Jamuna Bank Limited: A Structural study
1.1 Introduction
Although operational activities are very fast in the commercial banking sector of Bangladesh, this study is limited to the foreign remittance activities of the bank. Functions covered by the Head Office of Jamuna Bank Limited has been chosen as a model case and covered by this report. As the main objective of this report is to develop a general remittance guideline, it does not go to further depth of any specific and specialized functions. Financial information regarding the bank draws on the recent publication of their Annual Report.
1.2 Research Objective:
(a) Broad Objective:
The Broad objective of the report is to know the overall foreign remittance activities, problems and performance of Jamuna Bank Limited as a private commercial bank.
(b) Specific Objective:
The specific objectives of the report are as follows –
- To fulfill the course requirement of B.B.A program of Stamford University.
- To apply theoretical knowledge in the practical field.
- To be acquainted with day-to-day functioning of foreign remittance activities.
- To comply with the entire branch banking procedures.
- To analyze the performance of the branch as well as JBL as a whole.
1.3 Structure of the Study:
The department of foreign exchange works and coordinates among foreign remittance activities.
2.1 Legal Status and nature of the Jamuna Bank Limited:
Jamuna Bank Limited was incorporated in Bangladesh on 2nd April in the Period 2001 as a public Limited Company under Companies Act, 1994. The Bank within the stipulations laid down by the Bank Companies Act, 1991 and directives as received from Bangladesh Bank and applicable to it from time to time provides all types of commercial banking services.
2.2 Nature of the business:
- The principal activities of the bank are providing all kinds of commercial banking services to its customers.
- The other activities of the bank are providing of all kinds of Islamic banking services to its customers.
2.3 Capital and Branches:
Jamuna Bank Limited is a highly capitalized new generation Bank with an Authorized Capital and Paid-up Capital of Tk.1600.00 million and Tk.390.00 million respectively. The Paid-up Capital has been raised to 1225.71 million and the authorized capital has been enhanced to tk.4000.00 million as on December 2007. Currently the Bank has 43(Forty three) branches 18 in Dhaka, 2 in Gazipur, 8 in Chittagong, 3 in Sylhet, 1 in Bogra, 2 in Naogaon, 1 in Munshigang and 1 in Narayanganj, 1 in Rajshahi, 1 in Basurhat, 1 in Noakhali, 1 in Shirajgonj, 1 in Dinajpur and 1 in Kushtia ,1 in comilla (including nine Rural and 2 Islamic Banking Branches) 4 branches will be opened at commercially important locations during the year 2009.
To provide clientele services in respect of international trade it has established wide correspondent banking relationship with local and foreign banks covering major trade and financial centers at home and abroad.
2.4 Vision:
To become a leading banking institution and to play a pivotal role in the development of the country.
2.5 Mission:
The bank is committed to satisfy diverse needs of its customers through an array of products at a competitive price by using appropriate technology and providing timely service so that a sustainable growth, reasonable return and contribution to the development of the country can be ensured with a motivated and professional work force.
2.6 Strategic Planning:
As the financial services industry is a very competitive industry to be in so the main strategy of JBL will be on organic growth – to build branches and strengthen their distribution network. They will continue to invest and expand in Bangladesh as fast as local regulations allow.
The principle strategies are-
· People– Attract, retain and reward top performers
· Profitable Growth– Growing sales and increase the revenues
· Execution– Performing With skill and speed
· Credit Quality– Maintaining credit Quality and understand the role in managing losses
· Customer Centered– Always Providing exceptional customer service
· Ownership– The performance and results should be owned
· Efficiency– Lowering the costs and wise use of resources.
2.7 Growth of Jamuna Bank:
Jamuna Bank Ltd., the only Bengali named new generation private commercial bank was established by a group of winning local entrepreneurs conceiving an idea of creating a model banking institution with different outlook to offer the valued customers, a comprehensive range of financial services and innovative products for sustainable mutual growth and prosperity. The bank has already ranked as one of the quality service providers & is known for its reputation.
2.8 Corporate Slogan:
“YOUR PARTNER FOR GROWTH”
2.9 Corporate Culture of JBL:
Employees of JBL share certain common values, which help to create a JBL culture-
- The client comes first.
- Search for professional excellence.
- Openness to new ideas and new methods to encourage creativity.
- Quick decision-making.
- Flexibility and promote response.
- A sense of professional ethics.
2.10 Growth Index and Future Plan:
- Dealing room service for corporate customers and high net worth individuals.
- Introducing more innovative product and services.
- Opening new branches including Islamic Branches.
- Expansion of business network at home and overseas.
- Full duplex online banking system.
- SMS Banking.
- Merchant Banking.
- Enhancing in-house training facilities.
- By modernizing the training institute.
- Innovation and introduction of new liabilities/asset products
2.11 Organogram of JBL:
2.12 Management of Jamuna Bank Limited:
Highly professional people manage JBL. The present managing director of the bank is a forward-looking senior banker having decades of experience and multi discipline knowledge to his credit both at home and abroad. An educated and skilled professional team supports him with diversified experience in finance and banking. The management of the bank constantly focuses on the understanding and anticipating customer’s needs and offer solution thereof. Jamuna bank limited has already achieved tremendous progress within a short period of its operation. The bank is already ranked as one of the quality financial service providers and knows for its reputation.
2.13 Departments of Jamuna Bank Limited:
It would be very difficult to control the system effectively, if the jobs are not organized considering their interrelationship and are not allocated in a particular department. If the departments are not fitted for the particular works there would be haphazard situation and the performance of a particular department would not be measured. Jamuna Bank Limited has done this work very well. There are –
- Human resource Department.
- Financial and Administration Department.
- Monitoring and Inspection Department.
- Marketing.
- Personal Relation Department.
- Merchant banking and Investment banking.
- Treasury Division
- International Division.
- General Services Division.
- Computer and Information Technology Department.
- Credit Division.
- Corporate Affairs Division.
- Card division.
- Board Audit Cell.
2.14 Products and Services of Jamuna Bank Limited:
Figure 2-1: Products and services of Jamuna Bank limited
2.15 New Product & Services:
The bank has its concentration for new product and services development for satisfying its customer and increasing its customer base. The bank firmly believes that technology based product and services will play significant role in the performance of the bank as people are getting more conscious about their service quality. They prefer now faster service with least cost. For delivering faster service, the bank has introduced diversified technical ways that are stated below –
- Online Banking Services
- Debit Card
- L/C Delivery Services
- Telephone Banking(a)
- Sms Banking Services
- Internet Banking Services
2.16 Automation in Banking Operation:
2.16.1 IT Infrastructure Strategy:
At present, all the branches of the bank are now in an automated environment as far as customer transactions are concerned and excepting a few branches in locations not accessible by Leased Line, all other branches are under Wide Area Network. They are in a process of selecting a robust retail banking software as a total solution to their needs.
2.16.2 On-Line Branch Banking:
The bank has set up a wide Area Network (WAN) using leased date circuit and leased Public Switch Date Network (PSDN) across the country to provide on line facility to its valued clients. For remittance and fund transfer purpose, customers could take the advantage of online facility.
2.17 Debit Card:
The bank had already completed almost many years of operation in card business. Because the card market had showing growth with the increasing acceptability of plastic money in many outlets, the business had become intensely competitive. More players had entered into the market and some others were preparing for entry into the same. As increasing number of customers were turning to the convenient features of debit card usage, the bank had stepped up marketing efforts to retain and enhance the market share.
2.18 SWIFT:
Jamuna Bank Limited is the member of SWIFT (Society for Worldwide Inter-bank Financial Telecommunication). SWIFT is a member owned co-operative, which provides a fast and accurate communication network for financial transactions such as Letters of Credit, Fund transfer etc. By becoming a member of SWIFT, the bank has opened up possibilities for uninterrupted connectivity with over 5,700 user institutions in 150 countries around the world.
SWIFT No.: JAMUBDDH
2.19 Financial Performance of JBL:
Financial Performance of this Bank were growth continuously, those are shown in below:
2.19.1 Profit:
In 2008 Jamuna bank limited posted an operating profit of tk.824.21 million as against tk.701.32 million in 2007 with a growth of 17.52 percent over the preceding year. After having made necessary provisions for loans and advances tk.419.16 million in accordance with the instructions of Bangladesh bank net income before tax (NIBT) stood at tk.405.04 million in the rear under review against tk.499.97 million in the preceding rear. An amount of tk.315.93 million has been kept as provision for payment of tax. Thus Net income after tax and provision stood at tk.89.11 million in 2008 which was tk.253.40 million in 2007.
Table 2-1: Profit in year 2004 to 2008
| YEAR | AMOUNT
(TK. IN MILLION) |
| 2004 | 128.88 |
| 2005 | 308.83 |
| 2006 | 419.94 |
| 2007 | 701.32 |
| 2008 | 824.21 |
Figure 2-2: Profit in year 2004 to 2008
Figure: 2-2, Profit in year 2004 to 2008
2.19.2 Import business:
The total import business handled by the bank in 2008 was tk. 22191.84 million compared to tk.15457.66 million in the preceding year registering a rise of tk. 6734.18 million being 43.57 percent. A sizeable L/C was also opened by the bank in the year under review. The import items included individual raw materials machinery, consumer goods, fabrics, accessories etc.
Figure 2-3: Foreign Exchange Business – Import
Figure: 2-3, Foreign Exchange Business – Import
2.19.3 Export Business:
The bank handled export business worth tk. 13990.33 million in the year under report in 2008 export business handled by the bank was tk. 11583.64 million. Thus there was an increase of tk. 2406.69 million in export business handled by the bank, being 20.78 percent over the preceding year. The major export item was ready made garments.2.18
Figure 2-4: Foreign Exchange Business – Export
Figure: 2-4, Foreign Exchange Business – Export
2.20 Performance analysis of JBL:
Seven years at a glance (Figure in million – where applicable)
| SI. NO. | Particulars | Year-2008 | Year-2007 | Year-2006 | Year-2005 | Year-2004 | Year-2003 | Year-2002 |
| 1 | Authorized Capital | 4000.00 | 1600.00 | 1600.00 | 1600.00 | 1600.00 | 1600.00 | 1600.00 |
| 2 | Paid up Capital | 1225.71 | 1072.50 | 429.00 | 429.00 | 390.00 | 390.00 | 390.00 |
| 3 | Reserve Funds | 651.92 | 629.33 | 487.46 | 245.65 | 93.97 | 15.56 | 0.18 |
| 4 | Tier I Capital | 1651.58 | 1562.47 | 807.14 | 607.32 | 451.37 | 390.22 | 390.00 |
| 5 | Tier II Capital | 221.14 | 139.36 | 109.32 | 67.33 | 32.60 | 15.34 | 0.18 |
| 6 | Deposits | 20924.02 | 17284.81 | 14454.13 | 10450.16 | 6614.06 | 3251.90 | 1940.12 |
| 7 | Advances | 16617.45 | 12796.63 | 11011.83 | 6722.80 | 3239.52 | 1514.28 | 349.21 |
| 8 | Investment | 5390.03 | 2552.67 | 2037.84 | 1163.70 | 935.48 | 330.38 | 70.05 |
| 9 | Import Business | 22191.84 | 15457.66 | 12151.90 | 7923.90 | 3801.21 | 1448.77 | 125.20 |
| 10 | Export Business | 13990.33 | 11583.64 | 6521.80 | 4790.80 | 3068.51 | 1132.81 | 90.12 |
| 11 | Total income | 3102.99 | 2749.90 | 1727.2 | 1397.27 | 846.73 | 391.20 | 229.46 |
| 12 | Total Expenditure | 2278.79 | 2048.58 | 1307.26 | 1088.44 | 717.86 | 375.99 | 229.28 |
| 13 | Operating profit | 824,20 | 701.32 | 419.94 | 308.83 | 128.88 | 15.20 | 0.18 |
| 14 | Profit before tax | 405.04 | 499.97 | 363.31 | 273.70 | 110.97 | 0.37 | – |
| 15 | Profit after tax | 89.11 | 253.40 | 199.82 | 155.95 | 61.14 | 0.22 | – |
| 16 | Fixed assets | 174.40 | 137.36 | 106.46 | 97.99 | 66.60 | 50.44 | 28.72 |
| 17 | Total assets | 26405.40 | 20157.02 | 16863.77 | 13491.52 | 9766.79 | 5290.60 | 4210.16 |
| 18 | Contingent | 6409.26 | 6574.38 | 5445.68 | 2903.96 | 177.76 | 891.54 | 145.94 |
| 19 | Number of branches | 35.00 | 29.00 | 23 | 19 | 15 | 8 | 3 |
| 20 | Number of employees | 861 | 631 | 525 | 447 | 314 | 253 | 115 |
| 21 | Number of correspondents | 715 | 643 | 390 | 333 | 250 | 152 | 92 |
| 22 | Income from investment | 474.48 | 255.66 | 126.30 | 80.44 | 27.37 | 15.48 | 2.58 |
| 23 | Earning per share taka | 8.04 | 31.94 | 46.58 | 36.35 | 14.25 | 0.06 | – |
| 24 | Net assets per shara taka | 135.14 | 145.68 | 188.14 | 141.57 | 115.74 | 100.06 | 100.00 |
Source: Annual Report of JBL, 2008.
Foreign remittance is the transfer of money from one country to another country. In another word, foreign remittance means, remittance in foreign currency that are received in and made it abroad. ILO 2000 states that, international remittances are defined as the portion of migrant workers earnings sent back from the country of employment to the country of origin. Actually, foreign remittance is purchase and sale of freely convertible foreign currencies as permissible under exchange control regulations of the country.
During the 18th and 19th centuries, development impact of migration was mostly recorded in the context of receiving states whereas since 2nd world war migration experience underscore positive economic and social benefits for both receiving and sending countries. Remittances are substantive yardstick of macro level benefits in sending countries. Various figures indicate that flows of migrant remittances from sending to receiving countries are continuously growing. Global figures state that official remittances have increased from less than US$2 billion in 1970 to US$80 billion in2000 (ILO, 2002). This does not include informal transfers. Micro studies countries like Pakistan and Bangladesh have shown that only around half of the remittances are transfers through official channels and the rest find their way through different unofficial methods. Consequently the actual amount of remittance is likely to be at least double the officially recorded figures. Sixty percent of global remittance flow is towards developing countries (Sorensen 2004). This figure is more than global official development assistance (ODA) as well as capital market flows (Gameltoft, 2002) to those countries. When compared with foreign direct investment (FDI) in those countries, amount of remittances are over half of total flow. Moreover, remittances as source of financial flows are found to be more stable than private capital flows and to be less volatile to changing economic cycle (Ratha, 2003). International organizations like ILO, IOM, IMF, World Bank and ADB are increasingly emphasizing migrants’ remittance as tool to promote development.
According to a report by economist Dilip Ratha in Global Development Finance 2003, an important annual World Bank publication, worker’s remittances back to developing countries reached $ 72.3 billion in 2001 and generally exceed official development assistance given by governments directly to low income countries or through multilateral institutions. “Remittances are often invested by the recipients, particularly in countries with sound economic policies”, writes Ratha.
Remittances are important at both macro-micro-economic levels. They increase both the income of the recipient and the foreign exchange reserves of the recipient’s country. “If remittances are invested, they contribute to output growth, and if they are consumed, then also they generate positive multiplier effects “, notes Ratha.
Increase in migrant flow is associated with increase in flow in remittances. Remittances are single largest sources of foreign exchange earnings of our country. It has been reported recently that Bangladesh’s remittance inflow maintained its inclination, growing around 223 percent during July-April period of the 2005-2006 financial year.
Global figures show that, Non-resident Bangladeshis (NRBs) sent home 3.89 billion US Dollar in the first 10 months of the current financial year (July2005-June 2006) while the amount was 3.19 billion US Dollar during the same period of last fiscal year according to statistics of Bangladesh Bank (BB), The central bank of the country
International remittances come mainly from three large, but distinct type of migrant.
Firstly, there is an important, mainly American and British, Diasporas of well-educated, high or middle-income earners.
Secondly, there is a Diaspora of Bangladeshi origin, in the same countries, and other industrialized countries, belonging to the low income or unemployed segments of the population.
Thirdly, there is a major group of migrant laborers, residing for a specific period in Middle Eastern, South-East Asian and some industrialized countries. These migration movements are not unique for Bangladesh, but shows similarities with other South and East Asian countries.
Two types of foreign remittances are-
- Foreign Inward remittance
- Foreign Outward remittance
Figure 4-1: Types of Foreign Remittance
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4.1 Inward foreign remittance:
Remittance comes from foreign countries to our country is called inward remittance. The term “Inward Remittances” includes not only remittance by T.T, M.T, Drafts etc, but also purchases of bills, purchases of drafts under Travelers’ Letters of Credit and purchases of Travelers’ Cheques. Basically these are the formal channels of receiving inward remittance.
4.1.1 Purpose of Inward Foreign Remittance:
1. Family maintenance
2. Realization of Export Proceeds
3. Donation
4. Indenting Commission
5. Gift
6. Export brokers commission etc
4.1.2 Modes of Inward Remittance:
Figure 4-2: Modes of Inward Remittance
4.1.3 Cancellation of Inward Remittance:
In the event of any inward remittance which has already been reported to the Bangladesh Bank, being subsequently cancelled, either in full or in port, because of non-availability of beneficiary.
Authorized Dealers must report the cancellation of the inward remittance as an Outward remittance on form ‘T/M’. A letter giving the following particulars should support the return in which the reversal of the transaction as reported:
- The date of the return in which the inward remittance was reported
- The name and address of the beneficiary
- The mount of the purchase as effected originally
- The amount Cancelled
- Reasons for cancellation
4.1.4 Reporting to Bangladesh Bank:
On the last working day of each month the transaction during the month to be reported to Bangladesh Bank through the following scheduled:
1. Schedule J-I/0- for Tk 5,000/- & above.
2. Inward Remittance Voucher-I/04 for below Tk 5,000/-
4.2 Foreign Outward Remittance:
Remittance from our country to foreign countries is called outward foreign remittance. All remittances from Bangladesh to a foreign currency or local currency credited to on resident Taka accounts of foreign banks or convertible Taka accounts constitute outward remittances of foreign exchange. On the other word, sales of foreign currency by the authorized dealer or formal channels may be addressed as outward remittance. The authorized dealers must utmost caution to ensure that foreign currencies
Remitted or released by them are used only for the purpose for which they are released. Outward remittance may be made by appropriate method to the country to which remittance is authorized. The authorized dealer on behalf of Bangladesh Bank approves most outward remittance.
4.2.1 Purpose of Outward Foreign Remittance:
1. Travel
2. Medical treatment
3. Attending seminar
4. Educational purpose
5. Balance amount of F.C account
6. Profit of foreign companies
7. Technical assistance
- New exporters up to USD 6000/- for business promotion
- F.C. remittance can be made for fare, exhibition from export retention quota.
4.2.2Modes of Outward remittance:
Outward remittance in favor of beneficiaries outside Bangladesh may be made in any of the following manners-
Figure 4-3: Modes of Outward Remittance
4.2.3 Reporting to Bangladesh Bank Regarding Cancellation:
In the event of any inward remittance which has already been reported to the Bangladesh Bank, being subsequently cancelled, either in full or in port, because of non-availability of beneficiary.
Authorized Dealers must report the cancellation of the inward remittance as an Outward remittance on form ‘T/M’. A letter giving the following particulars should support the return in which the reversal of the transaction as reported:
1. The date of the return in which the inward remittance was reported
2. The name and address of the applicant
3. The mount of the purchase as effected originally
4. The amount Cancelled
5. Reasons for cancellation
4.3 Formal channel:
Fund transfer from one country to another country through official channels, i.e. banking channel, post office and other private service channels, such as- Western money order, Money Gram, Neno money order etc.
Figure 4-4: Forms of Formal Channel
The legitimate purpose for moving money abroad through formal channel are-
- To invest
- To lend
- To meet trading/ personal obligations
- To safeguard assets against theft or seizure by repressive regimes.
Official channels refer to demand drafts issued by a bank or an exchange house, traveler’s Cheques telegraphic transfers, postal orders accounts transfer facilities and electronic transfers. Of these, demand drafts are most popular. Expatriates and migrants using official channels have quite a few options. Firstly they can send money from a bank in the destination country to a bank in Bangladesh. The former bank must have correspondent relationship with the latter secondly; they can send money through branches and subsidiaries of a Bangladeshi bank in the destination country. Thirdly, money can be remitted through exchange houses or banks in the destination country with which a Bangladeshi bank and a Taka drawing arrangement. Due to the direct link between the bank or exchange house in the destination country and the one in Bangladesh, in the last two cases the transaction time should be shorter. The Bangladesh financial system consists of the Bangladesh Bank (BB), Nationalized Commercial Banks (NCB), and government owned specialized banks, private commercial banks (PCB), foreign banks and non-bank financial institutions. The Bangladesh Bank is the central bank of Bangladesh, which supervises and regulates all the other banks. In order to deal with foreign exchange, banks need to authorize by the Bangladesh Bank. Banks that are allowed to deal with foreign exchange either has their own exchange branches in the destination countries or link up with international banks or money exchange companies, like, Western Union, Money Gram. Importantly private banks are not allowed to have branches in cities abroad here as NCB’s already have branches. However, they can have correspondent banks.
4.3.1 Significance of foreign remittance through formal channel:
Definitely, formal channel should be the one and only way of receiving and sending remittance or transferring funds. Importance of formal channel can be described as-
(1). Capital increase:
In Bangladesh, one of the most important factors is- to increase capital of the country. To increase the country’s capital, investment is needed in the business and industrial sectors. By increase of FDI (Foreign Direct Investment) and non- residents investment in the share market through formal channel, a businesses could desire more capital, which will increase the capital of Bangladesh.
(2). Reserve of foreign currency:
Presently the reserve of foreign currency in Bangladesh through formal channel is only 7.7%, which is the very small amount than the other developing countries. That’s why; the country depends on foreign loans and grants. The increase of inward foreign remittance can decrease the dependence. On the other hand, it will increase the reservation of foreign currency as well as local currency. So, the formal remitting channel increases the reservation of foreign currency in the country.
(3) Balance of payment:
Balance of payment means visible and invisible item’s transaction of a country. If a transaction earns foreign currencies for the nation, it is recorded as plus item or positive item. Again if a transaction involves spending of foreign currency and the economic condition will be stronger. From that reserve foreign fund a country will be able to make payment of the negative items. So, the balance of payment will be favorable for the country.
(4) Economic plan:
Without a good economic plan, a country cannot make development. To make a strong, suitable economic plan, capital is essential. And to increase capital, currency reserve of the country needed to increase. Thus, the formal remitting channel could be a solution to increase currency reserve.
(5) Strong socio- economic structure:
In case of sending remittance through banking channel, the government holds a strong economic base which strength’s the infrastructure more effectively.
(6) Record of foreign remittance:
By sending remittance through formal channel, Central Bank (i.e. Bangladesh Bank) could keep record of total inward and outward remittance of the country each year.
This statistical record helps to identify the economic and financial condition of the country.
(7) Customer identification:
Through the formal channel, all the authorized dealers properly identify and justify their customers when they remit funds. This identification is a strong barrier of money laundering.
(8) Co-operative with the Government:
Through the formal channel remitters pay Tax to the Government which the most important revenue source of the country. These Tax amount utilized in the different development sectors of the country. Not only the Government but also all the citizens of the country need to participate in the economic and social welfare of country. By using the formal channel of remittance citizens should co-operate with the Government, which will help to stop activities.
(9) Safety:
Sending remittance through formal banking channel is safe, legal, reliable and easy.
4.4 Informal channel:
Fund transfer from one country to another country through hand-by-hand or over telephone in an unofficial channel like as “”Hundy”. Haque (1992) comments, remittance colleted by informal “Hundi” rings operating in Middle East countries and UK are also used to finance illegal trade and transactions.
Islam (2000) observes that a informal channel is needed for illegal trade of goods, as well as gold and drugs into Bangladesh, and therefore helping the ever- present problem of capital flight out of Bangladesh.
Figure 4-5: Informal Transaction Channel
Hundi system is the most important informal way in which money is transferred to Bangladesh. In the hundi system the migrant gives money to an intermediary, who contacts an agent in Bangladesh. The agent in Bangladesh is responsible for giving the equivalent of the money that the migrant also given to the intermediary to the recipient in Bangladesh. An informal exchange rate is used to determine the amount of money the recipient gets. The recipient can take the money from the agent by using a code that s/he receives from the migrant. Because there are no official documents used in the process- although informally it is often documented- the system is clearly based on trust.
Criminal use informal channel for moving money abroad because of-
§ Dealing in arms & ammunition
§ Drug trafficking
§ Financing terrorist activities
§ Evasion of exchange regulations/control
§ Evasion of taxation.
4.4.1 Money Laundering
Bangladesh enacted the Anti-Money Laundering Act (the “Act”) in 2002. Money laundering has been defined in the Act as a) directly or indirectly acquiring assets in an illegal way; and b) the transfer, conversion and concealment of assets acquired directly or indirectly in an illegal way. This definition was modified by the enactment of The Money Laundering Prevention Ordinance 2008 on 29 April 2008. The definition has been extended to cover various processes through which the crime is being committed. Section 2(k) of the law provides the definition of money laundering, which modifies the previous definition by extending it to include predicate offences and to the transfer of concealed money to other countries from Bangladesh or receiving such money from other countries into Bangladesh.
The money laundering offences in Bangladesh are:
- It is an offence for any person to illegally conceal, retain, transfer, remit or invest in moveable or immovable property even when it is earned through legitimate means. The person concerned can defend himself if he can prove that the offence was committed without his knowledge or it occurred despite his best efforts to prevent it.
- It is an offence for any individual or entity to provide assistance to a criminal to obtain, retain, transfer, remit, conceal or invest in moveable or immovable property if that person knows or suspects that the property is a proceed of criminal conduct.
- It is an offence for banks, financial institutions and other institutions engaged in financial activities not to retain identification and transaction records of their customers.
- It is an offence for banks, financial institutions and other institutions engaged in financial activities not to report the knowledge or suspicion of money laundering to the Bangladesh Bank as soon as reasonably practicable after obtaining knowledge of such information or suspicion.
- It is an offence for anyone to prejudice an investigation by informing i.e. tipping off the person who is the subject of a suspicion, or any third party, that a report has been made or that the authorities are acting or are proposing to act in connection with an investigation into money laundering. Preliminary enquiries of a customer to verify identity or to ascertain the source of funds or the precise nature of the transaction undertaken will not trigger a tipping off offence before a report has been submitted in respect of that customer unless the enquirer knows that an investigation is underway or that the enquiries are likely to prejudice an investigation. Where it is known or suspected that a suspicious transaction report has already been disclosed to the authorities and it becomes necessary to make further enquiries, care should be taken to ensure that customers do not become aware that their names have been brought to the attention of the law enforcement agencies.
- It is an offence for any person to violate any freezing order issued by the Court based on an application made by the Bangladesh Bank.
It is an offence if a person refuses to cooperate with the enquiry officer during the process of the investigation unless he has reasonable grounds to so refuse
4.4.2 Money Laundering Process:
Money laundering process refers to illegal receipt or transfer of fund from one place to another. This process involves not only the banking system of the county but also non-banking system. According to “Money Laundering law (2002), money laundering means a) Earnings or receiving properties through direct or indirect illegal activities, (b) Receiving of properties legally or illegally which may be transferred, transformed, hiding in a place or helping to do so illegally.
GPML, United Nation (2003) described that money laundering system has a dynamic three-stage process that requires; firstly, moving the funds direct association with the crime; Secondly, disguising the foil pursuit; and third, making the money available to the criminal once again with the occupational and geographic origins hidden from view.
Money laundering process can be shown through the following chart:
Figure 4-6: process of Money Laundering
Three stages of Money laundering are –
(a) Placement: The physical disposal of cash proceeds derived from illegal activities.
(b) Layering: At this level, money is often sent from one country to another, and then broken up into a variety of investments, which are moved frequently to evade detection.
(c) Integration: In this stage, funds have been fully assimilated into the legal economy. The money laundering process is basically transferred of fund through illegal process. Suppose “A” is a foreign remitter, and wants to send foreign remittance to “B”. “A” contracts with “X” who is a foreign party, related with illegal transfer of fund. “X” has arrangement with “Y”, who is a local party and related with same type of illegal activities. When “A” pay foreign currency to “X” for the purpose of remit to “B”, then “X” will make phone call to “Y”, the local party and will give instruction to pay amount of local currency against foreign currency. Then “Y” will pay to “B” the actual beneficiary. By this process, both parties do not have to pay tax or vat to Government. So, Government losses a big amount of revenue. On the other hand, remitter has to pay more foreign currency against exchange rate and services charge of the parties.
Figure 4-7: Money Laundering Process
4.4.3 Problems Create Due to Use of Informal Channel:
· Using the informal channel basically means criminal activities, which are strictly forbidden by the law of Bangladesh Bank, issued by the Government. The people who uses informal channel some problems create in the economy of the country. These are:
- Funds that are laundered through banks & other financial institutions threat the integrity and stability of financial system and even weaken the government.
- Significant amount of illegal proceeds invests in the real estate.
- Avoidance of local taxes creates a great amount of revenue loss for the country.
- Informal channel of transfer money can create liquidity problem.
- Mysterious changes in demand of money and increase of volatility in the international capital flows, interest and exchanger rate may occur due to use of informal channel.
- Use of informal channel may create liquidity problem on Banks.
4.5 Different types of Scheme increase the flow of foreign remittance:
For attracting remittance, Government and other Banking institutions introduced different types of interest bearing schemes or bonds, which are helping to increase the flow of foreign remittance in the country. The schemes are-
1) Wage earners deposit bonds,
2) Non –resident investors taka account,
3) US dollar premium bond,
4) US dollar investment bond,
5) Non-resident Bangladeshi life insurance bonds,
6) Introducing Credit/Debit for expatriates.
4.5.1 Non-residents Can Easily Invest in Share Market, Which Increases the Foreign Currency Reserves
The general public participates in the share market to strengthen the economy more effective. A businessman could not raise his business only with his own source of income. That’s why, he need to surplus earning to set up the business.
Another reason of increasing foreign remittance is the high participation of non-resident Bangladeshi on the stock market because of some facilities.
Facilities provided for the non-resident Bangladeshis are-
a) Non-residents are free to invest in shares and securities quoted in the stock exchange, with foreign exchange sent or bought into Bangladesh.
b) There is a reservation quota of 25% to 30% for the non-resident Bangladeshis.
c) Non-residents may also invest in new public issues of Bangladeshi shares or securities even if these are not listed in stock exchange in Bangladesh. In such cases investors are not required to transact through any registered broker or member of stock market.
d) Non-resident Bangladeshis can freely remit currency outside without any charge.
e) Permission of Bangladesh Bank is not required for issue and transfer of shares in favor of non-residents against their investments in joint venture in Bangladesh.
f) Up too US$50000 investors will be titled as VIP.
g) Non-resident shareholders can freely transfer their shares to other non-residents.
Because of these facilities the non-residents are becoming interested in the share market, and buying & selling share by converting foreign currencies. So, foreign currency is increasing in Bangladesh.
4.5.2 Easy and Quick Transfer of Fund Through Official Channels Increases Foreign Remittance:
Due to SWIFT, Government Banks and agencies, e-commerce and others foreign remittance comes faster to the beneficiary. Besides these banking channels, other private agencies like- western union money transfer, neon money order etc. are giving good services with lucrative exchange rate (which is more than the BC selling rate) to the beneficiary which ultimately increases the foreign remittance through formal channel.
4.5.3 Decreasing Complexity in Banking Channel Will Increase Foreign Currency Gradually:
Complexity is one of the major reason for which people were tend to avoid formal banking channel and involved in illegal activities. In the past years, exchange rate was fixed by the Bangladesh Bank. On the other hand, if the remitter sent money through informal channel like- “Hundi”, the beneficiary could get more currency due to higher exchange rate in the black market. But now, exchange rate has become floating i.e. the market is open. So, banking institution can easily offer high exchange rate and can pay more convertible currency to the beneficiary, which ultimately decreases the complexity.
Government policy development like thinking about the globalization and introducing favorable rules and regulations opened a new mission for the bank and other financial institutions to increase inward foreign currency. Even the FDI increased a huge amount due to favorable govt. policies.
For the weak infrastructure of the financial institutions, remitters were not interested to send money by banking channel.
It was time consuming to send remittance through formal channel. Now, the financial institutions have restructured their channels and promises to send money to the beneficiary within 48 hours.
Complexity arises when remittances are channelized through third bank. When the remitter’s bank and the beneficiary’s bank are different, and payment are sometimes channelized through third bank. In this case, it takes 3 to 4 days some times 7 to 8 days to receive the payment. But the banks are trying to avoid this complexity, send money to beneficiary as early as possible.
Lack of electronic media is one of the barriers, which raises complexity. Now, most of the private banks introduced online banking system. By online banking system, banks can credit beneficiary’s account within two minutes and the beneficiary can receive money quickly. Again, the development of E-commerce, ATM service, Visa credit card etc. people can receive money time to time.
4.5.4 Decrease of Effective Cost, Increases Foreign Remittance through Formal Channel:
Non-residents can get the benefit of high exchange rate against US dollar if they send remittance through private authorized agencies. The high exchange rate provides the facilities of more Bangladeshi TK against US Dollar. These authorized agencies have arrangement with different banks of Bangladesh who maintain “Nostro Account”. The authorized agencies usually offer more than the T.T Clean Rate and keep some charge say-$2 to $3 from the remitter which intensity is to increase inflow of foreign currency through formal channel.
Jamuna Bank has arrangement with “Money Gram”, a private agency by which non-resident remit their amount to the beneficiary. JBL maintains “Nostro Account’ with nineteen correspondent banks of the world. Through the “Money Gram “remitters send their payment in favor of the beneficiary. Then “ Money Gram ” place that remitted amount to Jamuna Bank’s ‘Nostro Account’, for example- Citi Bank NA, NY, then that bank passes that remittance to JBL and JBL debit their ‘Nostro Account” and pay the beneficiary at T.T Clean Rate. Thus, this channel becomes more cost effective to the remitter.
Through the informal channel the beneficiary will not get more than T.T. Clean Rate rather the remitter has to pay more foreign currency against local currency payments. But, this way is totally illegal and due to this processes Government losses a big amount of revenue.
So the effective cost will be lower if they send remittance through formal channel. This advantage increases encouragement to the remitters to remit fund through official channels.
Jamuna Bank’s balance with other Banks and financial institutes: Outside Bangladesh ( Nostro Account)
| Sl no | Name of the foreign Bank | Currency Name | As on December 31, 2007 | As on December 31, 2008 | ||||
| Amount in foreign currency | Conversion Rate | Amount in
BD Taka |
Amount in foreign currency | Conversion Rate | Amount in BD Taka | |||
| 1 | American Express Bank, Kolkata, India | ACUD | 35,727.26 | 68.7850 | 2457499.58 | 192806.93 | 69.9375 | 13484434.67 |
| 2 | Standard chartered Bank, Kolkata, India | ACUD | 106,047.93 | 68.7850 | 7294506.87 | 144697.96 | 69.9375 | 10119813.58 |
| 3 | Standard chartered Bank, Srilanka | ACUD | 2420.00 | 68.7850 | 166459.70 | 32530.00 | 69.9375 | 2275066.88 |
| 4 | Nepal Bangladesh Bank Ltd, Nepal | ACUD | 185.00 | 68.7850 | 12725.23 | 185.00 | 69.9375 | 12938.44 |
| 5 | Standard chartered Bank, Karachi, Pakistan | ACUD | 4944.30 | 68.7850 | 340093.68 | 68605.23 | 69.9375 | 4798.78.27 |
| 6 | UTI Bank Ltd, India | ACUD | 1548.41 | 68.7850 | 106507.38 | 1548.41 | 69.9375 | 108291.92 |
| 7 | Bank of Bhutan, Bhutan | ACUD | 4234.32 | 68.7850 | 291257.70 | 17834.32 | 69.9375 | 1247287.76 |
| 8 | ICICI Bank Ltd, India | ACUD | 102667.29 | 68.7850 | 7061969.54 | 235963.88 | 69.9375 | 16502723.86 |
| 9 | Mashreq Bank Psc , Mumbai, India | ACUD | 262963.85 | 68.7850 | 18087968.42 | 4893.00 | 69.9375 | 342204.19 |
| 10 | Habib Bank AD, Zurich, Switzerland | CHF | 2715.88 | 60.9651 | 165573.76 | 13713.58 | 57.3494 | 786.465.58 |
| 11 | Hypovereins Bank AG, Zermany | EUR | 56155.78 | 101.0337 | 5673623.42 | 103976.58 | 92.1357 | 9579.854.98 |
| 12 | Standard chartered Bank,London, Uk | GBP | 42519.61 | 137.0702 | 5828169.32 | 22796.71 | 136.9637 | 3122321.75 |
| 13 | AmericanExpress Bank, Tokyo, Japan | YEN | 1361945.00 | .6153 | 837936.66 | 669625.00 | .5916 | 396150.15 |
| 14 | Standard chartered Bank,NY, USA | USD | ||||||