Money Laundering Prevention Act 2012: Case Study 


Money laundering is a menace to our society where a person is involved in illegal activity and due to such activity; he earns money and tries to spend it in a lawful manner. In Bangladesh, the Prevention of Money Laundering Act 2012 provides provisions for the violator who involves themselves in illegal activities. The economy of any nation is undermined when there is an increase in money laundering which is a criminal offense, and hence, it is important to stop such activity which causes financial backlash. 

What is Money Laundering

A person who is involved in illegal activities, like, child abuse, bribery, corruption, terrorism, etc and by such activities if he is earning money or asking someone on his behalf to get involved but such earnings are shown as in the accounts as legally earned money, then it is known as money laundering. For Instance, A is involved in a business of selling clothes but the source from where he gathered investments is through an illegitimate source that is from unlawful means and the money which is gathered from such act he invests it in his apparel business through this the illicit money turns into licit money. This whole process from illicit money to licit money is called money laundering.

The followings are the way under which illegally earned money turns legal: 

The criminal transfers money into any financial institutions that are in the banks. 

When any amount of money is going to be stored in the bank they ask about the source of the obtained money. So, when money is obtained from an illegal source they hide the illegitimate earning source by showing other legitimate investments for instance, by showing their shares in any company and due to their share they are earning profits, etc. 

When finally the money is accepted by the bank it turns into legal money and they can withdraw their money anytime.  

Cases of money laundering

Tariqur Rahman Case:

On 7 June 2007, a money laundering case was submitted against Rahman and his friend and business partner Giasuddin Al Mamun by the Bangladesh Anti Corruption Commission at a court in Dhaka. In a verdict given on 18 November 2013 by the court, Rahman was acquitted in the case involving BDT 20.41 crore. The Bangladesh Anti Corruption Commission member Mohammad Shahabuddin rejected the verdict, saying: “Tarique and Mamun had equal footing in the crime. So, legally there was no scope to differentiate.

BNP officials and leaders claimed that this judgement is a proof of his innocence and he had no involvement with corruption, and that all the cases against Rahman were “politically motivated”.

On 21 July 2016, Rahman was found guilty by the Bangladesh High Court overturning a lower court verdict that acquitted him earlier. He was sentenced to seven years of imprisonment and fined Tk 20 crore by the Court. One interesting thing to note in this case here is right after delivering the controversial not-guilty verdict, the lower court judge fled the country. Rahman’s money laundering case was the first case in the country’s history where an FBI agent testified and produced evidence against a defendant in Bangladeshi court.

On 3 November 2008, a leaked US Embassy cable said that the embassy in Dhaka believed Rahman was “guilty of egregious political corruption that has had a serious adverse effect on US national interests”.

Bangladesh Bank case

$951 million. Exactly this is the amount that has been attempted to steal from Bangladesh Bank by the hackers. This much of amount has been attempted to steal from the Bangladesh central bank’s account with the Federal Reserve Bank of New York within February 4 to 5. At that time, Bangladesh Bank was closed. The perpetrators managed to compromise Bangladesh Bank’s system, to observe how transfers are done, and gained access to the bank’s credentials for payment transfers, which they used to send about three dozen requests to the Fed Bank to transfer funds to Sri Lanka and the Philippines. 35 transactions worth $851 million transfer were prevented by the banking system but five requests were granted; $20M to Sri Lanka and $81 million lost to the Philippines, entering the Southeast Asian country’s banking system on February 5, 2016. This money was laundered through casinos and some later transferred to Hong Kong. 

Sri Lanka Events

The $20 million fund to Sri Lanka was intended by hackers to be transferred to Shalika Foundation, a Sri Lanka-based non-profit organization. The hackers misspelled “foundation” in their request to transfer the funds, spelling the word as “fandation”. This spelling error gained suspicion from Deutsche Bank, a routing bank which put a halt to the transaction in question after seek clarifications from Bangladesh Bank.

Philippine Events

The money transferred to the Philippines was deposited in five separate accounts with the Rizal Commercial Banking Corporation (RCBC), and later found to be deposited under fictitious identities. The funds were then transferred to a foreign exchange broker to be converted to Philippine pesos, returned to the RCBC and consolidated to an account of a Chinese-Filipino businessperson. The conversion was made from February 5 to 13, 2016.NThe four U.S. dollar accounts involved were earlier opened with the RCBC in May 15, 2015, which remained untouched until February 4, 2016.In February 8, 2016, during the Chinese New Year, Bangladesh Bank through SWIFT informed RCBC to stop the payment, refund the funds and to “freeze and put the funds on hold” if the funds had been transferred. Chinese New Year is a non-working holiday in the Philippines, and a SWIFT message from Bangladesh Bank containing similar information was received by RCBC a day later. By this time, a withdrawal amounting to about $58.15 million was already processed by RCBC’s Jupiter Street Branch. The Governor of Bangladesh Bank requested Bangkok assistance on February 16regarding the recovery of its $81 million funds saying that the SWIFT payment instructions issued in favor of RCBC in February 4, 2016, to be fraudulent.

Malware in Bangladesh Bank Software

DHAKA, Bangladesh–Hackers who last month stole more than $100 million from Bangladesh’s account at the Federal Reserve Bank of New York had been remotely monitoring activity at the South Asian nation’s central bank for several weeks and may have breached as many as 32 computers at the bank, a report from private investigators said. The hackers introduced malicious code, known as malware into the Bangladesh bank’s server, which allowed them to process and authorize the transactions, according to an interim report from Fire Eye Inc.

Resignation from Bangladesh Bank Governor

Bangladesh Bank Governor Atiur Rahman has resigned after this incident. Fazle Kabir, a former finance minister, has been chosen as Rahman’s replacement.

Hallmark Scandal

The largest banking scandal to date in the history of Bangladesh is the infamous Hallmark Scandal that was carried out by the collusion between officials of Hallmark and Sonali Bank, in particular, between the Managing Director of Hallmark Group, and the Manager of Sonali Bank’s Ruposhi Bangla branch. The Hallmark group that began launching garments in 2007 becomes the owners of 80 factories in 2012, at least 40 of which are on paper though. Most of these factories were built with the short-term loans. Hall-Mark bought 36 decimals of land from Janata Housing at Hemayetpur in 2006 and set up its first factory, Hall-Mark Fashion, there in 2007, the year it started banking with Sonali Bank’s Ruposhi Bangla Hotel Branch. In 2008, the group set up Bobby Fashion, Wall-Mart Fashion, Hall-Mart style, Boby Denim and Hall-Mark Design wear with Sonali Bank loan. There was no factory built during 2009-2010. But in 2011, it suddenly got huge money and set up 27 factories in a year (Dhaka Mirror, 2012). Hall-Mark itself is aware that it has done wrong by diverting short-term loans (Inland Bill Purchase-IBP) into project loans, which are long term in nature, but lender Sonali Bank seemed not to notice it. The project in Hemayetpur, some 30 km north west of the capital, is built on a 100-acre land, a large portion of which was bought with Sonali Bank loan. According to Hall-Mark, its net liabilities to Sonali Bank stood at Tk. 2,268 crore, of the sums, Tk. 1,567 crore is funded loan, meaning the amount has been taken in cash. The remaining amount is non-funded loan, mostly in the form of guarantee against Letter of Credit (L/C)(Siddique,2017). Bangladesh Bank has found out that the Hallmark Group along with five other companies applied for further loan and eventually got the approval for their loans with forged documents with the Sonali Bank(Manik, 2012). A Bangladesh bank investigation in May’ 2012 found that the group’s total liabilities to be Tk. 2,686.14 crore and all of the Hall-Mark loans were against IBP, which is a short-term credit facility utilized as working capital. But the hitherto little-known company used these loans for buying land and building factories (Dhaka Mirror, 2012). Bangladesh Bank (BB) reports showed that the Ruposhi Bangla Hotel Branch of the state-owned Sonali Bank distributed Tk. 36.48 billion in the form of loans from 2010 to 2012 and the largest portion of this loan that is Tk. 26.86 billion went to a single company known as the Hallmark Group (Sabet and Ishtiaque, 2013). The question arises as how did they carry out this huge loan scam and where those funds were allocated by the group. Investigations by two famous daily newspapers of Bangladesh, The Daily Star and Prothom-Alo, have shown that the whole process of the loan scamming was done mostly through the opening of Letter of Credit (LC) in favor of Hallmark by giving guarantee of payments to many fictitious suppliers based on the documents most of which were fake. Hallmark was alleged to establish fictitious companies, such as Anwara Spinning Mills, Max Spinning Mills, Star Spinning Mills, which were shown as recipients of the LCs. These companies submitted falsified paperwork reporting deliveries of fabric to Hallmark, which were then paid for by the LCs from Sonali Bank’s Ruposhi Bangla branch. Because the fictitious companies and Hallmark had their accounts at the Ruposhi Bangla branch, on paper it looked like the branch’s assets and liabilities were balanced out (Rahman and Khan, 2013; Jewel, 2013).

BASIC Bank Scandal

 The BASIC Bank Limited (Bangladesh Small Industries and Commerce Bank Limited) was one of the finest state-owned banks of Bangladesh up until recently when some serious allegations were made against the top managers of the bank regarding loan scamming from the period of 2009 to 2013 by the economic intelligence unit of Bangladesh Bank. BASIC Bank establishes as a banking company under the companies Act 1913 and launched its operation in 1989. It was incorporated under the Act on the 2ndof August, 1988 and started its operation from the 21stof January, 1989.The Bank was established as the policy makers of the country and felt the urgency for a bank in the private sector for financing Small Scale Industries. At the outset, the Bank started as a joint venture enterprise of the BCCI Foundation with 70 percent shares and the Government of Bangladesh (GOB) with the remaining 30 percent shares. However, the Government of Bangladesh took over 100 percent ownership of BASIC on 4thJune 1992.Thus, it becomes a state-owned bank though it is not nationalized and it operates like a private bank as before. Basic Bank is unique in its objectives and it is in fact a blend of development and commercial banks. The Memorandum and Articles of Association of the Bank stipulate that 50 percent of loan-able funds shall be invested in small and cottage industries sector (BASIC Bank website, 2018). Bangladesh Bank reports revealed that nearly Tk. 4,500 crore was taken illegally in the name of loans from the bank with the direct connection from the chairman of the bank at that time along with the help of other board of directors. What was really surprising in this situation is that of the Tk 4,500 crore swindled out of the bank, more than 95 percent was sanctioned by the board. In each case, the loan amount was more than Tk 1.5 crore, a sum the management cannot approve without the board’s approval (Khan and Uddin, 2018).Bangladesh Bank (BB) however, unearthed several anomalies in the loan sanctioning process by the Board of Directors of the bank. The report of Bangladesh Financial Intelligence Unit (BFIU), the anti-money laundering unit of the central bank, in 2014 showed that around Tk. 20 crore was transferred to bank accounts of two firms, owned by a close family member of the Chairman, from several companies that got loans from BASIC Bank through scams. Another important thing to notice on this point is that in 2010, BASIC Bank approved a loan of Tk 5.60 crore to BS Trading before the firm even opened its account with the bank. The loan amount was raised to Tk 33 crore in 2012. The branch concerned, however, didn’t show any reason for increasing the amount. It didn’t even verify the ownership of the property that was mortgaged against the loan. Besides, no credit risk grading was done before approving the loan though it was mandatory. No documents of the mortgaged land were collected (Alo, 2017). This means there existed some serious irregularities in the governance mechanisms of the bank at that period. The BB team filed a 47-page long report, which includes a list of borrowers, giving almost a minute-detail account of how the loans were approved and then withdrawn in clear violations of the rules. A serious governance failure was identified in this report of BB as it said that BASIC Bank’s board and its credit committee at the headquarters ignored the negative observations from the bank’s branches on a number of loan proposals, and approved those without following due diligence.In May 2014, the central bank fired BASIC Bank managing director for presiding over a period of serious irregularities at the state-run bank. Bangladesh Bank found him to be culpable in seven counts, including lack of sound management, failure to protect depositors’ interest, and loan irregularities. In the aftermath of this incident Anti-Corruption Commission (ACC) filed 56 cases in 2015 accusing a total of 110 people and organizations for gross loan irregularities worth over Tk 4,500 crore. Of the accused, 27 were bank officials and the rest were borrowers and surveyors, according to the ACC(The Daily Star, 2016).Despite those paper evidences and practical allegations against the then chairman of the bank, he was not made an accused in any of the cases filed by ACC which raised questions regarding his political backings in this scam.


Money laundering has potentially devastating economic, security, and social consequences. Money laundering is a process vital to making crime worthwhile. It provides the fuel for drug dealers, smugglers, terrorists, illegal arms dealers, corrupt public officials, and others to operate and expand their criminal enterprises. Money laundering diminishes government tax revenue and therefore, indirectly harms honest taxpayers. It also makes government tax collection more difficult. In order to combat Money Laundering:

  • Banks should at all time pay particular attention to the fundamental principle of good business practice “know your customer (KYC)”. Having a sound knowledge of a customer’s business and pattern of financial transactions and commitments is one of the best methods by which Bank and its Officials will recognize attempts at money laundering. It is not only a principle of good business but is also an essential tool to avoid involvement in money laundering.
  • Thus efforts to combat money laundering largely focus on those points in the process where the launderer’s activities are more susceptible to recognition and have therefore to a large extent concentrated on the deposit taking procedures of banks i.e. the placement stage.
  • Institutions and intermediaries must keep transaction records that are comprehensive enough to establish an audit trail. Such records can also provide useful information on the people and organizations involved in laundering schemes.


Money laundering is the biggest fear for financial institutions at this moment. The entire industry in the world or any separate country must understand that financial crime needs to be understood, analyzed and fought proactively. All of us should combat against money laundering because it diminishes government revenue, distorts assets and commodity prices and leads to misallocation of resources. The loss of creditability and investor confidence that such crises can bring has the potential or destabilizing financial system, particularly in smaller economies like Bangladesh.