A large amount of money is being laundered abroad from Bangladesh through export and import business or trade financing as a section of unscrupulous businessmen is playing four tricks for the purpose, according to a Bangladesh Institute of Bank Management research report.
The four tricks being used are over- and under-invoicing, over- and under-shipment, false description of the products and showing multiple invoicing in the letters of credit authorisation forms submitted in the banks by the businessmen, the report said.
According to a study (released in May) of Washington-based Global Financial Integrity, illicit financial outflow from Bangladesh was estimated $8.97 billion (about Tk 72,000 crore) in 2014.
The amount of laundered money in 2014 by traders was estimated ranging from $4.96 billion to $7.88 billion or the highest 88 per cent through trade misinvoicing —over-invoicing in import and under-invoicing in export.
Every year, on an average, some $5.3 billion to $7.5 billion was siphoned off from the country in 2005-2014, according to the study.
The BIBM report said banks should be careful while verifying the value of exported and imported products mentioned in the LCAF to tackle money laundering by using the tricks.
Banks will have to collect adequate and proper information from the businesspeople involved in the export and import business, the BIBM report said.
The report suggested that Bangladesh Bank should draw up a more updated policy so that bank can avoid defaulted loans through trade financing.
BIBM director (training) Shah Md Ahsan Habib presented the research paper at a workshop on ‘trade service operations of banks’ organised by the institute at its auditorium in the capital Dhaka.
According to the research paper, the state-owned commercial banks continue to lag behind the private commercial banks in the area of operating international business.
The businesspeople through the SCBs had settled import payment of 27 per cent of the country’s import in 2011, which decreased to 7 per cent in 2016.
The local private commercial banks, on the other hand, made an increased import payment of 85 per cent of the total volume of import in 2016 against 64 per cent in 2011.
According to the BIBM report, the export earnings through the SCBs have also been sliding for the last few years as their earnings through the business stood at 10 per cent in 2016 from 18 per cent in 2010.
BB deputy governor SK Sur Chowdhury attended the workshop as chief guest while BIBM director general Toufic Ahmad Choudhury presided over the event.
Sur said that considering worrying issues of trade-based money laundering, compliance requirements, and other financial crimes, regulatory supervision and reporting became crucial.
With the growing business complexities and financial crimes, trade services are becoming increasingly challenging to the banks and financial institutions, he said.
‘Though trade finance is seen as a relatively safe and liquid asset, with low default rates, however, it is self-liquidating and short-term in nature; banks can run down their trade finance portfolios quickly in times of financial stress,’ Sur said.
All these challenges can offer invaluable lessons to the trade service providers of Bangladesh, he pointed out.
Helal Ahmed Chowdhury, supernumerary professor of the BIBM, said that
money laundering through trade financing should be stopped and banks should arrange workshops for their officials to speed up international business.
Islami Bank Bangladesh deputy managing director Md Mahbub ul Alam said Bangladesh’s banking system was yet to be improved as expected and the situation had its reflection in the country’s international trade system.
The central bank should come forward to develop more the international trade financing of the country’s banking sector, he said.
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