Ethics Report: Pramuka Bank Scandal, BBA309, Semester 1, 2019

This report investigates the Pramuka Bank scandal in Sri Lanka, which involved significant ethical breaches due to the negligence of the Central Bank. It details the scandal, highlighting the embezzlement of funds and the resulting financial losses for depositors. The analysis employs Kantian and Utilitarian ethical theories to evaluate the actions of the bank's management, concluding that their behavior was unethical from both perspectives. The report emphasizes the lack of good will and the negative impact on the greatest number of people. Finally, it provides key policy recommendations for bank managers, focusing on establishing ethical codes of conduct, to prevent similar unethical practices from occurring in the future. The report underscores the importance of ethical governance and sustainability in the financial sector, and the need for strict oversight to protect stakeholders and maintain public trust. This report is contributed by a student and is available on Desklib, which provides AI-based study tools and resources for students.

Running head: ETHICS, GOVERNANCE AND SUSTAINABILITY
Ethics, Governance and Sustainability
Name of the Student
Name of the University
Author Note

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Executive Summary
Ethics forms an imperative aspect of business practice. Banks, finances and other
business enterprises in each and every part of the globe need to adopt an ethical course of
operation in order to keep its share holders, stakeholders and customers happy while
incurring huge levels of profit at the same given time. It is only by being ethical in practice
that a bank or financial institution can encourage depositors to invest money here and
motivate employees to do their best to achieve the business goals or aspirations of the
institution. This report discusses the Pramuka Bank scandal that occurred in Sri Lanka due to
the negligence of the Central Bank of the country, analyzes the scandal using the Kantian and
Utilitarian theories on ethics and concludes by providing some key policy recommendations
that can be considered by bank managers and administrators to prevent corrupt practices from
being undertaken here.

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Table of Contents
Introduction................................................................................................................................3
1. About the Pramuka Bank Scandal......................................................................................4
2. Analyzing the Downfall of the Pramuka Bank in Sri Lanka using Kantian and Utilitarian
Perspectives on Ethics................................................................................................................5
3. Key Policy Recommendations for Bank Managers to prevent Unethical Practices in
Banks..........................................................................................................................................7
Conclusion..................................................................................................................................9
References................................................................................................................................10

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Introduction
Ethics concerns the moral judgments that an individual has about what is wrong and
what is right. Business ethics in particular refers to the capacity and the ability to take the
right decisions for the progress and development of a business organization, to undertake
activities that will look into the interests and the requirements of stakeholders and
shareholders alike and to conduct operations in a way that these do not have a detrimental
impact on society or on the surrounding natural environment (Alhammadi et al., 2018).
Corporate social responsibility forms an important part of business ethics as does the process
of sustainable development. Yet corporate governance is not always known to be ethical in its
practice, with many leading companies of the globe often engage in corrupt business
practices that jeopardize the interests of shareholders and stakeholders and which lead to
shame and disgrace for the company engaging in such practices. Corporate scandals are
known to have taken place in each and every part of the world, especially in developing
corners of the globe where poverty and economic inequality constitutes an important
motivation behind the desire to act unethically in business (Alhammadi et al., 2018). This
report looks at the ethical scandal that the Pramuka Bank in Sri Lanka was involved in, and
which has been reported about extensively in the Sri Lankan dailies. The report describes the
scandal in detail, analyzes the scandal from an ethical point of view using both utilitarian and
Kantian perspectives on ethics and provides a number of key policy recommendations that
can be taken into consideration in order to prevent unethical practices from creeping into the
operations of banks, financial institutions and other business organizations in the country of
Sri Lanka.

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1. About the Pramuka Bank Scandal
The inability on the part of the Central Bank of Sri Lanka to adequately govern the
practices and operations of financial institutions in the country has led to corrupt practices
being carried out in many of these financial organizations, a well known example being the
case of the Pramuka Bank in Sri Lanka. ("Failed Pramuka Bank: Depositors’ saga continues",
2019). Due to such corrupt practices, hard working customers who have invested their money
in the form of deposits and savings in such banks in Sri Lanka have been entirely unable to
reap the returns of their savings. The downfall of the Pramuka Bank is something that took
place as many as fifteen years ago. At the time, the Central Bank of Sri Lanka arrived at the
decision that the only way to move ahead with the situation would be to have the bank
liquidated. This decision on the part of the Central Bank invited outrage from depositors who
came together and formed a collective entity and tried various ways and means by which to
get their money back ("Failed Pramuka Bank: Depositors’ saga continues", 2019). The
banking regulator in Sri Lanka attempted to liquidate the Pramuka at least two times but in
both instances, court intervention was invoked in the matter by the depositors. Although the
Pramuka Bank authorities managed to generate a settlement plan in order to return the money
of the depositors, as much as ten percent of the total deposit amount was subtracted for the
purpose of investment while the balance deposit was to be paid off at a meager rate of only
1.25 percent on an annual basis ("Failed Pramuka Bank: Depositors’ saga continues", 2019).
The last deposit payment on the part of the Pramuka Bank was made in the year of 2016, and
there is not much being said by the bank authorities now about how it is going to get the
balance amount repaid to the depositors. The founder of Pramuka Bank, a man by the name
of Rohan Perera who is said to have embezzled all the funds that led the bank to fall into a
state of crisis is absconding from the country, living in some foreign country with no interest
or zeal being shown on the part of the Sri Lankan administration to get him repatriated to the

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country with the help of Interpol ("Failed Pramuka Bank: Depositors’ saga continues", 2019).
Recovering the money that has been defrauded by Pramuka Bank and imposing the
punishment that is required for such a crime is not something that the Sri Lankan government
seems to be very eager to do, leading to hapless investors and depositors in Pramuka Bank
still having to wait indefinitely to recover their hard earned money ("Failed Pramuka Bank:
Depositors’ saga continues", 2019).
2. Analyzing the Downfall of the Pramuka Bank in Sri Lanka using Kantian and
Utilitarian Perspectives on Ethics
The Kantian perspective on ethical behavior, which is known also as the deontological
theory of ethics states that the only thing in life which can be regarded to be intrinsically
good is the good will of a person, and that actions can be regarded as good only if the
principle behind such actions entails a duty to moral law (Bowie, 2017). Moral law in the
view of Kant is applicable to all people, regardless of their desires or interests. It is something
that can be applied to all people of the world without any contradiction occurring in the
process of doing so. Good will and duty form the core essential of Kantian ethical theory.
Kant believed good will to be something that is even greater than virtue in terms of value. He
was of the belief that virtues can be used to attain immoral ends but good will always has the
best ethical outcome in mind when being put to use. Good will is always good and it always
maintains moral value even in situations when it is not able to achieve its moral goals or
intentions. In this sense, Kant regarded good will to be a unique entity, far greater in scope
and purpose than virtue (Baron, 2018).
Utilitarianism on the other hand is a theory of ethics where the wrong behavior is
determined from right behavior through a focus on possible outcomes. In the view of
utilitarianism, the most ethical action, choice or decision is one that is capable of producing

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the greatest amount of good for the largest number of people (Playford et al., 2015). Hence if
an action is immoral in its essence or core but if it can be used to achieve good for the
maximum number of people, even it means compromising on the interests and rights of one
or two people, then it is an ethical action and is justified for implementation according to this
theory. The declaration of war and the killing of innocents is justified for instance by the
ethical theory of utilitarianism as the outcome of war is to ensure peace and harmony for the
largest number of people in the quickest span of time, even though there are many lives that
are going to be lost in the process (Playford et al., 2015). The main intention or purpose of
utilitarianism is to provide happiness and contentment for the maximum number of people
even if it implies that the means that one has to take recourse to in order to provide such
happiness and content are immoral, violent and wrongful. Apart from war, the oppressive
political policies and practices that are often undertaken by autocratic regimes are often
justified in the name of utilitarianism (Bagus et al., 2016).
When it comes to analyzing the downfall of the Pramuka Bank using the ethical theory of
utilitarianism, it can be said that the corrupt practices that the head of the bank engaged in
that ultimately led to its downfall and which also ultimately led to the money of depositors
being compromised, are entirely unethical in nature and are in direct violation of business
ethics from the perspective of both the Kantian theory of ethical behavior and the utilitarian
theory of ethics. The head of the bank, Rohan Perera as well as the top level management of
the bank had a moral duty or obligation to the depositors who were investing their hard
earned money in the bank in order to be able to earn an interest from it, and by embezzling
funds for their own personal gains, Rohan Perera and others carried out activities that were
entirely unethical and immoral in nature and which lacked good will in every possible way.
The bank management and the head of the bank did not care about the fact that depositors
were going to suffer once all the funds had been embezzled. Instead they focused on how

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much they could personally gain out of the situation, showing no good will at all to the
depositors who had provided them with the funds in the first place, making their actions
grossly unethical from the Kantian point of view (Bowie, 2017). The downfall of the
Pramuka Bank is an ethical scandal that can also not be justified by the utilitarian theory of
ethics which otherwise is seen to condone immoral actions, provided such actions ensure
positive outcomes for the greatest number of people. With regard to the downfall of the
Pramuka, what can be inferred is that the embezzlement of funds on the part of Rohan Perera
resulted in the maximum harm being caused to the greatest number of people. Hundreds and
thousands of depositors who had tirelessly invested in the bank through creation of savings
accounts and fixed deposits ended up losing almost all of their money over night and were
compelled to take recourse to legal measures to try and recover this lost money. The interest
of more was compromised for ensuring the happiness, contentment and interest of just a few,
namely the business head of the bank, Rohan Perera, which is what makes the Pramuka Bank
scandal a highly unethical business scandal from the perspective of the utilitarian theory of
ethical behavior (Playford et al., 2015).
3. Key Policy Recommendations for Bank Managers to prevent Unethical Practices
in Banks
Some of the key policy recommendations that bank managers in Sri Lanka as well as in
other parts of the world can take into consideration in order to prevent unethical practices like
embezzlement from creeping into the administrative set up of a bank, are as follows –
 The first and foremost way by which bank managers can prevent unethical practices
from being undertaken in a financial institution is to establish an ethical code of
conduct that needs to be adhered to by all the employees at the bank, including the top
level management. This code of ethical behavior will outline all the actions that can

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be deemed as unethical and corrupt and which if implemented can invite severe
punitive action by the authorities (Birindelli et al., 2015).
 Bank managers should make it a point to lead by example if they are to establish an
element of ethical behavior in the banks or financial institutions they are responsible
for administering. They need to be fair, honest and ethical in their dealings with
customers and stakeholders as well as shareholders in this in turn will encourage the
people working at the bank to be ethical in their approach to operations as well
(Ferreira et al. 2016).
 Consequences for unethical behavior need to be reinforced by the bank managers
every now and then. If the harsh penalties that can be imposed on banking
professionals including the top level management and the business head, is reinforced
by managers from time to time, then everyone will be aware of the fact that being
unethical is a dangerous thing to do and is best avoided (Jan et al., 2018).
 Ethics speakers should be allowed to come and give lectures to the workers at the
bank as well as the top level management and even the bank or business owners or
directors, in order to emphasize the importance of incorporating ethical practices in
banking activities. By getting ethics speakers to deliver talks three to six times in a
year, banks can go a long way in impressing upon all those working at the bank as
well as those managing the banks that being ethical is the right way to be (Montague
et al., 2016).
 A checks and balances system needs to be created by the members of the top level
management that will look into the interests of customers and depositors by making it
easy to detect the embezzlement of funds. The checks and balances system needs to
be updated regularly and should be implemented using sophisticated software to avoid
glitches from arising in the auditing process (Alhammadi et al., 2018).

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 Employees need to be shown their appreciation by bank managers every now and then
if they are to be restrained from engaging in corrupt practices. A valued employee
will always feel motivated to do their best for the business organization instead of
going against the organization (Bagus et al., 2016).
 Leaders who violate ethical standards need to be held accountable for their actions. If
the business head or owner of the bank is found to be engaging in fraudulent activities
using the checks and balances system, then the members of the top level management
along with the employees at the bank should vote together to get this person thrown
out of the banking administration on grounds that his behavior is illegal and
unjustified and that it is going to put the money of hundreds and thousands of
investors and depositors at risk (Birindelli et al., 2015).
Conclusion
Thus, the Pramuka Bank Scandal in Sri Lanka is a well known example of a corporate
ethical scandal that took place in the country and which compromised the hard earned
investment of several thousand depositors. It is scandal that is ethically wrong from both the
Kantian and Utilitarian theories of ethical behavior. Bank managers and the top level
management of banks in Sri Lanka as well as in other parts of the globe need to have
adequate mechanisms in place to detect fraudulent behavior by banking executives including
leaders and bank owners, and hold them accountable for such behavior by taking punitive
action against them.

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References
Alhammadi, S., Archer, S., Padgett, C., & Abdel Karim, R. A. (2018). Perspective of
corporate governance and ethical issues with profit sharing investment accounts in
Islamic banks. Journal of Financial Regulation and Compliance, 26(3), 406-424.
Bagus, P., Gabriel, A., & Howden, D. (2016). Reassessing the ethicality of some common
financial practices. Journal of Business Ethics, 136(3), 471-480.
Baron, M. W. (2018). Kantian ethics almost without apology. Cornell University Press.
Barry, N. (2016). Business ethics. Springer.
Birindelli, G., Ferretti, P., Intonti, M., & Iannuzzi, A. P. (2015). On the drivers of corporate
social responsibility in banks: evidence from an ethical rating model. Journal of
Management & Governance, 19(2), 303-340.
Bowie, N. E. (2017). Business ethics: A Kantian perspective. Cambridge University Press.
Failed Pramuka Bank: Depositors’ saga continues. (2019). Retrieved from
http://www.sundaytimes.lk/181125/business-times/failed-pramuka-bank-depositors-
saga-continues-321198.html
Ferreira, F. A., Jalali, M. S., & Ferreira, J. J. (2016). Experience-focused thinking and
cognitive mapping in ethical banking practices: From practical intuition to
theory. Journal of Business Research, 69(11), 4953-4958.
Jan, A., Marimuthu, M., Pisol, M., Isa, M., & Albinsson, P. A. (2018). Sustainability
Practices And Banks Financial Performance: A Conceptual Review From The Islamic
Banking Industry In Malaysia. International Journal of Business and
Management, 13(11).

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Montague, A., Larkin, R., & Burgess, J. (2016). Where was HRM? The crisis of public
confidence in Australia’s banks. In Asia Pacific Human Resource Management and
Organisational Effectiveness (pp. 67-86). Chandos Publishing
Playford, R. C., Roberts, T., & Playford, E. D. (2015). Deontological and utilitarian ethics: a
brief introduction in the context of disorders of consciousness. Disability and
rehabilitation, 37(21), 2006-2011.