ZARCO Exchange: Corporate Governance Failure

By Husain, Saima; Siddiqui, Kamran | IUP Journal of Corporate Governance, October 2013 | Go to article overview

ZARCO Exchange: Corporate Governance Failure


Husain, Saima, Siddiqui, Kamran, IUP Journal of Corporate Governance


Introduction

The major objective of this paper is to report and present the issue of noncompliance and failure of corporate governance in a well known and progressing foreign exchange company in Pakistan. This study provides indispensable information about an informal and quick way of transferring money commonly known as Hawala and/or Hundi. The formal banking system of transferring funds not only entails service charges, but is also time-consuming. On the other hand, Hawala/Hundi mechanism does not follow any system; therefore, it has been termed as illegal around the world. The stand against this system of transferring money became particularly strong after the 9/11 terrorist incidents in the USA and the start of the 'War on Terror' in 2001. The paper highlights the issues of noncompliance and failure of corporate governance in Pakistan by discussing the fraudulent transactions at the ZARCO Exchange, a renowned global money transfer chain operating in Pakistan through their local partner, and subsequently examines the consequences of this failure at personal, organizational and societal levels.

Methodology

The study is descriptive and qualitative in nature and uses case study design to present the failure of corporate governance at ZARCO. The data was collected from archives, published sources such as newspapers and magazines as well as the company website.

Discussion

ZARCO group is a well-known group of companies in the global field of financial services with offices in the USA, UK, Pakistan and Canada. ZARCO stands for reliability and authenticity as there is a substantial compliance with the local laws and regulations in every territory where it operates.

ZARCO Exchange was formed in June 2003, with its head office in Lahore, when the State Bank of Pakistan (SBP) issued working license to Laichte Hasnain, the CEO and owner of the ZARCO. It was established with respect, credibility and dependability, and with an objective of providing its customers flawless, cost-effective and superior financial services such as money transfers, currency exchange, bank drafts, traveler checks, cash passport, cash cards and postal notes, and coins.

It was regulated by the SBP under the Exchange Companies Ordinance, 2002. The company offered its customers the advantage of the largest network of online branches, franchises and payout locations both in the urban and rural areas of Pakistan and collaboration with trusted money transfer companies worldwide. The operations of ZARCO Exchange in Pakistan were said to be in compliance with both the internationally and locally applicable laws and regulations. Within two years of operation, ZARCO acquired one million customers. ZARCO also received prestigious awards such as 30th FPCCI Best Performance Award in Home Remittances, Businessman of the Year Award and Western Union Agent of the Year Award in 2006, 2007 and 2008 respectively. ZARCO was also named as the country's premier 'Role Model Company' by the SBP and was strongly supported by the Government of Pakistan. The SBP also authorized ZARCO to issue encashment certificates.

The company CEO in a ceremony declared that ZARCO's goal was to work along competitive innovation. In this regard, he indicated two elements to be crucial for ZARCO's success: (1) Networking with both international financial entities like Western Union, Pay Pal and Web Money, as well as local banks and franchises to help people in remote areas with their home remittances; and (2) Compliance in order to ensure due diligence to meet the international standards of anti-money laundering.

ZARCO Fiasco

While working on a campaign against hawala (undocumented/informal fund transfers) business, initiated on the directives of SBP, the Federal Investigation Agency (FIA) booked six foreign exchange companies and their owners. Amongst these was ZARCO. The FIA report stated that the Chief Executive of ZARCO illegally transferred Rs. …

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