The president of the International Chamber of Commerce (ICC) in Bangladesh has warned banks to keep a close eye on customers and check against documents likely to be used in letter of credit (L/C) and other frauds.

"It is our view that it is in the bank's own interest to ensure that they know precisely what activities their clients are asking them to finance," says Mahbubur Rahman.

Independent checks

Addressing delegates at a recent ICC workshop entitled International Fraud-Prevention, Control and Remedies, Rahman advises that one way to do this is to make independent checks into the transactions.

Banks should for example authenticate the bills of lading and other documents presented under the documentary credit system, he says.

Only through independent checks can banks be sure that they are financing what their clients are declaring to them. "In our view, it is just good prudent practice," Rahman says.

Banks lose out

He argues that in most cases of documentary fraud, the banks, in one way or another lose out. At the very least, the fraud will strain the relations between the bank and its customers or the correspondent banks in the L/C chain, he maintains.

Rahman reckons the greatest danger to banks however is when they are financing a transaction where buyers and sellers are in collusion.

Random samples

"We recommend to banks pick up bills of lading presented to them, at random, amongst their good and not so well-known clients and have them checked at regular intervals," he said.

The ICC International Maritime Bureau undertakes such checks for their banking members.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.