Letters of credit (L/Cs) and document collection can protect against trade-based money laundering (TBML) according to a research paper written by a professor at the Bangladesh Institute of Bank Management, Shah Md Ahsan Habib.
He presented the paper, Safeguarding Trade Transactions and Prevention of Trade Based Money Laundering: Role of Correspondent Banks at a half-day long online roundtable discussion which can be viewed on the Zoom communications platform.
Habib says it is well-recognised that trade payments and financing techniques used in cross-border trade transactions have TBML implications.
While using open account and cash in advance is relatively risky in terms of TBML risks, he says the extensive use of L/C and documentary collection offer relatively better protection in the form of extensive control over transactions by banks and regulators.
But the professor warned that correspondent banking relationships could undermine such protection.
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 he said.
The professor suggested banks should be aware of increasing security and compliance requirements, therefore they should regularly review their correspondent banking relationships.
A recording of the half-day long online roundtable discussion on Safeguarding Trade Transactions and Prevention of Trade-Based Money Laundering: Role of Correspondent Banks can be found here.
Categories: Trade Based Financial crimes News