Japanese firm mulls halting investment in Bangladesh as fraud case battle drags on

Infograph: TBS

Highlights:

• Nippon halts investment over unresolved Tk5.38 crore embezzlement case
• Former local director accused of fraud and asset misuse
• PBI confirmed fraud; arrest warrant issued but no settlement
• Nippon criticizes slow Bangladeshi court system as investment deterrent
• 950+ foreign-related lawsuits remain unresolved, some decades old
• BIDA attempts mediation to resolve Nippon's legal complications swiftly

Nippon Airconditioning Service Ltd (Nippon), a Japanese multinational that arrived in Bangladesh in 2015 with ambitious investment plans, is thinking of making no further investments unless a Tk5.38 crore fraud case against its former local partner is swiftly resolved. 

The company's frustration highlights a significant disincentive for foreign investment in Bangladesh: the notoriously slow legal system.

Nippon initially planned to invest Tk150 crore, expanding to Tk1,000 crore within a decade, aiming to establish a spacious office and factory, and even export products from Bangladesh to other Asian countries. 

However, these plans have been derailed by alleged embezzlement by its erstwhile Bangladeshi managing director, Khorshed Alam Michael. 

Embezzlement and legal quagmire

NACS BD Co Ltd, Nippon's Bangladeshi subsidiary, alleges that Khorshed Alam Michael, who held a 1% "donation share" and served as local managing director, siphoned off Tk5.38 crore. 

The alleged fraud, discovered in 2017, involved dubious purchases of office space, vehicles, and factory land.

According to NACS BD Ltd and case documents, Michael allegedly withdrew:

• Tk60 lakh to purchase a flat in Bashundhara Residential Area, which he reportedly booked in his daughter's name.
• Tk11 lakh for 23 months of office rent, which he allegedly used for personal expenses.
• Tk1 crore for land purchase near the Japanese Economic Zone in Narayanganj, for which he reportedly presented fake documents.
• Tk3.72 crore for 14 cars from "Car Collection" without company approval; no vehicles were received, and the money was not returned.

Kaori Funahashi, Director of Nippon Air Conditioning Service Co Ltd and Chairman of NACS BD Co Ltd, filed a case with Bhatara police station in 2022. The Police Bureau of Investigation (PBI) confirmed the embezzlement, and an arrest warrant was issued for Michael. 

Although he secured bail in April 2023 by promising a settlement, NACS BD Ltd claims he has not communicated with them since. 

Michael, contacted by The Business Standard, denied the allegations, stating, "I was the owner of the company myself. I didn't cheat anyone," before abruptly disconnecting the call. 

The PBI investigation report, however, contradicts his claim, identifying him as a salaried officer whose 1% shares were withdrawn upon his dismissal in November 2021.

A deterrent to foreign investment

"At this point, we think it will be difficult to make additional investments. We intend to continue our business with the resources we have now. To do that, we need to win the lawsuit," Ms Funahashi told The Business Standard. 

She expressed concern over the Bangladeshi court system's functionality, despite acknowledging its fairness in principle. "I would like the Bangladeshi government to create a mechanism to monitor that fair trials are held."

Ms Funahashi has made multiple trips from Japan for court proceedings but has since returned, overwhelmed by the protracted legal battle. NACS BD Ltd's current Managing Director, Arif Hossain, confirmed that Japanese nationals are unaccustomed to Bangladesh's judicial delays.

The plight of Nippon is not isolated. Business leaders lament that such prolonged legal battles are a major disincentive for foreign investors. "Such behaviour by any dishonest person in Bangladesh will erode the confidence of foreign investors," stated Nurul Kabir, Executive Director of the Foreign Investors Chamber of Commerce and Industries.

Bangladesh's low foreign direct investment (FDI) compared to peer countries is partly attributed to the sluggish resolution of commercial disputes. 

The discontinued World Bank's "Ease of Doing Business" report 2020 highlighted this issue, and data reveals approximately 950 lawsuits involving foreign firms remain unresolved in various courts, with around 250 at the Supreme Court. A striking example is a Swiss firm's fraud case from 1987 that is still awaiting a verdict from the Appellate Division.

BIDA's Mediation Efforts

NACS BD Ltd has reported the matter to the Bangladesh Investment Development Authority (Bida) and the Anti-Corruption Commission (ACC). While Bida typically cannot intervene in legal complications, it is attempting to mediate a swift resolution for Nippon. 

Md Ariful Hoque, Director General (Joint Secretary), International Investment Promotion, Bida, confirmed, "Bida is trying to mediate to settle the issue of Nippon Air Conditioning Service Ltd so as to ease legal remedies in a fast approach. An officer has been assigned the responsibility to this end."