An examination of letters of credit (L/Cs) in Bangladesh has revealed a multi-million dollar export incentive scam involving phantom shipments, in which agricultural and food products appeared to have been sold abroad, but no goods actually left the country.

According to a customs investigation, at least 20 companies have claimed 20 per cent export incentives over the last five years, laundering huge sums through at least 965 phantom shipments.

Customs investigation

Investigators assessed data from three out of the seven local banks where the companies opened L/Cs and found that 17 of them received the equivalent of around US$4 million in export incentives, even though they did not ship a single item.

Customs officials suspect the amount of fraudulently obtained incentives in this investigation alone will increase to the equivalent of around US$10 million once information from the four other banks becomes available.

Documentary evidence

The customs authorities unearthed the fraud after scrutinising documents related to 4,000 consignments against which export incentives were claimed between May 2017 and January this year.

All 965 non-existent shipments comprised agricultural products or processed food, including potatoes, sesame seed, red chilli and curry powder. Exporters of these goods can claim an export incentive of 20 per cent of the order value.

Workers' remittances

Investigators found that the phantom shipments were destined for buyers in locations such as the UAE, Malaysia, Singapore and Saudi Arabia where millions of Bangladeshi expatriates live and work.

These expatriates usually remit some of their earnings back to their families in Bangladesh, but in this alleged scam it appears that sending their foreign earnings back home in the guise of payments for Bangladeshi goods proved a more attractive option than conventional wire transfers.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.