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Money laundering -- no decisive move as yet

Wasi Ahmed | July 01, 2020 00:00:00


In a post-budget media briefing the finance minister, while referring to some core objectives of the just announced budget, spoke about the government's commitment to rein in money laundering. The government, he said, would look into ways of curbing money laundering by formulating and strengthening the laws, through due diligence and automation. 'We need to revisit the laws. If there are flaws, we can make the laws comprehensive', he said.

The statement of the finance minister is notable only in its repetitive character-- utterances that he himself and his predecessors have been found making time and again. So, is it an issue to only serve the purpose of 'addressing' the concern, albeit in well framed sentences?

Among the many financial crimes, common to financial regimes across the globe, the one that tears through the economic vertebrae of most countries, especially developing countries, is no doubt capital flight. In Bangladesh, for quite sometime now, capital flight, coined differently as money laundering, has emerged as a potentially unchallenged crime that the government has apparently little clue to deal with.

Capital flight is not a new phenomenon, and no wonder, it has reached out to most geographic zones, particularly in those with weak financial management systems. However, it is strange that despite repeated alarm calls, the relevant authorities in Bangladesh are yet to conclusively detect a single incident of the fraudulent practice. Sometime ago, there were media reports that the government was going for a mechanism to bring back huge amount of money siphoned off the country through various conduits, including false trade declarations. An inter-agency taskforce was also restructured for gearing up the efforts. Progress of work of the task force is not known. The key question is: what precisely would form the basis for the taskforce to work on? The job is challenging for the simple reason that there is no one or two known modes through which money flies from the country. People from various affluent segments of society are allegedly involved in siphoning off money-- billions of taka every year through various means. 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. Observers believe that the modes have expanded and those among others include the most practised mode of money transfer called hundi. It is no doubt experts' job to suggest or work out effective mechanisms to address the problem. Collaboration with international agencies as well as countries facing similar money flight could provide helpful insight into ways of and means to tackling the problem.

Capital flight often believed to be embedded in the country's import practices is yet to face any tough challenge, although monitoring at various levels can identify the modus operandi and effectively help take steps to stop the foul play. There were occasions in the past when this crooked practice was attributed to fake imports for the most part or imports showing highly inflated bills through over-invoicing. One clear indicator that makes one suspicious is alleged imports that neither matches the demands of local market nor of the industrial sector. This was the case with sudden surge in 'import' of capital machinery a few years ago. The ground reality at that time did not suggest that imports actually took place or if at all, not in such huge volumes. Debapriya Bhattacharya, distinguished fellow of the Centre for Policy Dialogue (CPD) once said that out of the illicit outflow of funds, 80 per cent is done through imports and exports.

Analysts have often been referring to several factors responsible for the rise of trade-based money laundering in the country. The factors, as they say, include under-qualified bankers, lack of effective communications between the customs and banks, unholy alliance of unscrupulous traders and bankers, and lack of digitisation. They find a correlation between the rise of non-performing loans (NPLs) and money laundering. They also point out that non-ratification of the 'UN Vienna Convention on Contract of Sale' put the country's foreign trade at a grave risk, which also contributed to the rise of trade-based money laundering. However, one factor that did not seem to figure prominently is the lack or absence of overseeing mechanism by, among others, the central bank and the National Board of Revenue (NBR).

How much money get laundered through various illegal channels is not known to the central bank. All that are gathered are from published reports of several international agencies. A noted Washington-based research body Global Financial Integrity in its report 'Illicit Financial Flows (IFFs) to and from Developing Countries', said that on an average, $6.16 billion was laundered every year during 2014-17. Global Financial Integrity report ranks Bangladesh as one of the top countries facing trade-based money laundering (TBML), which is a significant threat to growth and sustainable development.

The NBR and the central bank are obviously the agencies on which the onus is more than on any other agencies in this regard. Understandably, all it takes is close coordination between the two agencies, preferably by means of jointly tracking suspicious imports -- from the stage of opening of letters of credit to clearance of goods. Beside the additional burden of import payments arising from the illegal practice, it is also responsible for discouraging investment at home.

wasiahmed.bd@gmail.com


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