The risk of fraudulent letter of credit transactions in Bangladesh: a growing threat to Bangladesh’s economy

Abstract

Purpose

The purpose of this paper is to focus on managing the risk of fraud in commercial letters of credit (LC) in Bangladesh involving three parties: the seller, the buyer and the bank. It addresses the severity of LC fraud, the banks’ actions when detected and the preventive measures the relevant parties can adopt.

Design/methodology/approach

This research uses doctrinal and qualitative methods to propose strategic actions that benefit buyers, sellers, banks, legal professionals and judges. The study aims to explore the modus operandi used by fraudsters through thematic analysis.

Findings

The study’s findings reveal that LC fraud has escalated to a concerning level, posing a significant threat to the economic stability of Bangladesh. Measures must be taken to mitigate this risk and safeguard the country’s financial integrity. To effectively combat the risk of LC fraud, the updated version of UCP must include specific and detailed guidelines on LC fraud. This study recommends preventative measures that all parties involved must take to reduce the likelihood of fraud significantly.

Research limitations/implications

Due to a lack of LC experts, the participant sample for the study in Bangladesh was limited. Nevertheless, most banking participants were highly distinguished and held the Head of Trade Finance Department position in commercial banks. A few academics and legal practitioners with LC expertise also participated in the study.

Originality/value

It provides cutting-edge solutions to effectively handle LC fraud risk and provides proactive measures to prevent it.

Citation

Rafique, R.B. and Duraisingam, T.J. (2023), "The risk of fraudulent letter of credit transactions in Bangladesh: a growing threat to Bangladesh’s economy", Journal of Financial Crime, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JFC-07-2023-0179