Money Laundering Prevention in Banking Sector of Bangladesh

Origin of the report:

The internship report is a basic requirement for MBA program. This report was prepared on the topic named “Money Laundering prevention in Banking Sector of Bangladesh: A Study on Pubali Bank Limited”.  This report is formal approval of the department of Business Administration of International Islamic University Chittagong (Dhaka Campus). I prepared this report for internship to fulfill the requirement of my Degree at International Islamic University Chittagong (Dhaka Campus). Through my assigned project, I learnt about the Money Laundering, its affect and steps to prevention that may come in hand in professional life.

Background of the study:

Any academic course of study delivers a great value when it practical application in real life. Only a lot of theoretical knowledge will generate little importance unless it is applicable in practical life. Therefore proper application of knowledge is necessary to get some benefit from the theoretical knowledge to make it more fruitful. When we engage ourselves in such fields to make proper use of our theoretical knowledge in our practical life situation, only then we come to know about the benefit of the theoretical knowledge. Such a procedure of practical application is known as internship. The report is titled ” Money Laundering prevention in Banking Sector of Bangladesh: A Study on Pubali Bank Limited”. As a student of MBA this study will be very helpful in my practical life.

Objective of the study

The objectives of the report are ­–

• To review about money laundering.
• To observe and analyze the performance of the specific branch and the Bank as a whole against laundering.
• To identify some typical problem on money laundering faced by PUBALI Bank Limited.
• To suggest some measures towards overcoming the identified problem.
• To examine the role-played by PUBALI Bank Limited on Money Laundering prevention in Bangladesh.

Methodology of the study

Information obtained during internship at PUBALI Bank Limited is used in this study. The report is prepared based on different Annual repot, Audit report, published articles, journals, brochures, books and different statements about Money Laundering prevention submitted to Bangladesh Bank of the organization.

The sources of the information are-

• Annual report (2010) of PUBALI Bank Ltd.
• Audited Financial Statements for the year ended 31.12.2010
• Periodicals Published by Bangladesh Bank.
• Different publications regarding Money Laundering.
• Internet is also used as theoretical source of information
• Websites and Newsletters are also major sources.
• Some books published in this regard

Scope of the study

This report consists of the writer’s observation and on the job experience during the internship period and service life in the various department of the Bank. The report focuses upon the organizational structure and the financial services offered by PUBALI Bank Limited and the performance of the bank.

This internship report covers steps against money laundering of PUBALI Bank Limited such as

1.    General banking: Preconscious in A/C opening,

         cheque posting & passing cash handling and remittance

2.     Advance banking: Preconscious in loan approval related

         documents and its collateral

3.      Foreign Ex. Department: Steps to prevent laundering internationally

       in context of Bangladesh

It has been prepared through extensive discussion with bank employees and with the clients. While preparing this report, I had a great opportunity to have an in depth knowledge of all the banking activities practiced by the Pubali Bank limited. It also helped me to acquire a fast hand perspective of a leading private bank in Bangladesh.

Limitation of the study

To prepare a report on the achieved practical experience in a short duration is not an easy task. In preparing this report some problems and limitation have encountered which are as follows:

• The main constrain of the study was insufficiency of information, which was required for the study. There are various information the bank employee can’t provide due to security and other corporate obligations.
• The data and various information of Pubali Bank are not in organized way that’s why Bank failed to provide all information.
• Due to time limitation many of the aspects could not be discussed in the present report.
• Since the bank personnel were very busy, they could not provide enough time.
• Lack of opportunity to visit more than one branch.
• Confidentiality of data, every organization has their own secrecy that is not revealed to others. So, it will be difficult to collect data on Pubali Bank Limited.
• This is my first on job experience, so for my lack of experience, faults might arise in the report thought I made maximum effort to avoid all of these.
• Clients were not always interested to spend time for interview etc.

 Background of Pubali Bank Limited

The Bank was initially emerged in the Banking scenario of the then East Pakistan as Eastern Mercantile Bank Limited at the initiative of some Bangalee entrepreneurs in the year 1959 under Bank Companies Act 1913. After independence of Bangladesh in 1972 this Bank was nationalized as per policy of the Government and renamed as Pubali Bank. Subsequently due to changed circumstances this Bank was denationalized in the year 1983 as a private bank and renamed as Pubali Bank Limited. The Government of the People’s Republic of Bangladesh handed over all assets and liabilities of the then Pubali Bank to the Pubali Bank Limited. Since then Pubali Bank Limited has been rendering all sorts of Commercial Banking services as the largest bank in private sector through its branch network all over the country.

The institution celebrated 50 years of its operation in the year-2009 as an investment Company in the name of Pubali Bank Limited (PBL) with a Paid-up capital of Tk.5,000 million only. Pubali Bank Limited performed well for near about 11 years. The core objective of the company was to play a catalyst role in the Capital Market of the country by way of participating in security trading, underwriting etc.

Profitability of the bank has increased 19.55 % in the year 2010. The Bank has achieved substantial growth in deposits, advance and recovery in 2010. The percentage of non- performing loan was only 3.59% in 2010

 Corporate Vision of Pubali Bank Limited

To excel as best private commercial Bank in Bangladesh with meticulous observance of rules and regulation and ensure commitment to corporate social responsibility.

Corporate Mission of Pubali Bank Limited

To be the most admirable private commercial Bank in the country. To get recognition as a dynamic, innovative and customer supportive bank. To maintain continuous & steady growth with utmost transparency and to diversify development of resources. To enhance continuous development of Information & Technology to meet the demand and challenge of the time.

The other mission includes:

We shall be at the forfront of national economic development by­

• Anticipating business solution required by all our customers everywhere and innovatively supplying them beyond expectation.
• Setting industry benchmarks of world class standard in delivering customer value through our comprehensive product range, customer service and all our activities.
• Building an exciting team based working environment that will attract, develop and retain employees of exception ability who help celebrate the success of our business, of our customer and of national development.
• Maintaining the highest ethical standered and a community responsibility worth of a leading corporate citizen.
• Continuously improving productivity, and thereby enhancing shareholder value.

 Objectives of PUBALI BANK LIMITED

1)        To contract or negotiate all kind of lone, aid or assistance, private or public from any sources. Local or foreign and take all such steps as may be required to complete such deals.

2)        To establish, maintain, carry on, transact, undertake and conduct all  type of banking, financial all investment and trust business in  Bangladesh and abroad.

3)        To carry on any business relating to wage earner’s scheme as may be allowed by the Bangladesh Bank from time to time including maintain  of foreign currency accounts and any other matter related there to.

4)        To form establish and organize abroad any bank, company; in station or organization either single or government agency for the purpose of  charring on banking , financial, investment and trust business or any other business as provided here after.

5)     To from, promote organize, assist, participate or aid in forming, promoting or organizing any company, bank, syndicate , consortium ,  and institute or any holding or subsidiary company in Bangladesh or abroad for the purpose of undertaken any banking, financial,   investment or trust business.

 PUBALI BANK LIMITED’s Business Principles And Values

PUBALI BANK LIMITED reputation is found on adherence to these principles and values. All actions taken by a member of PUBALI BANK LIMITED or staff member on behalf of a company should conform to them.

PUBALI BANK LIMITED is committed to five Business principles

• Strong capital liquidity.
• Effective and efficient operations.
• Strict expense discipline.
• Outstanding customer service.
• Conservation lending policy.

 PUBALI BANK LIMITED also operate according to certain key business values

•  Openly esteemed commitment to quality and competence.
• Commitment to truth and fair dealing.
• Fast decisions and implementation
• The highest personal standards of integrity at all values.
• Hand on management at all levels
• A minimum of bureaucracy.

Features Of PUBALI BANK LIMITED

Bank is intermediary institution like other commercial bank; PUBALI BANK LIMITED also some special features. Under I try to mention all of them –

a) Legal Entity

It’s a compulsory matter for a bank to achieve to legal entity. The stronger legal entity leads to effective banking program. PUBALI BANK LIMITED has a strong legal entity.

b) Organizational Structure

PUBALI BANK LIMITED has a well-set organization structure. Organization structure is a precondition of efficient bearing activities.

 c) Management of the Bank

The executives and other officers of the PUBALI BANK LIMITED are very experienced. Maximum of their officer are ex-govt. Bank officer.

d) Financial Solvency

PUBALI BANK LIMITED ratio of liquidity is so strong then other private Bank. So, they have grater confidence on the Bank.

e) Security

The PUBALI BANK LIMITED is totally a secured Bank. The client of the Bank gets a heavy security on their deposit.

f) Real Time Online

PUBALI BANK LIMITED now serving to its customers through Pubali Integrated Banking System (PIBS).

g) Relationship with the central Bank

As the PUBALI BANK LIMITED is government registered Bank. It maintains a friendly behavior with the Bangladesh bank.

h) Foreign Exchange

PUBALI BANK LIMITED operates foreign exchange business purely. There are 20 branches that are engaged in foreign exchange as authorized dealer.

i) Location of the Bank.

It’s very useful for the Bank to be an central location. The head office and branches of PUBALI BANK LIMITED are located in the central commercial point of the capital and the other district town.

Performance of the Bank

a) Profit

PUBALI Bank Ltd has been able to achieve satisfactory progress in all areas of its operations during 2010. During the year under review, the bank continued its efforts to enhance its profitability by making good advance, improving asset quality and recovery Bank’s money from default borrowers. At the end of the year the effort showed positive and confidence of the stockholder consolidated even further of the Bank. Banks share in the stock exchanges traded at a price all time high in anticipation of declaring handsome dividend. The Bank earned as operating profit TK.3,445.86 million during 2010 and TK 2,941.90 million during 2009. Provisions for income tax for the year 2010 amounted to TK.1930.63 million resulting into a net profit after tax of TK.1515.23  million. The growth in net profit over the previous year was TK.503.89 million.

 b) Deposit

A strong deposit base is necessary for the success of a Bank. During the year 2011 Bank mobilized a substantial amount of deposits from mid level income group people under Term Deposit Scheme. After critical handling the Bank mobilized total Deposit of Tk.73, 016.51 million as at December 31, 2010  hrreas the same  as at December 31, 2010 Tk 57, 996.82 million.

 c) Loans and Advance

The Bank’s loans and advances portfolio also indicates an impressive growth. Total loans and advances amount to Tk.61, 788.15 million in 2010 against Tk.50, 549.17 million in 2009. PUBALI BANK LIMITED advance portfolio is well diversified and covers a wide range of business and industries. The sectors where PUBALI BANK LIMITED financed are Manufacturing, Trading, Construction, Transport, Agriculture, Fishing and Forestry, Edible Oil, Pharmaceuticals, Information Technology, Consumer Credit etc. Advances constitute the most signification indicator of health of a Bank. The Bank has formulated its policy to give priority to SME (Small & Medium Enterprise) and at the same time the Bank is financing large-scale enterprises ‘through consortium of Finance^’. PUBALI BANK LIMITED is committed to maintain a very high quality of assets. Close monitoring and efficient asset management has resulted in minimum creation of classified loans to total loans and advances.

 d) Investment

Investment stood at TK.8, 375.59 million at the end of 2008. This consists of TK 7,056 million in Treasury Bills TK.330.09 in, Bonds and Prize Bonds.

 e) Foreign Exchange Business

International business, which is one of the major sources of income of the Bank, has been given proper care to serve the importers and exporters of various goods with the officers having expertise in this field. PUBALI BANK LIMITED offer a full range of trade finance and services namely, issue, advise and conformation of documentary credit, arranging forward exchange coverage, pre shipment finance, negotiation and purchases of export bills, discounting bill of exchange, collection of bills, inward & outward remittance etc. During 2010 the Bank handled export & import business of TK 24,795.65 million and TK 9,663.69 million.

f) Export Business

The total export handled by the Bank amounted to TK 24,795.65 million during the year 2008 and Tk.19, 907.50 million for the year 2007, showing over the volume of TK 17,701.80 million in the year 2006.

 ii) Import Business

The Bank established Letter of Credit amounting to TK 58,009.10 million in 2008 and TK 48,345.41 million during 2007, showing over the volume of TK 37,316.50 million in the year 2006.

 f) Dividend

PUBALI BANK LIMITED has distributed a substantial amount of dividend in the preceding years and also strengthened the platform of the Bank. The percentages as follows­-

 Table 2.1: The percentages of distribution of dividend.

g) Credit Rating as on 31.12.2010:

Credit Rating was done by the credit Rating Agency of Bangladesh Limited (CRAB) on the basis of Financial Statements as on 31-12-2010

                  I.    Long Term :A1 indicates strong capacity for timely payment of long term financial commitments, with low likeliness to be adversely affected by foreseeable events.

                II.    Short Term :ST2 indicates the average capacity for timely repayment of short term obligations. Banks rated in this category are characterized with high satisfactory level of liquidity, internal fund generation, and access to alternative sources of funds is outstanding.

8) Five Years Financial Highlights

 Activity chart

     All Banking activities are presented in a summarized manner in a flow chart.

      Under we see PUBALI BANK LIMITED activity chart­

General Banking

• Account Maintaining
• Cash Section
• Clean Cash

Credit Banking

• Short term trade financing
• Classified loans
• Recovery

Foreign Exchange Banking

• Export & import
• Post import financing
• Remittance

 SWOT Analysis of PUBALI BANK LIMITED

Every organization is composed of some internal strengths and weakness & also has some external opportunities and threats in its whole life cycle. The following will briefly introduce the customer to the PUBALI BANK LIMITED internal strengths and weakness & external opportunities and threats as I have explored in the past Eighteen months:

Strengths of PUBALI BANK LIMITED

1) Primitive Bank

PUBALI BANK LIMITED is the primitive bank, that’s why people relay on it. It has 371 Branches, which can give the best network any where in Bangladesh.

2)   Dynamism

PUBALI BANK LIMITED draws its strength from the adaptability and dynamism it possesses. it has quickly adapted to world class standard in terms of banking services. PUBALI BANK LIMITED has also adapted state of art technology to connect with the world for better communication to integrate facilities.

3) Financial Statement

PUBALI BANK LIMITED is finally sound company backed by the enormous resources base of the mother concern range group. As result customer fell comfortable in dealing with the company.

4) Efficient Management

All the level of Management of PUBALI BANK LIMITED are solely directed to maintain a culture of the betterment of quality of the services and development of a corporate brand image in the market through organization wide term approach and open communication system.

5) State of the art technology

PUBALI BANK LIMITED utilizes state of art technology to ensure consistent quality and operation. The corporate office in equipped with SWIFT. All other branches are also equipped with SWIFT system.

6) Experts

The key contribution factor behind the success of the PUBALI BANK LIMITED is its employees. Who is highly trained and most competent in there own field. PUBALI BANK LIMITED provides their employees training both on the job and off the job.

Weakness of PUBALI BANK LIMITED

1)   Limited work forces

PUBALI BANK LIMITED human resources compared to its financial activities. There bare not many people to perform most of tasks. As a result many of the employees are burdened with extra workloads and work load hours without any overtime facilities. This might cause high employee turnover that will prove to be too costly to avoid.

2)   Problem in Delivery

Few of PUBALI BANK LIMITED products offered to its clients like “Personal Credit (PC)” is lying idle due to proper marketing initiative from the management. These products can easily be made available in attractive ways to niceties its client base as well as it’s as its deposited status.

Opportunity of PUBALI BANK LIMITED

1) Government support

Government of Bangladesh has rendered its support to the banking sector for a sound financial status of the country. As it has become one of the vital sources of employment in the country now. Such govt. concern will facilitate and support the long term vision of PUBALI BANK LIMITED.

2) Evaluating of E-Banking

Emergence of e-banking will open more scope for PUBALI BANK LIMITED to reach the clients not only in Bangladesh but also in the global banking arena. Although it has already entered the world of e-banking but yet to provide full electronic banking facilities to its customer. Its number of branches wills great opportunity to cover the business of the country as a whole.

Threats of PUBALI BANK LIMITED

1) Poor Telecommunication infrastructure

As previously mentioned, the world is advancing e-technology very rapidly. Though PUBALI BANK LIMITED has taken effort to join the stream of information technology.

2) Frequent currency Devolution

Frequent devolution of Taka exchange rate fluctuations and particularly South-East Asian currency crisis adversely affects the business globally.

3)   Maintain the obsolete techniques.

 The Bank is maintaining some obsolete techniques in its operation. It has some backdated human resources that are burden for the institution.

General Banking Department

Introduction

General Banking Department is considered as the direct customer service center. It is the starting point of all the Banking operation. It opens new accounts, remits funds, honor cheque, takes deposits, issues Bank draft and pay order etc. General Banking is also known as retail Banking. Following are the major section in general Banking:

• Account opening section
• Clearing section
• Remittance section
• Cash section

 Account Opening Section

The relationship between banker and his customer begins with the opening of an account by the former in the names of the letter. Initially all the accounts are opened with a deposit of money by the customer and hence these accounts are called deposit accounts. Accepting of deposits of money from the public, is one of the essential functions of a banker according to the definition of banking given in the Banking Companies Act 1991.

 How to Open an Account

General requirements for opening savings Bank account:

• Introducer                      · National Identity Card or Job Identity
• Signature card                 · Photographs

Types of accounts

Following types of account are generally opened by the PUBALI Bank:

 1.  Savings Account (SB A/C)

 2.  Current Deposit Account (CD A/C)

 3.  Fixed Deposit Receipt Account (FDR A/C)

 4.  Short Term Deposit (STD A/C)

 5.  Pubali Savings Prakolpo

 6.  Diwgun Sanchoy Prakolpo.

Foreign Currency Account (Resident/ Non-Resident).

Cheque Book issue

a) Issuance of chequebook (for new account)

When a new account is opened and the customer deposits the minimum required money in the account. The account opening form is sent for issuance a chequebook to the respective officer. Then the officer draw a chequebook. He/She then sealed it with branch name and enter the number of the chequebook in cheque issue register. He/She also writes down the name of the customer and the account number in the same register. Account number is then writing down on the face of the chequebook and on every leaf of the chequebook including requisition slip. The name of the customer is also written down on the face of the chequebook and on the requisition slip. Next, the customer is asked to sign in the chequebook issue register. Then the respected officer signs on the face of the requisition slip put his/her initial in the register and hand over the cheque to the customer.

b) Issuance of chequebook (for old account)

All the procedure for issuing a new chequebook for old account is same as the procedure of new account. Only difference is that customer have to submit the requisition slip of the old chequebook with date, signature and his/her address. Computer position is then given to the requisition slip to know the position of account and to know how many leaf/leaves still not used. The number of new chequebook is entered on the back of the old requisition slip and is signed by the officer.

Remittance section

Customers of a Bank need to transfer his fund or money to anywhere within the country they can do it through the remittance section of the Bank. Remittance section of general Banking deals with only local remittances. Bank normally deals with four types of local remittances. These are:

i. Demand Draft (DD)

ii. Telegraphic Transfer (TT)

iii. Pay Order (PO)

iv. Mail Transfer (MT)

a)  Demand Draft

• This is an order to pay money, drawn by one office of a Bank upon another

           office of the same Bank for a specific sum of money in any place.

• Which is outside of the clearinghouse area of issuing branch.
• It is a negotiable instrument.
• It can be crossed or not.
• Demand Draft is an instrument containing an order by the issuing branch

          upon another branch known as drawee branch, to pay a certain sum of

          money to the payee or to his/her order on demand.

b)  Pay Order (PO)

• It is like cash but not exactly cash.
• It is an instrument, which is issued from a certain branch of a Bank and must be enchased from the same branch.
• Unlike cheque, there is no possibility of dishonoring pay order because before issuing pay order Bank takes out money of the pay order in advance.
• It is not a negotiable instrument because it cannot be endorsed or crossed.

c) Telegraphic Transfer (TT)

• In case of TT the issuing branch sends a telegraphic message to another branch to pay a certain some of money to a named payee account.
• Test code is furnished on the TT message for the protection of it.
• Generally for such kind of transfer, payee should have account with the paying Bank; otherwise it is very difficult for the paying Bank to recognize the exact payee.
• At customer s request branch transfers fund to another branch over Phone and it is known as the TT, in short. TT facility is available at every Branch.

d) Mail Transfer (MT)

• Where there is no telex machine or telephone line, then this method is used.
• It is the least used technique for transferring fund because it is time consuming and risky because mail may be missed.
• When the transfer of fund from one branch to another takes place by mail but most of the time over telephone, it is called MT.
• The process of TT and MT is almost identical, only difference is the media.

Test Key:

• Test Key is a secret internal encoding mechanism used by banks for issuing DD, TT, MT etc.
• Taking into account the amount of instrument, the issuing date, beneficiary’s name, amount etc.
• Used to check any fraudulent issuance and payment.

 Cash Section

Cash is the most liquid asset and it should be dealt very carefully. So this department is really handled with intensive care. This department starts the day with cash in vault. All cash receipts and payments are made through this department. Cash section is a very sensitive organ of the branch and handle with extra care. I was lucky enough to know the procedures of this section. Operation of this section begins at the start of the Banking hour. Cash officer begins his/her transaction with taking money from the vault, known as the opening cash balance. Vault is kept in a very secured room. Keys to the room are kept under control of cash officer and branch in charge. The amount of opening cash balance is entered into a register. After whole day’s transaction, the surplus money remains in the cash counter is put Bank in the vault and known as the closing balance. Money is received and paid in this section.

a) Cash Receipt

Depositors deposit money in their account through this section by deposit slip. This section also receives cash from customer for opening pay order, Bank draft, telex transfer etc.

• At first depositor fill up the deposit in slip. Every type of account has

          different type of deposit in slip.

• Officers at the cash counter receives the money, count it, enter the amount

          of money in the scroll register kept at the counter, seal the deposit in slip

         and sign on it with date.

• Then this slip is passed to another officer who enters the scroll number given

          by the cash counter in his/her register along with the amount of money, sign

         the slip and keep the Bank’s part of the slip. Other part is given to the

         depositor.

• At the end of the day entries of both of these registers are cross checked

to see whether the transactions are correct or not.

b) Cash Payment

This section accepts the cheques from the depositors or bearer for payment in cash. After receiving cheque the cheque the following steps followed by the bankers-

• The cheque first gives it to the compute desk, if the account has

           sufficient fund the computer in charge will post it into the computer,

          will sign it and seal it.

• After receiving the cheque officer first checks it very carefully for any kind

          of fraudulent activity. S/he also checks the date of the cheque, amount in

         word, amount in figure and ask the bearer to sign on the back of the cheque,

         put his/her initial beside the bearers signature.

• S/he will write down the amount by red pen and will put on a scroll number

          from his/her scroll register.

• Then the cheque will be sent to the cash counter. At the cash counter bearer

          will be asked again to sign on the back of the instrument.

• The cash officer will then enter the scroll number in his/her register and will

          pay the money to the bearer.

• At the end of the day these scroll numbers of the registers will be compared

          to ensure the correctness of the entries.

Clearing & Bills Section

Principal Branch of PUBALI Bank receives different types of instruments, such as cheque, PO, DD etc. from its customers for collection. It also pays on behalf of its customers for those instruments that come from clearinghouse. When instruments of Pubali Bank are sent for collection or received for payment through clearing house it is called Inter Bank Credit Advice or IBCA. When the cheques are presented to a Bank by the other Banks for collection of fund and to credit that into the party’s account, the instrument must be cleared though Bangladesh Bank clearing house.

a) Inward Clearing

When instruments are sent to the Bank via clearinghouse, it entered into the clearing register. The officer checks the instruments thoroughly before it is sent to the computer section for posting. If any kind of error is found in any instrument it is dishonored and sent back with appropriate reason for doing so. Instruments are also dishonored or insufficiency of fund. The information is then sent back to the clearinghouse for taking appropriate action.

b) Outward Clearing

After filling the deposit in slip bearer of the instrument deposits the instrument to the respected officer. Upon receiving the instrument the respected officer checks the essential features of the instrument and whether the deposit in slip is filled accordingly or not. Then s/he crosses the instrument with a seal containing Banks and branch s name, signs the deposit in slip and provides the customer with counter foil of the slip. Then both the instrument and slip is sealed with CLEARING seal and date seal contain the date of clearing. An endorsement seal is also sealed on the back of the instrument and the officer endorses it on behalf of Pubali Bank. It is then given entry in the clearing out register mentioning the name of the Bank and branch of it, amount of money, and number of the instrument and date of it. Then the officer separates the instrument from the deposit in slip. Deposit in slip is kept in the Bank and the instrument is sent for clearing.

c) Inward Bills for Collection

All clearing cheques are not received on the counter. Some cheques are received from other source for collection. These cheques are received-

• From other branch of PUBALI Bank. These are settled by sending Inter Bank Credit Advice (IBCA).

• · From another Bank outside the clearinghouse. These are settled by debiting depositor s account and sending DD, TT, MT in favor of the sender Bank.

Loans and Advances Department

Introduction

Pubali Bank Limited is an ancient Bank. It is committed to provide high quality financial services/products to contribute to the growth of G.D.P of the country through stimulating trade and commerce, accelerating the pace of industrialization, boosting up export, creating employment opportunity for the educated youth, poverty alleviation, raising standard of living of limited income group and over all sustainable socio-economic development of the country. Like every other business activity Banks are profit oriented and profit is the central point on which the entire business activity rotates. A Bank invests its funds in many ways to earn income. The bulk of its income is derived from investment. Since major part of Banks income is derived from credit and since the money credited by Bank is customers fund, Banks should follow a cautious policy and sound lending principles in the matter of lending.

 The word “CREDIT” is derived from Latin word “credo” that means ‘I believe’ and is usually defined as the ability to buy with a promise to pay. So we can say “Credit is a promise of future payment in kind or in money given in exchange for present money, goods or services”

Credit Policy Of PUBALI BANK LIMITED

When a prospective customer requests a loan, bankers analyze all available information to determine whether the loan meets the bank’s risk-return objectives. Credit analysis is essentially default risk analysis in which a loan officer attempts to evaluate borrower’s ability willingness to repay. Therefore, bankers need to perform qualitative analysis, which has been classified according to the five Cs of credit as under

a) Character

b) Capital

c) Capacity

d) Condition

e) Collateral

Principles of Sound Lending

a) Safety

PUBALI Bank exercises the lending function only when it is safe and the risk factor is adequately mitigated and covered. Safety depends upon: The security offered by the borrower. The repaying capacity and willingness of the borrower is to repay the advance.

b) Liquidity

The liability of a Bank is repayable of demand or at a short notice. So the Bank has to maintain its liquidity at a sufficient level. Investment on building, plant, machinery, land etc. cannot be recovered quickly, so it is less liquid.

c) Profitability

Profit is needed to pay interest to depositors, depreciation, and maintenance, declare dividend to share holders, provide or reserve against bad and doubtful debts etc. so like all other Banks PUBALI Bank also disburse advances to earn profit.

d) Security

To ensure safety of advances, Banks takes different types of securities like MTDR, Sanchaypatra, land, work order etc. Banker should ensure that the securities are adequate, marketable and free from encumbrances.

 Categories of Loans and Advances:

All loans and advances may be grouped into 4(four) categories, namely (a) Continuous Loan (b) Demand Loan (c) Fixed Term Loan and (d) Short-term Agricultural and Micro Credit.

a) Continuous Loan:

 The loan Accounts in which transactions may be made within certain limit and have an expiry date for full adjustment will be treated as Continuous Loans. Examples are: CC, OD etc.

b) Demand Loan:

The loans that become repayable on demand by the bank will be treated as Demand Loans. If any contingent or any other liabilities are turned to forced loans (i.e. without any prior approval as regular loan) those too will be treated as Demand Loans. Such as: Forced LIM, PAD, FBP, and IBP etc.

c) Fixed Term Loan:

The loans, which are repayable within a specific time period under a specific repayment schedule, will be treated as Fixed Term Loans.

d) Short-term Agricultural and Micro Credit:

Short-term Agricultural Credit will include the short-term credits as listed under the Annual Credit Program issued by the Agricultural Credit Department of Bangladesh Bank. Credits in the agricultural sector repayable within less than 12 months will also be included herein. Short-term Micro-Credits will include any micro-credits for less than Tk.25, 000/= and repayable within less than 12 months, be those termed in any names such as Non-agricultural credit, Self-reliant Credit, Weaver’s Credit or Bank’s individual project credit.

The loans product through which PUBALI Bank is serving to its customers:

a. Continuous Loan:

1. Secured Over Draft Against Financial Obligation {(SOD) (FO)}
2. Secured Over Draft Against Work Order/Real State etc. {(SOD) (G)}
3. Cash Credit (Hypothecation)
4. Cash Credit (Pledge)
5. Export Cash Credit (ECC)

b. Demand Loan:

1. Loan General.
2. Demand Loan against Ship breaking.
3. Payment Against Documents (PAD)
4. Loan Against Imported Merchandise (LIM)
5. Loan Against Trust Receipt (LTR)
6. Forced Loan
7. Packing Loan
8. Secured Over Draft Against Cash Incentive
9. Foreign Documentary Bills Purchased (FDBP)
10. Local Documentary Bills Purchased (LDBP/IDBP)
11. Festival Business Loan.

c. Term Loan:

1. Project Loan.
2. Transport Loan.
3. HouseBuilding Loan.
4. Small business Loan.
5. Consumer Finance Scheme.
6. Lease Finance
7. Personal Loan.
8. Staff Loan

General procedure for sanctioning loans & advances

The following procedure is applicable for giving advance to the customer. These are:

A. Duly fill-up first information sheet

B. Application for Loans/Advances

C. Credit Risk Grading

C. Collecting CIB report from Bangladesh Bank

D. Making proposal to Head Office

E. Project appraisal

F. Head office approval

G. Sanction letter

H. Documentation

I. Charges on Securities

J. Recovery

A. First Information Sheet

First information sheet is the prescribed form provides by the respective branch contains following particulars: –

• · Name of the concern with its factory location, Office address & Phone number,
• · Name of the main sponsors with their educational qualification and experience,
• · Details of past and present business, it achievement and failures,
• · Name of all the concerns wherein the sponsors have involvement,
• · Income tax registration number with the amount of tax paid for the last

   three years,

• · Details of unencumbered assets personally owned by the sponsors,
• · Details of liabilities with other Banks and financial institutions,
• · Estimated cost of the project & means of finance.

B. Application for Investment

After receiving the first information sheet from the borrower Bank official verifies all the information carefully. He also checks the account maintains by the borrower with the Bank. If the official becomes satisfied then he gives application or Investment form to the prospective borrower.

C. Collecting CIB Report from Bangladesh Bank

After receiving the application for advance, PUBALI Bank sends a letter to Bangladesh Bank for obtaining a report from there. This report is called CIB (Credit Information Bureau) report. Pubali Bank generally seeks this report from the head office for all kinds of Investment. The purpose of this report is to being informed that whether the borrower has taken loan from any other Bank; if yes then whether the party has any overdue amount or not.

D. Making Investment Proposal

After receiving CIB report, concern branch prepare an Investment proposal, which contains terms, and conditions of Investment for approval of Head Office or Head of the concerned branch. Following documents are necessary for sending the Investment proposal:

• Loan application
• Declaration of the borrower
• Photograph of the borrower duly attested
• Bio data of the borrower
• Limit sanction
• Credit report
• Legal opinion
• Memorandum of article
• Trade license
• Copy of title deeds
• Tax clearance certificate

If the officer thinks that the project is feasible then he will prepare a proposal. PUBALI Bank prepares the proposal in a specific form called Investment proposal. It contains following relevant information:

• Borrower, Date of establishment, constitution, Main sponsor/director with   background,

• Capital structure, address,
• Account opening date, introduced by type of business, particulars of previous
• sanctions,
• Security (existing and proposed),
• Movement of accounts,
• Components on the conduct of the account,
• Details of deposit, liabilities of allied concerns, liabilities with other Banks,
• CIB report,
• Rated capacity of the project (item wise),
• Production/purchase during the period,
• Sales during the period,
• Earning received for the period,

E. Project Appraisal

It is the pre-investment analysis done by the officer before approval of the project. Project appraisal in the Banking sector is needed for the following reasons:

• To justify the soundness of an investment,
• To ensure repayment of Bank finance,
• To achieve organizational goals,
• To recommend if the project is not designed properly.

Techniques of Project Appraisal

An appraisal is a systematic exercise to establish that the proposed project is a viable preposition. Appraising officer checks the various details submitted by the promoter in first information sheet, application for Investment and Investment proposal. PUBALI Bank considers the following aspects in appraising a proposal.

• Technical viability
• Commercial viability
• Financial viability
• Economic viability

The Head Office (HO) mainly checks the technical, commercial and financial viability of the project. For others HO is dependent on branch s information. But when the investment size is big, then the HO verifies the authenticity of information physically.

F. Head Office Approval

Upon receipt of the Investment proposal from the branch, the Head Office aging appraises the project. If it seems to be a viable one, the HO sends it to the Board of Directors for the approval of the Investment. The Board of Directors (BOD) considers the proposal and takes decision whether to approve the Investment or not. If the BOD approves the Investment, the HO sends the approval to the concerned branch. The respective officer of Head Office appraises the project by preparing a summary named Top Sheet or Executive Summary. Then he sends it to the Head Office Credit Division for the approval of the Loan. The Head Office Credit Division considers the proposal and takes decision whether to approve the Investment or not. If the committee approves the Investment, the HO sends the approval to the concerned branch with some conditions. These are like:

• Drawing will not exceed the amount of bill receivables.
• All other terms and conditions, as per policy and practice of the Bank for such advance to safeguard the Banker s interest shall also be applicable for this sanction also.
• Bank may change/alter/cancel any clause (s) of the sanction without assigning any reason whatsoever and that shall be binding upon the client unconditionally.
• Branch shall not exceed the sanctioned limit.
• Required charge documents with duly stamped should be obtained.

Drawing shall be allowed only after completion of mortgage formalities and other security arrangement.

G. Sanction Letter

After getting the approval of the HO the branch issues sanction letter to the borrower. A sanction letter contains the following particulars amongst other details:

• Name of borrower
• Facility allowed
• Purpose
• Rate of interest
• Period of the Investment and mode of adjustment
• Security
• Others terms and condition

H. Documentation

If the borrower accepts the sanction letter, the Documentation starts. Documentation is a written statement of fact evidencing certain transactions covering the legal aspects duly signed by the authorized persons having the legal status. Following are the most common documents used by the PUBALI Bank for sanctioning different kinds of Investment:

• Joint Promissory Note
• Letter of Arrangement
• Letter of Disbursement
• Letter of Installment
• Letter of Continuity
• Trust Receipt
• Counter Guarantee
• Stock Report
• Letter of Lien
• Status Report
• Letter of Hypothecation
• Letter of Guarantee
• Documents Relating to Mortgage.

Charges on Securities

There are 6 types of moods of charging on securities:

1) Pledge

Pledge is the bailment of goods as security for payment of a debt or performance of a promise. A pledge may be in respect of goods including stocks and share as well as documents of title to goods such as railway receipts, bills of landing, dock warrants etc. duly endorsed in Bank s favor.

2) Hypothecation

In case of hypothecation the possession and the ownership of the goods both rest the borrower. The borrower to the Banker creates an equitable charge on the security. The borrower does this by executing a document known as Agreement of Hypothecation in favor of the lending Bank.

3) Mortgage

According to section (58) of the Transfer of Property Act, 1882 mortgage is the transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, existing or future debt or the performance of an engagement which may give rise to a pecuniary liability. In this case the mortgagor dose not transfer the ownership of the specific immovable property to the mortgagee only transfers some of his rights as an owner. The Banker exercises the equitable mortgage.

4) Lien

Lien is the right of the Banker to retain goods of the borrower until the loan is repaid. The Banker s lien is general lien. A Banker can retain all securities in his possession till all claims against the concern person are satisfied.

5) Assignment

Assignment means transfer of any existing or future right, property or debt by one person to another person. The person who assigns the property is called assignor and the person whom it is transferred is called assignee. . Usually assignments are made of actionable claims such as book debts, insurance claims etc. In banking business, a borrower may assign to the Banker (1) the book debts (2) money due from government s debt (3) insurance policy.

6) Set-off

Set-off means the total or partial merging of a claim of one person against another in a counter claim by the latter against the former. It is in effect the combining of accounts between a debtor and a creditor so as to arrive at the net balance payable to one or the other. It is a right, which accrues to the Banker as a result of the Banker-customer relationship. Set-off arises when a debtor or his creditor wishes to arrive at the net figure owing between them when separate accounts or debt are involved.

J. Recovery

It is the duty of the recovery department of the Bank to recover the landed fund within the stipulated time and if the borrower fails to repay the money within the said period Bank will declare him as a defaulter and recover the fund by selling the securities given by the borrower, by freezing his account or make a suit against him.

Legal Framework for Investment Recovery

After being classified, Bank goes for loan recovery by legal action. Head Office appoints legal advisers and advises to the respective branch to file a suit against the defaulted loanee. PUBALI Bank generally suits files under the “Artha Rin Adalat 1990”.

Evaluation of Investment Proposals

A. Financial Statement

Financial spreadsheet provides a quick method of assessing business trends and efficiency.

• Assess the borrowers ability to repay
• Realistically show business tends
• Allow comparisons to be made within industry

B. Credit Risk Grading (CRG)

Credit Risk Grading is the grading or analyzing the risk that a borrower or counter party will fail to meet obligation. It is an important tool of Credit Risk Management (CRM) to understand dimensions of risk in credit transactions. It is a systematic and structured way of assessing lending risk, which is regularly done by the PUBALI BANK LIMITED. Short name and number used in CRG as follows:

 C. Credit Information Bureau (CIB)

Due to the irregular and insufficient flow of credit information into the Banking system the proportion of classified loan in relation to the total credit is very high. This proportion of classified loan generated bad influence in the Banking sector. In order to eliminate the bad culture and to equip the Banks with proper credit information for loan application processing, proposal for creation of Credit Information Bureau (CIB) was put forward by different comities and groups such as National Commission for Money, Banking and Credit, 1986, the World Bank Report, 1987 and Financial Sectors Task Force Reports, 1990. In the backdrop of the above proposal Bangladesh Bank approved the CIB in 1992.

The main objectives of the CIB are to collect all shorts of information in respect of the borrowers (having outstanding balance of Tk. 10 lac and above) from the scheduled Banks, and other non Banking financial institutions and creation of computer database in order to feed back the same information to the Banks for quick processing of new loan applications, rescheduling etc. and preparation of various reports for MIS purposes to be used in Bangladesh Bank and Ministry concerned.

D. Monitoring of Investment

Investment monitoring implies that the checking of the pattern of use of the disbursed fund to ensure whether it is used for the right purpose or not. It includes a reporting system and communication arrangement between the borrower and the lending institution and within department, appraisal, disbursement, recoveries, follow-up etc. PUBALI Bank officer checks on the following points:

• The borrower s behavior of turnover.
• The information regarding the profitability, liquidity, cash flow situation and trend in sales in maintaining various rations.
• The review and classification of credit facilities starts at Investment Department of the branch with the branch manager and finally with Head Office Investment Division.

 E. Recovery Procedure of Loans & Advances

Recovery procedure of PUBALI Bank is the ultimate combination of time, effort of money. It follows four procedural steps to recover the lending amount, which is joint effort of Bank, society and legal institutions, which are shown below:

 Diversification of Risks

It is very risky for a bank to invest all its assets into a particular sector or a single borrower or to one particular region. If somehow the business of that sector or area or borrower collapses, the bank may fall in a critical situation. So it is better to invest in different sectors/borrowers and spread over the country. That s why PUBALI Bank invests its fund in various sectors.

Discouraged Sectors of Investment

Investment in following sectors is discouraged by PUBALI Bank:

• Military equipment/Weapons Finance
• Highly Leveraged transactions.
• Finance of Speculative Investment.
• Logging, Mineral Extraction/Mining, or other activity that is Ethically of Environmentally Sensitive.
• Lending to companies listed on CIB black list or known defaulters,
• Counter parties in countries subject to UN sanctions.
• Share Lending.
• Taking an Equity Stake in borrowers.
• Lending to Holding Companies.
• Bridge Investments relying on equity/debt issuance as a source of repayment.
• Tannery Finance.
• HB- residential who has no other business with the Bank.

Foreign Exchange Department

Introduction

Foreign trade financing is an integral part of banking business. Banking business basically deals both internally and as well as foreign correspondence. This foreign correspondence generally conducted through foreign currencies. Foreign Exchange is a process, which converted one national currency into another and transferred money from one country to another. Through foreign exchange money laundering occurs in different countries. So it is necessary to discuss about it in a brief.

Foreign Trade and Foreign Exchange:

International trade refers to trade between the residents of two different countries. Each country functions as a sovereign State with its set of regulations and currency. The difference in the national of the exporter and the importer presents certain peculiar problems in the conduct of international trade and settlement of the transactions arising there from. Important among such problems are:

•  Different countries have different monetary units;
•  Restrictions imposed by countries on import and export of goods;
• Restrictions imposed by nations on payment from and into their countries;
• Differences in legal practices in different countries.

Foreign exchange means foreign currency and includes: – 

(i) All deposits, credits and balances payable in any foreign currency and any drafts, travelers cheques, letters of credit and bills of exchange, expressed or drawn in local currency but payable in any foreign currency.

(ii) Any instrument payable, at the option of the drawee or holder thereof or any other party thereto. Thus, foreign exchange includes foreign currency, balances kept abroad and instruments payable in foreign currency.  

 Principles of Foreign Exchange

The following principles are involved in Foreign exchange:

•  The entire system
• The media used
• The monetary unit.

 Function of Foreign Exchange

The Bank actions as a media for the system of foreign exchange policy. For this reason, the employee who is related of the bank to foreign exchange, especially foreign business should have knowledge of these following functions:

• Rate of exchange
•  How the rate of exchange works.
•  Forward and spot rate.
• Methods of quoting exchange rate.
• Premium and discount.
• Risk of exchange rate.
• Causes of exchange rate.
•  Exchange control.
• Convertibility.
• Exchange position.
• Intervention money.
• Foreign exchange transaction.
• Foreign exchange trading.
• Export and import letter of credit.
• Non-commercial letter of trade.
• Financing of foreign trade.
• Nature and function of foreign exchange market. 

Available products & services in Foreign Exchange Department of PUBALI Bank:

1. Letter of Credit (L/C)
2. Back to Back letter of Credit (BTB L/C)
3. Buying & Selling of Foreign Exchange.
4. Foreign Demand Draft (FDD)
5. Foreign Telegraphic Transfer (FTT)

The department that deals with foreign correspondence and affairs is known as Foreign Exchange Department. Foreign Exchange Department deals with Letter of Credit (L/C) operation and foreign remittance. L/C operation divided into import operation, export operation and inland trade.

PUBALI Bank offers two types of credit facilities to its customers. Such as:

a. Funded Credit and

b. Non Funded Credit

a) Funded Credit

The credit facilities in which the fund of the Bank is directly invested in known as funded credit. Such as cash credit, secured overdraft etc.

b) Non Funded Credit

The credit facilities in which Bank s funds are not directly invested are known as non funded credit such as Letter of Credit (L/C), Guarantee etc.

Legal Framework

Foreign exchange business is a crucial and complex business all over the world. Fraud and forgery may arise in very sphere of this business. To overcome that misshapenness and to settle international disputes, a legal framework is a must. An apex body is doing these functions named International Chambers of Commerce (ICC). The publication made by the ICC is treated as compulsory law for each and every country.

Import L/C

By opening a letter of credit on behalf of the customer (importer) Bank undertakes to make payment to an exporter subject to submission of documents drawn in strict compliance with letter of credit terms giving title to goods to the importer.

Following documents must be submitted by the buyer/importer at the time of opening a L/C:

1. Import Registration Certificate IRC
2. Tax Identification Number TIN
3. Membership Certificate from registered organization or trade association
4. Pro forma Invoice
5. L/C application form duly filled in and signed by the importer
6. Insurance cover note with Bank clause along with premium paid receipt.

International Department (ID) of PUBALI Bank, Head Office grants any L/C proposal forwarded by the branch. ID of PUBALI Bank gives sanction of L/C subject to the following conditions:

a)            Proposed importer is a current account holder.

b)           The items to be imported according to import policy.

c)            Proposed importer is a good and reliable constituent and he is a man of

          commitment.

d)            Excess cost of imported merchandise due to fluctuation of Foreign Trade rate

          must be beard by the importer.

e)            L/C must be opened according to the specified invoice.

f)             The constituent is not a defaulter of the Bank nor is the guarantor of any

           defaulter.

Having completed all the formalities discussed there, the Bank grants credit as required by the importer in favor of the exporter.

 Preparation of L/C

All the terms and conditions as embodied in the L/C application of the imported are typed in the L/C pro forma in manifold.

Scrutiny of the typed L/C

a)            Documents required to be clear mentioned

b)           Separate re-imbursement instruction is clearly given

c)            All other instruction have been incorporated

d)            L/C number, date and amount in foreign currency has been

          mentioned on the L/C.

e)            The L/C has been prepared in accordance with Uniform Customs and

           Practices for Documentary Credit (UCPDC).

Then the particulars of L/C are recorded in the L/C opening register

1. Date and L/C  of number
2. Name of the party
3. Amount in Tk. and foreign currency
4. Merchandise to be imported and country of origin
5. Name of advising bank & Expiry date
6. Percentage of margin and amount of margin
7. Amount of commission, postage charges, telex charges and foreign correspondence charge.

Disposal of L/C

L/C types in the printed form are disposed in the following manner.

a)    First two copies to the advising Bank original for beneficiary and 2nd copy for advising Bank

b)   One copy Head Office

c)    One is sent to the importer

d)    One copy is retained as office copy

Then L/C is advised to the advising Bank.

After receiving the document the advising Banker may negotiate the document or may not (in case of negotiating) banker before negotiation to see that full sets of documents have been received and that they are in order and have been correctly drawn in accordance with the terms of the credit.

Export L/C

Export L/C operation is just reverse of the import L/C operation. For exporting goods by the local exporter, Bank may act as advising bank and negotiating for the exporter. As a negotiating Bank, it receives documents from the foreign importer and hand it over to the exporter. Sometimes it adds confirmation on the L/C on request from the opening Bank. By adding confirmation it assumes the responsibility to make payment to the exporter. As negotiating Bank, it negotiates the bills and other shipping documents in favor of the exporter. Sometimes the bank purchases the bills at discount from the local exporter and waits till maturity of the bill. When the bill matures, Bank presents it to the drawee to encash. In our country, export and import operation of Bank is very much related with another because of use on Back to Back L/C.

Back-to-Back L/C

As per existing provisions recognized export oriented units permitted to make import of raw materials and packing materials under the Back to Back L/C arrangement where import payments are made out of realized proceeds of exports of the manufacture s products.

 Back-to-Back L/C Condition

A. Security

i. Lien and physical possession of export L/C in favor of the Bank (affixing lien mark on it).

ii. Imported items will be stored in a bonded warehouse under joint control of Bank and customs authority after clearing through the approved C& F agent.

B. Other Conditions

1. Drawing to draft clause
2. Import of raw materials in proportion to the working capacity and convenience of the factory
3. Treatment of interest
4. Undertaking must be given by the party in case of any failure to export the goods
5. Time of opening L/C and negotiation within specified period

vi.     Back-to-Back L/C shall be opened only in the currency in which export L/C would be received to avoid loss due to exchange fluctuation.

Inland L/C

Bank also finances export trade normally by opening and Inland Letter of Credit on behalf of the exporter, who has received on export letter of credit from overseas buyers. The suppliers are generally paid after negotiation of export documents submitted by the exporters. Documents for negotiation are:

• Bill of Exchange                                        · Delivery Challan
• Commercial Invoice                                   · Country of Origin Certificate
• Packing list                                               · Transport documents

Foreign Remittance

According to section three of Foreign Trade Regulation Act, 1957 Bank is authorized dealer to deal in foreign business. As an authorized dealer Bank provides services regarding Foreign Exchange to its clients.

 Bank as a Party of Documentary Credit

Parties to the documentary credit are an issuing bank, and advising bank, confirming bank, a reimbursing bank or a negotiating bank.

Issuing Bank

The issuing bank or the opening bank is one which issues the credit, i.e., undertakes, independent of the undertaking of the applicant, to make payment provided the term and conditions of the credit have been complied with. The payment may be at sight if the credit provides for sight payment, or at maturity dates if the credit provides for deferred payment. Especially the issuing bank should satisfy himself on the credit worthiness of the Uniform Customs and Practices of Documentary Credit (UCPDC).

Advising Bank

The Advising Bank advises the credit to the beneficiary authenticating the genuineness of the credit. The advising bank is generally situated in the country/place of the beneficiary.

Confirming Bank

A Confirming Bank is one which adds its guarantee to the credit opened by another bank, thereby, undertaking the responsibility of payment/negotiation under the credit in addition to that of the issuing bank. A confirming bank normally does so if requested by the issuing bank. When the credit worthiness of the issuing bank is in doubt, beneficiary s bank may request the issuing bank to given additional confirmation by another bank. It is said Add Confirmation in practice.

Negotiating Bank

A Negotiating Bank is the bank nominated or authorized by the issuing bank to pay, to incur a deferred payment liability, to accept drafts or to negotiate the credit.

Reimbursing Bank

A Reimbursing Bank is the bank authorized to honor the reimbursement claims in settlement of negotiation/payment lodged with it by the negotiation bank or accepting bank. It is normally the bank with which the issuing bank or accepting bank. It is normally the bank with which the issuing bank has account from which payment is to be made. Reimbursement claims in foreign exchange business is settled by the Uniform Rules for Reimbursement (URR).

Inward Remittance

In case of inward remittance, payment is made for private or commercial purpose. Generally private payment is made after submitting the D.D or receiving T.T. There is no restriction or no other procedure in this case. But in case of commercial payment following procedure is necessary:

1.   After getting the T.T. or D.D. Bank send a advice to the beneficiary

2.   If the remittance is under WES (Wages Earner Scheme) then Bank wants the foreign currency account number

3.   If it is other than WES then following papers are required:

• 1.                                          I.    VAT/Turnover Tax Registration copy

II.     Bangladesh Bank permission/registration copy

4.   In case of NGO or Ministry payment, permission of NGO Bureau and permission of concerned Ministry is required.

Settlement of Local Bill

The settlement of local bills is dong in the following ways:

1. The customer submits the L/C to the branch along with the documents to negotiate
2. The branch officials scrutinizes the documents to ensure the conformity with the terms and conditions
3. The documents are then forwarded to the L/C Opening Bank
4. The L/C Issuing Bank gives the acceptance and forwards an acceptance letter
5. Payment is given to the customer on either by collection basis or by purchasing the document.

Deferred Payments

In differed payment, the Bank agrees to pay on a specified future date or event, after presentation of the export documents. No bill of exchange is involved. In this branch, the payment is given to the party at the rate of 30, 60, 180, & 360 days rate as the case may be. But the Head Office is paid under T.T. Clean Rate. The difference between the two rates is the exchange margin for the branch.

Negotiation credit

In Negotiation Credit, the exporter has to present a bill of exchange payable to him in addition to other documents that the Bank negotiates.

Acceptance Credit

In Acceptance Credit, the exporter presents a bill of exchange payable to him and drawn at the agreed tenor (that is, on a specified future date or event) on the bank that is to accept. The bank signs its acceptance on the bill and returns it to the exporter. The exporter can then represent it for payment on maturity. Alternatively he can discount it on order to obtain immediate payment.

Foreign Remittance

Foreign Remittance means purchase and sale of freely convertible foreign currencies as admissible of the country. Purchased of foreign currencies constitutes inward foreign remittance and sale of foreign currencies constitutes outward foreign remittance. So we see that there are two types of Foreign Remittance:

1. Foreign Outward Remittance
2. Foreign Inward Remittance

Mode of Outward Remittance

• Foreign Telegraphic Transfer (FTT)
• Foreign Mail Transfer (FMT)
• Foreign Demand Drafts (FDD)
• Travelers cheque (TC)
• Foreign Currency Notes

Mode of Inward Remittance

• Telegraphic Transfer (TT)
• Mail Transfer (MT)
• Foreign Demand Drafts (FDD)
• Payment Order (PO)
• Travelers Cheque (TC)
• Foreign Currency Notes (FCN)

Foreign Remittance Payment Project (FRPP):

PUBALI BANK LIMITED has been playing a vital role to remit the remittance of foreign expatriate to the country through the branches of the Bank and renowned NGO TMSS with the help of DFID (Department for Foreign Infrastructure Development) of United Kingdom. The total procedure has been doing through a separate project called Foreign Remittance Payment Project (FRPP).

Money Laundering

Now a days money laundering is known as organized crime all over the world. Like a developing countries Bangladesh is also a victim of this crime. Some international Non Government Organization (NGO) is directly related in this regard. Launderer usually use banking channel to laundry their illegal income. After 9/11 the world faced a very critical moment. So the central bank of every country is very alert about money laundering as well as our Bangladesh Bank. As a whole every commercial bank of Bangladesh is also alert. PUBALI Bank Ltd. is a pioneer bank in Bangladesh plays an important role in our economy. It mobilizes the ideal capital to the entrepreneur and also plays an important role in foreign remittance. To prevent money laundering PUBALI Bank Ltd. is also highly conscious.

Money laundering procedure may be defined in many ways but almost countries of the world are agreed with “ United Nation Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (1988) (Vienna Convention)” and “ United Nation Convention Against Transnational Organized Crime (2000) (Palermo Convention)”. In the light of those conventions many countries defined the Money Laundering as below-

Malaysia:

“Any Person who-

a)    Engages in, or attempts to engage in; or

b)   Abets the commission of, money laundering, commits an offence and shall on conviction be liable to a fine not exceeding five million ringgit or to imprisonment for a term not exceeding five years or to both.

1. A person may be convicted of an offence under sub-section (1) irrespective of
2. whether there is a conviction in respect of a serious offence or foreign serious offence or that a prosecution has been initiated for the commission of a serious offence or foreign serious offence.”

Thailand:

 “ Whoever

(1)  Transfers, receives the transfer, or changes the form of an asset involved in the commission of an offence, for the purpose of concealing or disguising the origin or source of that asset, or for the purpose of assisting another person either before, during, or after the commission of an offense to enable the offender to avoid the penalty or receive a lesser penalty for the predicate offense; or

(2)  Acts by any manner which is designed to conceal or disguise the true nature, location, sale transfer, or rights of ownership, of an asset involved in the commission of an offense shall be deemed to have committed a money laundering offense.”

India:

“ Whosever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be guilty of offence of money laundering.”

On the other hand in Bangladesh Money Laundering defined on the basis of “ Bangladesh Money laundering Prevention Act 2008” as below-

a)    Properties acquired or earned directly or indirectly through illegal means;

b)   Illegal transfer, conversion, concealment of location or assistance in the above act of the properties acquired or earned directly or indirectly through legal or illegal means.

In this act “ properties means movable or immovable of properties of any nature and description.”

 How Money Laundering Occurs-

There is no specific procedure to occur money laundering but generally it occurs in means of following three steps or one of these steps.

a)    Placement/ Entering

b)   Layering

c)   Integrating

a) Placement/ Entering:

When an unlawful income first enters into a Financial System is called placement/entering. For instance, money earned by theft, robbery or hijacking and deposited into a bank account then placement occurs. Using unlawful income to buy land or car or invest on share market is also a manner of placement.

b) Layering:

After placement of unlawful income into a Financial System and make it complex to identify the source through various transaction is called layering. For example, transaction between entity less organization through electronic transfer, foreign draft, travelers cheque or transfer any amount through one Branch to another Branch or account.

c) Integrating:

When layering completed successfully then the launderer uses it as lawful income. And launderer then invested it into the economy. For instance, frequently change the ownership of land, car or insurance policy.

Moreover launderers try to launder his unlawful income through over invoicing, under invoicing, offshore banking/ shell banking.

Where Money Laundering can occur

Countries where infrastructures of financial systems are weak are more favorable for money laundering. When money transfer procedure is complex then the launderer get opportunity to laundering. Even three stage of money laundering may be occurs in three different countries. Usually developing countries where infrastructures are so weak are main field of money laundering.

 Impact on Socio-economy

Now a days money laundering is highly discussed issue. Though it has no exact figure but it is true that a great part of daily transaction done through illegal transaction as well as money laundering. Developed country already fight against it but in the developing country where financial infrastructure is too weak is very difficult to fight against money laundering. The more money laundering occurs the more facility gain by corrupted person or terrorist. There is a great impact of money laundering on the economy, security and the society of a country. The launderer chose those countries where he gets the following opportunity-

       · Rules and regulations are too weak,

       · Some organization are not protected by the anti money laundering framework,

       · Poor implementation of rules and regulations,

       · Only few crimes are called offence under money laundering,

       · Poor punishment system.

When money laundering increasing gradually in a society then the society influenced for more crime. Illegal transaction occurs frequently, people encourage for corruption. And the following persons come into intimacy with it-

        · Officer/Staff & Management of an Organization,

        · Layer & Accountant,

        · Parliamentary/ Judge,

        · Law implementations organization,

        · Police,

        · Prosecutor.

Money Laundering and terrorist financing may have a great impact on the economy of a country. Not only bank but also securities farm, insurance company and investment farm may also be the victim of this crime. Many countries downsize there business with terrorist countries as well as countries where money laundering occurs. For this reason the following problem may be arise-

        · Hamper the profitable business,

        · Liquidity problem,

        · Investigation cost,

        · Loses of correspondence banking facilities.

Case Study

a) Internationally Organized

In January 1999 El Dorado Task Force (UDTF) of New York customs came to know that the gold suppliers are helping to laundering money earned from illegal drug business. They knew that launderer usually use money to buy gold and send it to Colombia then sold it into cash. Then the total cycle go on. Investigator also find out that the passenger who travel from USA to Colombia carry some golden small instruments, ball or parts of motor vehicles are also bought by the earnings of drugs business. As per their investigation thy go for a operation named “ Operation Meltdown” and arrest at least ten lakh million dollar or equivalent gold earned by drug business. In June 2003 thy able to arrest eleven person. And in December 2003 they arrested 23 people, 6 people asked as guilty and forfeited 140 kg gold.

b) STR/ CTR Related

 Mr. “X” is an owner of a signboard manufacturer named “Addco Sign”. He has no bank account for his business firm. Mr. “Y” is a money launderer came into intimacy with Mr. “X” and influences him to open a bank account. As a result Mr. “X” open a bank account in the name of “Addco Sign” in branch of a “Bank P” located at Dhaka which introduced by Mr. “Y” and deposited TK-50,000.00 as an initial deposit. Then Mr. “Y” offered to Mr. “X” that he will collect order from various parties and all of cost will run by him and profit will be fifty-fifty. After three month the agent of Mr. “Y” deposited TK-2, 00,000.00 in that account through on line from a branch located at out side of Dhaka. Mr. “Y” received the money by managing Mr. “X” on that day. As per rule bank report to the Bangladesh Bank about the transaction as a Suspicious Transaction Report (STR) as well as Cash Transaction Report (CTR). When investigation run through Mr. “X” asked for the origin of the money but he could not provide any information. He could understand that he used by a criminal but it was too late. Actually Mr. “Y” was a launderer and the money was ill gotten.

c) KYC Related

With help of the bank authority Mr. “X” open a current account in a branch of bank without necessary particulars. He also open two Cash Credit (Hypo) i.e. CC(Hypo) account in the same branch in same manner. After sanctioning about TK- 3,50,00,000.00 loans in that CC account he transfer the total money in his current account. Within three month he received the total money in cash and closed the current account. When investigation run through there could not found any necessary particulars without some leaves of cheque even though it was not reported to the Bangladesh Bank. As a result the bank paid a penalty to the Bangladesh Bank.

 International Standardization Organization

a) United Nations (UN)

The first fruitful steps to money laundering prevention globally as an international organization is taken by United Nations. In this case the following reasons are more important-

1. It’s an international organization with large number of member;
2. Steps taken to money laundering prevention globally;
3. It’s an international organization with the power to attain the agreement and convention through its member countries.

To money laundering prevention and control terrorist financing UN take some convention and regulation, which are given, below-

1. Vienna convention

United Nations convention against illicit traffic in narcotic drugs and psychotropic substances (1988) is known as Vienna convention. 169 countries agreed with the convention to execute the rules and regulation and the convention came into operation on 11 November 1990. The convention taken against illicit traffic in narcotic drugs and to prevent money laundering.

2. Palermo convention

The International Convention Against Transnational Organized Crime (2000) is known as Palermo convention. In this convention money laundering treated as an organize crime. 147 countries agreed with the convention to execute the rules and regulation and the convention came into operation on 29 September 2003.

3. International convention for the suppression of the Financing of Terrorism

Terrorist financing was also a great problem before the attack on Twin-tower on 9/11. In this regard “The International convention for the suppression of the Financing of Terrorism” was token in 1999. 132 countries agreed with the convention to execute the rules and regulation and the convention came into operation on 10 April 2002.

4. Security Council Regulation 1373

To ensure international peace and security UN Security Council take the regulation 1373 under UN citizen charter chapter vii on 28 September 2001 and every member country is bound to execute the regulation. The regulation 1373 united all the member countries against terrorism and terrorist union.

5. Security Council Regulation 1267

Another regulation taken by UN Security Council under UN citizen charter chapter vii on 15 October 1999 is known as Security Council regulation 1267. The regulation is to taken to cease the properties of Mr. Osama Bin Laden, Taleban and Al-Kayeda.

6. United Nations Office for Drugs and Crimes

To prevent the money laundering and terrorist financing the United Nations Office for Drugs and Crimes is operated in various countries in the world to ensure training and technical help.

7. Counter Terrorism Committee

Under UN charter chapter vii Counter Terrorism Committee formed to justify the implementation of Security Council Regulation 1373

b) The Financial Action Task Force on Money Laundering (FATF)

To prevent the money laundering internationally the G-7 (Now G-8) countries form an inter-country organization named The Financial Action Task Force on Money Laundering (FATF). European Commission, Galof co-operation and 31 countries are the member of FATF. FATF find out some countries and territories which are not cooperative in money laundering prevention is known as Non co-operative countries and territories (NCCT).

c) The BASEL Committee on Banking Supervision

The governor of central bank of the G-10 countries formed the BASEL Committee on 1974. The committee has no authority to implement law internationally but the committee published guidelines and statement of bank investigation. The committee published three guidelines regarding money laundering-

1)    Statement of Principals on Money Laundering

2)    Core Principal for Banking

3)     Customer Due Diligence

d) International Association of Insurance Supervisors (IAIS)

International Association of Insurance Supervisors formed in 1994 by more than 100 countries or legal entities on insurance supervisor. The association issued Anti Money Laundering Guidance Notes (AML Guidance Notes) in 2002, which consist of four guidelines-

1)    To execute Money Laundering Prevention Act

2)    To follow the KYC (Know Your Customer)

3)    Helping the organizations to law implementation

4)    Arranging adequate training for staff.

e) The Egmont Group of Financial Intelligence Unit

The Egmont Group of Financial Intelligence Unit formed in 1995 with more than 100 countries. It is usually known as Financial Intelligence unit (FIU). To fight against money laundering and terrorist financing FIU done the following job-

1) Collecting data

2) Analyzing data

3) Sharing data

f) FATF Style Regional Bodies

1)    Asia Pacific Group on Money Laundering (APGML)

2)    Caribbean Financial Task Force (CFATF)

3)    Council of Europe

4)    Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG)

5)    Financial Action Task Force on Money Laundering of South America

6)    The Middle East and North Africa (MENA)

7)    Central and western Africa (GIBA)

8)   Eurasia

 Protective Action

Financial Action Task Force (FATF) is the leading organization to prevent money laundering world wide. It issued 40 guidelines for money laundering prevention. One of the important guideline is Know Your Customer (KYC). By collecting Know Your Customer (KYC) bank ensure the customer identity.

a) Know Your Customer (KYC):

In Bangladesh every commercial bank is bound to collect and record KYC for every type of account under the paragraph 19(1)(ka) of money laundering prevention act 2002. In this regard Bangladesh bank issued a circular named AML No.2 dated 17 July 2002. Not only for account opening but also it is very necessary for issuing demand draft (DD), telegraphic transfer (TT) and mail transfer (MT).

PUBALI bank opens two types of account-

1. Personal Account
2. Impersonal Account

Personal Account:

When a person want to open an account in his name is called personal account. In case of personal account the bank official should collect the following information and particulars-

      · Name

      · Fathers / husband & mothers name

      · Present & Permanent Address (Justified through courier or registered mail)

      · Date of birth & Age

      · Nationality

      · Tax Payers Identification Number (TIN), if any

      · Photocopy of passport (if any)

      · Photocopy of Job ID card (if any)

      · Introducer

      · Photocopy of National ID card

      · Photocopy of a utility bill

      · Photograph (must be taken)

Impersonal Account:

In case of impersonal account the bank official should collect above-mentioned information of the account operator as well as the following particulars where necessary-

      · Photocopy of trade license

      · Photocopy of partnership agreement

      · feature of business and it’s area

      · certificate of incorporation

      · certificate of association

      · memorandum of association

      · articles of association

      · announcement about board of directors

      ·  Photocopy of regulation

      ·  Photocopy of registration

     ·  Photocopy of did of trust

     ·  Description about governing body / managing committee

b) Transaction Profile  (TP):

To prevent money laundering every commercial bank of Bangladesh is bound to collect TP from his customer under the article 02(gha) of Bangladesh bank circular AML No.2 dated July 2002. The TP declared by the customer with the probable amount and number of transaction in a month.

c) Reporting:

As like as other commercial bank in Bangladesh PUBALI bank report to Bangladesh bank about cash transaction in the following two ways-

1)    Suspicious Transaction Report (STR)

2)    Cash Transaction Report (CTR)

Suspicious Transaction Report (STR)

If any transaction treated as Suspicious Transaction then the banker should report it to the Bangladesh bank through proper channel. The channel may show as below-

Officer    BAMLCO    RAMALCO     CCU     BANGLADESH BANK 

In any steps, if the transaction found that it was not suspicious then it should be stop there. The report should done in a prescribe form.

Cash Transaction Report (CTR)

As per Bangladesh bank AML circular No.08, 09, 10 &13 a banker should report about cash transaction if daily cash transaction of a account is more than BDT 7,00,00,000.00. But in case of government account, state owned organization/ corporation/ company and commercial bank it should not done. The report should done in a prescribe form.

6.8 Steps Taken by Commercial Bank to Prevent Money Laundering

There is a specific guidelines for commercial banks to prevent money laundering in the article No.19(1)(ka) of Money Laundering Prevention Act 2002. To execute the guideline a commercial bank should establish the following management Unit.

a) Senior Management Commitment 

To prevent money laundering in a commercial bank the management authority         ( Managing Director, Board of Director) should have a clear and effective commitment. They should have careful to execute the Guidance Notes on  Prevention of Money Laundering.

b) Central Compliance Unit(CCU)

The entire responsibility to prevent money laundering in a commercial bank is belongs to Central Compliance Unit(CCU). Central Compliance Unit(CCU) act as an intimidator between Senior Management Commitment and the officers at branch level.

c) Regional Office

The commercial bank, which has a large number of branch conduct to its branch through regional office. Regional Office also has an important role to prevent money laundering. Regional Office act as an intimidator between Central Compliance Unit(CCU) and the officers at branch level. There is an authorize officer to conduct the job is known as Regional Anti Money Laundering Compliance Officer (RAMLCO).

d) Branch Anti Money Laundering Compliance Officer (BAMLCO) 

As per Bangladesh bank guideline every branch of a commercial bank should have an authorize officer to conduct the job is known as Branch Anti Money Laundering Compliance Officer (BAMLCO). To prevent money laundering all responsibility goes to him and other related officer will assist him.

6.9 Steps Taken by PUBALI Bank Ltd. Motijheel Branch

In our branch we go for meeting, seminar, workshop and awareness building to customer to prevent money laundering. We have a committee in this regard. The committee consists of seven members with the following responsibility

 Major Findings

While working at PUBALI Bank Limited, Kulaura Branch, I have attained to a newer kind of experience. After the collection and analysis of data, I have got some findings. These findings are completely from my personal point of view. Those are given below:

• PUBALI Bank Limited has already achieved a high growth rate accompanied

          by an impressive profit growth rate in 2008. The number of deposit and

          investment is also increasing rapidly.

• PUBALI Bank has an interactive corporate culture. The working environment is very friendly, interactive and informal. And there are no hidden barriers or boundaries while communication between the superior and the subordinate.

        This corporate culture provides as a great motivation factor to the employees.

• PUBALI Bank Limited has already established a favorable reputation in the

banking industry of the country. It is one of the leading private sector commercial banks in Bangladesh. The bank has already shown a tremendous growth in the profits and deposits sector.

• The bank raise their profit by introducing new sectors like leasing, Tele banking, credit card, money gram, SWIFT etc.

• PUBALI Bank uses manual system to verify specimen signature of clients it consumes a lot of time.

• PUBALI Bank has insufficiencies of Authorized Dealer Branch in respect of the total foreign exchange business. Bank has only 20 branches, which have AD licenses. As a result it total foreign exchange business is very small in respect of total market.

• The number of branches is not sufficient to cover the country most.

• Some employees are not sincere with their work. Sometime they do not cooperate with their customer especially when customer came to open an account.

• Another problem prevail in the Kulaura Branch is the employees are not that expert in IT.

• Proper renovation of the branch is also not undertaken.

• Some jobs in PUBALI BANK LIMITED have a little growth or career advancement opportunity. Therefore lack of motivation exists in many levels of organization structure.

• From the clients view introducer is one of the problems to open an account. It is general problem to all commercial bank.
• Customer does not know what is TP and what is its impact so they provide information through assumption.

• PUBALI Bank face troubles with those clients who have not any knowledge in banking transactions and banking rules.

• PUBALI Bank has own training Institution for its employees, but due to a large number of employees it is quite impossible to arrange training on Money Laundering frequently.

Recommendations

While preparing my internship report it seems to me that we should give more attention on the following issues-

1. More attention to open new account
2. Collecting KYC accurately
3. To be conformed about present and permanent address
4. Collect the photocopy of national ID card & utility bill
5. Reporting CTR & STR accurately
6. Arranging seminar, workshop & meeting regionally
7. Announced reward to the officer
8. Encouraging mass people to prevent money laundering
9. Provide proper information to customer about TP.

Conclusion

There are a number of Private Commercial Banks, Nationalized Commercial Banks and Foreign Banks since operating their activities in Bangladesh. The PUBALI Bank Limited is one of them. For the future planning and the successful operation for achieving its prime goal in this current competitive environment this report can be a helpful guideline. Moreover, internship program that is mandatory for my MBA program, it is obviously helpful for my further thinking about my career.

Banks always contribute towards the economic development of a country. Compared with other Banks PUBALI Bank is contributing more by investing most of its funds in fruitful projects leading to increase in production of the country. It is obvious that right channel of Banking establish a successful network over the country and increases resources; will be able to play a considerable role in the portfolio of development in developing country like ours.

PUBALI Bank playing its leading role in socio-economic development of the country. Since inception PUBALI Bank has been rendering its Banking services with the needs of the nation to cope with the demands of people in the country. By doing many other works for state & society, PUBALI Bank has emerged as the pioneer of playing key role in the country.

Bibliography:

• Edward W. Reed and Edward K Gill – Commercial Banking (Prentice Hall, New Jercy, 1989).
• Mahfuzur Rahman- Money Laundering Protirodh
• Mahbubuzzaman – Comparative Banking System (Library & Information Division, IIUC, Dhaka Campus, April 2008).
• Audited Financial Statements of PUBALI Bank Ltd. for the year ended 31.12.2008
• Annual Report of PUBALI Bank Ltd. 2007
• Manual of PUBALI Bank Training Institute
• Training materials on foundation course
• Training materials on Money Laundering Prevention & Foreign Remittance
• www.Pubalibank.com.bd
• www.bangladeshbank.org.bd