The link between trade-based money laundering and high NPLs in Bangladesh

A sophisticated and convoluted sort of money laundering known as "trade-based money laundering" (TBML) employs trade dealings to cart unlawful funds across transnational peripheries. In recent years, TBML has boosted its preponderance in Bangladesh, which has exacerbated the nation's mounting NPL problem.

TBMLs and NPLs have several overlapping affinities. One of the main ways that TBML contributes to elevated NPLs is the use of unsportsmanlike trade agreements. To transport significant amounts of cash around the globe covertly, offenders employ several strategies, including over-invoicing, under-invoicing, and misclassifying products.

They can get loans from banks by increasing the value of the commodities being sold, only to end up defaulting on those loans when they can no longer sell the commodities for a profit.

The use of shell businesses is another way that TBML contributes to elevated NPLs. These businesses are used to move money covertly around the world and only exist on paper. It is challenging for law enforcement officials to track down stolen money because offenders can use dummy businesses to conceal the real source of their funds.

In some instances, offenders may use shell businesses to apply for loans from banks, take the money, and then vanish, leaving the banks unable to get their money back.

The banking sector in Bangladesh has suffered greatly as a result of the TBML. Financial strain can build up on banks' balance sheets when companies fail to reimburse loans because of illegal business practices.

The capital adequacy ratios of banks may decline as a result, making it more challenging for them to lend to other businesses in the future. As a result of the high amounts of NPLs in the banking industry, depositor trusts may suffer, which could make banks' liquidity problems worse.

A variety of actions are required to handle the TBML issue in Bangladesh and its effects on NPLs. A critical first step is to raise awareness of TBML risks among businesses and financial institutions. Help businesses identify and report suspicious trade activity, this may entail providing advice and tools.

Strengthening the regulatory framework for business operations is a crucial additional step. This might necessitate tightening the noose around risky trade agreements and stepping up enforcement of already-in-place regulations. Increased cooperation between law enforcement agencies, banking organisations, and other parties may also aid in the better detection and avoidance of TBML.

The regulatory structure in Bangladesh needs to be strengthened to combat TBML. This might entail passing new legislation to make it illegal to engage in shady business practices. As well as strengthening the ability of law enforcement organisations to look into and prosecute these offences, it might also entail toughening the punishments for those found culpable of TBML.

TBML is a serious issue in Bangladesh, with serious ramifications for the nation's banking industry, and the relationship between TBML and elevated NPLs is obvious – with fraudulent trade deals and shell companies being the main casualties of the problem.

Several steps must be taken to handle this problem, including raising consciousness, toughening laws, and enhancing legal systems. By adopting these actions, Bangladesh can fight TBML and strengthen its banking industry.

SK Shamim Iqbal, a Certified Expert in Credit Management (CECM), is currently serving Social Islami Bank Limited (SIBL) as a faculty member at its training institute. 

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.