Article

In the months since the last DCInsight appeared, a number of stories concerning alleged L/C-related frauds have surfaced in several Asian countries. Ranging from accusations against highly placed officials to concerns that companies were falsifying L/Cs and not importing the goods specified, the reports reveal that the varieties of L/C fraud show few signs of diminishing.

India

In late March, a court in Calcutta was to hear a case in which a businessman and bank officials were alleged to have fraudulently negotiated export bills drawn on a letter of credit, despite another bank's refusal to do so because it found gross discrepancies in the documents. The case involved the alleged siphoning off of more than USD 1 million from the Strand Road branch of Oriental Bank of Commerce (OPC).

Assistant general manager of OCP, O P Agarwal, and the branch's chief officer in the export department Urmilenendu Mukhopadhyaya, allegedly entered into a criminal conspiracy with the proprietor of Hindustan International, Gopinath Das. Essentially, the conspirators were accused of fraudulently allowing negotiation of export bills based on forged documents. Prosecutors alleged that OCP was swindled out of around USD 1.2 million.

The court heard that on 21 October 2005 Agarwal opened a current account at OCP in favour of Hindustan International, despite not following the "know your customer" procedures now demanded of banks in India. Das meanwhile approached a bank to negotiate export documents worth around USD 1.55 million drawn on an L/C issued in Singapore. After finding gross discrepancies in the documents, that bank refused to accept the L/C.

Prosecutors said the proprietor of Hindustan International subsequently presented the refused L/C to OCP, where Mukhopadhyaya ostensibly verified the L/C and its associated documents and forwarded these to Agarwal, who sanctioned the negotiation of export bills.

Neither banker sought to establish the credit-worthiness of Das or Hindustan International, alleged the prosecution, which claimed that negotiating the export bills violated banking rules.

Thailand

High-ranking politicians were among five people to be investigated by Thailand's Assets Examination Committee for alleged involvement in a scandal that hinged on an official's opening an L/C.

The fire-engine corruption scandal had become something of a cause célèbre in Thailand. It essentially involved a barter deal in which the Bangkok Metropolitan Administration (BMA) agreed to import Austrian-made fire trucks and boats from Vienna-based Steyr Daimler Puch, which in return would import Thai boiled chickens into Austria. Allegations then emerged that the trucks were overpriced and that a Thai firm built both the trucks and the boats. The chickens meanwhile allegedly never reached Austria.

Investigators said they had enough grounds to open a full investigation into five people, including three politicians, for their parts in the scandal.

Apirak Kosayodhin, the current Bangkok governor, who had been linked to the case, escaped investigation, according to local media, because the purchase was made before he took up his post.

Bangladesh

Letters of credit are still being closely monitored in Bangladesh, where the authorities remain concerned about cartels forcing up the prices of imported consumer essentials and foreign currency smuggling. Officials suspect that significant amounts of goods declared on import L/Cs are not actually being brought into the country.

In a wide-ranging investigation, Bangladesh Bank said that it started to collect data on the amount of imports of essential goods against L/Cs opened, the revenues earned by the government and people involved in foreign currency smuggling. The central bank responded to a request from the commerce ministry, which expressed concerns that goods itemized on import L/C documentation were not being brought into the country.

Bangladesh Bank was looking into the activities of several large importers. These included Abul Khair Group, Partex Group, Elias Brothers, TK Group, Khatunganj Trading House and Meghna Group.

Data analysis of imported commodities suggests a wide gap between L/Cs opened and the actual flow of imports. Openings of L/Cs meanwhile have recorded a sharp rise. Figures from 2006 showed that in the four months from July to October 2006, commodity imports increased by 48.62 per cent. During the same period, L/Cs worth 58.15 billion Bangladeshi taka (Tk58.15 billion) were opened, compared with Tk38.09 billion opened in the corresponding period in the previous year. But according to officials, importers only brought goods worth Tk44.61 billion into the country during that period.

Hong Kong

Some good news emerged from Hong Kong, where the Hong Kong-based antigraft agency that has investigated and successfully brought charges against the perpetrators of some very substantial letter of credit frauds centred on the former British colony. The agency planned to strengthen cooperation with agencies in mainland China. The Independent Commission Against Corruption's (ICAC's) newly appointed commissioner, Fanny Law Fan Chiu-fun, told reporters about her aims in this respect at the end of a four-day visit to Beijing.

Chui-fun said she had called on the Supreme People's Procuratorate and the Ministry of Supervision to exchange anti-corruption knowledge and experience and discuss cooperation. Chui-fun said her commission hoped to produce, with the help of mainland anti-corruption authorities, a new guide for Hong Kong-based businessmen on mainland business operations and anticorruption laws there. She hoped China and Hong Kong would reach a consensus on extradition soon.