Efforts to Address Trade Based Money Laundering in Bangladesh
(Published in the Financial Express in 2019)
Dr. Shah Md Ahsan Habib[1]
Banking industry of Bangladesh is coping up with the changing trade scenarios with newer approaches, channels, products and challenges. The regulatory provisions for international trade facilitation in Bangladesh expedite greater involvement of the trade services departments with greater risks and greater opportunities to earn. Like many countries of the Globe, Bangladesh is said to be getting affected greatly by TBML and related illicit fund flows. Bangladesh Financial Intelligence Unit (BFIU), the national central agency of Bangladesh, has been actively working to address TBML challenges as part of its broad approach of handling money laundering (ML) and terrorist financing (TF). Several regulations have been enacted and coordination mechanisms have been developed with rules/law formulating/enforcing agencies both at national and international levels. Banking industries and their activities have already been brought under standard anti-money laundering (AML) compliance and monitoring framework. As a relatively recent initiative, BFIU is in the process of finalizing a ‘Guidelines for Prevention of Trade Based Money Laundering’ to guide banks of the country for enforcing effective control measures to prevent ML and TF misusing international trade channels. The document together with the relevant laws and regulations are expected to bring notable beneficial outcome through forming a sound compliance framework for preventing TBML in the country.
BFIU rightly started venturing to prepare a trade-based money laundering guideline to ensure effective control measures through due compliance by the banking industry however, these do not modify or supersede any applicable laws, regulations and requirements applicable to all banks operating in Bangladesh. The Guideline is expected to be read together with certain relevant rules, regulations and guidelines, and it is expected to focus mainly on the money laundering associated with trade related activities of banks with their customers and relevant third parties, and also trade based money laundering risks connected with bank-to-bank relationships.
The challenges of trade services in Bangladesh are also associated with the TBML vulnerabilities. Thus, addressing these challenges are the key for creating right foundation for handling TBML challenges in the country. For example, in several instances, the contract or purchase/sale contracts in Bangladesh does not offer due protection to the contracting parties in the absence of the insertion of right clauses. These also hardly mention anything reading the regulatory coverage. For the country, it is important to ratify UN Vienna Convention on Contract of Sale for sound trade operation and protection of the contracting parties. Till date 89 countries ratified the convention.
Know-your- customer (KYC) is probably the most critical component of the TBML control mechanism, and unfortunately KYC due diligence requirements and compliance issues have been major impediments throughout the globe. To handle the risks by banks, it is very important to obtain information both for exporters and importers. In this connection, information necessary just to open a bank account does not serve. It is crucial to have information on their business trend and involvement in other activities to avoid crime and money laundering risks. In spite of notable development, in Bangladesh, KYC for traders is yet to get adequate attention. Regarding customer level risk assessment, service proving bankers are to comply with trade related customer-due-diligence (CDD) and extended due-diligence (EDD) in addition to the regular KYC. In addition, service providing banks need adequate data and skilled service providers to analyze information on risk components covering trade customer business behavior pattern, geographic locations of trade transactions and products as the key parameters of the customer level risk assessment.
Ensuring adequate infrastructure is a key challenge for installing control mechanism as a measure to deal with TBML. Volume of transactions and size of service providers might be key determinants for installing the required infrastructure when cost is a big issue. Trade service providing banks are already burdened with huge compliance related expenditure in recent years. Regarding infrastructure level risk assessment, some banks have adopted or in the process of adopting standard sanction screening process, database on regular transactions, subscription for publicly available online commodity pricing website and vessel tracking system.
Importers are obligated to import goods at maximum competitive prices, and banks are advised 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 and are also advised to verify, if needed, with the help of concerned Bangladesh Mission abroad. It is really difficult in the absence of relevant business information on differentiated products. Moreover, many products are not traded in public markets and their market prices are also not publicly available. Practically, at transaction level risk assessment, determination of competitive price in executing trade transactions is one of the key concerns for banks.
Banks in Bangladesh facilitate trade payments and financing services, and documentary credit has been the most dominating payment technique in the country. Documentary collection are also extensively in use in case of exportation. This is sharp contrast to the global practice in general where 80 percent payment transactions are said to be conducted through open account. However, greater use of LC offers better protection, monitoring and control of the regulatory authority of the country. Bangladesh is having favorable circumstance in this connection. Any attempt to move towards open account in line with global practices might prove to be risky from the point of view of TBML. Rather we should think of having a set of TBML risk management criteria before moving towards innovative approaches.
Skilled and capable manpower has no alternative for effective enforcement of compliance and control measures. BFIU has been working on developing awareness and improving capacity of the key stakeholders. Bank executives are taking part in relevant training and capacity development activities of BIBM and other global and national training/education providers. It is the skills and capacity on the blend of trade services and ML/TF issues that might work perfectly for handling TBML. In spite of the development in the areas of internal and external coordination a lot to be achieved for combating TBML.
Finally, time has come to allocate focus on enterprise risk management. Enterprise risk management is a relatively new area in the risk management framework. It is about an approach by the entire institution through senior managements’ engagement in TBML risk assessment and mitigation at enterprise level. At enterprise level risk assessment, reviewing policy depending on TBML risk assessment, reviewing new trends and typologies related to TBML etc., are crucial issues where involvement of board and top management is the key.
[1] Professor and Director (Training), BIBM ([email protected]).
