Ethics in Finance (banking)

UNIVERSITY OF APPLIED SCIENCES

Faculty of Business Management and Social Sciences

ETHICS IN FINANCE - HOW TO CONTROL MISBEHAVIOUR IN BANKING

(Business Ethics)

Summer term 2005

Lecturer: Prof. Dr. Peter Mayer

Student: Klaudia Suљkovб

300660

Date: 20. 05. 2005

Table of Content

1 Introduction 3

2 General principles of banks 4

Banking secrecy 6

1. The Identity of the Client is Always Known to the Bank 6

2. Preserving Documents 7

3. Protection of Personal Data 7

Code of conduct 8

3 Money Laundering 8

Money laundering - Interpol's definition 8

Actions to combat money laundering 10

Anti - money laundering (Citigroup) 11

The Citigroup Anti-Money Laundering Program 12

4 Fraud 12

Definition of Fraud 12

Credit Card Fraud 13

TYPES OF POSSIBLE CREDIT CARD FRAUD 13

Preventing Card Fraud 18

PHISHING 18

How to recognize potential phishing scams? 19

Basic email advice 19

1 Introduction

Ethics is the integrity measure, which evaluates the values, norms and rules that constitute the base for individual and social relationships, from a moral perspective.

Ethics in business means trying to be a good corporate citizen; trying as an

organisation to adhere to certain ethical values; and trying to do the right thing by all the various stakeholders - customers, employees, suppliers and shareholders - that any business organisation has. It means "choosing the good over the bad, the right over the wrong, the fair over the unfair".

Since banks, in a modern day society, almost everywhere play an important role which includes unifying and intermediary roles between the fund-supplying and fund-demanding sides of the society, executing savings and investment functions, are obliged to obey certain ethical principles of the banking profession and organizational ethics.

What is called ethics in banking?

Ethical values such as honesty, integrity, fairness, responsible citizenship and accountability?

Is there any bank that would claim that it was right to accept bribes in return for loans, to lend to connected parties and to cheat customers? Unfortunately, it is not as simple as this. However, there is sometimes a gap between what banks claim and what they do. As the Asian crisis has demonstrated, ethical values are still not firmly entrenched and followed in many banks in the region. Bribery and corruption have been one of

the root causes of the banking problems, and the Bank Bali scandal has shown that the process of reform still has a long way to go.

The business of banking and finance and those engaged in it, has a long history of providing financial services to society. Banking business is becoming more and more complex with each passing day. One reason is perhaps the globalization of business activities, which may be summed up as the tendency of the world to become one market place. We have seen time and again that as the banks reach out beyond their home market, they become increasingly exposed to unfamiliar business environments and customers whose ethical standards may vary and may be quite different from their own. This, according to financial experts, puts an extra strain on the 'know your customers policy' about which the regulators are so unrelenting. It has been noticed quite often that when banks stray outside their home territories, ethical dilemmas crop up. Banks therefore need to be extra cautious about their business dealings and relationships with people having dubious track records.

2 General principles of banks

Considering the requirements for protection of the rights and interests of depositors, establishment of stability and confidence in financial markets, along with requirements for economic development, the banks have no options but to pursue their operations in compliance with certain general principles.

They are: [a]integrity; [b] impartiality; [c] reliability; [d] transparency; [e] consideration of public benefits and interests, and environmental awareness; [f] controlling money laundering.

[a] Integrity: While performing their regular services, banks consider the principle of integrity in their relations with customers, employees, shareholders, national and multi-national companies and also other banks, institutions and corporations.

[b] Impartiality: For obvious reasons, banks at all times have to maintain a high degree of impartiality. Under no circumstances can they discriminate between their employees and their customers. In fact they are bound to offer equal services to all, without any discrimination on the basis of nationality, religion, financial or social status and gender.

[c] Reliability: It must be noted that the soundness of the banking system and its reliability factor is a matter of public concern at all times and in all societies. All banks have to keep that in mind at all times.

[d] Transparency: Perhaps, of late, transparency is the most talked about subject in our society. Banks therefore, in order to maintain complete transparency at all times, inform their customers in a clear manner of their rights and obligations, including benefits