Lesson 12 of 42 · Part C · Level 2 · Explained

Safeguards: clean money and careful banking

Why banks follow AML/CFT rules with their partner banks abroad and stay away from shell banks, the six safety checks before handling an export, and how to guide an exporter when a deal looks stuck or doubtful.

C-1 C-2 C-3

In Lesson 11, Money, discounting and selling to the zones, Eliana learned how money moves in and out of the zones, and Part B of the export room came to an end. Now she is settling in. She has her own stapler, a chair that squeaks, and a growing pile of export LCs.

One morning, a new LC arrives for a knitwear exporter. It came through a proper, authenticated channel, but from a third bank rather than straight from the issuing bank, and the issuing bank's name is one Eliana has never heard of. "The LC looks real," she thinks. "But is the bank behind it real?"

That afternoon, her bank holds a training session on anti-money laundering. The speaker is Ihsaan, a compliance and anti-money-laundering expert who has spent years on trade-based money laundering, sanctions and KYC. Eliana raises her hand and describes her LC. Ihsaan nods. "Good instinct. In trade, the paper can look perfect while the people behind it are not. Today we look at three things: which banks yours may deal with, what to check before you touch an export, and what to tell the exporter when something feels off."

This lesson starts Part C of the export room: safeguards.

Para C-1

Regulations for cross-border banking and AML/CFT compliance

In plain words

Your bank cannot do foreign trade alone. To pay and receive money abroad, it needs accounts and partner banks in other countries.

The permission. ADs may keep accounts in freely convertible or permissible currencies with their correspondents or their own branches abroad. A bank's own account like this, held abroad, is its nostro account.

The condition. The rules require ADs to follow AML/CFT regulations when they:

build and keep a relationship with a correspondent;
open nostro accounts; and
carry out transactions with correspondents.

On top of this, other instructions help contain the risks of cross-border transactions. The circular says "such as", so these are examples, not a closed list:

(a) Core Risk Management in Banking: Foreign Exchange Risk Management. It has procedures for keeping cross-border correspondent relationships, including extended due diligence where it applies, and a restriction on keeping any correspondent relationship with shell banks, among other things.
(b) BFIU Circular No. 26 of June 16, 2020, with the circulars issued after it. BFIU is the Bangladesh Financial Intelligence Unit. This circular covers how to select customers and set up correspondent relations with banks abroad, among other things, and it restricts setting up relations and doing transactions with shell banks.
(c) BFIU's Guidelines for Prevention of Trade Based Money Laundering, which set out preventive measures.

Watch the numbers: our circular is FEPD-1 Circular No. 26, and the BFIU circular is also No. 26. Same number, two different documents. C-1 points to these documents but does not repeat their details.

At the desk

A small foreign bank emails Eliana's head office, offering a dollar account relationship at very low fees. Ihsaan uses it as a training example: the bank has a licence, but no real office, staff or management anywhere, just a mailbox. "That looks like a shell bank," he says. "The Core Risk Management guidelines and the BFIU instructions both restrict correspondent relations with shell banks, however cheap the fees." The head office politely declines.

Key words

AML/CFT: Anti-Money Laundering / Combating the Financing of Terrorism rules.
Nostro account: A bank's own account, in foreign currency, held with a bank in another country.
Shell bank: A bank with no real physical presence (no real office, staff or management) in the country where it is licensed, and not part of a properly supervised banking group.
Trade-based money laundering: Moving or hiding illegal money through trade deals, for example by faking the price, quantity or description of goods.

Read the rule as written (Para C-1)

ADs are permitted to maintain accounts in freely convertible/permissible currencies with their correspondents/branches abroad. The relevant regulation requires ADs to comply with AML/CFT regulations for maintaining relationship, opening of nostro accounts, and transactions with correspondents. In addition, different regulatory instructions are in place for containment of risk factors against cross-border transactions, such as:

(a) Procedures are contained in 'Core Risk Management in Banking: Foreign Exchange Risk Management' to maintain cross-border correspondent banking relationships, including observance of applicable extended due diligence and restriction to maintain any correspondent relationship with shell banks, inter alia;

(b) Circular No. 26 issued by Bangladesh Financial Intelligence Unit (BFIU) on June 16, 2020, including its subsequent circulars outlines instructions to be followed regarding selection of customers and establishment of correspondent relations with banks abroad, inter alia. The instructions contained therein restrict to establish and conduct transactions with shell banks; and

Source: Bangladesh Bank, FEPD-1 Circular No. 26, 30 July 2026, Part C, paragraph 1 (page 20). The original circular is the authority.

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Para C-2

Safeguards for export trade transactions

In plain words

Before an AD handles an export, the circular asks it to take sensible safety steps before the transaction is carried out. Think of buying fish at Karwan Bazar: you check the eyes and the gills before you pay, not after you get home. There are six measures:

(a) Known channels, known banks. ADs facilitate export LCs that come through authenticated channels from banks with which they have appropriate relations.
(b) LCs from a third bank. Sometimes an LC comes through an authenticated channel, but from a third bank. Then it is not enough that the LC looks genuine. The AD must also satisfy itself that the applicant bank/issuing bank is bona fide (the circular uses both words). It must also be sure that this bank will receive the export documents directly from the AD, or through third banks or other authenticated banks with which the AD has an appropriate relationship.
(c) Transferred LCs. The AD checks the bona fides of the first beneficiary and the transferring bank, as well as the applicant bank/issuing bank.
(d) The importer abroad. The AD satisfies itself that the foreign importer is bona fide, as set out in paragraph 13(1)(c) of Part A of the circular.
(e) Exports under sales contracts. The AD does due diligence on the importer's bank named for the deal. It wants to be sure that bank knows its step-by-step duties: releasing the export documents to the importer, and arranging payment as per prevailing regulations and the URC in force. The same document route applies: directly from the AD, or through third banks or other authenticated banks the AD has a relationship with.
(f) Anything else needed. ADs take any other measures they think necessary.

One quiet idea runs through (b) and (e): export documents should travel only along a road your bank knows.

At the desk

Back at her desk, Eliana returns to the knitwear LC. It came through an authenticated channel from a third bank, and the issuing bank is new to her. Following Ihsaan's advice, she does not stop at "the LC looks genuine": she checks that the issuing bank is bona fide, and confirms the documents can go to it directly or through a bank her bank already works with. The checks come back clean, and the exporter's documents set off along a known road.

Key words

Bona fide: Genuine; made in good faith.
Due diligence: Careful checking before acting, to make sure a deal is genuine and safe.
Authenticated channel: A secure route for bank messages, such as SWIFT, that lets the receiving bank check that a message really came from the bank that sent it.
Transferable LC: An LC marked "transferable" that the first beneficiary can ask a bank to pass, in whole or in part, to a second beneficiary. It can be transferred only once.

Read the rule as written (Para C-2)

To ensure safeguards in export trade, ADs need to observe appropriate measures before execution of transactions as noted hereunder:
(a) ADs shall facilitate export transactions under LCs routed through authenticated channels from banks with whom appropriate relations are in place;
(b) ADs shall, in addition to be ensured of apparent authenticity of LCs, satisfy themselves of bonafide of applicant banks/issuing banks in case of LCs received through authenticated channels from third banks. In this case, ADs need to be ensured that applicant banks/issuing banks will receive export documents directly from respective ADs or through third banks/other authenticated banks with whom respective ADs maintain appropriate relationship;
(c) In case of transferred LCs, ADs shall satisfy themselves of bonafide of first beneficiary and transferring bank in addition to the LC applicant banks/issuing bank;
(d) ADs shall satisfy bonafide of importers abroad as per paragraph 13(1)(c), Part-A of this circular;
(e) ADs shall conduct due diligence regarding importers' banks designated for the transactions under sales contracts for being ensured of their step by step responsibilities regarding release of export documents to importers and procedural arrangement of payment as per prevailing regulations and relevant provisions of the URC in force. In this case, ADs need to be ensured that importer's banks will receive export documents directly from respective ADs or through third banks/other authenticated banks with whom respective ADs maintain appropriate relationship; and
(f) ADs shall adopt other measures as deemed necessary.
Source: Bangladesh Bank, FEPD-1 Circular No. 26, 30 July 2026, Part C, paragraph 2 (page 20). The original circular is the authority.

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Para C-3

Guidance for exporters in case of transaction issues

In plain words

What if the safeguards in the paragraph above (C-2) cannot be met, or something about the deal just doesn't feel right? The circular does not tell the AD to shut the door and walk away. It asks the AD to guide the exporter, so that the exporter can take suitable steps to get the transaction done.

This applies when:

the transaction is in trouble to be carried out under those safeguards, and/or
there is any doubt about the transaction.

The circular gives three examples of such guidance:

Change the importer's designated bank to one that is acceptable to the AD.
Bring the transaction under an external payment guarantee, as per Part D of the circular. Part D holds the details, and this room will reach it later.
Make other suitable arrangements.

Picture a village bridge with a weak plank. A good guide doesn't just say "don't cross". She points to a stronger bridge, or offers a rope. That is the spirit of C-3: protect the bank, and still help the exporter sell.

At the desk

A leather goods exporter brings Eliana a sales contract. The buyer's bank named for the deal has no relationship with Eliana's bank, and she cannot confirm how it would release the documents. Instead of turning him away, she guides him: ask the buyer to switch to a bank acceptable to her bank, or bring the deal under an external payment guarantee as per Part D. The exporter calls his buyer that evening, and the buyer agrees to switch banks.

Key words

External payment guarantee: A payment guarantee from outside Bangladesh that backs an export transaction. C-3 says it is arranged as per Part D of the circular.
Designated bank: The bank named for a transaction, here the importer's bank chosen to receive the export documents and arrange payment.

Read the rule as written (Para C-3)

In case of paragraph 2 above in trouble to be executed, and/or any doubt regarding the transactions, ADs shall guide exporters so that they can take appropriate measures for execution of the transactions, such as:

(a) To change designated banks of importers acceptable to ADs;

(b) To bring the transactions under external payment guarantees as per Part-D of this circular; and

Source: Bangladesh Bank, FEPD-1 Circular No. 26, 30 July 2026, Part C, paragraph 3 (page 21). The original circular is the authority.

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Putting it together

So far: ADs may keep accounts with correspondents and branches abroad, but they must follow AML/CFT rules in those relationships, and the instructions behind them restrict any dealings with shell banks and set out measures against trade-based money laundering. Before handling an export, the AD checks the channel, the banks (including the first beneficiary and transferring bank for transferred LCs), the importer and, under sales contracts, the importer's bank, and makes sure the documents travel only through banks it has a relationship with. If a deal is stuck or doubtful, the AD guides the exporter: change the importer's bank, use an external payment guarantee under Part D, or make other suitable arrangements.

That completes Part C of the export room: safeguards.

Next: Part D, on exports under open account credit terms, starts in Lesson 13, Open account: when it's allowed.

Check yourself

30 questions, in 3 sets of up to 10. Nobody sees your answers but you.

Set 1 of 3

1. Under C-1, with whom may ADs keep accounts abroad in freely convertible or permissible currencies?

2. For which activities does C-1 require ADs to comply with AML/CFT regulations?

3. Which body issued the Circular No. 26 dated June 16, 2020, named in C-1(b)?

4. Which document named in C-1 has procedures for cross-border correspondent banking relationships, including extended due diligence?

5. Which BFIU guidelines with preventive measures are named in C-1(c)?

6. True or false: the instructions named in C-1(a) and C-1(b) both restrict correspondent relations with shell banks.

7. True or false: the BFIU circular named in C-1(b) is the same document as FEPD-1 Circular No. 26.

8. A foreign bank offers Eliana's head office a correspondent relationship at very low fees. It has a licence but no real office, staff or management anywhere. What do the instructions in C-1 point to?

9. Eliana's bank plans to open a new euro nostro account with a correspondent in Europe. A colleague says AML/CFT rules are for customers only, not for banks. What is right?

10. Under C-2(a), which export LCs should ADs facilitate?

Set 2 of 3

11. An LC comes through an authenticated channel from a third bank. Besides its apparent authenticity, what must the AD satisfy itself of?

12. In the third-bank case under C-2(b), how should the export documents reach the applicant bank/issuing bank?

13. For a transferred LC, whose bona fides must the AD check under C-2(c), in addition to the applicant bank/issuing bank?

14. Where does C-2(d) point for satisfying the bona fides of importers abroad?

15. Under C-2(e), for exports under sales contracts, on whom must the AD conduct due diligence?

16. Under C-2(e), alongside prevailing regulations, which rules in force does the circular name for the importer's bank's duties on releasing documents and payment?

17. True or false: under C-2(b), if an LC received from a third bank looks genuine, the AD need not check anything else.

18. True or false: C-2(f) allows ADs to adopt other measures they consider necessary.

19. An export LC reaches Eliana through an authenticated channel from a third bank. The issuing bank is unknown to her bank, but the LC looks genuine. What should she do?

20. A garment maker brings Eliana a transferred LC. A trading house abroad was the first beneficiary and transferred it to him through its bank. Besides the issuing bank, whom must Eliana's bank check?

Set 3 of 3

21. An exporter forwards Eliana a PDF of an export LC that his buyer emailed to him directly. No bank sent it through an authenticated channel. What does C-2(a) suggest?

22. A jute goods exporter ships under a sales contract, without an LC, through a buyer's bank in a country new to Eliana's bank. What must the bank check under C-2(e)?

23. Under a sales contract, the buyer asks Eliana to send the documents to a small bank that has no relationship with her bank and cannot be reached through any authenticated bank her bank works with. Which C-2 point is at stake?

24. When does C-3 ask ADs to guide exporters?

25. Besides changing the importer's bank and using an external payment guarantee, what third way of guiding exporters does C-3 give?

26. Under C-3(b), as per which part of the circular are transactions brought under external payment guarantees?

27. True or false: under C-3, when an AD has a doubt about a transaction, its only option is to turn the exporter away.

28. A leather goods exporter's buyer has named a bank that Eliana's bank cannot accept for the deal. What can Eliana guide the exporter to do under C-3?

29. A frozen fish exporter's deal raises a doubt, and the buyer refuses to change his bank. Which other C-3 option can Eliana suggest?

30. At the training, a new officer asks Ihsaan: 'If a deal fails our safeguard checks, do we simply close the file?' What does C-3 support?

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Safeguards: clean money and careful banking

Check yourself

Set 1 of 3

Set 2 of 3

Set 3 of 3

One tap before you go: which describes you best?