Use of LC offers better defense against money laundering

Extensive use of letter of credit and document collection at home offer relatively a better protection than open accounts and cash in advance when it comes to cutting the risk of trade-based money laundering, according to a research paper.

Shah Md Ahsan Habib, a professor of the Bangladesh Institute of Bank Management (BIBM), said it is well-recognised that trade payments and financing techniques used in cross-border trade transactions have implications for trade-based money laundering (TBML).

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Using open accounts and cash in advance is relatively risky from the point of TBML risks, he said in a press release.

Extensive use of LC and document collection in the country offer relatively better protection in the form of extensive control over the transactions by banks and regulators, he said. 

He made the comments while presenting a paper at a virtual roundtable on "Safeguarding Trade Transactions and Prevention of Trade-Based Money Laundering: Role of Correspondent Banks."

While presenting a paper, Prof Habib said correspondent banking relationships have greater roles and engagements in these methods.

It is to be remembered that risk-prone correspondent banking relationships not only destroy the advantage of using these methods but also facilitate illicit fund flows and TBML through correspondent banking channels.

Other members of the research team are Tofayel Ahmed, an assistant professor of the BIBM; Anila Ali, also an assistant professor of the BIBM; Kamal Hossain, additional director of the Bangladesh Financial Intelligence Unit; Md Rokon-Uz-Zaman, a joint director of the BFIU; Brigadier General Md Jahangir Alam of National Defense College of Dhaka; and ATM Nesarul Hoque, a senior vice-president of Mutual Trust Bank.

The paper suggested banks be aware of greater security and compliance requirements.

Banks must regularly review their correspondent banking relationships, it said, adding that compliance is not only a technical but also an ethical issue.

Ahmed Jamal, chairman of the BIBM executive committee and deputy governor of the Bangladesh Bank, Md Akhtaruzzaman, director-general of the BIBM, Md Ali Hossain Prodhania, supernumerary professor of the BIBM, Syed Mahbubur Rahman, managing director of Mutual Trust Bank, Sazzad Anam, country representative of JP Morgan Chase, and Ashraf Al Mamun, director for research, development and consultancy at the BIBM, and also spoke.