Enact LC law to stop fraudulence in external trade transactions

Experts’ plea at a BIBM workshop

FE Report | Wednesday, 25 April 2018

Experts at a workshop in the capital Tuesday called for greater collaboration between the banks and the customs authority for better enforcement of the provisions of the Anti-Money Laundering (AML) act.
At the same time, they laid emphasis on the enactment of a separate Letter of Credit (LC) law in the country to stop fraudulent activities in external trade transactions.
The Bangladesh Institute of Bank Management (BIBM) organised the workshop on 'Trade Services Operations of Banks' at its auditorium.
Credit risk in the case of trade services in Bangladesh is not different from that of bank lending in other areas of the economy, the BIBM researchers cautioned while presenting the main review paper on the issue.
Banks, in many cases, had to create forced LIM (Loan against imported merchandise) and LTR (Loan against Trust Receipt) due to non-compliance on the part of the importers. Similarly, non-compliance on the part of the exporters also resulted in the creation of NPL where there were evidences of unholy collusion between traders at the both ends, they said.
"Time has come to have a separate letter of credit law -- just like it has been done by countries like the USA, China and Vietnam", said Professor and Director of BIBM Shah Md. Ahsan Habib, who has led the research team.
"Moreover, considering the unique nature of trade transactions and growing complexity, a separate bench in the higher court may be needed to ensure effective use of regulatory machinery", he added.
The BIBM researchers also felt that the NPL data on trade financing should be disclosed separately for the sake of better transparency.
When it comes to money laundering, the BIBM researchers observed, collective efforts from the Foreign Exchange Policy Department and the Financial Intelligence Unit of the central bank and the customs authority need to be made for greater enforcement of the provisions of the AML.
Such views were also supported by Dr. Moinul Khan, Commissioner of the National Board of Revenue, who noted that 80 per cent of the money laundering takes place through trade transactions.
"There should be strong collaboration and coordination between banks and customs house in this regard", Dr. Khan said, adding "Both these parties need to apply their due diligence to prevent such malpractices".
He also mentioned that NBR has already published an SRO fixing the minimum value of 634 items, which, he noted, would be helpful in preventing over valuation and under valuation of import or export commodities.
Meanwhile, the BIBM researchers, in their paper, also noted that correspondent banking relationship has remained a critical factor for trade facilitation in recent years.
"Although, the impact of de-risking has been rebounded to some extent, the role of certain banks as advising bank, second advising bank, nominated bank under documentary credit, collecting bank and presenting bank under documentary collection have changed remarkably", the research paper said.
"In this context, BB may think of assessing and publishing status report on correspondent banking relationship every year", it added.
The researchers also noted that poor drafting of LC clause and inappropriate use of international commercial terms in LC operation has become a concern, the root cause of which might be the using of the same SWIFT template from generation to generation without carefully considering the present context.
""It is essential to work on this issue to uphold the country's reputation for due competitiveness", the researchers said.
Noting that greater use of LC offers better protection, monitoring and control of the regulatory authority -- BIBM researchers, in their study, also cautioned that any attempt to move towards open account in line with the global trend might prove to be risky.
Speaking on the occasion, Abu Hena Mohd. Razee Hassan, Deputy Governor of Bangladesh Bank, said that BB has recently strengthened requirements to enhance the trade quality.
"New Guideline for Foreign Exchange Transaction has already been published in 2018. For the first time, it was open for feedback from all", the BB deputy governor said.
Supernumerary Professor of BIBM and former Managing Director of Pubali Bank Helal Ahmed Chowdhury said that the country needs to ratify UN Vienna Convention of Contract of Sales as most of the country's major export destinations are already a party to it.
Dr. Muzaffer Ahmed Chair Professor of BIBM Dr. Barkat-e-Khuda, in his speech called for forming a coordination committee comprising Bangladesh Bank, NBR, private commercial banks and Anti Corruption Commission to address the money laundering issue.
Supernumerary Professor of BIBM Yasin Ali, in his speech said that given the country's present inflation rate is around 6 per cent, the interest rate on savings account in the banks should be at least 6 per cent.
"However, in some cases, savings rate in banks came down to 3 per cent in recent years which is like robbing the savers", he said.
Meanwhile, the BIBM study has also found that Private Commercial Banks as a group, holds the major market share in trade facilitation -- although, trade services in the Export Processing Zones are dominated by the off shoring units of foreign commercial banks.
At the same time, Documentary Credit remained the most prominent payment technique in import and export transactions in Bangladesh.
Director General of BIBM Dr. Toufic Ahmad Choudhury and Executive Director of Bangladesh Bank Mohd. Humayun Kabir also spoke on the occasion.

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