BFIU beefs up measures to cut trade-based capital flight

BFIU beefs up measures to cut trade-based capital flight

Nine-member expert committee formed

Siddique Islam | August 10, 2019 The Financial Express

Bangladesh has initiated a coordinated effort to battle trade-based money laundering, thus mitigating the risks of frauds and forgeries in the banking sector, officials said.

Trade-based money laundering means smuggling funds through mis-declaration in trade transactions.

Under the move, the Bangladesh Financial Intelligence Unit (BFIU) has already formed a nine-member expert committee to detect such type of money laundering.

The committee has sought information on the loans written-off in the last two consecutive years from all the banks.

“Most of the banks have already provided such information to the committee as per the requirement,” a member of the committee told the FE on Friday over phone.

He also said the committee will recommend the next course of action after verifying the information sent by banks.

Besides, the Unit has already finalised a guideline for the prevention of trade-based money laundering aimed at facilitating the banks to spot this type of money laundering before it occurs in the first place.

“We’ll issue the guideline just after approval of the authorities concerned,” a Bangladesh Bank official told the FE.

Since the banking sector of the country is more vulnerable to the trade-based money laundering, bankers should remain familiar with the different methods that may be employed for the fraud, he noted.

He said the banks will have to be aware of the possible trade-based money laundering because the bulk of money might be laundered through foreign trade.

Quoting different studies, the official said more than 80 per cent of money is being laundered through foreign trade.

Besides, the trade-based money laundering has already been recognised as an offence under the existing Money Laundering Prevention Act.

The official said criminals normally use trade finance to obscure the illegal movement of funds through misrepresentation of price, quality or quantity of goods and services.

“And to do this, in most cases, there might be collusion between the seller and the buyer. The collusion may well arise because both parties are controlled by the same person or entity,” the official said.

The transfer of value in this way may be executed in a number of ways such as over-invoicing, under-invoicing, multiple invoicing, short shipment, over shipment, phantom shipment, and complicated payment structure, discount, price changes, freight charges or without making any payment at all, he added.

The BFIU’s latest move came against the backdrop of rising trend in capital flight using over-and under- invoicing in the name foreign trade in the recent years.

At least US$ 5.90 billion flew out of Bangladesh in an illicit way in 2015 through misinvoicing in international trade with the advanced economies, according to the Global Financial Integrity (GFI), a Washington-based think-tank.

It also showed that illicit financial inflows from other countries to Bangladesh stood at $2.8 billion in 2015.

The earlier report, released in 2017, showed that annual average illicit capital outflow from Bangladesh stood at $7.58 billion during 2005-2014, and the amount was $9.10 billion in 2014.

But the previous report estimated both trade misinvoicing and hot money outflow, as GFI’s measure of illicit financial flows stem from two sources. One is the deliberate misinvoicing in merchandise trade, and another is leakages in the balance of payments or hot money flows.

Hot money is the flow of funds from one country to another in order to earn a short-term profit on interest rate differences and/or anticipated exchange rate shifts.

The latest report only focused on trade misinvoicing and trade with the developed nations.

Around 90 per cent of Bangladesh’s export trade takes place with the advanced economies, while around 70 per cent of import trade with the developing countries.

Thus, the actual outflow through the trade misinvoicing may be higher than the amount mentioned in the report, according to sources.

Bangladesh as a member of the Egmont Group, a forum of the Financial Intelligence Units (FIUs) of different countries, is now empowered to exchange information on money laundering and terrorist financing among its member-countries.

An FIU is a central, national agency responsible for receiving, analysing and disseminating to the competent authorities disclosures of financial intelligence.

The Group has now 165 members across the world to promote and enhance international cooperation in anti-money laundering and counter-terrorist financing.

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