BB spots cases of trade-based money laundering

The central bank has identified cases of money laundering as it unearthed trade under- and over-invoicing during a special audit. 

Some entities inflated their price at the range of 20-200 per cent than the actual cost of the products under a method called over-invoicing, said GM Abul Kalam Azad, spokesperson of the Bangladesh Bank, at a press briefing at the central bank headquarters.

Over-invoicing takes place when exporters submit an inflated invoice to the importers, generating a payment that exceeds the value of the shipped goods in order to launder money abroad.

The entities opened letters of credit (LCs) by overstating the price of the goods concealing the actual price, Azad said.

Under-invoicing happens when the price of a good on an invoice is less than the price paid. It usually happens when either the importer or exporter wants to reduce a tariff or if the buyer or seller wants to lower their profits to pay lower taxes.

The central bank had not monitored the under and over-invoicing in the financial sector before the instability hit the global market because of the post-covid situation and the Ukraine-Russia war. The monitoring has been geared up recently.

It came after the foreign currency reserves nosedived due to the escalated import payments, causing volatility in the foreign exchange regime of Bangladesh, forcing the taka to dip against the US dollar and sending inflation to a decade high.

"Under such a situation, the cases of over-invoicing have been detected," Azad said.

The BB shared the findings at a time when illegal money transfers through various channels, including under and over-invoicing of internationally-traded goods, out of the country are believed to be rampant.

The Washington-based Global Financial Integrity (GFI) in December last year said Bangladesh lost $8.27 billion every year on average between 2009 and 2018 resulting from mis-invoicing of values of imported and exported goods by traders to evade taxes and illegally move money across international borders.

The average loss of customs and taxes was 17.3 per cent of Bangladesh's trade with all its trading partners during those years.

The central bank spokesperson could not provide precise information immediately when asked whether the BB has taken any measures to tackle over-invoicing.

"But the authorities have definitely considered taking action against the entities involved in the over-invoicing," Azad said.

It would also take some time for the BB to provide information about the products that saw the excessive prices. The central bank is also working on under-invoicing, he said.

Following more than 23 per cent drop in reserves in the past one year, the central bank is monitoring the opening of every letter of credit (LC) that involves a monetary value of more than $3 million.

"We are also monitoring the genuine price of the goods in the global market in order to tackle over-invoicing," Azad said.

Md Sarwar Hossain, an assistant spokesperson of the BB, said that the cases of over-invoicing have recently declined thanks to the strong supervision.

The BB contested media reports that banks are not opening LCs.

"The information is not true," said Azad.

Businesses opened LCs to the tune of $1.26 billion in the first 10 days of November in contrast to $1.23 billion during the same period a month ago.

"There is no bar to opening LCs for commercial imports and banks are facilitating LCs based on usable remittances they have," Azad said.

NO LIQUIDITY CRISIS AT BANKS

The central bank says there is no liquidity crisis in banks and Tk 169,586 crore is now available in the banking sector in the form of excess liquidity.

Rumours that deposits are being withdrawn from banks are being spread through social media. So, the central bank has already sent a special cautionary message to managing directors of all banks, Azad said.

"If banks face any liquidity stress, the central bank will sort out the issue with utmost importance."

The central bank provides required cash to the banking sector through two windows: repo (repurchase agreement) and assured liquidity support.

"No bank has been closed in the last 51 years of independence. We hope no bank will be closed in the future as well. People's deposits are safe with banks," he said.

Sarwar says that the central bank has taken measures to tackle hundi, an illegal cross-border financial transaction system.

Hundi cartels faced barriers during the height of the coronavirus pandemic since international movement of people came to a complete halt, pushing up remittance transfers through legal channels.

But following the improvement in the coronavirus situation and easing of restrictions, the hundi system has revived again. As a result, remittance flow to countries such as Bangladesh is maintaining a regular trend despite a record outflow of Bangladeshi workers going abroad for jobs.

According to the BB official, import payments have already declined in recent months. As a result, the current account deficit has started to narrow.

"If the current trend of export earnings and remittance continues in the months to come, the ongoing stress in the foreign exchange market will ease by January next year."