$6.83b Annual Trade-Money Drain Triggers Major Anti-Laundering Drive

Bangladesh Bank is moving to tighten the country’s defences against trade-based money laundering (TBML) by creating a unified price-verification framework and common database under a public-private partnership (PPP), amid estimates that billions of dollars leave the country through trade-related illicit financial flows every year.

The initiative was decided at a high-level meeting on TBML at Bangladesh Bank, where regulators, customs authorities, financial intelligence agencies, law enforcement bodies and commercial banks agreed to strengthen intelligence sharing, risk-based surveillance and inter-agency coordination.

The proposed platform will enable authorities and banks to compare declared import-export prices against a common reference database and flag suspicious transactions for further verification.

The move follows an estimate by Global Financial Integrity (GFI) that Bangladesh recorded US$68.3 billion in trade-related illicit financial flows between 2013 and 2022, equivalent to an average of about US$6.83 billion a year.

The estimate represents trade-related illicit financial flows, principally trade misinvoicing, rather than a direct count of proven money-laundering cases. Such practices can include over-invoicing imports or under-invoicing exports to facilitate the movement of funds across borders.

The proposed system will scrutinise declared prices using a range of commercial indicators, including transaction values, product quality and specifications, country of origin, freight and insurance costs and invoice values. Significant discrepancies in declared prices will trigger additional verification, according to decisions taken at the meeting.

The authorities also plan to incorporate information on shipping lines, freight forwarders, shipping routes, freight charges and commercial values into TBML risk analysis.

High-risk trades under tighter watch
Particular attention will be given to related-party and group-company transactions, abnormal pricing, advance payments and buyer’s credit, which have been identified as high-risk areas. Special surveillance will also be imposed on frozen-food businesses, stock-lot ready-made garments and freight-forwarding activities.

To detect suspicious transactions, authorities will examine customs declarations, bills of entry, bills of lading, letters of credit, invoices, shipping documents, buyer and supplier information and customer profiles.

Data from the ASYCUDA system, including the Export General Manifest (EGM), Import General Manifest (IGM) and Bills of Export, will also be used for risk assessment and data analysis.

The meeting identified a range of methods used in TBML, including over- and under-invoicing, multiple or fictitious invoices, misdeclaration of HS codes, manipulation of shipping documents, alteration of freight and insurance costs, related-party dealings and fraudulent advance payments.

A PPP-model steering committee will be formed with representatives from both the public and private sectors to oversee efforts to prevent, detect and investigate TBML and strengthen enforcement in line with international standards.

Banks expose major information gaps
Commercial banks told the meeting that fragmented information systems and inadequate access to reliable trade data are making it difficult to identify suspicious transactions.

Banks currently use different container-tracking software to verify the location and transit status of goods. However, bankers said high subscription costs, limited access and concerns over data reliability often prevent them from obtaining adequate information.

The meeting noted that container-tracking data provided by the International Maritime Bureau (IMB) is reliable, accurate and internationally recognised. Bankers also highlighted difficulties in verifying whether companies actually conduct the businesses for which they obtain import and export facilities.

Although the Office of the Chief Controller of Imports and Exports (CCI&E) issues import and export certificates, banks said they often lack adequate information to determine whether a business is genuinely active in its declared line of trade.

They also pointed to limited access to information about services provided by Invest Bangladesh and said banks lack sufficient knowledge of the methodologies used by customs to assess taxes and duties.

Bank officials therefore called for an integrated digital platform linking the relevant agencies and financial institutions.

Pricing black hole raises LC risks
The absence of reliable reference prices is another major vulnerability, bankers said.

They face particular difficulties when opening indent-based letters of credit, as there is often no mechanism to independently verify whether the declared price reflects the genuine market value of the imported goods.

The problem is particularly acute for new products, specialised machinery and capital equipment, for which banks may have no reliable benchmark prices. Bankers warned that the lack of reference data can make it difficult to determine whether an LC is being opened at a genuine commercial value, creating scope for price manipulation.

Another loophole concerns credit reports. Bank officials said credit reports are mandatory for imports above a specified threshold but are not required in the same way for exports. They warned that the gap could be exploited by dishonest traders seeking to move illicit funds through export transactions.

Even for imports, bankers said LCs are sometimes opened without adequate scrutiny of credit reports, potentially allowing entities with poor credit histories or shell companies to gain access to trade finance.

One platform for a fragmented system
The meeting stressed closer coordination among the Bangladesh Financial Intelligence Unit (BFIU), Anti-Corruption Commission (ACC), Criminal Investigation Department (CID), Customs Intelligence and Investigation Directorate (CIID), Central Intelligence Cell (CIC), CCI&E and Bangladesh Bank.

Officials from the National Board of Revenue, CIC and CIID, along with executive directors of Bangladesh Bank’s Foreign Exchange Policy Department and Foreign Exchange Operation Department, attended the meeting.

Representatives of the BFIU, ACC, CID, CCI&E, Dhaka Custom House, ICD Kamalapur Custom House, Benapole Custom House, Mongla Custom House and 15 scheduled commercial banks with high trade volumes also participated.

A Bangladesh Bank official said TBML was a complex challenge faced by countries around the world, underscoring the need for stronger cooperation between regulators, banks, customs authorities and law-enforcement agencies.

The broader challenge is enormous. Bangladesh’s 2024 White Paper estimated illicit financial outflows at around US$16 billion annually during 2009�"2015, with trade-based mechanisms accounting for a substantial share.

However, the figures measure different forms of illicit outflows and should not be treated as interchangeable. The US$68.3 billion GFI estimate specifically relates to trade-related illicit financial flows, while broader estimates cover illicit financial outflows through multiple channels.

Bangladesh Bank’s proposed common database and price-verification platform is therefore aimed at closing one of the country’s most vulnerable financial gaps�"where manipulated invoices, questionable prices and fragmented trade information can turn legitimate commerce into a channel for illicit fund transfers.