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Containing trade-based money laundering  

Published: May 30, 2019 22:19:04 | Updated: June 01, 2019 22:03:19


Some countries do have some reservation about definition of illicit funds, but they, like many others, see the movement of such funds from one country to another as a serious global problem, particularly in the case of developing countries. The volume of the illicit fund coming in and going out of these countries, according to the latest report of the Global Financial Integrity (GFI), is worth more than one-fifth of their total trade with the rich world. Bangladesh, too, is affected by this scourge.

According to GFI estimates, illicit outflow of funds from this country in 2015 was $5.2 billion and inflow $2.8 billion (The biggest outflow--$9.6 billion---was recorded in 2013). The situation during the latter years is not known. Yet any major improvement is unlikely given the prevailing graft situation and the presence of substantial amount of black money in the economy.  It is now widely accepted that most part of the illicit fund transfers does take place through trade misinvoicing. Funds transferred through trade transactions, according to the GFI, is equivalent to nearly 15 per cent of the total trade transactions of Bangladesh with the advanced economies. The rate is higher than in India and Sri Lanka.

Policymakers, economists, bankers and other relevant quarters here also are in total agreement that trade-based money laundering remains a major problem. Country's central bank has taken a few measures, including setting up of the Financial Intelligence Unit (FIU), to address the issue. However, none appears to be certain about the outcome of these measures, particularly in areas of trade misinvoicing.  There has been a significant rise in reports received by the FIU on suspicious transaction reports (STRs) from banks, financial institutions and exchange houses. How far those transactions were trade-related is also not known.

The main reason behind the failure to contain the trade-based money laundering remains the lack of capacity on the part of local banks, in terms of logistics and skilled manpower. The lack of awareness among bankers and clients does also help the cause of illicit fund operatives. The bankers are also aware of their shortcomings. In a recent survey conducted by the Bangladesh Institute of Bank management (BIBM), most bankers highlighted the problem they face while verifying prices of products during the opening of letters of credit (LCs). They suggested opening of an independent source for price verification or a central price database to prevent trade-based money laundering. They find it really difficult to know the right price of any item because a product can be sourced from multiple points with varying price tags.

Moreover, not all banks are equally efficient in handling foreign trade transactions. Foreign banks here are better placed than their local counterparts as far as dealing with trade-related transactions is concerned. The problem is acute in the case of smaller banks. Actions to enhance cooperation between the customs and the Bangladesh Bank (BB) have brought about some positive changes in locating suspicious transactions and reporting the same to the FIU, but more need to be done in areas of trade misinvoicing. 

The National Board of Revenue's reported initiative to review the existing country-specific minimum import value and amend the relevant SRO to remove disparities in import values of goods imported from Asian and other countries might help the banks in getting the right price tags. What is, however, necessary is building enough capacity at the level of individual banks, both logistically and manpower-wise, to stop flight of capital through trade transactions. 

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