of-insurance-business-in.html
  2. https://www.coverwallet.com/general/marine-insurance
  3. https://bdjls.org/a-comparative-study-on-insurance-act-1938-and-insurance-act-2010/3/
  4. https://www.preservearticles.com/articles/8-main-elements-of-marine-insurance-contract/27389
  5. https://www.dripcapital.com/resources/blog/marine-insurance-meaning-types-benefits
  6. https://www.dripcapital.com/resources/blog/marine-insurance-meaning-types-benefits
  7. https://securenow.in/insuropedia/five-principles-marine-insurance-policy/
  8. https://securenow.in/insuropedia/five-principles-marine-insurance-policy/
  9. https://securenow.in/insuropedia/how-does-indemnity-apply-marine-insurance-policies/
  10. http://www.paclii.org/libraries/maritime_law/case-summaries-marine-insurance/index.html

[1] http://toptenbrandlist.blogspot.com/2012/01/history-of-insurance-business-in.html

[2] https://www.coverwallet.com/general/marine-insurance

[3] https://bdjls.org/a-comparative-study-on-insurance-act-1938-and-insurance-act-2010/3/

[4] https://www.preservearticles.com/articles/8-main-elements-of-marine-insurance-contract/27389

[5] https://www.dripcapital.com/resources/blog/marine-insurance-meaning-types-benefits

[6] https://www.dripcapital.com/resources/blog/marine-insurance-meaning-types-benefits

[7] https://securenow.in/insuropedia/five-principles-marine-insurance-policy/

[8] https://securenow.in/insuropedia/five-principles-marine-insurance-policy/

[9] https://securenow.in/insuropedia/how-does-indemnity-apply-marine-insurance-policies/

[10] http://www.paclii.org/libraries/maritime_law/case-summaries-marine-insurance/index.html

PRESENT SITUATION OF INSURANCE BUSINESS IN BANGLADESH

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PRESENT SITUATION OF INSURANCE BUSINESS IN BANGLADESH

Introduction:  Insurance is a means of protection from financial laws. It is a form of risk management, primarily used to hedge against the risk of a contingent or uncertain laws. An entity which provides insurance is known as an insurer, an insurance company, an insurance carrier or an underwriter. The process of ensuring possible life losses and financial losses of a personnel is called insurance policy. Because, personal life, property, business and vehicles are always at risk. To ensure our financial losses there is a financial policy which is called insurance. Insurance is a written contract that the insurance company will bear all the financial losses by the exchange of a specific amount of premium. On the other hand, if the insured is hampered by any causes mentioned in the contract paper, the insurance company will pay the contracted amount of money to the insured person.

Nature of Insurance:

Insurance is the financial defense system against risk. It distributes risk among individuals at risk. The main subjects of the insurance are life risk and property risks. Insurance companies take the liability of life risk and property risk with specific premium payment. One of the basic factors in life and health premiums is the earned by the insurance company on the premiums it receives and subsequently invests. The concept of insurance developed from the need to minimize the adverse effects of risk associated with the probability of financial loss. The function of insurance is to safeguard against financial loss by having the losses of few paid by the contributions of many who are exposed to the same risk. Insurance is provided through a system which makes large financial losses more affordable by polling the risks of many individuals and business entities and transferring them to an insurance company or other large group in return for monetary payments. Premium payments are collected by insurance companies to cover expenses and the cost of projected losses. The person who under takes to indemnify another by insurance is the insurer and the person indemnified is the insured. Purchasing insurance is one of the best ways of minimizing loss. The insurance purchaser pays a premium to the insurance company in exchange for financial protection in case of loss. By doing so, both parties have entered into a contract and insurer issues an insurance policy. The insurance company stipulates the promises the insurer has made to pay the insured if a loss of the insured subject occurs. If a loss occurs, the insured person files a claim with the insurer. The claim is an official request for the insurer to fulfill the promises of the contract. [course.uceusa.com]

Definitions:  According to Cambridge dictionary,”Insurance means an agreement in which a person pays a company money an they pay his cost if the person has an accident, injury etc. [dictionary.cambridge.org]

According to Prof. D.S Hansell, “Insurance is a social device providing financial compensation for the effects of misfortune, the payments being made from the accumulated contributions of all parties participating in the scheme”. According to Dr.W.A.Dinsdale,”Insurance is a device for the transfer of risks of individual entities to an insurer, who agrees, for a consideration, to assume to a specified extent losses suffered by the insured”.

According to Ghosh and Agarwal,”Insurance is a co-operative form of distributing a certain risk over a group of persons who are exposed to it”.[commercenototes.org]

Historical development of Insurance:

In 900 BC between the Greek and Babylon civilization, traders introduced a kind of insurance system in the nature of cooperatives for their own benefits. It is also known that the ship Captains of that time introduced various bonds “Bottomery bonds and  Respondentia bonds” like guarantee of compensation as a result of the danger. That’s why we can say that traders of that time used to think about insurance policy. At the end of middle age insurance was introduced in different parts of Europe. In the middle of middle age, trade and commerce by sea became widespread. Countries around the Mediterranean sea ( France, Italy, Spain, Turkey) started to use the sea route to trade. According to history, exiled Jews from France came in Italy to settle and they introduced insurance policy for the first time. At that time there were huge risks to transport goods by sea route because of natural calamities. Moreover, there was security guard to protect the ships loaded with goods from pirates but it was not enough. Later a decision was taken by the traders that if there was a loss all the owners of the ships would cooperate to compensate but the process was not successful. After that, traders created a cooperative system and used to pay a specific premium to the system so that they can compensate if a ship sank or was robbed. Later it became a successful business and naval insurance was introduced. In 1200 century, this kind of insurance policy became popular in Europe. In 1720, two insurance companies were established by royal charter named ”The Lloyd’s Assurance” and “The Royal Exchange”. Brokers and naval insurers formed an insurance cooperative institution in 1771. Member system was changed in 1774 and formed a new structure to form the cooperative society into an insurance company, which was the first insurance company.”Alliance Assurance Company Ltd. Was another insurance company established in 1824 with Lloyd’s members. In 1871, the Llyod’s members reforms the “Association of Lloyd’s” and transform it into ”The corporation of Lloyd’s” which is still the greatest insurance company on earth. After introducing naval insurance, traders wanted to introduce fire insurance as there were massive fire accidents in London in 1666. There were 13000 houses were burnt and fire was flaming for four days and nights. After that traders started to think about the fire insurance and by the time industrial revolution was started. It is some advanced mechanics that triggers the industrial revolution as there were some new mechanisms created between 1750-1850. As a result of that there was a huge development in production across Europe and established some massive industries. Then fire insurance was introduced around the world. Industrial revolution affects the joint families that separates the family and creates small and single families. Agricultural economy was replaced to industrial economy that increased gathering in the city or industrial area. New enjoyment, more expenditure and mechanical accidents affects life badly. To ensure life against sufferings, life insurance policy was introduced. However, there was proof that there was short term life insurance in mid of 16 hundred century. There is an insurance contract displayed in the British museum that shows a person named William Gibson’s life was insured for 12 months by a man named Richard Martin. At the beginning of 18th century life insurance, term insurance policy was introduced in Britain. After introducing life insurance, different social insurance was introduced. Because of industrial disease and accidents workers became disable or income less. That’s why disease insurance was introduced in Germany for the first time in 1889, accident insurance in 1884, disable and old age insurance was introduced in 1889. Corporate fidelity Bond was introduced in 1840 and Title insurance in 1890. Cattle, crop, agricultural, vehicle, group and miscellaneous insurance were introduced at the same time. Now a days insurance is popular around the world. There is insurance policy for every possible risk to minimize damage and financial losses. Insurance became obligatory for any business even in Bangladesh and fire insurance is mandatory to run a small factory. Vehicle and motorcycle insurance is also mandatory in Bangladesh.

Insurance Laws in Bangladesh:

Insurance business is not new in Bangladesh. Almost a century back, during the British rule in India, some companies started insurance business, both in life and general insurance, in this region. This business has gained momentum in Bangladesh also. So legal provisions were necessary to regulate insurance in Bangladesh. At present, there is a law regarding insurance which is the Insurance Act, 2010. There were some laws in the immediate past regarding insurance, for example Insurance Act 1938.

The Insurance Act, 1938:

 This Act contained provisions regarding matters like definition of insurer and insured, commission payable to agents, licensing of agents, appointments of staff, register of policies and register of claims powers of the controller of insurance, acquisition of surrender value by policy, actuarial report, deposits, investments, loans, valuation of assets and liabilities, account and balance sheets etc. The Act also contained provisions relating to co constitution, management and winding up of insurance company. It was applicable to both in life and general insurance business.

The Bangladesh Insurance (Nationalization) Order, 1972:

The order was for the nationalization of insurance business in Bangladesh by transferring all such business to certain corporations established for the purpose and to provide for the regulation and control of the business of the corporation.

The Bangladesh Insurance Corporation (Dissolution) order, 1972:

The order was made for the dissolution on of the Insurance corporations.

Bangladesh Insurance Corporation Act, 1973:

The law contained 34 sections. It was promulgated on 23 June in 1973. However, it was enacted to establish Jiban (Life) Bima Corporation and Sadharon (General) Bima Corporation by abolishing the former four insurance corporations, namely, Rupsa, Surma, Karnaphuli and Teesta.

The Insurance Act, 2010:

All the previous laws relating to insurance were repealed by this Act. It contains 160 sections under seven chapters. It is an updated law. It provides the provisions applicable to insurer, insured,punishment for violation of the law. On the other, it provides provision for Islamic Insurance also.

 The Insurance Development and Regulatory Act, 2010:

The control over insurance companies including their functions relating to investments, taxation and reporting are regulated by this Act.

Some Past Laws:

There were some laws and rules which were invoked in past were relating to insurance business but no information is found regarding them. Namely-

1). The Insurance Rules, 1958

2) The Insurance (Amendent) Ordinance 1984

3) The Insurance Regulations, 1990

4) The Insurance Ordinance, 2008

Contribution of Insurance business in Bangladesh:

The commitment of the government to promote development of the insurance sector is of enormous consequence for its promising future. In view of the pro-active policy support of the government that the sector has so far received in an unstinted manner, we are certain that within the next few years we will be able to make insurance a very important component of the country’s financial system. This will go a long way for eradication of poverty and promoting sustainable economic growth. Insurance serves a number of valuable functions which are very different from those rendered by other types of financial intermediaries. The indemnification and the risk pooling properties of non-life insurance facilitate commercial transaction and the provision of credit by mitigating losses as well as the measurement and management of risk. The availability of insurance enables risk-adverse individuals and entrepreneurs to undertake higher risk and activities that yield higher rate of return, promoting higher productivity and growth. The liabilities of life insurers, on the other hand, are of long terms and due to nature of their liabilities they can serve an important function as institutional investors providing capital to  infrastructure and other long term investments.  Thus insurance makes a significant contribution to economic growth by improving investment climate and promoting a more efficient mix of activities than would be undertaken in the absence of risk management instruments. The contribution is magnified by the complementary development of banking and non bank financial institutions. To accelerate the process of economic development the Govt. of Bangladesh initiated a set of policy and institutional reforms within the banking sector in recent years.  These reforms have continued unabated and extended to non- bank financial institutions in one form or other. Though the insurance sector in Bangladesh has shown remarkable growth in recent years reflecting product development and innovation, it was kept outside the purview of the reform programme until the present government embarked on a set of reform measures to promote a vibrant insurance sector to mobilize savings both from rural and urban areas and use those savings for investment in social and economic programmes and projects. As a first step towards achieving these objectives, Insurance Act, 2010 and Insurance Development and Regulatory Authority Act, 2010 have been enacted. Following the development of an appropriate legal framework, the Govt. has established a strong supervisory body for effective and efficient supervision of the insurance industry. Since its inception in January’ 2011, Insurance Development and Regulatory Authority have been working relentlessly and in the process, have undertaken a series of measures in an effort to transform the insurance sector into one of the most efficient, competitive and productive sectors of the wider financial system in Bangladesh. [academia.edu]

Problems of Insurance Business in Bangladesh:

In a developing country like Bangladesh, insurance companies are playing a very important role in the economy. Though insurance industry has very prospect in the economy but for some reasons it’s totally failed to achieve it’s goal. One of the problems of insurance business in Bangladesh is the poor economy conditions. Bangladesh is one of the poorest countries in the world and most of the people in this country live under extreme poverty level. All of this people fight hard to earn their livelihood and are marginal in relation to expenditure with the income. It is quite impossible for them to save some money for future need. Therefore, they are quite unable to give the amount to the insurer which is called as premium and regarded as safety or precautionary measures against any accident. The number of people who can bear the premium to the insurance company is very few. Therefore, the overall poor economy condition is creating obstacle to flourish the insurance business in Bangladesh. Another problem is that the per capita income of the people of this country is very low. Many people in the country live below the poverty line. In 2015-2016, the country’s GDP was only 23.89 % of the total GDP. Since life insurance and other social insurance depend on the savings tendency of the people, the rate of savings naturally hinders the development of such business. Another problem is weakness in industrial sector. Bangladesh is an agricultural country and the industrial sector is really weak. Only 17.64 % of the total labour force of the country is industrial workers. In 2015-2016, industrial content was only 31.28% of the total national product. Moreover, insurance business completely depend on fire and naval business. The weakness of the industrial sector is one of the great obstacles for insurance business. Another problem is that there is no efficiency in every level of administration in Bangladesh also it is the same for insurance business. Because insurance business is always leg behind. Though there were some private insurance were introduced, still there is no efficient management. Insurance was introduced for naval accidents. It was the beginning of the insurance. However, we do not have a lot of ship that makes our naval insurance business limited. Another problem is that we do not have the trust to the business as the real victim is hardly compensated but the false victims take the advantages in corporation with insurance staff. That’s why people do not trust the insurance companies. This is one of the main reason that insurance business can not go ahead. Another problem is that there is no proper awareness about the good side of the insurance even there is no education about insurance business. Moreover, the public insurance company did not play the perfect role to introduce insurance amongst the citizen. In Bangladesh, there are a few insurance workers with lower skills as they do not have the proper training. Though the business was introduced in 1985 and there was some development but later there was no development because of efficiency.

Evaluation: Insurance business is an important and efficacious business in Bangladesh. But there are some problems which are obstacles in the development of insurance business. Insurance business ensures people for their life or property risks. Insurance business is a defense system against various kinds of risk. The problems should be removed for the development of insurance business as well as the welfare of the nation.

Conclusion: Insurance is so much essential system for providing financial security to the people. The government should take necessary steps to prevent obstacles of insurance business in our country. More loss should be enacted in this regard. So that people of our country will get the financial protection easily for any risk from the insurance companies.

Reference:

(1). Course.uceusa.com

(2) dictionary.cambridge.org

(3) commercenotes.org

(4) academia.edu

Admission Notice

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Law of Insurance: A case Study

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Law of Insurance: A case Study

Introduction:

In a developing country like Bangladesh, different insurance companies are playing a very crucial role in the economic growth. Though insurance industry has significant prospects in the economy but for some reasons it has failed to achieve it’s goal to some extent. To ensure the smooth operation of the concerned insurance companies, the regularatory bodies try to pass and implement new Acts and regulations. There are sixty Two insurance companies in our country and there have been passed several acts to regulate those companies properly. There are some Acts and regulations existing in our country to regulate those insurance companies. As the need of time, the parliament of Bangladesh passed a new Insurance Act, 2010 in march, 2010, in order to reform and modernize the insurance Sector in Bangladesh. Since just after passing a new act to replace the old one, the previous Insurance Act, 1938 became inactive due to pass of insurance Act, 2010.

In the assignment, I have showed the parliament passed an act when insurance company has failed to achieve it’s goal and how the insurance company face the problems.

From beginning to end, I’ll discuss all about of my assign topic.

Definition of Insurance:

Insurance is a contract between two parties whereby one party agrees to undertake the risk another in exchange for consideration known as premium and promises to pay fixed sum of money to the other party on happening of an uncertain event (death) or after the expiry of a certain period in case of life insurance or to indemnity the other party on happening of an uncertain event in case of general insurance.

It is a contract in which one party known as the insured also known as assured, insures with another party ( person or organization) known as the insurer, assures or underwrites his property or life, or the life of another person in whom he has pecuniary interest or property in which he is interested or against some risk or liability, by paying a sum of money as the premium. At present, insurance is being used widely and becoming more and more popular both in personal life and in the business sector as a significant risk management tool which is primarily used to hedge against the risk of contingent uncertain loss.

Insurance contract provides financial protection to the insured by the insurer against a loss arising out of happening of an uncertain event.  The insured can avail this protection by paying premium to any insurance company with whom the contract has been made. Insurance works on the basic principle and concept of risk sharing when a company insures an individual entity( the insured) there legal requirements to share the risks associated with the insured by the insurer, breaking of which contract creates legal binding.

Concept and Features of Insurance:

The concept behind insurance is that a group of people exposed to similar risk come together and make contributions towards formation of a pool of funds. In case a person suffers a loss an account of such risk, he is compensated out of the same pool of funds. Contribution to the pool is made by a group of people sharing common risk and collected by the insurance companies in the form of premium.

Insurance has various effects on society through the way that it changes who bears the cost of losses and damage of the insured according to the insurance contract. The distinguished common features of any insurance are as follows:

  • Shifting or transferring of risk of losses and damages of any life, asset or property from one party to another party.
  • Sharing of losses by members of group /company.
  • One party undertakes the loss incurred on the insured property or asset of other party.
  • The risk is shared /accepted by the insurer for a consideration of money from the insured called as premium (No risk to be assumed unless premium is received in advance).
  • It is assured to the insured by the insurer that the amount will be paid on happening of the specified act or event.

Importance of Insurance:

The present insurance policy ensures compensation against financial losses. Different kinds of risk is a natural part of life which causes deadly consequences to life. Different types of insurance systems have emerged to deal with such financial risks. That’s why insurance policy is a popular financial compensation system in every society. We have discussed some importance of insurance below:

  • Brings financial security of personal life.
  • Creation of savings for the future.
  • Provide the facilities of investment to the insured.
  • Reduces the hindrances of risk.
  • Developments of foreign Trade.
  • Security of Old Age.
  • Brings Mental Satisfaction.
  • Increase Government Revenue.
  • Establishing social Security 
  • Increase awareness of the citizens about their future uncertainty.
  • Solution of unemployment Problems.

Necessity of Insurance Law:

The Practice of law surrounding insurance is majorly important both to individuals and the commercial sector. It primarily includes the regulation of business of insurance, regulation of the content of insurance policies and claim handling.

Insurance law work can be directly linked to external events and phenomena, for example claims put forward as a result of war /piracy /attacks or financial crises. Cases will stem from a whole manner of matters -both contentions and non- contentions -and also cover international cases. There are some disputes arises between the insurance company and insured person or policyholder. With the help of insurance law, settled the disputes of their. 

Insurance business is not new in Bangladesh. Almost a century back, during the British Rule in India, some companies started insurance business,  both in life and general insurance, in this region. This business has gained momentum in Bangladesh also So legal provisions were necessary to regulate insurance in Bangladesh. At present, there is a law regarding insurance which is the Insurance Act,2010.There were some laws in the immediate past regarding insurance, for example Insurance Act,1938. Insurance regulation that governs the business of insurance aimed at assuring the solvency of insurance company. There are several laws and rules available in Bangladesh to implement the insurance contract and to avail the benefit of the contract.  So legal provision were necessary to regulate insurance in Bangladesh.

Legal Frame Work In Bangladesh:

Insurance is such a contract where the insurer offers a contract and the insured pays premium. The insured need to show the insurable interest upon the insured subject matter of the insurance. It is a way to compensate a person.

Every industry needs to be regulated and maintained property to ensure the conflict free operation in any country.  There are several laws and rules available in Bangladesh to implement the Insurance contract and to avail the benefit of the contract. In this regard, parliament of Bangladesh, on 03 March 2010, passed two insurance laws in a bid to further strengthen the regulatory frame work and make the industry operationally vibrant. The new laws, came into effect on 18 March, 2010, are Insurance Act,2010 and IDRA 2010.Furthermore several judgments provides by the Supreme Court of Bangladesh enriched the legal arena of insurance.

Major Insurance Acts:

  • Insurance Act,1938
  • Insurance Rules, 1958
  • Bangladesh Insurance (Nationalization) Order,1972
  • Insurance Corporation Act,1973
  • Insurance (Amendment) Ordinance, 1984
  • Insurance Act,2010

Overview of the Acts:

Bangladesh’s insurance industry is started a new journey with two new laws. The parliament passed two insurance laws in a bid to further strengthen the regulatory framework and make the industry operationally vibrant. The new laws are Insurance Act, 2010 and Insurance Development and Regulatory Authority Act, 2010. The government has taken the pragmatic step to boost the insurance sector. This two Acts were passed to regulate the insurance industry and protect customer’s interest.

Insurance Act 2010:

All the Previous laws relating to insurance were repealed by this Act. It contains 160 sections under seven chapter. It is an updated law. It provides the provisions applicable to insurer, insured punishment for violation of the law. On the other, it provides provision for Islamic law also. The Insurance Act, 2010 has some notable addition, which were absent in the previous Insurance Act, 1938. Therefore, the entire insurance industry is facing some new practice while implementing the new act in insurance business by creation of new regulatory Authority. The new insurance Act, 2010 is making way for the Micro Insurance business opportunities in the insurance sector of Bangladesh which has a great prospect for the small and medium enterprises especially in the rural areas. The insurance act has not only brought the new addition, but also some new eye-catching changes in some significant areas that existed in the previous insurance law, such as capital requirements, provision for foreign investment, reinsurance in abroad, and penalty for violation of law.

The Insurance Development and Regulatory Authority Act, 2010:

The control over insurance companies includes their functions relating to investments, taxation, and reporting are regulated by this Act. Insurance Development and Regulatory Act, 2010 also has been passed for establishing a stronger insurance sector in Bangladesh in the era of globalization, domestic market should be well organized while the  legal  framework should be effective to address the changed circumstances in the business and socio economic entities. So it has paved the way for better regulation of the sector by reducing business risk and harmonizing local and international laws.

Case Laws:

[Janata Insurance Co. Ltd. Vs. Islam Steel Mills Limited and another]

In this case a question arose that whether the person is insured or not.

Judgment: The court held, the policies were owned by the plaintiffs and the premiums were paid out of their accounts, and thus the plaintiffs being the beneficiaries of the policies are legally entitled to claim the moneys covered by the policies under section -46 of the Insurance Act, 1938.

Conclusion:

Insurance sector in Bangladesh is contributing to the growth and developing process of the business and property by protecting all variety of assets from all types of hazards. However, the size of insurance industry in Bangladesh is small but over institutionalized. Only by achieving competitiveness, this sector can contribute more to the development of the economy of the country. In spite of all constrains both at macro and micro environment good growth rate and tremendous growth potential reconfirm the brightest prospects of the insurance sector in Bangladesh-

Insurance industry is playing a significant role in the economic improvement of Bangladesh through its risk sharing operations which motivate investment in any important business.  The government has now embarked on a reform programme in the insurance sector to promote a vibrant insurance sector in our country. As a first step towards achieving the objective, the Insurance Act, 2010, in replacement of the previous Insurance Act, 1938 and the Insurance Development and Regulatory Authority Act, 2010 also has been passed for establishing a stronger insurance sector in Bangladesh. Existing insurance laws should be improved incorporating upcoming challenges of the insurance industry.

In order to meet the challenges caused by changes, the insurance Act, 2010 should be kept as flexible as practicable so that any change in operational procedure, accounting, actuarial standard that would be needed in future inline without change in the international and domestic environment could be made without further amendment to the ordinance. The new Insurance Act, 2010 promised to bring the positive changes and we are looking forward for the beginning of Globally Competitive Modern Insurance Sector in Bangladesh.

References:

  • Wikipedia
  • Academia.edu

Assignment on the present situation of Insurance Business in Bangladesh

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Assignment on the present situation of Insurance Business in Bangladesh
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ASSIGNMENT ON PRESENT SITUATION OF INSURANCE BUSINESS IN BANGLADESH

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ASSIGNMENT ON PRESENT SITUATION OF INSURANCE BUSINESS IN BANGLADESH

Introduction:  Insurance is a means of protection from financial laws. It is a form of risk management, primarily used to hedge against the risk of a contingent or uncertain laws. An entity which provides insurance is known as an insurer, an insurance company, an insurance carrier or an underwriter. The process of ensuring possible life losses and financial losses of a personnel is called insurance policy. Because, personal life, property, business and vehicles are always at risk. To ensure our financial losses there is a financial policy which is called insurance. Insurance is a written contract that the insurance company will bear all the financial losses by the exchange of a specific amount of premium. On the other hand, if the insured is hampered by any causes mentioned in the contract paper, the insurance company will pay the contracted amount of money to the insured person.

Nature of Insurance:

Insurance is the financial defense system against risk. It distributes risk among individuals at risk. The main subjects of the insurance are life risk and property risks. Insurance companies take the liability of life risk and property risk with specific premium payment. One of the basic factor in life and health premiums is the earned by the insurance company on the premiums it receives and subsequently invests. The concept of insurance developed from the need to minimize the adverse effects of risk associated with the probability of financial loss. The function of insurance is to safeguard against financial loss by having the losses of few paid by the contributions of many who are exposed to the same risk. Insurance is provided through a system which makes large financial losses more affordable by polling the risks of many individuals and business entities and transferring them to an insurance company or other large group in return for monetary payments. Premium payments are collected by insurance companies to cover expenses and the cost of projected losses. The person who under takes to indemnify another by insurance is the insurer and the person indemnified is the insured. Purchasing insurance is one of the best ways of minimizing loss. The insurance purchaser pays a premium to the insurance company in exchange for financial protection in case of loss. By doing so, both parties have entered into a contract and insurer issues an insurance policy. The insurance company stipulates the promises the insurer has made to pay the insured if a loss of the insured subject occurs. If a loss occurs, the insured person files a claim with the insurer. The claim is an official request for the insurer to fulfill the promises of the contract. [course.uceusa.com]

Definitions:  According to Cambridge dictionary, Insurance means an agreement in which a person pays a company money and they pay his cost if the person has an accident, injury etc. [dictionary.cambridge.org]

According to Prof. D.S Hansell, “Insurance is a social device providing financial compensation for the effects of misfortune, the payments being made from the accumulated contributions of all parties participating in the scheme”. According to Dr.W.A.Dinsdale,”Insurance is a device for the transfer of risks of individual entities to an insurer, who agrees, for a consideration, to assume to a specified extent losses suffered by the insured”.

According to Ghosh and Agarwal, “Insurance is a co-operative form of distributing a certain risk over a group of persons who are exposed to it”. [commercenototes.org]

Historical development of Insurance:

In 900 BC between the Greek and Babylon civilization, traders introduced a kind of insurance system in the nature of cooperatives for their own benefits. It is also known that the ship Captains of that time introduced various bonds “Bottomery bonds and  Respondentia bonds” like guarantee of compensation as a result of the danger. That’s why we can say that traders of that time used to think about insurance policy. At the end of middle age insurance was introduced in different parts of Europe. In the middle of middle age, trade and commerce by sea became widespread. Countries around the Mediterranean Sea (France, Italy, Spain, Turkey) started to use the sea route to trade. According to history, exiled Jews from France came in Italy to settle and they introduced insurance policy for the first time. At that time there were huge risks to transport goods by sea route because of natural calamities. Moreover, there was security guard to protect the ships loaded with goods from pirates but it was not enough. Later a decision was taken by the traders that if there was a loss all the owners of the ships would cooperate to compensate but the process was not successful. After that, traders created a cooperative system and used to pay a specific premium to the system so that they can compensate if a ship sank or was robbed. Later it became a successful business and naval insurance was introduced. In 1200 century, this kind of insurance policy became popular in Europe. In 1720, two insurance companies were established by royal charter named “The Lloyd’s Assurance” and “The Royal Exchange”. Brokers and naval insurers formed an insurance cooperative institution in 1771. Member system was changed in 1774 and formed a new structure to form the cooperative society into an insurance company, which was the first insurance company.”Alliance Assurance Company Ltd. Was another insurance company established in 1824 with Lloyd’s members. In 1871, the Llyod’s members reforms the “Association of Lloyd’s” and transform it into “The corporation of Lloyd’s” which is still the greatest insurance company on earth. After introducing naval insurance, traders wanted to introduce fire insurance as there were massive fire accidents in London in 1666. There were 13000 houses were burnt and fire was flaming for four days and nights. After that traders started to think about the fire insurance and by the time industrial revolution was started. It is some advanced mechanics that triggers the industrial revolution as there were some new mechanisms created between1750-1850. As a result of that there was a huge development in production across Europe and established some massive industries. Then fire insurance was introduced around the world. Industrial revolution affects the joint families that separates the family and creates small and single families. Agricultural economy was replaced to industrial economy that increased gathering in the city or industrial area. New enjoyment, more expenditure and mechanical accidents affects life badly. To ensure life against sufferings, life insurance policy was introduced. However, there was proof that there was short term life insurance in mid of 16 hundred century. There is an insurance contract displayed in the British museum that shows a person named William Gibson’s life was insured for 12 months by a man named Richard Martin. At the beginning of 18th century life insurance, term insurance policy was introduced in Britain. After introducing life insurance, different social insurance was introduced. Because of industrial disease and accidents workers became disable or income less. That’s why disease insurance was introduced in Germany for the first time in 1889, accident insurance in 1884, disable and old age insurance was introduced in 1889. Corporate fidelity Bond was introduced in 1840 and Title insurance in 1890. Cattle, crop, agricultural, vehicle, group and miscellaneous insurance were introduced at the same time. Now a days insurance is popular around the world. There is insurance policy for every possible risk to minimize damage and financial losses. Insurance became obligatory for any business even in Bangladesh and fire insurance is mandatory to run a small factory. Vehicle and motorcycle insurance is also mandatory in Bangladesh.

Insurance Laws in Bangladesh:

Insurance business is not new in Bangladesh. Almost a century back, during the British rule in India, some companies started insurance business, both in life and general insurance, in this region. This business has gained momentum in Bangladesh also. So legal provisions were necessary to regulate insurance in Bangladesh. At present, there is a law regarding insurance which is the Insurance Act, 2010. There were some laws in the immediate past regarding insurance, for example Insurance Act 1938.

The Insurance Act, 1938:

 This Act contained provisions regarding matters like definition of insurer and insured, commission payable to agents, licensing of agents, appointments of staff, register of policies and register of claims powers of the controller of insurance, acquisition of surrender value by policy, actuarial report, deposits, investments, loans, valuation of assets and liabilities, account and balance sheets etc. The Act also contained provisions relating to co constitution, management and winding up of insurance company. It was applicable to both in life and general insurance business.

The Bangladesh Insurance (Nationalization) Order, 1972:

The order was for the nationalization of insurance business in Bangladesh by transferring all such business to certain corporations established for the purpose and to provide for the regulation and control of the business of the corporation.

The Bangladesh Insurance Corporation (Dissolution) order, 1972:

The order was made for the dissolution on of the Insurance corporations.

Bangladesh Insurance Corporation Act, 1973:

The law contained 34 sections. It was promulgated on 23 June in 1973. However, it was enacted to establish Jiban (Life) Bima Corporation and Sadharon (General) Bima Corporation by abolishing the former four insurance corporations, namely, Rupsa, Surma, Karnaphuli and Teesta.

The Insurance Act, 2010:

All the previous laws relating to insurance were repealed by this Act. It contains 160 sections under  seven chapters. It is an updated law. It provides the provisions applicable to insurer, insured, punishment for violation of the law. On the other, it provides provision for Islamic Insurance also.

 The Insurance Development and Regulatory Act, 2010:

The control over insurance companies including their functions relating to investments, taxation and reporting are regulated by this Act.

Some Past Laws:

There were some laws and rules which were invoked in past were relating to insurance business but no information is found regarding them. Namely-

1). The Insurance Rules, 1958

2) The Insurance (Amendent) Ordinance 1984

3) The Insurance Regulations, 1990

4) The Insurance Ordinance, 2008

Contribution of Insurance business in Bangladesh:

The commitment of the government to promote development of the insurance sector is of enormous consequence for its promising future. In view of the pro-active policy support of the government that the sector has so far received in an unstinted manner, we are certain that within the next few years we will be able to make insurance a very important component of the country’s financial system. This will go a long way for eradication of poverty and promoting sustainable economic growth. Insurance serves a number of valuable functions which are very different from those rendered by other types of financial intermediaries. The indemnification and the risk pooling properties of non-life insurance facilitate commercial transaction and the provision of credit by mitigating losses as well as the measurement and management of risk. The availability of insurance enables risk-adverse individuals and entrepreneurs to undertake higher risk and activities that yield higher rate of return, promoting higher productivity and growth. The liabilities of life insurers, on the other hand, are of long terms and due to nature of their liabilities they can serve an important function as institutional investors providing capital to  infrastructure and other long term investments.  Thus insurance makes a significant contribution to economic growth by improving investment climate and promoting a more efficient mix of activities than would be undertaken in the absence of risk management instruments. The contribution is magnified by the complementary development of banking and non bank financial institutions. To accelerate the process of economic development the Govt. of Bangladesh initiated a set of policy and institutional reforms within the banking sector in recent years.  These reforms have continued unabated and extended to non- bank financial institutions in one form or other. Though the insurance sector in Bangladesh has shown remarkable growth in recent years reflecting product development and innovation, it was kept outside the purview of the reform programme until the present government embarked on a set of reform measures to promote a vibrant insurance sector to mobilize savings both from rural and urban areas and use those savings for investment in social and economic programmes and projects. As a first step towards achieving these objectives, Insurance Act, 2010 and Insurance Development and Regulatory Authority Act, 2010 have been enacted. Following the development of an appropriate legal framework, the Govt. has established a strong supervisory body for effective and efficient supervision of the insurance industry. Since its inception in January’ 2011, Insurance Development and Regulatory Authority have been working relentlessly and in the process, have undertaken a series of measures in an effort to transform the insurance sector into one of the most efficient, competitive and productive sectors of the wider financial system in Bangladesh. [academia.edu]

Problems of Insurance Business in Bangladesh:

In a developing country like Bangladesh, insurance companies are playing a very important role in the economy. Though insurance industry has very prospect in the economy but for some reasons it’s totally failed to achieve it’s goal. One of the problems of insurance business in Bangladesh is the poor economy conditions. Bangladesh is one of the poorest countries in the world and most of the people in this country live under extreme poverty level. All of this people fight hard to earn their livelihood and are marginal in relation to expenditure with the income. It is quite impossible for them to save some money for future need. Therefore, they are quite unable to give the amount to the insurer which is called as premium and regarded as safety or precautionary measures against any accident. The number of people who can bear the premium to the insurance company is very few. Therefore, the overall poor economy condition is creating obstacle to flourish the insurance business in Bangladesh. Another problem is that the per capita income of the people of this country is very low. Many people in the country live below the poverty line. In 2015-2016, the country’s GDP was only 23.89 % of the total GDP. Since life insurance and other social insurance depend on the savings tendency of the people, the rate of savings naturally hinders the development of such business. Another problem is weakness in industrial sector. Bangladesh is an agricultural country and the industrial sector is really weak. Only 17.64 % of the total labour force of the country is industrial workers. In 2015-2016, industrial content was only 31.28% of the total national product. Moreover, insurance business completely depend on fire and naval business. The weakness of the industrial sector is one of the great obstacles for insurance business. Another problem is that there is no efficiency in every level of administration in Bangladesh also it is the same for insurance business. Because insurance business is always leg behind. Though there were some private insurance were introduced, still there is no efficient management. Insurance was introduced for naval accidents. It was the beginning of the insurance. However, we do not have a lot of ship that makes our naval insurance business limited. Another problem is that we do not have the trust to the business as the real victim is hardly compensated but the false victims take the advantages in corporation with insurance staff. That’s why people do not trust the insurance companies. This is one of the main reason that insurance business can not go ahead. Another problem is that there is no proper awareness about the good side of the insurance even there is no education about insurance business. Moreover, the public insurance company did not play the perfect role to introduce insurance amongst the citizen. In Bangladesh, there are a few insurance workers with lower skills as they do not have the proper training. Though the business was introduced in 1985 and there was some development but later there was no development because of efficiency.

Evaluation: Insurance business is an important and efficacious business in Bangladesh. But there are some problems which are obstacles in the development of insurance business. Insurance business ensures people for their life or property risks. Insurance business is a defense system against various kinds of risk. The problems should be removed for the development of insurance business as well as the welfare of the nation.

Conclusion: Insurance is so much essential system for providing financial security to the people. The government should take necessary steps to prevent obstacles of insurance business in our country. More loss should be enacted in this regard. So that people of our country will get the financial protection easily for any risk from the insurance companies.

Reference:

(1). Course.uceusa.com

(2) dictionary.cambridge.org

(3) commercenotes.org

(4) academia.edu

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