Checking trade-based money laundering

Dhaka,  Wed,  27 September 2017
Published : 20 Jun 2017, 21:16:22

Checking trade-based money laundering

Bankers and experts, while taking part in a review workshop in Dhaka on Sunday last, had hit the bull's eye. They wanted the central bank and the customs authority to make collective efforts to check the trade-based money laundering (TBML), particularly in view of its emergence as a serious threat to the country's long-term economic stability. The primary responsibility here lies with the banks as they are required to ensure the legal compliance relating to external trade and see to it that prices quoted in the letters of credit (LCs) of both exports and imports are genuine ones.  The customs authority need to be adequately vigilant to monitor that both import and export shipments are sticking to the quantities mentioned in their LCs and importers and exporters concerned paying the right amount of duties and taxes to the government. 

The TBML, lately, has come into focus, particularly in the case of Bangladesh, because of the dominant role it has been playing in the flight of capital. The Washington-based research organisation, the Global Financial Integrity (GFI), in a recent report highlighted that an amount of fund, equivalent to 12 to 17 per cent of the value of the country's trade, had flown out during a period of one decade, ending in 2014. The flight had taken place through trade mis-invoicing and other illegal transfers. And, in all probability, the flight has been going on ceaselessly. In 2014, according to the GFI estimate, more than $9.0 billion had flown out of the country through various means, including external trade transactions. This, undoubtedly, involves a substantial amount of money that is enough to bankroll the construction of at least three bridges, each equivalent to the size of the one now being built over the Padma River. 

The reasons for transferring such an enormous volume of fund from the country need to be properly and effectively addressed by the policymakers through appropriate measures. But prior to that, it is also equally important to plug the holes through which such transfers are made. Small transfers made at the individual levels are hard to check. But large transfers, being made particularly through trade transactions and transfer pricing, can be checked to a large extent if the relevant government agencies and the banks act in a concerted manner, with utmost sincerity. Banks do play a major role in trade transactions. It is important for them to see to that the prices quoted by importers for their goods in their LCs are in line with their international prices. Such information, these days, is just a click away from the computer mouse.  

However, the role of the central bank is also crucially important on this count. It will have to monitor constantly that the commercial banks do their jobs diligently in the matters of trade transactions. If the banks are alert enough to stop over- or under-invoicing, the extent of TBML is expected to come down notably. The central bank does also need to ensure that the export proceeds are repatriated in time by the businesses concerned. Since apparel exports fetch the largest volume of foreign exchange, the focus of the monitoring here has to be more on this area. The stories of mis-declaration in imports do often hit newspaper headlines. But suspicion is strong that many such incidents of mis-declaration are not divulged, deliberately or otherwise. In fact, mis-declaration is designed either to evade duty payments or transfer of funds. So, the customs' role is equally important in stopping TBML. The call that has been made for initiating collective efforts by banks and the customs authority for curbing the flight of capital through trade transactions, should, therefore, be heeded to, without any further delay on the part of all the authorities concerned.
Editor : A.H.M Moazzem Hossain
Published by the Editor for International Publications Limited from Tropicana Tower (4th floor), 45, Topkhana Road, GPO Box : 2526 Dhaka- 1000 and printed by him from City Publishing House Ltd., 1 RK Mission Road, Dhaka-1000.
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