A curious case of how laundered money travels

It is a curious case of “layering” in financial crimes. Suspicious funds taken by an account holder are spread out throughout the financial system: banks, other financial institutions and the capital market. Layering masks the source of the money through a series of transactions and bookkeeping tricks. In the final step, the laundered money is withdrawn from the legitimate account to be used for whatever purposes the criminals have in mind for it.

News Deskbdnews24.com
Published : 8 Jan 2021, 10:23 AM
Updated : 8 Jan 2021, 12:27 PM

A financial institution in Bangladesh disbursed a huge amount of loans to several companies owned by an unnamed man. A report by the Bangladesh Financial Intelligence Unit (BFIU) revealed that the financial institution issued cheques, to disburse loans, not only to the borrower companies but also to various fictitious accounts held with banks. BFIU named the lender as “AB Finance Ltd” for illustrative purposes.

The loans were given to several companies owned by the borrower, whose name was withheld in the latest BFIU report, while the lender also issued cheques to fictitious accounts held with 40 different banks.

Of the 50 disbursed loans, 30 involved the transfer of nearly Tk 20 billion to the accounts of the borrower, his relatives along with a few directors of the financial institution and other associates.

The borrower and his associates parked Tk 4 billion in 30 accounts with just two banks, according to the BFIU’s annual report for 2019-20.

The respective bank branches failed to perform customer due-diligence during the opening of the accounts, while also ignoring transaction monitoring duties even though there was enough suspicion of funds being layered by the account holder, according to the report released on Thursday.

A BFIU analysis further revealed that the companies, to which the financial institution sanctioned the loans, had no physical existence. The loans were essentially sanctioned to shell companies that existed only on paper, with the borrower using the funds to purchase shares of the lending firm in the secondary market through four entities that he controlled, eventually attaining a 35 percent stake in the institution.

The borrower soon became the chairman of the firm and positioned his associates as directors on the financial institution's board, according to the report.

The lender also gave Tk 4 billion to six brokerage houses or asset management companies which later declined to repay the loans.

This was a violation of the Financial Institutions Act,1993 which limited investments by financial institutions in the capital market to 25 percent of their paid-up capital.

Incidentally, the lender crossed that limit by 600 percent, prompting a period of aggressive lending in favour of shell companies that saw two-thirds of its capital being embezzled by the borrower and his close associates.

Around Tk 32 billion was subsequently transferred out of the financial institution’s entire loan portfolio of Tk 50 billion.

"It was evident that the board of AB Finance Ltd, its top management, internal audit department, chief financial officer and officials at its credit division were all involved in facilitating these nefarious activities," the BFIU said.

It later came to light that the loans were being made to shell companies and funds were being diverted to other activities and ultimately laundered abroad by the borrower, who is now staying abroad to evade prosecution.

Upon uncovering the “contours of this financial scam”, the BFIU forwarded an intelligence report to law-enforcement for further action.