Gift to a Client During Ramadan and a 'Marketing' Payment to a Referrer
A relationship manager at an Islamic bank wants to (a) send a 5,000 gift hamper to a corporate client who is about to decide on a 50,000,000 financing facility, and (b) pay a 2% 'referral fee' to an unlicensed intermediary who introduced the client and who will 'make sure the file moves.' The RM argues: 'Gifts build relationships and are customary; the referral fee is just marketing. Neither is a bribe because no cash goes to the client's decision-maker.' The bank's code is silent on both.
1. Assess the gift to the corporate client against ethics standards. Is 'customary' a sufficient defence?
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No - 'customary' is not a sufficient defence.
Reasoning:
- The gift is timed to a live, material decision (50m facility) and is directed at a client whose decision-maker benefits. That creates an appearance of inducement regardless of intent.
- Ethics standards require avoiding conflicts and the appearance of impropriety, not just actual bribery. A 5,000 hamper in this context is disproportionate and decision-linked.
- 'Customary' is a weak justification: custom does not override the duty to avoid influencing a business decision. The test is whether a reasonable observer would see the gift as intended to secure the facility.
- The absence of a code provision is not permission - the general principles (integrity, objectivity, avoiding conflicts) still apply.
Advise: do not send the gift during the live decision. If relationship gifts are permitted at all, they should be modest, non-decision-linked, disclosed, and approved under a gifts register. Escalate to compliance.
2. Assess the 2% 'referral fee' to the unlicensed intermediary. What are the ethical and control concerns, and what should the bank do?
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Concerns:
- Inducement to expedite ('make sure the file moves') - paying for influence over a credit/approval process is a bribery/facilitation risk, not ordinary marketing.
- Unlicensed intermediary - paying an unlicensed party for regulated financial business raises regulatory and AML concerns; the bank may be facilitating unregulated activity.
- Proportionality and transparency - a 2% fee (1,000,000 on a 50m facility) is large, undisclosed, and not tied to documented, legitimate services.
- Conflict and reputational risk - the arrangement creates incentives to bypass controls and damages the bank's integrity.
What to do:
- Do not pay. Escalate to compliance/MLRO and the board.
- If referral arrangements are legitimate, they must be with licensed/approved parties, documented, proportionate to real services, disclosed, and approved under a third-party payment policy.
- Investigate whether the intermediary has been used before and whether any approval was improperly influenced.
- Record the matter and consider reporting obligations.