Bangladesh’s e-commerce has remained unhinged for years. Too late to fix it?

Bangladesh's burgeoning e-commerce industry has been dogged by a lack of monitoring and transparency for years as the repeated calls for oversight seemingly fell on deaf ears until the recent allegations of embezzlement and financial fraud surfaced against a few platforms.

Although new guidelines have now been drafted, customers and sellers are still no closer to recovering the billions of takas they paid to digital commerce firms such as Evaly and Eorange, whose owners are currently languishing behind bars.

Government officials have blamed the 'greed' of customers, ensnared by abnormal discounts, for the debacle. But the e-Commerce Association of Bangladesh or e-CAB has pointed the finger at a lack of coordination among government agencies to monitor the sector.

The coronavirus pandemic came as a blessing for the digital commerce sector, which was introduced in Bangladesh a decade ago, as housebound people resorted to shopping online for a variety of products, ranging from groceries to clothing and electronic devices.

Numerous e-commerce firms opened for business in the past one year, joining a handful of platforms that started operations after Bangladesh Bank launched National Payment Switch for online transactions in 2012.

Well before the recent scams were unearthed, bdnews24.com published a report in June 2019 on how e-commerce was booming beyond any regulatory oversight.

The report highlighted the difficulties in ensuring consumers' rights in cases of fraud as well as the receipt of low-quality or expired products in the absence of a regulatory authority to discipline the sector.

“We need a monitoring authority for e-commerce to bring discipline to the sector,” Consumers Association of Bangladesh President Ghulam Rahman had told bdnews24.com at the time.

Mohammad Rassel, managing director of Evaly, and his wife Shamima Nasrin are in jail, with the company owing its customers and sellers over Tk 5.4 billion.

“We don’t have such regulatory authority at the moment but we’re contemplating the issue. We’ll do something soon,” Commerce Minister Tipu Munshi had said.

In the face of the controversy sparked by Evaly’s business model, bdnews24.com ran another report three months later on the concerns surrounding consumer safety in digital spaces. Tipu Munshi and Shomi Kaiser, the then president of e-CAB, said they had been looking into the issue to ensure safe online shopping.

More than two years have since passed but many of the customers who ordered products worth hundreds of thousands of takas -- mostly to resell and make a profit from the huge discounts on offer -- by borrowing money or selling family land and gold ornaments have filed thousands of complaints with the Directorate of National Consumer Rights. And, the number is rising beyond the officials’ capacity to count.

Launched in 2018, Evaly gained popularity among customers by offering up to 50 percent discounts on costly products, such as motorcycles, air-conditioners and TV sets.

Mohammad Rassel, the managing director of the company, had said he had been implementing an 'unusual business model' to capture the market in the absence of any competition regulation in the sector. Now, he is in jail, with Evaly owing its customers and sellers over Tk 5.4 billion as its business became more aggressive and unconventional.

Eorange, Dhamaka, Qcoom, Dalal, Sirajganj Shop, Aladiner Prodip, Boom Boom, Adian Mart, Need, Alesha Mart and several others followed the Evaly model, luring a huge number of customers while at the same time, creating the scope for more scams. This forced the commerce ministry into action as it issued the digital commerce guidelines on Jul 4.

But the founders of many of these firms had already begun to go into hiding. A police official involved with Eorange was caught in India.

Recently, the High Court called into question the government's efforts to curb money laundering schemes operating in the name of e-commerce, multi-level marketing (MLM) and microcredit businesses in the wake of the Evaly scandal.

"Those [who are embezzling the money] will go to the police station and spend their nights in jail. But what about the money that they took?" a judge asked.

There is no official account of how much money customers and sellers lost to the e-commerce scams.

Police tussle with a protest march led by disgruntled Eorange customers in front of the Jatiya Press Club on Thursday, September 23, 2021. Photo: Asif Mahmud Ove

According to e-CAB, the controversial firms made transactions worth Tk 67 billion from March to Jul 4 and Tk 4.9 billion over the following months. The Ponzi scheme-style businesses stopped once the authorities began to turn their gaze at the e-commerce sector. A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors.

LACK OF COORDINATION?

An e-commerce policy was drawn up in 2018 as part of an initiative by the e-Commerce Association of Bangladesh or e-CAB, said General Secretary Abdul Wahed Tomal.

The policy provided specific directions to adopt immediate, mid-term and long-term plans. It included the formation of a central coordination cell, technical committee and risk management committee. But it never saw the light of day.

“We could foresee in 2018 that Bangladesh would confront such a problem and we suggested introducing an escrow service in the policy. In 2019, the Prime Minister Office gave a directive to Bangladesh Bank in this regard following a long meeting,” he said.

After the Evaly issue came to the fore, e-CAB formed a technical team of five Dhaka University teachers and two lawyers in 2020.

“They evaluated the Evaly business model, identified the loopholes and recommended forming a guideline. We identified different problems and shared those with the commerce ministry, the ICT Division and Bangladesh Bank.

“We also discussed the risks associated with the business with the Consumers Rights Forum and Competition Commission. Under the circumstances, the commerce ministry published a guideline on Jul 4. But the damage was already done by that time.”

In order to address the issue, e-CAB revoked the membership of some companies, including Eorange, at the end of August, the only visible effort made so far.

“We have been seeing a huge lack of coordination between Bangladesh Bank, the commerce ministry and the Directorate of National Consumers Rights for a long time,” Tomal said in a recent discussion organised by the Centre for Policy Dialogue.

The introduction of an escrow service to prevent any financial fraud had been touted by e-CAB a long time ago, according to Tomal.

An escrow is an arrangement where the buyer and seller of big-ticket items, such as properties, large amounts of cash, shares, and other physical assets place them in the care of a neutral third party until the transaction is completed.

“The current situation could never have happened if the escrow service was introduced two years ago,” said Rezwanul Haque Jami, former vice president of e-CAB. “It would have prevented the embezzlement of millions of takas by now.”

Since the introduction of the escrow service, deceptive practices on e-commerce platforms have ceased.

Transactions worth Tk 60 billion took place from March to July, but it plunged to Tk 4 billion in the period of July to September, once the escrow service came into effect.

The figure, however, does not include sales of delivery companies such as Chaldal, Ajker Deal, Foodpanda, Pathao Food, Hungrynaki.

REGULATORY FAILURE?

Embezzlement in e-commerce is an institutional failure, CPD Chairman Rehman Sobhan said in a recent discussion. Barrister Tanjib-ul Alam echoed his views at the same event.

“This is a scam. It is also a regulatory failure. It was allowed to go on for a long time and the fraudsters were kept in the good books. This kind of corruption does not take place overnight,” Sobhan said.

Government organisations that are responsible for implementing the laws have failed repeatedly, according to Tanjib.

He pointed out that the Competition Act outlines the situations in which legal action can be taken against those defying the law. The authorities, however, ignored it and took no measures.

With their present workforce, the DNCR is overwhelmed by the number of complaints, which have reached 17,000, said Tanjib. They have failed to take necessary measures in the context of overall complaints, he added.

Tanjib pointed to Bangladesh Bank and the Bangladesh Financial Intelligence Unit as the biggest example of regulatory failure in this area.

“It was their sole responsibility to identify the cases of embezzlement, but they failed to do so. The BFIU froze the account of Evaly just for a month when a newspaper published a report against them in August last year. They decided to unfreeze the account after a month. This made the general people think Evaly was legally in the right. They then returned to placing orders in Evaly."

Evaly's money has been channelled to different government bodies, Tanjib claimed.

“We're afraid to name the kingpins. Rassel has donated money to different government organisations. Why didn't they ask about the source of that money he was distributing?"

He highlighted Evaly's sponsorship of the Bangladesh Cricket Board, the Rapid Action Battalion and events held by various ministries.

“For example, Bangladesh Cricket Board is our favourite organisation. We consider the cricketers our heroes, and we made them wear a jersey emblazoned with Evaly's name on it. Isn't it an indirect validation?”

Commerce Minister Tipu Munshi speaks at a dialogue at the Osmani Memorial Auditorium in Dhaka on Nov 26, 2020 on ways to fast-track the implementation of the government's incentive package for economic recovery and social protection to battle the coronavirus crisis.

WHAT THE COMMERCE MINISTER SAYS

The government has been working to bring discipline to the e-commerce sector since 2019, said Commerce Minister Tipu Munshi. He apportioned some of the blame on the coronavirus pandemic for the delay in implementing regulatory measures.

"The coronavirus pandemic prevented us from working in full swing for the past year. Most of the businesses were closed and the e-commerce sector has expanded to a great extent,” the minister said when asked why the government failed to take timely action to regulate the sector despite repeated warnings.

“We have tried to continue our work, though there could be some flaws in it. We called on Bangladesh Bank to introduce an escrow service, which they obliged. We’re trying to solve the other problems too.”

[Written in English by Osham-ul-Sufian Talukder and Sabrina Karim Murshed. Edited by Turaj Ahmad]