Combatting trade-based money laundering

It is the lack of implementation of such laws and guidelines and lack of ensuring justice that allows wealthy individuals and criminals to hide and launder money

The rapid expansion of global trade has increased the possibilities for trade-based money laundering and terrorist financing (TBML). With the developments of technology and legal framework, criminals change their strategy off and on to divert attention of law enforcement agencies to launder money and finance terrorism. TBML has become one of the most sophisticated methods of cleaning dirty money and increasingly important channel of money laundering. The Financial Action Task Force (FATF) recognized trade-based money laundering and terrorist financing (TBML/TF) as one of the major methods by which criminal organizations and terrorist financiers disguise the proceeds of crime and move value through the use of trade transactions in an attempt to legitimise their illegal origins or finance their activities.

According to Global Financial Integrity report, Bangladesh is one of the top countries facing the TBML which is a significant threat to the 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.

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, 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 12,000 crore as revenue each year.

TBML/FT is a process of making crime worthwhile and moving money 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/TF risks Bangladesh is fully committed to remaining 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 is also signatory member of the Vienna Convention, 1988 the Palermo Convention, 2000. Bangladesh being a member country of the Asia Pacific Group on Money Laundering (APG) is committed to the effective implementation and enforcement of internationally accepted the Forty Recommendations of the FATF on ML/TF. Bangladesh has got the membership of the Egmont Group which helps get global support in fighting against money laundering, terrorist financing and other financial crimes.

In 2019, Bangladesh Financial Intelligence Unit (BFIU) has issued guidelines namely “Guidelines for Prevention of Trade Based Money Laundering” for banks to prevent money laundering in the name of export and import. As per the guidelines, all banks will have to prepare own guidelines to prevent money laundering and submit those to the BFIU within March 10 of 2020 and they will have to implement the guidelines within the first of June of this year.   

The recently published Financial Secrecy Index (FSI) 2020, Bangladesh has ranked 54th out of 133 nations. The score is an indication on how intensely Bangladesh's legal and financial systems allow criminals to hide and launder money. However, a higher rank on the index does not necessarily mean there is lack of legal framework and regulatory guidelines in Bangladesh. It is the lack of implementation of such laws and guidelines and lack of ensuring justice that allows wealthy individuals and criminals to hide and launder money.

If we look why such practices go on, the lack of regulatory monitoring and supervision of financial activities of individuals and enterprises help criminals to hide their actual financial reports. The lack of good governance and compliance within the enterprises is a major reason to hide information and launder money. Absence of coordination is also 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. 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 usual and reasonable cautionary measures to ensure that the price of the goods concerned is competitive in terms of prevailing price in the international market on the date of contract and/or similar imports in contemporary period. In Bangladesh there is shortage of skilled manpower to understand and handle the foreign exchange dealings very well.

Policy makers and regulators should give priority on combating TBML/TF. Otherwise the growth and sustainable development of the country will be stagnant and the dream of transforming itself into a developed economy by 2041. To combat TBML/TF, enforcement of all trade related laws and regulations needs to be ensured and every criminals irrespective of their political affiliations should be brought under process of law and exemplary punishment should be inflicted. As trade process involves multiple parties, combating this crime requires unified measures by all concerned agencies.

To ensure co-ordination among regulatory authorities, a One Stop Service Point, in combination of all stakeholders dealing with international trade related issues, may be established. A systemic audit from regulators can play a big role in prevention of TBML. Financial industries are required to adopt proper mitigation measures including written policies and procedures to assess and mitigate TBML/TF risks. Every trade transaction should undergo TBML Alerts analysis and sanction screening.

The writer is a corporate legal practitioner. Email: [email protected]

 

Combatting trade-based money laundering

It is the lack of implementation of such laws and guidelines and lack of ensuring justice that allows wealthy individuals and criminals to hide and launder money

The rapid expansion of global trade has increased the possibilities for trade-based money laundering and terrorist financing (TBML). With the developments of technology and legal framework, criminals change their strategy off and on to divert attention of law enforcement agencies to launder money and finance terrorism. TBML has become one of the most sophisticated methods of cleaning dirty money and increasingly important channel of money laundering. The Financial Action Task Force (FATF) recognized trade-based money laundering and terrorist financing (TBML/TF) as one of the major methods by which criminal organizations and terrorist financiers disguise the proceeds of crime and move value through the use of trade transactions in an attempt to legitimise their illegal origins or finance their activities. According to Global Financial Integrity report, Bangladesh is one of the top countries facing the TBML which is a significant threat to the 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. It is difficult to estimate exactly how much illicit money flows through the worlds financial system every year, but the amounts involved are undoubtedly huge. According to a report of Transparency International Bangladesh, 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 12,000 crore as revenue each year. TBML/FT is a process of making crime worthwhile and moving money 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/TF risks Bangladesh is fully committed to remaining 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 is also signatory member of the Vienna Convention, 1988 the Palermo Convention, 2000. Bangladesh being a member country of the Asia Pacific Group on Money Laundering (APG) is committed to the effective implementation and enforcement of internationally accepted the Forty Recommendations of the FATF on ML/TF. Bangladesh has got the membership of the Egmont Group which helps get global support in fighting against money laundering, terrorist financing and other financial crimes. In 2019, Bangladesh Financial Intelligence Unit (BFIU) has issued guidelines namely Guidelines for Prevention of Trade Based Money Laundering for banks to prevent money laundering in the name of export and import. As per the guidelines, all banks will have to prepare own guidelines to prevent money laundering and submit those to the BFIU within March 10 of 2020 and they will have to implement the guidelines within the first of June of this year. The recently published Financial Secrecy Index (FSI) 2020, Bangladesh has ranked 54th out of 133 nations. The score is an indication on how intensely Bangladeshs legal and financial systems allow criminals to hide and launder money. However, a higher rank on the index does not necessarily mean there is lack of legal framework and regulatory guidelines in Bangladesh. It is the lack of implementation of such laws and guidelines and lack of ensuring justice that allows wealthy individuals and criminals to hide and launder money. If we look why such practices go on, the lack of regulatory monitoring and supervision of financial activities of individuals and enterprises help criminals to hide their actual financial reports. The lack of good governance and compliance within the enterprises is a major reason to hide information and launder money. Absence of coordination is also 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. 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 usual and reasonable cautionary measures to ensure that the price of the goods concerned is competitive in terms of prevailing price in the international market on the date of contract and/or similar imports in contemporary period. In Bangladesh there is shortage of skilled manpower to understand and handle the foreign exchange dealings very well. Policy makers and regulators should give priority on combating TBML/TF. Otherwise the growth and sustainable development of the country will be stagnant and the dream of transforming itself into a developed economy by 2041. To combat TBML/TF, enforcement of all trade related laws and regulations needs to be ensured and every criminals irrespective of their political affiliations should be brought under process of law and exemplary punishment should be inflicted. As trade process involves multiple parties, combating this crime requires unified measures by all concerned agencies. To ensure co-ordination among regulatory authorities, a One Stop Service Point, in combination of all stakeholders dealing with international trade related issues, may be established. A systemic audit from regulators can play a big role in prevention of TBML. Financial industries are required to adopt proper mitigation measures including written policies and procedures to assess and mitigate TBML/TF risks. Every trade transaction should undergo TBML Alerts analysis and sanction screening. The writer is a corporate legal practitioner. Email: [email protected]