Compliance one of the greatest concerns for banks

A collective effort of Bangladesh Bank (BB) and the customs authority should be taken immediately to check trade-based money laundering (TBML) in the country, senior bankers and experts have said.

They also said the commercial banks need to be more serious regarding legal compliance and identifying right prices for both exportable and importable products to address TBML.

The observations came during discussion at a review workshop on 'Trade Services Operations of Banks', held at Bangladesh Institute of Bank Management (BIBM) in the capital on Sunday with BIBM Director General Dr. Toufic Ahmed Chowdhury in the chair.  

Compliance is already one of the greatest concerns for the banks, and greater compliance requirements are affecting operational costs of trade financing, according to a study. It was presented by BIBM Director (Training) Professor Dr. Shah Md. Ahsan Habib at the workshop.

However, compliance to Anti-Money Laundering (AML) rules is essential and should be a collective concern, the study added.

"To hide profitable use of the proceeds of crime through illicit outflows of funds from Bangladesh the criminals use over-pricing in import, generally in case of low-duty items, like - capital machineries, raw materials and spare-parts, and under-pricing of export," the study explained.

The BIBM's findings came against the backdrop of rising trend of illicit fund outflows from Bangladesh in the recent years.

A substantial amount of fund, ranging between 12 per cent and 17 per cent of its total trade value, had annually flown out of Bangladesh during the last one decade, ending in December 2014, through trade mis-invoicing and other illegal transfers.   

Global Financial Integrity (GFI), a Washington-based research organisation, unveiled the estimate in its latest report titled 'Illicit Financial Flows to and from Developing Countries: 2005-2014'.

According to the latest estimation, illicit financial outflows from Bangladesh stood at $9.10 billion in 2014, and it is 13 per cent of the total trade in the year under review.

"Considering the concerning issues of trade-based money laundering, compliance requirements, and other financial crimes, regulatory supervision and reporting became crucial," BB Deputy Governor S K Sur Chowdhury said while speaking at the workshop as the chief guest.

He also said the returns or statements are important tools for monitoring and reporting, which are of great importance to the central bank that includes both on-line and off-line reporting.

"Adequate and reliable information on operations, process and trends in different trade services activities are crucial for bankers, academicians and researchers of the relevant fields for improving trade services," he explained.

However, contribution in trade financing, offered by the country's private commercial banks (PCBs) has increased gradually, while trade finance facilities of the state-owned commercial banks (SoCBs) have squeezed.

The country's major portion of trade financing facilities were offered by the PCBs that ranged between 57 per cent and 73 per cent during the financial years (FY) 2011-16, while the SoCBs offered between 33 per cent and 25 per cent, according to the study.

The contribution of the foreign commercial banks (FCBs) was around 3.0 per cent to 5.0 per cent, it added.

"The PCBs are now overtaking the SoCBs in terms of both the number of trade transactions and the trade volume," said Mehmood Husain, Managing Director and Chief Executive Officer of NRB Bank Limited.

Such contributions of the PCBs may increase in the coming years, he opined.

Helal Ahmed Chowdhury, Supernumerary Professor of BIBM and Independent Director of Islami Bank Bangladesh Limited (IBBL), said the PCBs are now dominating trade financing despite larger network of the SoCBs.

"The banks should be ascertained pricing of importable items using internet to avoid trade-based money laundering," he noted.

Among others, Syed Mohammad Bariqullah, faculty member of BIBM and former deputy managing director of National Bank Limited, and Mahbub ul Alam, deputy managing director of IBBL, also spoke on the occasion.