CHAPTER-I

THE NEGOTIABLE INSTRUMENTS ACT- 1881

(XXVI of 1881 – 9th December, 1881)

The Negotiable Instrument Act 1881 is the legislative enactment of the law
relating to three classes of negotiable instruments namely, Promissory Notes, Bills of
Exchange and cheque which are in common use in monetary transactions. The Act came
into force on 1st March, 1882. The Bankers should; therefore, have clear knowledge of the
various provisions of the Act as amender up to date.

The Key terms in the Negotiable Instrument Act 1881 are briefly quoted below:

► Sec. 1: Application of the Act: All the negotiable instruments are guided by this Act.

► Sec. 3-B: Banker: "banker" includes any person acting as a banker, and accepting
deposits from public for the purpose of lending or investing, and also includes any post
office savings bank

► Sec. 3-C: Bearer: Bearer means a person who by negotiation comes into possession
of a negotiable instrument.

► Sec. 3-f: Material Alteration: Alteration of important parts of negotiable instruments.

The material parts include, date, the sum payable, the time and place of payment, etc.

► Sec. 4: Promissory Note: A “promissory note" is an instrument in writing (not being

a bank-note or a currency-note) containing an unconditional undertaking, signed by the
maker, to pay a certain sum of money only to, or to the order of, a certain person, or to
the bearer of the instrument.

► Sec. 5: Bill-of-Exchange: A "bill of exchange" is an instrument in writing, containing

an unconditional order, signed by the maker, directing a certain person to pay a certain
sum of money only to, or to the order of, a certain person or to the bearer of the
instrument.
► Sec. 6: Cheque: A "cheque" is a bill of exchange drawn on a specified banker and not
expressed to be payable otherwise than on demand.

► Sec. 8: Holder: The “holder" of a negotiable instrument means any person who is in
possession thereof and to receive or recover the amount due thereon from the parties
thereto.

► Sec. 9: Holder in due course: "Holder in due course" means any person who for
consideration became the possessor of a promissory note, bill of exchange or cheque if
payable to bearer, or the payee or indorsee thereof, if payable to order, before the amount

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mentioned in it became payable, and without having sufficient cause to believe that any
defect existed in the title of the person from whom he derived his title.

► Sec. 10: Payment in due course: "Payment in due course" means payment in
accordance with the apparent tenor of the instrument in good faith and without
negligence to any person in possession thereof under circumstances which do not afford a
reasonable ground for believing that he is not entitled to receive payment of the amount
therein mentioned.

► Sec. 13: Negotiable Instrument: A Negotiable Instrument mean a Promissory Note,

Bill of Exchange or Cheque payable wither to order to or to bearer which are transferable
from hand to hand by way pf negotiation but does not contain words prohibiting transfer
or indicating an intention that it shall not be transferable.

►Example: Pay to Mr. Rahman or bear/order

► Sec. 14: Negotiation: When a promissory note, bill of exchange or cheque is

transferred to any person, so as to constitute that person the holder thereof, the instrument
is said to be negotiated.

► Sec. 15: Endorsement: When the maker or holder of a negotiable instrument signs
the same, otherwise than as such maker, for the purpose of negotiation, on the back or
face thereof or on a slip of paper annexed thereto, or so signs for the same purpose a
stamped paper intended to be completed as a negotiable instrument, he is
said to indorse the same, -and is called the " indorser ".

► Sec. 18: If the amount undertaken or ordered to be paid is stated differently in figures
and in words, the amount stated in words shall be the amount undertaken or ordered to be
paid.

► Sec. 29-B: Forged or Unauthorized Signature: An instrument having forged

signature of the drawer or the persons required for it is not treated as instrument.

► Sec. 30: Liability of Drawer: The drawer of the Negotiable Instrument will remain
responsible to the payee till its paid off.

► Sec. 31: Liability of the Drawee of Cheque: The drawee of a cheque having
sufficient funds of the drawer in his hands properly applicable to the payment, must pay
the cheque when duly, and in default of such payment, must compensate the drawer for
any loss or damage caused by such default.

► Sec. 36: Liability of Prior Parties to Holder in due course: Every prior party to a
negotiable instrument is liable thereon to a holder in due course until the instrument is
duly satisfied.

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► Sec. 50: Effect of Indorsement: The indorsement transfers the property of negotiable
instrument to the indorsee with the right of further negotiation; but the indorsement may,
by express words, restrict or exclude such right, or may merely constitute the indorsee an
agent to indorse the instrument, or to receive its contents for the indorser, or for some
other specified person.

► Sec. 51: Who may negotiate: Every sole maker, drawer, payees or indorsee, or all of
several joint makers, drawers, payees or indorsees, of a negotiable instrument may, if the
negotiability of such instrument has not been restricted or excluded by section 50, indorse
and negotiate the same.

► Sec. 58: Defective Title: A person who receives an instrument which has been lost or
by means of fraud or any unlawful mean is not entitled to receive the proceeds unless he
claims as holder in due course.

► Sec. 85: Cheque Payable to Order: Where a cheque payable to order claims to be
endorsed by or on behalf of the payee, and where a cheque is originally expressed to be
payable to bearer, the drawee is discharged by payment in due course. Notwithstanding
any endorsement thereon claims to restrict or exclude further negotiation.

► Sec. 85-A: Drafts drawn by one branch of a bank on another payable to order. Where
any draft drawn by one office of a bank upon another office of the same bank for a sum
of money, purports to be endorsed by or on behalf of the payee, the bank is discharged by
payment in due course.

► Sec. 87: Effect of Material Alteration: Any material alteration of a negotiable

instrument renders the same void as against any one who is a party thereto at the time of
making such alteration and does not consent thereto, unless it was made in order to carry
out the common intention of the original parties, and any such alteration, if made by an
indorsee, discharges his indorser from all liabilities to him in respect of the consideration
thereof.

► Sec. 89: Payment of Instrument on which Alteration is not apparent: Where a

negotiable instrument has been materially altered but is not apparent, or where a crossed
cheque which is not apparent, payment thereof by a person or banker otherwise in due
course, shall discharge such person or banker from all liability thereon without being
questioned by reason of the instrument having been altered or the cheque crossed.

Revocation of Banker’s Authority: The banker can legally return a valid cheque under
the following conditions:

(a) Countermand of Payment

(b) Notice of Customer’s Death
(c) Notice of Customer’s Insolvency
(d) Insufficient Funds
(e) Standing instruction as assignment.

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► Sec. 123: Cheque Crossed Generally: Where a cheque bears across in its face an
addition of the words "and company" or its abbreviation between two parallel transverse
lines, or those lines simply, either with or without the words "not negotiable" that
addition shall be deemed to be have the cheque crossed generally.

► Sec. 123-A: Cheque Crossed “Account Payee”: For such crossing, the cheque-
(a) Shall cease to be negotiable
(b) Shall be the duty of the bank to credit the proceeds only to the account of
the payee as mentioned.

► Sec. 124: Cheque Crossed Specially: Where a cheque bears across in its face an
addition of the name of the banker, either with or without the word “not negotiable”, the
cheque shall deemed to be crossed specially.

► Sec. 126: Payment of Cheque Crossed Generally: The banker on whom a generally
crossed cheque is drawn, shall not pay it otherwise than to banker.

►Payment of Cheque Crossed Specially: The banker on whom a specially crossed

cheque is drawn, shall not pay it otherwise than to banker to whom it is crossed.

► Sec. 127: Payment of Cheque Crossed Specially-more than once: Where a cheque
is crossed specially to more than one banker, except to an agent, the bank on whom its
drawn shall refuse it.

► Sec. 128: Payment in Due Course of Crossed Cheque: Where the banker on whom
a crossed cheque is drawn- has paid the same in due course, the banker paying the
cheque, and (in case such cheque has come to the hands of the payee) the drawer thereof,
shall respectively be entitled to the same rights as they would respectively be entitled to
and placed in if the amount of the cheque had been paid to and received by the true owner
thereof.

► Sec. 129: Payment of Crossed Cheque Out of Due Course: Any banker paying a
cheque crossed generally otherwise than to a banker, or a cheque crossed specially
otherwise than to the banker to whom is crossed, or to his agent, the banker shall be liable
to the true owner of the cheque for any loss, and may sustain owing to the cheque having
been so paid.

► Sec. 130: Cheque bearing “not negotiable”: A person taking a cheque crossed
generally or specially, bearing the words "not negotiable," shall not have nor shall be
capable of giving, a better title to the cheque than that of the person from whom he took
it.
► Sec. 131: Non Liability of Banker Receiving Payment of Cheque: A banker who
had in good faith received payment for a customer of a cheque crossed generally or
specially to himself, shall not, in case the title to the cheque proves defective, incur any
liability to the true owner of the for receiving such payment.

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► Sec. 131-A: The above provisions shall apply to any draft, as defined in section 85A,
as if the draft were a cheque.

► Principal Parts of Negotiable Instruments:

(a) Date; (b) Amount; (c) Time for Payment; (d) Place of Payment; (e) Stamp.

► Objective of Crossing a Cheque: A cheque is crossed to provide security of property,

prevent fraud and crime by enabling drawers and holders to direct payment to be made
only through banker, and also to provide protection to the paying banker as well as to the
collecting banker.

► Sec. 131-B: Protection to Banker Crediting Cheque Crossed “Account Payee”:

Where a cheque without having apparent crossed “Account Payee” or having an altered
crossing, presented to the banker, and he in good faith collects & credits the proceeds
thereof to a customer, the paying banker shall not be in any liability by reason of the
cheque having such crossing

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 CHAPTER-II
MONEY LAUNDERING IN BRIEF
BASED ON
MONEY LAUNDERING PREVENTION ACT-2002

1.0 MONEY LAUNDERING:

Among five core risk areas in Banking, outline by Bangladesh Bank, money laundering is
one of the important one. As part of global initiative to combat money laundering
activities, Bangladesh Bank has forwarded the Guidance Notes on Prevention of Money
Laundering in the country.

1.1 DEFINITION OF MONEY LAUNDERING:

Section 2 (THA) of Money Laundering Prevention Act-2002 defines money laundering

as, (Au) Properties acquired or earned directly or indirectly through illegal means;
(Aa) Illegal transfer, conversion, concealment of location or assistance in the above act of
the properties acquired or earned directly of indirectly through legal or illegal means;

1.2 REASONS FOR COMBATING MONEY LAUNDERING:

Money laundering has potentially devastating economic, security, and social

consequences. Money laundering is a process vital to making crimes worthwhile.

1.3 STAGES OF MONEY LAUNDERING:

Money laundering is a done in three basic stages which may comprise numerous
transactions by the launders that could alert a financial institution to criminal activities.
These three stages are explained on the following:

ILLICIT ACTIVITY

▪ Drug production & trafficking;

▪ Other Criminal Activities

PLACEMENT LAYERING INTEGRATION

FIG: The Money Laundering Stages

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►PLACEMENT: The physical deposit of the initial proceeds derived from illegal activity;
i.e., making initial deposit of the money earned in an illegal way.

►LAYERING: Separating unlawful proceeds from their source by creating complex layer
of financial transactions. E.g. – Transferring the money to another account.

►INTEGRATION: After successful completion of the layering process, integration

schemes place the laundered proceeds back into the economy in the form of as normal
business funds.

1.4 THE OFFENCE OF MONEY LAUNDERING:

The money laundering offences are as under, in short:

► It as an offence for any person to obtain, retain, transfer, remit, conceal, or invest
moveable or immoveable property acquired directly or indirectly through illegal means.

► It as an offence for any person to illegally conceal, retain, transfer, remit, or invest
moveable or immoveable property even when it is earned through perfectly lawful
means.

► It as an offence for any individual or entity to provide assistance to a criminal to

obtain, conceal, retain, transfer, remit, or invest moveable or immoveable property if that
person knows or suspects that those properties are the proceeds of criminal conduct.

► It as an offence for the bank, financial institutions and other institutions engaged in
financial activities not to retain identification and transaction records of their customers

► It as an offence for the bank, financial institutions and other institutions engaged in
financial activities not to report the knowledge or suspicion of money laundering to
Bangladesh Bank ASAP it reasonably practicable after the information is revealed.

► It as an offence for any person to violate any freezing order issued by the Court on the
basis of application made by Bangladesh Bank.

► It as an offence for any person to express unwillingness, without reasonable grounds

to assist any enquiry officer in connection with an investigation into money laundering.

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1.5 PENALTIES FOR MONEY LAUNDERING:

All offences under this Act are non-bailable commission and punishable in terms of a
minimum imprisonment for six months and a maximum of up to seven years plus a fine
amounting to double the money laundered.

2.0 ANTI-MONEY LAUNDERING POLICY AND PROCEDURES OF THE BANK:

The Bank formulates a set of policies to comply with the rules for combating money
laundering. These policies include establishing adequate procedures for customers due
diligence, reporting, record keeping, internal control, risk management and
communication in order to prevent money laundering activities.

The Central Compliance Unit (CCU) has been established to monitor the anti-money
laundering activities of banks according to the guidelines and circulars of Bangladesh
Bank. This unit also exchanges information with the Anti-Money Laundering Department
of Bangladesh Bank regarding the organization’s anti-money laundering programs.

Branch’s Anti-Money Laundering Compliance Officers (BAMLCO) has also been

designated to observe and supervise the anti-money laundering activities of the Branches.

A number of circulars, highlighting the gravity of the situations and the steps to be taken
to combat money laundering, have been issued through CCU. In order to ensure strict
compliance of Anti-Money Laundering rules, the Officials of the Bank shall observe and
perform the following rules and procedures:

►The BAMLCO shall observe/ supervise the procedure of reviewing the consistency of
the customer’s transactions with their normal legitimate business and personal activities
and report unusual and suspicious transactions periodically to CCU. The CCU will then
submit the same to Bangladesh Bank.

►Transactions in the account of customer will be considered as unusual, if it is

inconsistent with the amount declared in the Transaction Profile (TP) and KYC Profile
and if satisfactory explanations are not provided on that account.

►KYC Profile and Transaction Profile of the customer shall have to be obtained at
account opening stage for proper identification of the customer, his/her business, source
of fund, transaction, etc. and TP is to be updated in case of any changes made.
Transactions in any account shall not be allowed if the customer fails to meet the
requirements relating to his/her identity. “Letter of Thanks” is to be sent to the account
holders and the introducers at the address provided during opening of the account. If the
letter is returned undelivered, transactions shall not be allowed without proper
verification of the account holder’s identity.

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►All the concerned desk officers of the branch shall review the transactions of the
account in order to identify any inconsistency with the amount declared in TP & KYC
Profiles. On findings of such inconsistency, they shall report to BAMLCO.

►The BAMLCO/ any other authorized officer nominated by the Head Branch shall make
surprise verification of the account opening procedure regularly to identify any gap
therein and then examine the transaction of the accounts to detect whether any account
has been opened in fake name or without the completion of required documentation
formalities or any unusual transaction has been done.

►The branch shall preserve evidence and detailed information of all the clients
according to the clause 19 (1) (Ka) of Money Laundering Prevention Act-2002.

►The branch shall preserve evidence and records about transactions of all accounts and
all remittance data at least for five years after the date of such transactions are made an
account is closed or a business relationship ends

►The branch shall keep necessary information and records in respect of large cash
transactions, online remittance, etc. Remittance shall be allowed after obtaining and
satisfying about full names and address of the concerned remitter and the payee.

►The branch shall send all the necessary statements and reports regarding Anti-Money
Laundering Activities to CCU timely to meet the requirements of regulatory authority.

►The Branch Management Committee (BMC) shall apply appropriate customer due
diligence to effectively evaluate transactions and report promptly unusual and suspicious
transactions to the Bangladesh Bank through CCU.

►The BMC shall also ensure that all officials of the Branch are communicated with all
necessary policies, guidelines, circulars, parameter, legal requirements, etc. in connection
with prevention of money laundering.

►All officials of the bank required to read manuals, guidelines, policies, circulars, etc. in
connection with anti-money laundering activities in order to acquire proper knowledge.
They also remain vigilant and alert to ensure that the law and regulations, guidelines,
policies, and procedures in respect of anti-money laundering activities are being
forwarded and report to the concerned authority against illegal, unusual, suspicious
activities in any account.

►All officials of the Bank shall be held accountable for non-compliance with the
requirements of anti-money laundering procedures.

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3.0 CHECK-LIST FOR PREVENTION OF MONEY LAUNDERING:

A. BRANCH COMPLIANCE UNIT:

►That the branch has a compliance officer entitled Branch Anti Money Laundering
Compliance Officer (BAMLCO).

►The BAMLCO has sufficient experience and seniority.

►The BAMLCO has necessary support of senior management to perform his/her

responsibilities.

►He is well conversant about the AML Act 2002, AML circulars and guideline notes on
prevention of money laundering.

►He attends a formal training in the last one year.

►He keeps himself updated with the regulations.

►He confirms reporting of suspicious transaction repots received so far from the dealing
officers of the branch.

►He confirms reporting of suspicious transaction reports received so far from the
dealing officers of the branch.

► BAMLCO carries out monitoring and reviewing of sufficient quality and frequency to
ensure that the business and operations are in compliance.

►The monitoring carried out appears adequate including relevant high-risk accounts
activities.

►From sample reviews carried out by BAMLCO consider that they are of sufficient
depth and quality.

B. EMPLOYEE AWARENESS:

►The HOB/BAMLCO ensures that all branch employees receive formal training on
AML program.

►The employees of the branch are familiar with the banks own anti-money laundering
policies, procedures and programs as well as national policies and BB guidelines.

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C. SOUND KYC PROCEDURES:

►KYC FOR ACCOUNT HOLDERS:

▪ Account opening procedures and documentation are compiled with the requirement of
BB guidance notes and accordingly obtained and reviewed.

▪ Test samples new account-personal, corporate or other to check the satisfactory

identification has been obtained, verified and recorded.

▪ The Bank has a separate KYC profile pro-forma.

▪ Test a sample KYC profile to check all relevant information has been obtained.

▪ The Branch covers KYC for all products of the bank.

▪ The Branch classifies their customers on the basis of risk involved.

▪ Classification procedures has been obtained and reviewed satisfactorily.

▪ Additional information obtained in respect of high-risk customers.

▪ High-risk customer’s KYC profile is obtained and examined that have fulfilled all
relevant information, documentation, and requirements.

►KYC FOR WALK IN/ONE-OFF CUSTOMERS:

▪ The Branch makes KYC for one off/walk in customers.

▪ Sample of KYC for such customers is obtained and reviewed to check whether
verification of identity is reasonably practicable.

4.0 REASONS BEHIND MONEY LAUNDERING:

Criminal engages in money laundering for three main reasons. They are:

► Money represents the lifeblood of the organization that engages criminal conduct for
financial gain because it cover operating expenses, replenishes, inventories, purchases the
services of corrupt official to escape detection and further the interest of the illegal
enterprises, and pays for an extravagant lifestyle. To spend money in these ways,
criminals must make money they derived illegally appear legitimate.

►A trail of money from an offense to criminals can become incriminating evidence.

Criminals must obscure or hide the source of their wealth or alternatively disguise
ownership or control to ensure that illicit proceeds are not used to prosecute them.

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►The proceeds from crime often become the target of investigation and seizure. To
shield ill-gotten gains from suspicion and protect them from seizure, criminal must
conceal their existence or alternatively, make them look legitimate.

Besides the above reasons, criminals attempt to transfer money for:

▪ Dealing in ammunition;
▪ Drug trafficking;
▪ financing terrorist activities;
▪ Evasion of taxation;
▪ Disguise or remove proceed of threat/fraud/bribe;
▪ Making blackmail payments, and
▪ Paying ransom for kidnappers;

5.0 METHODS/WAYS OF MONEY LAUNDERING:

► Drug trafficking;

► Financial crimes (bank fraud, credit card fraud, investment fraud, advance fee fraud,
embezzlement, over-invoicing, and under-invoicing, intermingling of legal and illegal
money, use of bank loan arrangements);

► Dirty money placed in the financial system;

► Illegal trade in goods, gold, and drugs;

► Hundi/Hawala;
► Purchase and sale of luxury items;

► Bribery, extortion, robbery, street level purchase of drugs;

6.0 NECESSITY OF COMBATING MONEY LAUNDERING:

►Money laundering has potentially devastating economic, social and security

consequences. It provides fuel for drug dealers, smugglers, terrorists, illegal arms dealers,
corrupt public officials, etc. This enhances the cost of the govt. to enforce law and health
care expenditure.

► Money laundering diminishes govt. taxes revenue and indirectly harms honest tax
payer.

► Money laundering distorts assets and commodity prices, and leads to misallocation of
resources. For financial institutions it can lead to an unstable liability base ad unsound

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asset structures; thereby, creating risks of monetary instability, and even systematic
crises.

► Money laundering may result in crowding out of private sector business by criminal
organizations.

► The magnitude of money laundering is between 2 to 5 percent of world gross GDP

(US $ 800 billion).

► Money laundering transfers economic power from market, govt. and citizens to
criminals.

► Money laundering may be used to corrupt national institutions; weaken ethical

standards, corrupt democratic institutions.

► Money laundering erodes confidence in financial institutions; weaken reputation and

standing of any financial institution.

7.0 MAIN FEATURES OF MONEY LAUNDERING PREVENTION ACT-2002:

► Duty and responsibility of Bangladesh Bank includes:

• To carry out investigation regarding crimes under money laundering;

• To supervise and monitor the activities of banks, financial institutions, and other
institutions involved in financial activities.
• To obtain reports relating to money laundering from banks, financial institutions
and other institutions involved in financial activities.
• To impart training facility for the officers and employees of banks, financial
institutions, and other institutions involved in financial activities.

► Money Laundering Court:

• Court will not accept any petition for judgment under this law unless written
application is forwarded by Bangladesh Bank or persons authorized by
Bangladesh Bank.
• All crimes under this Act are non-bailable.
• Court is authorized to issue crook order on the property of convicted persons
under this Act on written application from Bangladesh Bank or persons authorized
by Bangladesh Bank
• Court is authorized to issue freezing order on the property of convicted persons
under written application from Bangladesh Bank or persons authorized by
Bangladesh Bank.

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►Appeal:

• Convicted/aggrieved party/persons may appeal before the Honorable High Court

against the, verdict, decree, order passed by Anti-Money Laundering Court within
30 days of passing of verdict by the court.

►Crime and Punishment:

• Punishment for Money Laundering: Persons found convicted under this Act
may be jailed minimum for a period of six months and maximum up to seven
years and may be fined to provide double the amount of convicted amount.
• Punishment for Violating Crook Order: Persons violating crook order under
this Act may be jailed for a minimum period of one year or may be fined up to
Taka Ten Thousand or both.
• Punishment for Violating Freezing Order: Persons violating freezing order
under this Act may be jailed for a minimum period of one year or may be fined up
to Taka Five Thousand or both.
• Punishment for Divulgation of Information: Persons found convicted of
disclosing information/data detrimental to the process of investigation under this
Act, may be jailed for a minimum period of one year or may be fined up to Taka
Ten Thousand Taka or both.

►Responsibility of the banks, financial institutions and other institutions engaged

in financial activities in preventing and identifying money laundering:

• Banks, financial institutions and other institutions involved in financial activities

at the time of transactions of customers’ account will preserve true identification
of customers and their overall information. In case of closure of accounts, banks
will preserve transaction records up to five years madder during the previous
period.
• Banks will supply required aforesaid information to Bangladesh Bank.
• Bangladesh Bank will be informed by banks regarding unusual transactions and
suspected transactions by account holders.
• Bangladesh Bank may impose fine up to Taka One Lac but not less than Taka Ten
Thousand for not preserving, supplying, or deliberately failing to supply
information to Bangladesh Bank by Banks.

8.0 Guidelines:

► Guidelines Regarding Account Holders: A task force has been constructed under the
Chairmanship of Deputy Governor, Bangladesh Bank and taking representations from
Police Dept., Revenue Dept. of the Govt., and from banks to supervise the on-going
money laundering drive in the country. Bangladesh Bank has established Anti-Money

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Laundering Dept. to co-ordinate the implementation of all activities relating to money
laundering. Bangladesh Bank issued guidelines for banks on July 17, 2002 relating to
account holders:

• Date of birth/age of account holder;

• TIN number (if applicable)
• Copies of Passport or Certificate from employees or Certificate from Ward
Commissioner/UP Chairman.
• Full address of remitter and beneficiary in respect of inland remittance if they
are not account holders.

► Preventive Guidelines: These include:

• Know Your Customer (KYC)

• Recognition of suspicious transactions.
• Compliance with laws and regulations
• Co-operation with law enforcing agencies.
• Training/internal audit/policy formulation.

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