The Bangladesh Bank has detected some gross violations in foreign exchange transactions that have raised concerns about money laundering.
The violations have taken place in the following way.
First, letters of credit (LCs) were opened with loans from banks, and the money was transferred abroad to the designated importer's accounts.
But then the importers didn't bother to submit the bills of entry -- the document to prove that the goods actually entered the country. In bankers' opinion, it signifies that the goods did not enter the country and money had taken flight.
This is a major financial irregularity, and this is exactly what is happening right now.
According to BB estimates, about 7 percent of the LCs remains mysteriously unsettled with no bill of entry submitted.
Janata Bank alone shares 3 percent of the LCs or about half of the cases of non-submission involving around $1 billion, and a number of cases relate to one company -- Beximco Fashions.
This major foreign exchange violation has made the BB worried, and it served five warning notices on Janata Bank from January last year to April this year.
But the state-run bank did not pay heed to the central bank's warnings and continued to give LC facilities to Beximco Fashions, violating the rules.
Janata Bank even showed callousness in replying to the BB's warning notices. For instance, it replied to the first notice 61 days after it was served, and took 56 days to respond to the second warning.
In its every reply, the state-run lender said the violation had occurred because their officers were not well-trained about the foreign exchange rules.
On January 25, the central bank served a show-cause notice on Janata Bank, threatening to cancel the state-run bank's authorised dealer licence and impose a penalty of Tk 10 lakh.
Later, Janata Bank was penalised Tk 10 lakh on May 28 as its reply could not satisfy the central bank.
“The bank has been fined Tk 10 lakh for not following the central bank's instructions and for repetition of the same irregularities,” the BB said in its letter to the state-run bank on May 28.
Beximco Fashions, an export-oriented garment company of Beximco Group, opened LCs for imports but could not submit bills of entry to the bank against the imported goods, according to BB findings.
Janata Bank continued to make advance payments against the LCs of the firm despite having overdue bills of entry which is strictly prohibited as per the BB's foreign exchange guidelines.
According to the guidelines, banks will have to ensure that importers don't have bills of entry pending for submission beyond the stipulated period of four months against any advance remittance for imports. If an importer fails to submit its certified invoice of imported goods, it will not be allowed to open any new LCs through banks.
Contacted, Janata Bank Managing Director Md Abdus Salam Azad said Beximco Group made delays in submitting the bills of entry to the bank against its imported goods.
The BB has extended time till September 30 for the Group to match the pending invoice, he said.
According to the BB findings, the overdue bills of Beximco Group with Janata Bank involved about $3.5 million as of April. Of the amount, Beximco Fashions accounted for a significant portion.
Moreover, the bank opened new LCs of $3.6 million against Beximco Fashions from January last year to April this year though the firm had overdue bills of entry.
An internal audit by the BB raised objection last year against the new LC opening of Beximco Fashions in breach of the rules and asked the department concerned to look into it, according to a source at the BB.
On April 15, Janata Bank sought time extension from the BB to adjust the overdue bills of Beximco Group.
Later, the state-run bank applied to the BB on June 10 for waiving the Tk 10 lakh fine as financial penalty is a serious discredit for its management and board.
Janata Bank's application was placed at the BB board's meeting on Sunday, and the board decided to waive the penalty.
Asked, BB Deputy Governor Abu Hena Mohd Razee Hassan said the board made the decision on condition that the state-run bank would settle the overdue bills of entry.
Contacted, Beximco Group claimed that it had submitted documents to Janata Bank for each consignment.
“The number of part shipments made against individual LCs and the bill of entry against each consignment has to be matched with each LC. Since this matching was not done, there was a discrepancy between Bangladesh Bank records and Janata Bank's record,” it said in an email to this newspaper.
Talking to this correspondent, a top executive of a private bank said it is the bank's responsibility to match the bill of entry against each consignment but the client also has an important role to play in this regard.
M Mahfuzur Rahman, a former executive director of the BB and deputy head of the Bangladesh Financial Intelligence Unit (BFIU), said overdue bills of entry is a serious issue, and trade-based money laundering is taking place through imports.
Analysts have long been demanding probes into whether money laundering is going on in the name of imports, said Khondkar Ibrahim Khaled, an ex-BB deputy governor.
As the central bank has finally detected suspicious imports through Janata Bank, it should go for a detailed investigation in collaboration with the BFIU and the customs department to unearth this type of cases, he said.
In January this year, the Centre for Policy Dialogue, a think-tank, advised the government to investigate whether capital flight has taken place through imports of sugar, edible oil and cotton.
“Despite global price stability of raw cotton and an upturn in the growth of garment exports, the high growth of more than 75 percent in import payments for this item appears to be suspicious,” the CPD said in its latest study “State of the Bangladesh Economy in FY 2017-18”.