Combating trade-based money laundering

With the development of technology and diverse trading practices, criminals these days are in a position to change their strategy off and on to divert attention of law enforcement agencies to launder money abroad. Tapid expansion of global trade has increased the possibilities for trade-based money laundering (TBML). The Financial Action Task Force (FATF) recognised TBML as one of the major methods by which criminal organisations and terrorist financiers disguise the proceeds of crime and move money through trade transactions in an attempt to legitimise their illegal origins or finance their activities. TBML has become one of the most sophisticated methods of cleaning dirty money and an increasingly important channel of money laundering.

According to Global Financial Integrity (GFI) report, Bangladesh is one of the top countries facing the TBML which is a significant threat to growth and sustainable development. According to the survey conducted by the Bangladesh Institute of Bank Management (BIBM), because of rapid expansion of foreign trade, TBML has become a major concern for the banking industry of Bangladesh. "Illicit financial flows are the most damaging economic problems faced by the world's developing and emerging economies," says Raymond Baker, President of GFI.

It is difficult to estimate exactly how much illicit money flows through the world's financial system every year, but the amounts involved are undoubtedly huge. According to a report of Transparency International Bangladesh (TIB), some $3.1 billion or Tk. 26,400 crore is being illegally remitted from Bangladesh a year. This syphoning of money is depriving the government exchequer of about TK 120 billion as revenue each year, says the report.

The most common schemes involve fraudulent trade practices such as, over-and-under invoicing of goods and services, multiple invoicing of goods and services, over-and-under-shipment of goods and services, short or over shipping, shipping something other than what is invoiced, shipping nothing at all with false invoices and falsely describing goods and services etc.

TBML is a process of moving money away for the purpose of disguising its origins and integrating it back into the formal economy. For instance, Mr. 'X', an importer of fruits, usually operates with 'Y Bank' with small-scale LCs. All on a sudden, he opened account with four other banks and at a time opened 20 LCs with the five banks worth $5,106,842. Banks made import payments based on shipping documents. It is found that no single shipment was made against the LCs and the amounts remitted were not refunded.

To fight against TBML risks Bangladesh is fully committed to remain at the forefront of global efforts. In line with the international standards and initiatives, Bangladesh has passed the Money Laundering Prevention Act (MLPA), 2002 and Rules, 2019, Anti-terrorism Act, 2009 and Rules 2013. According to section 2(v) (ii) of MLPA, smuggling of money or property is money laundering and it provides stringent punishment for the offence. Bangladesh being a member country of the Asia Pacific Group on Money Laundering (APG) is committed to effective implementation and enforcement of the internationally accepted forty recommendations of the FATF. Bangladesh has the membership of the Egmont Group which helps obtain global support in fighting against money laundering, terrorist financing and other financial crimes.

In 2019, Bangladesh Financial Intelligence Unit (BFIU) issued guidelines namely "Guidelines for Prevention of Trade Based Money Laundering" for banks to prevent money laundering in the name of export and import. According to Import Policy Order 2015-2018, importers are obligated to import goods at competitive prices. Banks are also advised in the Guidelines for Foreign Exchange Transactions (GFET), 2018 to take cautionary measures to ensure that the price of the goods concerned is competitive in terms of prevailing price in  international market on the date of contract and/or similar imports in contemporary period.

Lack of regulatory monitoring and supervision of financial activities of individuals and enterprises makes scopes for criminals to hide their actual financial reports. Lack of good governance and compliance within enterprises is another major cause of the malaise of information hiding and money laundering.

Absence of coordination is one of the major challenges in combating TBML. "Misdeclaration of pricing of the imported and exported products is a great concern for TBML. There is a minimum price limit for products but no maximum limit. As a result, fraudsters can easily launder money," said Moinul Khan, commissioner of Customs Valuation and Internal Audit Commissionerate.

To combat TBML, enforcement of all trade-related laws and regulations needs to be ensured and criminals irrespective of their political affiliations should be brought to book. As trade process involves multiple parties, combating this crime requires unified measures by all concerned agencies. As part of the effort, FATF's Best Practices on TBML should be followed. Better training is required for banking supervisors on how to examine and assess banks' policies, procedures and processes for handling trade finance activities. Raising private sector awareness of the problem of TBML through conferences, seminars and other events and case studies can help financial institutions identify TBML activities. Implementation of promising technologies like blockchain and artificial intelligence across the financial industry including the central bank can monitor complex, multi-party transactions and ensure more transparency in cross border transactions and help curb the menace of TBML.

Mazharul Islam is a Corporate Legal Practitioner.

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