The ACC in its report has touched on the Phajo Nidup cases.
36-year-old Phajo, had 88 loan accounts with various banks with a total outstanding balance of Nu. 818 million (mn) as of December 2021.
The loans were availed in the names of various business entities registered either in his name or his wife’s name and related parties.
The ACC conducted 14 concurrent investigations and forwarded to the OAG for prosecution.
The investigation established a widespread corrupt nexus with a number of public officials across different agencies who facilitated him to perpetuate his fraudulent scheme to obtain loans from various financial institutions.
These individuals included credit appraising officers in banks, officials responsible for lien noting in Thromde and Dungkhag, managers and sales personnel of heavy vehicle dealers, government employees in road transport authority and land administration as well as police personnel.
ACC said this is the most scandalous mortgage fraud ever investigated by the ACC until date.
Lien Noting Fraud
The investigation ascertained that the man began his fraudulent scheme as early as 2016 after learning that he could bribe a staff working in Phuentsholing Thromde responsible for lien noting which is one of the prerequisite steps for banks to sanction and disburse loans. As per the Land Act 2007, land offered as mortgage with financial institutions were required to be recorded in concerned local authorities, Gewogs/Dungkhags/ Dzongkhags or municipal offices.
These authorities maintained a repository of information and acted as a controlling point to ensure that the same properties are not mortgaged multiple times with different financial institutions and transfer of lien properties are not affected unless the banks have discharged the hypothecated assets.
The ACC discovered that, on various instances between 2017 and 2019, one of these staff regularly received financial gratifications from the man aggregating more than Nu.1 million.
She was found to have knowingly and willfully effected 12 lien noting against properties which were already noted thereby enabling the man to obtain 22 additional loans from six banks totaling Nu. 518.894 mn.
Similarly, the other staff who also received pecuniary advantage from the same man processed ownership transfer despite the properties already being under lien by issuing new Lag-Thram without collecting the old ones.
Reprinting of Lag-Thrams (Land Title Certificate)
The investigation also revealed that three NLCS officials were involved directly or indirectly in aiding the man in furthering his fraudulent loan scheme in exchange for financial gratification ranging from Nu. 0.190 to Nu. 0.470 mn. One land record official arranged to print 17 copies of Lag Thrams, four of which were used by the man to obtain loans from three financial institutions amounting to Nu. 27.527 mn. The land record official used deceptive means to cause reprinting of Lag Thrams, which otherwise would be entertained only in lost cases processed formally through local authorities.
Another land record official in Thimphu Dzongkhag Administration, without any authority, assisted the man in issuing lien noting on account of one plot located in Kawang that was already under mortgage by using the e-Sakor access credential of one of his colleagues. The third official who is a surveyor provided his professional services to the man by using the office equipment and also directly participated in reprinting two Lag Thrams which he personally delivered to the man.
The man owned a transport company operating a fleet of heavy vehicles and is one of his principal business activities. The RSTA system showed that between 2016 and 2019, the man had purchased 87 heavy vehicles from two vehicle dealers.
The ACC found out that 22 vehicles did not actually exist and were fraudulently registered in complicity with two staff of the RSTA in Tsimasham, two from insurance companies and three from vehicle dealers.
Between April and July 2018, the man used falsified details of 19 non-existent vehicles as collateral to obtain three transport loans, which added up to Nu. 31.089 mn from one of the banks. Certain portions of the loan proceeds went into liquidating outstanding credits with the same dealer who was later found to have arranged falsified proforma invoices and money receipts.
While few of these individuals acted on instruction of their supervisors, the investigation revealed that the man had, from time to time, induced or rewarded some of them with financial payments with a total sum ranging from Nu. 0.150 to Nu. 0.780 mn. The man obtained fake proforma invoices from vehicle dealers while the RSTA officials registered in the system not only by omitting to conduct physical inspection but also manipulating data entries circumventing input validation rules. Two insurance staff have falsified insurance papers against 19 fictitious vehicles.
These falsified documents were eventually presented to the banks where he also had a number of key officials in his pocket who would subserviently flout and turn blind eyes to procedural diligence.
Staged Civil Litigation
The investigation revealed that the man engaged in selling land that were hypothecated against loans in several banks. Phajo sold 4.95 acres of land at an agreed sale value of Nu. 100 million to a businessman in Thimphu mediated by a broker. Although the urban land transaction had to be processed through the municipal authority, the man and his broker in collusion with the buyer registered a faked civil suit with Phuentsholing Dungkhag Court by concocting a case of breach of contract.
Under the pretense of amicable settlement of dispute among the litigating parties, the trial concluded with a summary hearing in a matter of a few days and the judgement was then used as a pretext to effect ownership transfer in Phuentsholing Thromde.
The broker bribed the lady responsible for lien noting with Nu. 0.1 mn to overlook the discrepancies and issue a noting in enabling the buyer to process a new loan of Nu. 100 mn from the RICBL, Thimphu.
Layered Corrupt benefits
The investigation revealed that several bank officials sought to affiliate with the man in pursuit of personal enrichment and in doing so engaged in various forms of irregular conduct in breach of their duties related to credit appraisal systems and procedures. Depending on their level of position, authority and influence in decision making, the nature of interactions and their surreptitious arrangement also varied. The investigation learned that one senior loan manager of the BoBL Main Branch, Phuentsholing, was the ultimate beneficial owner of two trucks costing Nu. 3.544 mn each registered in his relative’s name.
These two trucks were ordered and paid for by Phajo and again the same trucks were put on hire Phajo’s transport company. The manager also used these two trucks as collateral to process a transport loan for financing the acquisition of another truck which was registered in his mother-inlaw’s name. To conceal the identity of the beneficial owner i.e. himself, he used the names of his relatives while processing transport loans and vehicle registration. The total value of corrupt benefit, the manager had gained from the man was Nu. 7.536 mn.
Similarly, three other officials were also found to have accepted financial gratifications of Nu. 0.940 mn.
The investigation found that Phajo had obtained 16 loans (four Overdrafts and 12 transport loans) from the BoBL Branch in Gedu with a sanctioned amount of Nu. 89.120 mn. He processed and secured multiple loans in the name of his wife’s relatives. The approved loans were fraught with anomalies of varying degree of seriousness from infringing the standing requirement to execute loan papers within the bank’s premises by forging or falsifying key documents in presence of bank officials themselves. He arranged false work orders in the name of other agencies, submitted properties already used in other banks, taken custody of Lag Thram. Some loans were found to have been approved within a day. Most of the fictitious vehicles registered with the RSTA were loans based on fictitious registration certificates and insurance policy certificates.
The Branch Manager received Nu. 0.2 mn and employment of his nephew in the man’s company.
The BNBL, Phuentsholing also sanctioned 16 loans amounting to Nu. 57.852 mn between 2015 and 2018. One Credit Officer and a Legal Assistant were involved wherein they misrepresented in the appraisal form, ignored a fictitious sale deed purporting to have bought land, sanctioned loans to businesses that did not physically exist, and released properties without liquidating the loan. The two bank officials received Nu. 1.66 mn as gratifications
Bank induced loans to clean-up NPL
Over a period of 18 months beginning from 2018, the DPNBL had sanctioned six loans amounting to Nu 357 mn to the man against whom the bank later alleged to have committed a double mortgage fraud. While the corrupt instances discovered in other banks can be attributed to individual employees, the DPNBL case differed slightly, in that, managers and executives were collectively involved in a decision that violated prudential credit policies. The ACC came to know that management indulged in a behind-the-scenes negotiation with the man to provide loans to him under an inconspicuous deal in which the latter would purchase and takeover seven foreclosed properties mortgaged by three defaulting clients (i.e. seven plots of land measuring 7.25 acres under Chhukha Dzongkhag jurisdiction) which the bank, in spite of repeated auctions, could not dispose of at its reserved value.
Since the bank could not sell the mortgaged properties directly to the man, an auction was staged in which only two bidders turned up, one of which was sent by the man. After declaring the auction unsuccessful, the bank negotiated with a man who agreed at Nu.54 mn for the properties based on which the bank sanctioned two overdraft loans from where they adjusted all outstanding loans of the three defaulters.
This case exemplifies how banks can ‘clean up’ their NPL accounts by advancing new loans to close the old ones. During the same period the bank was in the process of negotiating and considering loan sanction to the man, individuals affiliated to the bank’s promoters or management team, seized the opportunity to offer and sell their own private properties and business units to the man which significantly enhanced the size of loans needed to finance the acquisition pushing the bank to inflate appraisal value of properties and hypothetical business income.
Phajo confessed to have paid financial inducement or reward amounting to Nu. 0.8 mn to four bank officials involved in processing the loans. Similar to other banks, the investigation found a wide range of irregularities and gross omission of due diligence.