Capital flight from Bangladesh: GFI clarifies

In their latest report entitled 'Illicit Financial Flows from Developing Countries: 2003-2012' the Global Financial integrity (GFI), a Washington-based Research organisation, reported that illicit financial flow from Bangladesh in 2012 was $1.78 billion-the ten-year average from 2003 to 2012 being $1.136 billion.
The report triggered a flurry of speculations, comments and newspaper articles analysing the causes and consequences of illicit financial flow, known popularly as capital flight. The fact that the number quoted by the GFI is way below the actual average level of about $15 billion siphoned off the country every year escaped everyone's notice.
To clear the on-going confusion I penned two modest reports underlining the real number and other issues relating to this topic. These were published in the Financial Express (June 12 and 13, 2015). It has been noticed, however, that some people are still using the GFI estimate. One leading daily (not The Financial Express) in fact carried a story centring on the GFI number in the front page of its business section on June 15, 2015.
To get at the root of the confusion I asked the GFI to clarify their position. They were candid enough to admit the limitation of the data generated by them from official sources. That, they say, is the reason for underestimation of the magnitude of illicit financial flows from Bangladesh and other developing countries. The following correspondence with the GFI would be of some interest for the readers.
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EMAIL TO GFI:
From: Syed Ashraf Ali
Date: Mon, Jun 15, 2015 at 3:23 AM
Subject: Illicit Financial Flow Report 2014
To: Global Financial Integrity
Washington DC

Gentlemen,
While congratulating you for a very comprehensive Report on "Illicit Financial Flows from Developing Countries: 2003-2012" I wish to bring to your kind notice that the data on various aspects of IFF relating to Bangladesh appear to be not correct. I have prepared the attached article on the ways it takes place, the principal sources of funds transferred and why the money is transferred and ways they are used. The following are the highlights of my article vis-à-vis the data and information given in your Report.
The average illicit financial flows from Bangladesh work out to about $15, 000 million in contrast to 1,136 million mentioned in your report for 2003-12.
Your Report says that the average level of hot money outflow from Bangladesh is $510 million. This is obviously a gross underestimation. Given the potential for earning black money through rent seeking the actual level would be way above the number you mentioned.
Bangladesh taka is floating and the kerb market rate is very close to official exchange rate. Export under-invoicing or import over-invoicing is not a big phenomenon for IFF; in fact, the reverse is true.
IFF takes place mainly on account of exchange control on capital transfer. People therefore resort to kerb market for various uses some of which are not harmful.
The best way to stop money from taking to wings for foreign lands is to root out the sources of black money. Unless you can address this basic issue, you cannot expect to stop IFF. As they say there are more than one way to skin the cat. In developing countries, the people you engage to stop IFF will often join in the process of skinning.
One can talk volumes about international cooperation and FATA but beyond the rhetoric one hears in their deliberations, there is not much that one can gain. The rising curve of IFF only attests to it. The cost of managing AML is high but the outcome is negligible. The banks in the western world are very vocal about the rising costs.
I don't mean to educate a reputable institution like you but thought that my little input would promote a clearer understanding of the IFF in so far as developing countries like Bangladesh are concerned.
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GFI REPLIES:
Thanks and regards.
Syed Ashraf Ali
June 15, 2015
From Joseph Spanjers
To    [email protected]
Dear Mr. Ali,
Thank you for your thoughts, your overview of the specifics of Bangladesh's capital flight situation, and your interest in our report. You are correct; our estimates for illicit flows are conservative, for Bangladesh and other developing countries. After reading your very interesting article in The Financial Express, there is one point in particular I would like to clarify, which has great bearing on the magnitude of the illicit flow estimates presented in Illicit Financial Flows from Developing Countries: 2003-2012.
Page 8 of the report states the following:
"Estimates of illicit outflows are likely underestimated, as our methodology cannot detect same-invoice faking, the misinvoicing of trade in services and intangibles, and hawala transactions. Likewise, many illicit transactions occur in cash to prevent an incriminating paper trail. For these many reasons our estimates are likely very conservative."
Your article focuses much of its analysis on the hundi (hawala) system in Bangladesh as a vehicle for capital flight from the country. As stated above, our report does not consider hawala transactions. This is because hawala/hundi transactions unfortunately do not appear in the government-filed International Monetary Fund data that we use to construct our estimates of purely illicit financial flows from the developing world.
Please do not hesitate to be in touch if I can be of any further assistance to you.
Best regards,
Joseph Spanjers
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A CLEARER PICTURE OF IFF:
June 16, 2015
From Syed Ashraf Ali
To Joseph Spanjers

Dear Mr.Spanjjers,
Thank you very much for your prompt response to my email concerning Illicit Financial Flows (IFF) from Bangladesh and your appreciation of my articles on this subject  that recently appeared in the Financial Express, Bangladesh.
I'm also grateful for your candid clarifications of the reasons leading to underestimation of the magnitude of IFF from Bangladesh and other developing nations. I hope, nevertheless, that you will continue your search for refinement of the data collection process to draw a clearer picture of IFF for the benefit of the people working on plugging the sources of leakage of capital.
With best regards,
Yours sincerely,
Syed Ashraf Ali
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The clarification given by the Global Financial Integrity should set at rest the confusion regarding capital outflow and its ramifications for our economy.
The writer is a retired
 central banker. [email protected]