IMF's move to check money flight and terror financing

FE Team | Published: June 27, 2024 19:58:31

That the International Monetary Fund (IMF) is going to check five high-risk commercial banks of the country about suspected money laundering as part of what it calls 'structural benchmark' seems to align with the efforts of the local authorities to stop money flight from the country albeit with no mentionable success this far. It has been gathered from media reports that the IMF will remain engaged with the task for the next 12 months as the Executive Board of the organisation completed a second review of its US$4.7 billion lending package for Bangladesh and approved the release of $1.148 billion in the third tranche. An IMF document released this week says the matter has been included in the structural benchmark with the objective of improving anti-money laundering and combating terror financing efforts. The IMF has reportedly developed examination procedures in respect of money flight and terror financing as part of its technical-assistance project and wants to check any involvement of Bangladeshi banks by using the procedures. The IMF in the structural benchmarks for the next one year has also mandated that at least 50 per cent of the value of central government transactions, excluding interest payments, subsidies, loans, equity, and liabilities, have to be carried out through electronic funds transfer (EFT) to improve budget execution and enhance fiscal transparency.
Checking out on money flight and terror financing, is no doubt a welcome initiative. Given the vain attempts of various quarters, including the central bank, to stop illicit money flow from the country, devising an appropriate method will surely be of help to the country's financial sector. The exact extent of financial losses due to money laundering through illegal channels is not known to the central bank. Whatever information is gathered comes from published reports of international agencies. A US-based watchdog, the Global Financial Integrity (GFI), in a report in 2021 said Bangladesh annually lost nearly $8.27 billion on an average between 2009 and 2018 from mis-invoicing of values of export and import of goods by traders as they want to evade taxes. According to the report, on an average, $6.16 billion was laundered every year during the period, and in 2013 the amount soared to as high as $9.66 billion.
The fact that money laundering is pervasive and that huge sums of money are being flown to overseas destinations cannot be disputed. It is not only confined to false trade declarations - over-invoicing in import for example, or capital flight by multinationals--- once believed to be the key mode of money flight, but also includes the widely practised mode of money transfer called hundi. It is common knowledge that in the absence of deterrent measures to check on, hundi is a suitable mechanism for transferring money overseas, particularly from sale of property in the country.
Things are believed to have further deteriorated lately. Given the situation, the IMF's proactive stance of using its own methodologies is crucial. It remains to be seen whether the banking sector in Bangladesh has been complicit in these illicit financial activities.