Bangladesh’s  Misinvoicing Problem

No country has greater reliance on letters of credit than Bangladesh so it is reasonable to surmise that reports in late 2022 of the central bank’s halting of one hundred LCs having goods pricing at 20% to 200% higher than usual is only a small segment of widespread misinvoicing taking place.

Speaking at a December 2022 conference hosted by the Bangladesh Institute of Development Studies, Bangladesh Bank Governor Abdur Rouf Talukder said that restricting importers and exporters from ways to show lower or higher prices of products is the key to prevent trade-based money laundering.

Bangladesh Bank’s move to curb imports of non-essential goods and attempt to monitor imports of large quantities have frustrated the business community which complains that banks are not issuing LCs. Responding to such criticism, Abdur Rouf said: “It’s not true that we haven’t suspended any LCs. We’re resorting to price control to make sure that imports and exports are carried out at accurate prices.”

“We’ve increased duty on imports for luxurious items only to establish control”, said Abdur Rouf who added that traders are being allowed to resume their LCs once they amend the prices of goods.

According to Bangladesh’s The Financial Express, the central bank’s review of information over the past two years found that importers are showing 20% to 200% more than the actual prices of goods in some cases. “Cars costing $20,000 each have been imported at $100,000. Which indicates that they [the car exporter] gave back the rest of the money via Hundi [illegal channel of money transfer],” Abdur Rouf said, as quoted in The Financial Express.

The central bank is also checking for under-invoicing which helps enable importers to avoid paying taxes. “Apples are imported at far lower rates than at what they are sold in the market. Showing lower prices means the government is losing revenue”, said Abdur Rouf.

Misinvoicing has been a problem for a while, facilitating huge amounts of money to be smuggled out of the country through the banking channel according to The Financial Express which cited a study by Washington-based Global Financial Integrity suggesting that at least USD 8.0 billion was laundered from Bangladesh from 2004-2013 through “non-transparent means, or misinvoicing”.