The business of terry towel manufacturer Virgin Grace Limited had been good until his US buyer stopped clearing the payments in 2019.
The unpaid bills now stand at $4.5 lakh and the buyer has been ghosting him since.
The small-scale exporter chose a sales contract, a shortcut in trade arrangement bypassing the widely used banking instrument, letter of credit (LC), and now he has double trouble – lost money and possible money laundering charges.
"The buyer neither answers calls nor clears the payment for the last couple of months," said Abdullah Hil Aziz, chairman of Virgin Grace.
According to sources, Virgin Grace may face money laundering lawsuits if it files official complaints. Plus, the company's exports might suffer in future.
When anything is shipped to a foreign market, the Bangladesh Bank logs the export first and the export earning later. If any export count does not meet with the export proceeds, the incident is flagged as a potential money laundering case.
Aziz had to sell his land in Dhaka to cover the export proceeds with banks to avert money laundering charges. He also had to downsize his workforce to 50 from 350.
In a twist of luck, he now works in subcontracting to stay afloat where his company used to hire subcontractors to ship orders in time before this payment debacle.
Seven other Bangladeshi apparel-makers, who exported products on sales contracts have lost at least $1.3 million to nonpayment.
Sources in the apparel industry said the list of the victims is quite long, and the scammed amount is also larger than reported.
Although letter of credit (LC) is the standard payment method for international trading, export sales contracts have gained popularity – mostly among small exporters – since they cut down on export costs and time.
Home textile makers were easy prey
Similar victims includes Anzir Textile, Virgin Grace Ltd, Al Muslim Textile, HN Cotton Products Ltd, Bangladesh Towel, Miray Towel and Moltex. All of them manufacture home textiles and are small and medium exporters.
Their cumulative dues amount to $1.3 million while Anzir Textile and Virgin Grace Ltd alone have $8.5 lakh unpaid.
Some of the victims told The Business Standard that all the defrauded exporters conducted business with a US-based buyer named Kamran Malik who reportedly released the consignments from the port but did not clear the payments later.
The exporters said shipping agents are also not cooperating with them as shippers allegedly are not providing the businessmen with documents for legal action against the buyer.
"We have given the importer enough time. But they have just abused our trust," the chief of an exporting company told TBS on condition of anonymity.
He said the buyer reportedly has moved to Pakistan from the US recently. "We have got the Bangladesh Bank deadlines extended for export proceeds twice, and have been trying to get the money," he added.
Requesting anonymity, another exporter said he had recently received a letter from the central bank asking him to bring in the export proceeds. He said other exporters had also been notified.
The Business Standard repeatedly tried to contact Kamran Malik, but he remained unreachable.
Associations are helpless
The scammed exporters are members of the Bangladesh Terry Towel & Linen Manufacturer and Exporters Association (BTTLMEA).
Shahadat Hossain Sohel, chairman of the association, told TBS that they were aware of the cheating and the unrealised amounts.
"But we cannot do anything unless the victims file complaints officially," he noted, and attributed the "risks of adverse situation" causing the exporters to stay away from filing formal complaints.
"The exporters are small businesses. They can't survive if they do not get the money," he added.
Mohammad Hatem, vice-president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), said they often got such complaints verbally but there was no complete list of the victims.
He said, "Once more than 90% of the exports were through LCs. But more than 50% of the exports are now made through sales contracts."
Another BKMEA vice-president, Fazlee Shameen Ehsan, who is also the CEO of Fatullah Apparels, said even he lost $32,000 to an export sales contract.
Since the payment method for such international trades is not recognised by banks, they cannot offer any help to the exporters with nonpayments.
Why exporters take the shortcut
Ashiqur Rahman Tuhin, former director at the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said export sales contracts can be categorised into three types.
In the first type, the buyer pays before the shipment, in the second, payment is made after the product reaches the port of the exporting country, and in the third one, the buyer is allowed to release the product from the port before payment is made.
"The third one is very risky. Some exporters take the risk only for trusted buyers," he noted.
Sources said the eight home textile exporters used the third and most risky method – the buyers released the products from the port and vanished, leaving the exporters in limbo.
Sector people said many exporters opt for the third payment method even for new importers because of fierce competition at home.
Besides, some buyers gain trust and then scam the seller.
Importers often demand the "payment later" facility. As bringing the product back home is expensive, exporters have no option but to accept the buyers' demand.
BKMEA leader Mohammad Hatem said once he refused to accept such a demand of a buyer, and the foreign port authorities subsequently put the product on auction. But he did not get a single penny for that auctioned consignment.