FUNDS REMITTED UNDER A TRANSACTION PURPORTED TO BE A CROSS BORDER T RADE TRANSACTION

In the year 2007 an Import LC got established by ABC & Co., through a Lahore based Pakistani commercial banks branch. The LC was in favour of XYZ & Co., an exporter of Canada which was advised to him through a Canadian bank in Toronto. The LC was for import of 5000 Metric Tonnes of steel (MS Billets) and the amount of LC was for US $ 1.7 M, approximately equivalent to PKR 98.52 M. The Method No2 was made available to the negotiating bank which provided them the authority of the LC Opening bank to obtain reimbursement of the value of documents if these were in order and drawn exactly as per the terms of LC. It meant that the negotiating bank ceases to apply this authority if any discrepancy goes unchecked by them and in that case the Opening bank reserves its right, under ICC Rules, to get refund of the amount so withdrawn by the negotiating bank. Later, as a normal procedure the LC Opening bank in Pakistan received import shipping documents from the exporters through his Canadian negotiating bank from Toronto. These documents were scrutinized by the LC opening bank branch and a discrepancy was found in the documents and that was regarding a missing document required under LC. The LC, in one of its clauses, required a pre-shipment inspection certificate to be issued by a named inspecting company based in Canada and that particular certificate was not found in the set of documents sent by the exporter. As a routine procedure the LC Opening bank sent a message to the Canadian negotiating bank advising them of the said discrepancy asking them to refund the amount of LC in full due to the fact that the authority they enjoyed was only against presentation of LC compliant documents. However, the said Canadian bank sent a SWIFT message to the LC Opening bank branch informing them that although they have negotiated the documents and paid full value to the exporter they suspect that the shipping documents are forged and as such special care was required to be taken up by the LC Opening bank. The said bank later informed through a SWIFT message to the LC Opening bank that its Security Department confirmed from the shipping company and freight forwarders that the Bill of Lading presented for 5000 Metric Tonnes was forged whereas a Bill of Lading for only 724 KGs was actually issued by the shipping company for the parties to the LC. In turn LC Opening bank reiterated that they have already advised them of the discrepancy and have claimed refund from them and that they

have every right to return the discrepant documents under ICC Rules. A row followed between the two banks. Meanwhile it was informed by the Canadian bank that one of their staff was involved in the fraud of accepting the documents and paying the value of forged documents to the exporter. They further informed that the exporter, after receiving full value of documents, had remitted the amount to a foreign banks branch at Lahore in favour of one of its customers. The imported goods when reached at the Karachi port revealed that the steel weighing only 724 KGs was discharged as the same weight of steel was loaded at the port of loading instead of 5000 Metric Tonnes. The suspicion sensed by the Canadian bank proved true and the exporter deceived the negotiating bank by obtaining full value of 5000 Metric Tonnes of steel. He had presented forged Bill of Lading and, therefore, had not got pre-shipment inspection done. The LC Opening bank registered an FIR with FIA against the importer as it was revealed to the LC opening bank that the importer was involved in a transaction of sale of property in Lahore with the exporter and that the exporter had in fact paid the value through drawing the fake cross border trade transaction. Ironically, both sides of the border were the Lahore based Pakistanis involved in the case. It was a perfect case of money laundering as the money withdrawn fraudulently purporting it to be a cross border trade transaction was , in fact, used for a deal which had no connection with the trade deal.