Rationale of the study
The rapid advancement of technology during the 4.0 technology revolution has led to an increase in financial crimes, posing significant challenges for countries worldwide, particularly developing nations like Vietnam These crimes adversely affect not only the economy but also social, political, and military aspects As Vietnam integrates into the global economy, it becomes vulnerable to sophisticated international financial crimes The United Nations Office on Drugs and Crime (UNODC) estimates that global money laundering amounts to approximately US$2.4 trillion annually, with less than 1% detected The growth of financial crimes remains swift and unpredictable, underscoring the need to combat these activities As former Mexican President Enrique Peña Nieto stated, “Money laundering is giving oxygen to organized crime,” highlighting the urgency of our mission to eradicate such crimes and foster a clean, legal global economic system.
Trade-based money laundering has emerged as a significant threat as cash-based money laundering is increasingly thwarted by protective measures The insufficient information sharing among parties in commercial transactions facilitates the growth of this crime, with banks playing a crucial role in its detection and investigation Duong Trung Quoc, a member of the Vietnam National Assembly, emphasized the urgent need to combat financial crimes, labeling Vietnam as a "money laundering paradise." According to Global Financial Integrity, illicit financial flows into and out of Vietnam exceeded USD 9 billion in 2015 Additionally, the Financial Action Task Force (FATF) has blacklisted three ASEAN members—Indonesia, Myanmar, and Thailand—while placing Brunei and Cambodia on its gray list.
As of February 2012, both the Philippines and Vietnam face challenges in effectively controlling money laundering The Vietnamese government remains vigilant regarding financial matters and is committed to implementing timely and appropriate measures to combat the rise of financial crimes Globally, the most recognized international standards for preventing money laundering and terrorist financing are utilized across 190 countries.
The Financial Action Task Force (FATF) has established 49 recommendations aimed at combating money laundering, countering terrorist financing, and preventing the proliferation of weapons of mass destruction While these recommendations are not legally binding, they offer a comprehensive framework for countries to implement effective measures In 2007, Vietnam joined the Asia/Pacific Group on Money Laundering (APG), an associate member of FATF, which operates under the FATF-Style Regional Bodies (FSRB) model This membership has significantly enhanced the efficiency of anti-money laundering efforts in Southeast Asia.
The rise in transnational crimes, including human trafficking, corruption, and the illegal trade of drugs and weapons, has made trade finance transactions appealing to money launderers seeking to legitimize their funds Commercial banks, through products like Letters of Credit and Documentary Collections, are at risk of being exploited for money laundering activities In Vietnam, the anti-money laundering framework faces significant challenges, including outdated internal controls and ineffective suspicious transaction reporting between subsidiaries and overseas branches Therefore, it is crucial to implement effective solutions to combat financial crimes in trade finance during this new era.
Literature Review
As our country's economy becomes increasingly integrated into the global market, it is essential to foster a legal and healthy economic environment to build trust among international investors and partners Research on financial crimes highlights the risks associated with these illicit activities and provides solutions to safeguard the Vietnamese economy from their detrimental effects.
Numerous books address the critical issue of trade-based money laundering (TBML), including John A Cassara's "Trade-Based Money Laundering: The Next Frontier in International Money Laundering Enforcement" (2015), which outlines the signs and patterns of TBML, emphasizing the importance of data analysis in detection The book details common techniques used in TBML, such as invoice fraud and misrepresentation, alongside real case studies that illustrate the associated risks Additionally, John S Zdanowicz's "Review of Laws and Economics" (2009) discusses how data analysis from U.S commercial databases can evaluate various money laundering risks However, both works fall short in addressing the roles of key stakeholders, including customs authorities, law enforcement agencies, and commercial banks, in the timely prevention of TBML.
In his 2010 Master Thesis, Le Xuan Hien offers a comprehensive overview of money laundering and the limitations faced by Vietnam's banking system in combating this crime However, the thesis primarily focuses on national issues and neglects the implications of international commercial transactions It fails to address crimes related to trade finance products and lacks contemporary suggestions for countering these offenses, rendering its findings less relevant in today's globalized context.
Nguyen Ngoc Linh's thesis on Anti-Money Laundering in Customs highlights significant issues related to money laundering both globally and in Vietnam, advocating for the removal of obstacles to enhance the fight against financial crimes within customs However, it is important to note that the research is confined to customs offices, overlooking the critical role that commercial banks play in the prevention of such crimes.
In her 2016 article published in the Open University Ho Chi Minh City journal, Nguyen Thi Loan examines the limitations and underlying reasons for the lack of attention to anti-money laundering efforts within Vietnam's banking sector She provides recommendations to enhance the legal framework surrounding this issue The author highlights the prevalence of suspicious banking transactions from 2006 to 2014 and outlines common money laundering techniques employed by criminals, including the gradual transfer of funds abroad, the use of counterfeit documents, and impersonation of corporations to defraud credit and secure loans These methods represent general banking practices rather than focusing on specific sectors like trade finance products.
Recent scientific studies indicate that outdated research methods hinder the ability to keep pace with current international business trends The demand for import and export transactions among domestic and foreign businesses continues to rise, with Vietnam's total export and import turnover reaching US$668.54 billion in 2021, marking a 22.6% increase from the previous year—exports rose by 19% and imports by 26.5%, according to the General Statistics Office of Vietnam Consequently, banks must prioritize their trade finance products more than ever, as there is a lack of comprehensive research tailored to Vietnam's unique trade finance landscape.
Objectives of the study
This study examines the theoretical foundations of financial crime in global trade finance, focusing on the risks and limitations faced by banks in managing these activities It aims to compare these findings with the current state of the banking and finance sector in Vietnam, ultimately proposing tailored solutions that address the unique challenges within the country The thesis addresses key research questions related to these issues.
- What is financial crime in international trade finance (their techniques, environments…) as well as role of commercial banks in countering this type of crimes?
- What is the current status of financial crime prevention in international trade finance at Vietnamese commercial banks?
- What can Vietnamese commercial banks do to prevent this type of crime?
Subject and scope of the study
- Subject: The topic will focus on researching measures to prevent financial crimes through trade finance products
This research focuses on trade finance within Vietnamese commercial banks, analyzing and evaluating data collected from reputable global organizations between 2009 and 2022.
Research methods
To carry out the research, the topic is based on the research methods of analysis, synthesis, comparison
The analytical method involves examining documents from organizations like FTAF, Wolfsberg, and ICC to gain insights into anti-money laundering practices in trade finance This approach helps to effectively understand the various theories surrounding different types of money laundering.
The synthetic method is employed to generalize the concepts, methods, and limitations associated with financial crime issues By analyzing and comparing various aspects of the topic, this method facilitates the synthesis of information, allowing for comprehensive conclusions to be drawn.
- Comparative method: used to compare legal sources, crime prevention measures taken in the world compared to commercial banks in Vietnam.
Thesis structure
This thesis includes 3 chapters which describes details of these information:
- Chapter 1: Theoretical definitions of financial crimes and products providing by banks in international trade finance
- Chapter 2: Worldwide suggestion methods for countering TBML and real situation of countering financial crimes in Vietnamese commercial banks
- Chapter 3: Analyzing SWOT and recommendations for Vietnamese commercial banks in countering financial crimes in international trade finance.
THEORETICAL OF FINANCIAL CRIMES AND
Theory about trade-based financial crimes
1.1.1 Definition of financial crimes in international trade finance
Financial crimes have been a persistent issue throughout human history, from the Bronze Age to the current 4.0 technology era Historical evidence, such as The Dead Sea Scrolls, highlights instances of fraud and theft in ancient civilizations like Egypt, India, and Central America The 20th century witnessed significant financial crime cases, including Allen Stanford's $2.2 billion scam in the U.S investment sector and Jordan Belfort's notorious manipulation of the Wall Street stock market Today, financial crimes have escalated, particularly with the rapid growth of international trade, affecting not only national economies but also the global market.
Financial crime has become a significant concern for governments worldwide over the past 30 years, as noted by the International Compliance Association It can be categorized into two main types: those involving dishonesty that generate wealth for criminals through covert transactions, which are difficult for authorities to detect and investigate For example, money laundering linked to human trafficking, arms sales, and illegal drug trade remains a contentious issue for many governments Additionally, some financial crimes may not involve the dishonest acquisition of benefits but rather focus on protecting or facilitating the transfer of already obtained benefits, such as the manipulation of profits from a holding company to multiple subsidiaries across different countries.
International business has experienced significant growth in recent years, driven by the integration of various aspects such as economy, culture, and politics International trade is crucial for every nation's economic system, enhancing economic performance and global rankings However, this sector also presents opportunities for financial criminals to exploit and undermine multinational systems.
Despite the challenges posed by the Covid-19 pandemic, global trade demonstrated remarkable resilience, achieving a record total revenue of \$28.5 trillion in 2021 This figure represents a significant increase of approximately 25 percent compared to 2020 and a 13 percent rise relative to the pre-pandemic levels of 2019.
Trade finance is often viewed as a prime avenue for money laundering and other illicit activities due to its complexity and high transaction volumes, coupled with insufficient international oversight This sector is significantly impacted by financial crimes, which pose challenges to trade-based anti-money laundering (TBML) efforts, counter-terrorism financing, sanctions evasion, and issues related to weapons of mass destruction (WMDs), bribery, corruption, and commercial fraud.
Trade-based money laundering (TBML) is defined by the FATF in 2006 as the process of concealing the proceeds of crime through trade transactions to legitimize their illegal origins The primary aim of TBML is to facilitate the movement of money rather than the actual transfer of goods, exploiting trade transactions for this purpose Criminals and terrorists employ three main methods to disguise their illicit funds: utilizing bank products like cheques and wire transfers, smuggling cash across borders, and the increasingly common practice of moving money through the international trade system under the guise of physical goods It is essential to differentiate between trade-related crimes, which involve selling illegal products for profit, and TBML, which employs various money laundering techniques to mitigate risk through export-import activities Additionally, TBML not only evades taxes and excise duties but also uses the trading process to secretly transfer funds and obscure their origins, distinguishing it from trade-based tax fraud Overall, TBML is a significant form of financial crime.
Trade-based terrorist financing (TBTF) operates similarly to trade-based money laundering (TBML) but differs in its sources and intended outcomes While TBML typically relies on illegitimate income, TBTF can stem from both legal and illegal sources, including business organizations and organized criminal groups (OCGs) This complexity complicates detection and enforcement efforts by authorities Furthermore, while TBML aims to legitimize funds of unknown origin, TBTF is specifically directed towards financing weapons and other resources for terrorist activities.
1.1.2 Appropriate access of financial crimes to international market
Before the rise of crime in international trade finance, cash-based money laundering was a significant issue for the FATF and governments globally Criminal organizations have historically relied on cash as a preferred anonymous financial tool, particularly among terrorist groups Over the past decades, extensive research and case studies have led to the implementation of multiple security layers aimed at preventing and eradicating cash-based money laundering.
Methods for detecting and preventing criminal cash shipments include cash detection dogs, x-rays, and controlled deliveries With the decline of cash-based money laundering, Trade-Based Money Laundering (TBML) has emerged as a more subtle and attractive method for criminals, as it involves small transactions that are difficult to detect among millions of containers transported weekly The complexity and scale of global trade make it challenging for supervising authorities to identify these transactions, which often resemble legitimate trading activities Contributing factors to the rise of TBML include the lack of international cooperation, the involvement of multiple parties in trade transactions, and the superficial control exercised by authorities Additionally, the inconsistent pricing of goods complicates detection efforts, while insufficient regulations and enforcement make TBML an appealing option for money launderers.
A 2019 survey by the Wolfsberg Group revealed that approximately 80% of international trade transactions utilize "open account" payment terms, which are not monitored by commercial banks The Government Accountability Office (GAO) has highlighted that this payment method represents a significant vulnerability within the US financial and trade systems This situation raises concerns for banks, as they lack sufficient access to these transactions, making "open account" a potential cover for criminal activities The personal nature of this payment term prevents verification by the involved parties, exacerbating the issue.
1.1.3 Illegal techniques to develop crimes
Criminals have become increasingly aware and cautious in their cash-based money laundering activities, leading to a significant evolution in their techniques to evade authorities They employ various methods to transfer value illicitly, including mis-pricing, submitting multiple invoices, over or understating the volume of goods, using false descriptions for goods, and creating phantom shipments.
Mis-pricing is a prevalent method used by criminals due to its simplicity and speed, allowing sellers to misrepresent the value of goods for illicit gains As Baker states, “anything that can be priced can be mispriced.” For instance, an American clothing manufacturer may import $50 textile cartons from Vietnam but report a payment of $100 per carton, with the excess $50 being funneled to a bank, complicating the tracking of money flows This practice thrives in international trade, where the absence of official price ranges hinders customs authorities and banks from accurately managing the value of goods Consequently, these techniques obstruct access to data necessary for establishing a "fair market" price According to Global Financial Integrity (GFI), in 2009, trade mispricing resulted in $569 billion being sent out of developing countries by importers and exporters.
Submitting multiple invoices involves issuing several invoices for the same goods within a single transaction, a tactic often used in trade misinvoicing, a form of trade-based money laundering (TBML) This method allows individuals or entities to manipulate the quantity, price, and quality of goods to launder money, claim tax benefits, or evade taxes and duties In such cases, while only one shipment of goods is transferred, the importer may pay significantly more, sometimes double or triple the actual value To evade detection, both sellers and buyers can process these multiple invoices through various financial institutions, despite only one transaction occurring This technique is frequently employed by drug and weapons cartels in Mexico, representing a low-risk yet highly effective means of laundering money.
In June 2020, Mexican President Andrés Manuel López Obrador revealed that an analysis of 22 million fraudulent invoices dating back to 2010 uncovered US$2.5 billion in tax evasion This amount included US$2 billion attributed to income tax fraud and US$508.7 million linked to value-added tax fraud, highlighting significant issues with the overstatement and understatement of goods.
Money launderers often manipulate the volume and description of goods to facilitate illegal activities For instance, an invoice may falsely record 300 electrical devices instead of the actual 200, allowing illicit funds to be transferred abroad without detection This tactic exploits lax supervision and inadequate inspection regulations Additionally, exporters may collaborate with importers to misrepresent damaged products that should be destroyed, enabling them to sell these items for profit in the domestic market Such practices disrupt the national economy, as contraband goods typically undercut legitimate prices, harming genuine businesses by diminishing their income and market share.
Theoretical of products providing by banks in international trade finance
To fully comprehend TBML operations, it is crucial to investigate the environment in which these activities occur This approach enables investigators to easily identify red flags, significantly contributing to the enhancement of global financial health.
Trade finance involves the arrangement of financial resources and credit solutions to meet payment and production obligations in international trade, while also facilitating associated payment processes.
A trade transaction involves a seller of goods and services and a buyer from a different country, with banks and financial institutions acting as intermediaries to facilitate trade finance Notably, 80 to 90% of global trade depends on trade finance products, highlighting their significance in international business While trade finance is essential for both parties, it can also be exploited by criminals for money laundering and other illicit activities, posing serious risks.
The international trade system is fraught with risks and vulnerabilities that facilitate money laundering and fund terrorism, making detection challenging Typically, exporters and importers agree on transactions involving cash or complex wire transfers Pre-shipment financing supports exporters' working capital for manufacturing while providing a guarantee that importers will not refuse payment upon delivery However, this method carries the risk of exporters accepting advance payments without fulfilling their shipment obligations.
Limited access to capital, high costs, and a lack of trust between parties have significantly hindered trade processes and stunted the growth of small and medium enterprises The availability of faster and more reliable financing sources can enhance trade volume, highlighting the substantial impact of trade finance products However, numerous factors contribute to trade-based money laundering (TBML) engaging in this lucrative sector.
− Huge amount of value moving internationally everyday can be a perfect shell for TBML activities
− The desire to make world integration through international trade of developing countries by loosening policies of creating corporate entities and encouraging entities to join in the industry
− The ability to participate in corrupt practices on the purpose of trade and trade negotiation
− The easy abuse of trade-based mechanisms of trade finance products from financial institutions
− Legal frameworks and data storages in law enforcements as well as financial institutions are not incompatible internationally
Financial institutions play a crucial role in trade processes by offering essential products and services They must recognize their significant responsibility in transactions and remain vigilant against financial crimes such as Trade-Based Money Laundering (TBML) and Too Big to Fail (TBTF) Commercial banks are the primary providers of trade finance products and services.
− International payment service: providing cross-border payment services, export payments, import payments
− Export financing: providing services of factoring, discounting, lending for the performance of export contracts,
− Import financing: providing import finance services, financed by capital sources under the export credit program,
− Domestic L/C financing: Discount form with recourse to bill of exchange with documents according to domestic L/C and early payment of documents according to domestic L/C issued by BIDV
1.2.1.2 Trade payment terms including role of banks a Documentary collections
Documentary collection is a financial method where an exporter empowers a bank to collect payment from an importer, relying on trade documents alongside the purchase note This process stipulates that upon payment or acceptance of a fixed-term note, the buyer's bank will release the goods documents, allowing the importer to retrieve the goods There are two main types of documentary collections based on the documents involved.
− The “clean collection” which only includes the Bill of Exchange and the Exporter's Bank Request for Collection
Documentary collection involves not only the Bill of Exchange and the Bank's Request for Collection but also a set of consignment documents To obtain these documents, the importer must either make a payment (D/P) or sign to accept the bill of exchange (D/A).
Banks play a secondary role as intermediaries in the collection method, which often causes hesitation among importers and exporters when selecting this payment option According to the ICC Uniform Collection Rules URC 522, banks are responsible solely for verifying that the documents received align with the collection instructions and for notifying the recipient of any delays However, they bear no responsibility for the goods involved in the transaction, the selection of the collecting bank's services (which is the exporter's risk), or the accuracy and authenticity of the delivery documents Additionally, banks are not liable for any loss, damage, or misplacement of documents during transit.
This lack of controls of banks’ role can potentially increase the risk of TBML through the make-up or false invoices To prevent TBML this payment term as fast as possible, banks must take notice of these identification signs:
− Using a personal email address instead of an authorized business email address
− Compared to the data storage of banks, the reuse of previous documents with very few changes or even no changes
− The lack of particular presence of the exporter involves in the examination of the quantity, quality of the products that can be identified by the banks b Documentary credit
A documentary credit, as defined by ICC in 2013, is an irrevocable commitment from a bank to honor documents presented in accordance with the terms of the credit and UCP600 (Uniform Customs and Practice for Documentary Credits) This payment method involves a bank issuing a letter of credit at a customer's request, ensuring payment to a third party upon presentation of specified documents The L/C payment process is complex and requires a high level of professionalism, making it one of the most intricate banking operations Consequently, the associated fees are substantial, leading to a monopolistic service and a significant revenue source for banks.
In this payment term, the bank acts as both an intermediary for collection and payment on behalf of the importer and a representative ensuring the exporter receives the correct payment for goods Additionally, the bank guarantees that the importer receives the appropriate quantity and quality of goods as per the documentation and the funds expended The risks faced by banks in this process are similar to those associated with Documentary Collection.
The Standby Letter of Credit (SBLC) is increasingly favored as a payment guarantee for imported goods, replacing traditional Letters of Credit (L/C) Unlike L/Cs, where the issuing bank has a primary obligation to pay upon compliance with document presentation, the SBLC creates a secondary obligation that activates only if the importer fails to meet their payment commitments This arrangement benefits exporters, as they can send original delivery documents directly to the importer, requiring only a claim letter if the importer defaults However, the issuing bank of the SBLC lacks control over the goods, as shipping documents are sent straight to the importer Consequently, many banks are hesitant to issue SBLCs without risk mitigation strategies, such as requiring full deposits from importers or limiting issuance to reputable clients.
In an open account transaction, the seller delivers goods and subsequently sends an invoice to the buyer, requesting payment or acceptance for a future date This payment method relies entirely on mutual trust between the parties, making it ideal for established companies Typically, the more powerful and experienced party dictates the payment terms Open accounts are efficient for transactions, reducing costs and saving time compared to bank financing and risk mitigation services.
In Open account transactions, banks typically do not participate until payment is made post-delivery, as sellers and buyers aim to limit information disclosure to financial institutions However, banks can still facilitate these transactions by optimizing working capital and payment terms through Supply Chain Finance (SCF) techniques One such method is Receivable Purchase, which includes Receivables Discounting and Payables Finance Payables Finance allows sellers to opt for early payment at a discounted rate, where the buyer's bank pays the seller a reduced amount compared to the full receivable assignment.
Case studies of successful countries in preventing financial crimes
In 2015, Australia was identified as a significant hub for money laundering and a base for terrorists masquerading as fundraisers By 2020, Australia ranked 13th globally in GDP, 22nd in total exports, 24th in total imports, and 14th in GDP per capita.
In December 2020, Australia's merchandise exports surged to $9 billion, marking a significant increase of $7.4 billion from the previous month Despite the challenges posed by the Covid-19 pandemic and ongoing tensions with China, Australia's trade surplus has continued to grow, enhancing the outlook for the nation's economic recovery.
2020 reached AUD 34.9 billion, an increase of AUD 4.9 billion, equivalent to a growth of 16% Major exports include metal ores, grains, and coal
Australia's export industry has significantly developed, leading to a diverse array of trade finance products and services designed to help businesses maximize their potential The Commonwealth Bank of Australia (CommBank) stands out as a prominent multinational bank, operating not only in Australia but also across New Zealand, Asia, the United States, and the United Kingdom Additionally, Australia is actively addressing the challenges of financial crimes within the realm of international trade finance.
Before the implementation of stringent regulations, Australia faced significant money laundering issues, impacting various industries and involving millions of dollars, including cases within the banking sector.
Australian Transaction Reports and Analysis Center (AUSTRAC) reported two suspects involved in money laundering in transactions of abalone fishing operations
In a span of nine months, a suspect executed 335 cash deposits at two banks, each under the 10,000 AUD threshold to evade cash transaction reporting Subsequently, the funds were transferred internationally, totaling 3 million AUD (approximately 2.2 million USD) sent to Hong Kong and China, in exchange for a payment of 23,000 USD from an abalone company In 2020, Westpac Bank, one of Australia's largest banks, faced a record money-laundering fine of up to 1.3 billion AUD (920 million USD), marking the largest corporate penalty in Australian history, as alleged by the Australian Financial Intelligence Service.
Between 2013 and 2018, there were 23 million legal violations for not reporting international Suspicious Transaction Reports (STRs), totaling approximately $7 billion Additionally, there were failures in adequately monitoring suspicious customer transactions linked to fraud and child exploitation.
Australian commercial banks recognize that collaboration is essential for preventing Trade-Based Money Laundering (TBML) In 2017, AUSTRAC launched the Fintel Alliance, the first-ever public-private partnership that brings together experts from the financial sector, intelligence agencies, law enforcement, and academic institutions This initiative fosters an environment conducive to knowledge sharing and crime prevention, equipping banks with the necessary tools and insights to effectively combat TBML and restore their reputations The partnership with AUSTRAC, along with the Australian Crime Commission (ACC) and National Australia Bank (NBA), provides commercial banks with advanced skills and strategies to enhance their TBML prevention efforts Additionally, adherence to the FATF's Best Practices guidelines for compliance controls further strengthens their capabilities in this area.
Australia are followed by commercial banks and monitored by AUSTRAC to ensure measures are always prepared and ready
Furthermore, many Australian commercial banks have established their own principles, especially banks that have broken the law before like Westpac Their keys of AML/CTF principles include:
- Comply with AML/CTF legislation of the Australian government
- Put effort to complete application of international standards as detailed in the recommendations of the FATF
Collaborating with the Australian Government and the governments of their customers' countries, we support initiatives aimed at the prevention, detection, and control of Trade-Based Money Laundering (TBML).
- Not providing products or services rely on decisions guided by ML/TF risk appetite and corporate social responsibility
Bangladesh has transformed from a nation grappling with poverty and the aftermath of its independence struggle 50 years ago into a beacon of global economic development Recent International Monetary Fund data reveals that while Bangladesh's GDP per capita was only half that of Pakistan in 1987 and two-thirds of India's in 2007, by 2020 it has surpassed Pakistan and is rapidly closing the gap with India This remarkable progress is largely attributed to its emergence as a leading exporter of textiles and apparel, ranking just behind China and Vietnam.
Bangladesh's economic growth is driven by three key pillars: exports, social progress, and prudent fiscal policy From 2011 to 2019, the country experienced an impressive annual export growth rate of 8.6%, significantly surpassing the global average of 0.4% This achievement is primarily attributed to the robust development of its textile industry, which constitutes over 84% of Bangladesh's total exports, predominantly to the EU and US markets Additionally, the EU's duty-free production allowance for least developed countries (LDCs) like Bangladesh has further bolstered its export capabilities.
Table 1.4 Bangladesh’s Anti-Money Laundering Ranking
Bangladesh is identified as a high-risk country for trade-based money laundering (TBML), which poses significant threats to its growth and sustainable development The Bangladesh Financial Intelligence Unit has highlighted key challenges and difficulties in combating TBML within the nation.
− Price Verification for Financial Crime Control
− Extreme Competition of unhealthy competition
− Absence of Management Information Systems (MIS) and a Central Database
During the ongoing pandemic, medical organizations in the country have inflated prices for essential medical equipment, such as goggles for medical staff, which are being sold at $59 per pair—nearly five times the market rate This price surge is facilitated by the global health crisis, as customs, port authorities, and banks are less scrutinizing of import prices Alarmingly, an estimated 80% of money laundering cases in the country are trade-based, primarily involving fake commercial invoices that report inflated amounts compared to the actual expenditure.
A notable case study of Trade-Based Money Laundering (TBML) in Bangladesh highlights the misuse of copy documents to release high-value goods In August 2016, an importer opened two Letters of Credit (L/Cs) totaling USD 17,420 for imported tires The importer successfully released goods from Customs using copy documents for the second L/C, claiming the first L/C's goods were still being processed Due to the absence of original shipping documents, no payments were made, prompting the importer to file a complaint for non-payment of USD 639,478 Although the L/C was issued by a Western finance company, analysts discovered that the commercial invoices referenced L/Cs from a Bangladeshi bank, with matching details such as name, address, IRC, and BIN The goods listed in the invoices also aligned with those in the Bill of Entry, indicating a scheme where the importer, in collusion with the exporter, aimed to evade taxes by opening lower-value L/Cs and utilizing copy documents for goods release.
This case study highlights the inadequate assessment of trade customers, including both exporters and importers It emphasizes the necessity for commercial banks to scrutinize the issuance of Letters of Credit (LC) by financial third-party companies, ensuring that thorough due diligence is conducted for verifying the value and unit price of goods.
To mitigate risks, Bangladeshi commercial banks have rigorously implemented control measures recommended by the FATF and other organizations, resulting in a significant improvement in the country's Anti-Money Laundering (AML) ranking from 82nd in 2016 to 38th in 2020 To effectively prevent risks from the outset, these banks conduct a comprehensive TBML Risk Assessment and Mitigation Mechanism.