Facilitating reverse flow of money stashed abroad

With huge wealth accumulated through corruption or illegal means, hordes of black (or undisclosed)-money-holders seem to be busy moving their riches out to safer havens. With leadership crises fraying the fabrics of our society, those who are honest and eager to lead a peaceful life are also selling their properties and trying to migrate to a safer country, moving their cash and savings out from Bangladesh. In the process, siphoning money off out of the country may now have turned to be a roaring business.
Abnormal jump of import items, which enjoyed low or zero import duty, indicates a significant amount of capital flight took place in the first nine months of the current fiscal year. As reported in the media, this apprehension was expressed by Mustafizur Rahman, Executive Director of Centre for Policy Dialogue (CPD), a civil society think-tank, while he was presenting year-wise comparative analysis of such import items at a recent press briefing in Dhaka.
A value comparison of some particular import items for the July-March period of the current fiscal year to those of the same period of the previous year revealed huge difference that must raise doubt in any observer about the genuineness of those importations. There was apparently gross over-invoicing of import prices to siphon off money, mostly ill-gotten, from the country either to stash away in some overseas havens for ever or to bring back the ill-gotten or 'undeclared' money later after laundering the same through over-invoicing of export prices.
The amount thus siphoned off can be measured by the difference between how much worth of import items enjoying low or zero import duty were genuinely necessary and how much money had actually been defrayed on account of such importations. The real difference could be much more than feared if trashes, instead of purported merchandises, were shipped into Bangladesh.
Seventeen import items enjoying zero or low import duty, which might be used by dishonest traders for smuggling money outside the border through over-invoicing, accounted for 40 per cent of the total imports during July-March - a phenomenally abnormal growth of 93.50 per cent.
According to CPD report, in July-March of 2013, only US$ 1.0 million worth of tanks, casks, drums, cans, etc. were imported while US$ 325 million was spent for importing the same items in July-March of 2014. Compared to only US$ 7.0 million in the previous fiscal year, US$ 466 million had been spent for importing transporter cranes, gantry cranes, bridge cranes and overhead travelling cranes. For airplanes and other aircrafts only US$ 2.0 million was spent in the corresponding period of the previous year, whereas a whopping US$ 326 million has been spent in the same period of the current fiscal year. Cranes and related items worth US$ 433 million were imported in one single month of March, 2014. Customs duty on crane products was only 2.0 per cent while for airplanes it was 0 (zero) per cent.
How much money was spent on procurement of ships, arms and equipment for the armed forces during the same period is unknown as it is a classified information on security ground.
Smart manipulators, the masters in misinvoicing, are loath to spend money on importing genuine or new goods when their main motive is to help their VIP customers keep as much money as possible in the havens abroad. In many cases their invoice might say, for an instance, brand new items from factory, but the articles that actually landed on Bangladesh were perhaps rusted and inoperative junks. It might not be surprising if an investigator ever discovered a container full of sands or trashes while the invoice told of a container full of new casks and cans. Such underground dealings are, however, hard to crack unless customs and clearing authorities are patriotic enough to safeguard national interests.
According to a recent report of Global Financial Integrity (GFI), a Washington-based research and advocacy organisation, cumulative amount of illegally siphoned off money from Bangladesh stood at over USD 11 billion during the period between 2002 and 2011 and over USD 1.7 billion was drained out of the country in 2011 alone. This amount does not include illicit outflows as a result of criminal activities, such as remitting money through non-banking channels, drug trafficking and physical smuggling of cash by humans.
The siphoned-off amount estimated by GFI may seem to many too little if one has to take into account what a large amount of money has been stolen through known and publicised scams alone during the last few years, forget about other titanic amounts being transferred daily in unknown and unpublicised activities such as 'Hundi' trading and the amounts being transferred under the tables in foreign countries as kickbacks for favours done at home. If money thus siphoned off from all these activities were added, the actual amount of drained capital due to illicit financial outflows could be many times higher.
Not only from Bangladesh, capital is being drained from other developed and developing countries for different reasons, such as tax evasion, hiding illicit gains, trafficking drugs, etc. Especially in developing and poor countries where corruption at every level is a matter of routine and where government functionaries at various levels are assumed, on real or perceived ground, to be taking kickbacks out of every single project meant for public welfare, capital flight outside their border are more rampant. Global Financial Integrity (GFI) estimates that $950 billion flowed illicitly out of poor countries in 2011 alone.
The primary method of siphoning money off is by falsification of import and export invoices. Among many methods, the most commonly practised one used to circumvent currency restrictions is to 'over-invoice' imports or 'under-invoice' exports. Trade misinvoicing involves the deliberate manipulation of commercial invoices in order to misreport the value of a transaction, thereby illegally shifting money across international borders without detection. Misinvoicing is an easy process of disguising the proceeds of crime and moving value through the use of trade transactions in an attempt to legitimise their illicit origins.
Gurus of misinvoicing first set up a shell company in a tax haven with strict secrecy rules. The shell company is basically a "re-invoicing" firm to "buy" articles, say, cranes from Bangladesh, at an inflated price with an invoice to match and charge the importer. The shell company then buys the cranes from the manufacturer through another front company at actual price and executes the shipment to Bangladesh based on master and intermediary letters of credit. The difference amount between the inflated and the actual price is thus kept for the importer in Bangladesh with a safe account in a country where the government is not nosy about money laundering. The shell company engaged in misinvoicing is usually run by a person trustworthy to the principal money launderer. These shell companies are also used by multinationals to shift profits around, feeding a huge global black market in the offshore manipulation of paperwork.
The cats of Bangladesh, already fattened by ill-gotten money, are, thus, reported to be whisking their money out of the country through these trade-based money laundering schemes to avoid scrutiny. They take advantages of the government's lax monitoring system and take resort to a variety of misdeclarations and misinvoicings of imported and exported goods, often misusing the importer-exporter codes in order to confuse inspections.
Another aspect of black money generation and movement may be detected in cases of forgery of different export promotion schemes, meant to claim duty exemption in imports.
The international trade system, which is not properly monitored by an affected country, thus provides unscrupulous entities an opportunity to launder and siphon money off with impunity.
It is time to tighten the safeguards against capital flight. Necessary actions need to be taken to keep a check on trade-based money laundering which has emerged as a new modus operandi. We should remember that fraud mutates and fraudsters change their strategies. Cases of commercial frauds should be detected by an 'intelligence wing' (if any) of the National Board of Revenue (NBR) in collaboration with Bangladesh Bank (BB). A separate body like a directorate of foreign trade, manned by experts in banking and finance and backed by law enforcing agencies, may also be formed as a lead organisation to keep abreast of the latest modus operandi of international fraudsters, check illegal flight of capital and other commercial frauds, of course if formation of such a high-powered body does not mean deployment of a bunch of intelligent wolves to watch henhouses.
The Finance Minister said on Friday that there would be no further scope to whiten black money. He further said considering the amount of black money whitened in the last two years it seems there is no black money inside the country. But nobody can deny that a huge amount of black money is stored outside the country. There should be, therefore, some channels to be kept open for whitening and bringing in home black money that are hoarded overseas, of course on conditions that the whitened money would be invested home for the benefit of the people.
Reverse flow of black money back to Bangladesh can, however, be ensured if the government adopts some subtle means even at the expense of some lower national interests. Fat cats, who are hoarding money abroad, are not at peace because interest rate on deposits there are extremely low - in many cases, it is just zero rate. With prolonged period of low rate of interest in America and elsewhere and the Federal Reserve trying to suppress rates by buying up government bonds and other securities, big pots of cash are moving from America to developing countries where interests on bonds and deposits are higher and value of real estate properties appreciate fast.
Before it is too late the government may enhance interest rates and try to keep Bangladesh Taka from depreciating further. Plus, the NBR should not be too nosy about accumulation of wealth, especially landed properties, the only attractive areas where foreign remitters as well as ill-gotten money holders find as an inland haven to stash their money in. Property market should be allowed to remain heated even by lowering land registration fees that may also stem generating local black money, excessive land price being a primary reason for creation of black money.
Another novel idea could be "Not to ask any question about source" if anyone, even a scion of a fat cat who milked public wealth, wants to invest his money in any labour-intensive industry. Anyone who would have personal equity of, say, 75 per cent in fixed assets like land and machineries for setting up a labour-intensive industry like those of readymade garments, garments accessories, fish processing or construction business etc., may rather be given extra incentives like lower lending rates for their working capital. That is how to lure lost money back to home.
Instead of allowing people to whiten their wads of black cash that would certainly remain idle after being whitened the facility to whiten ill-gotten black wealth, if the government ever allows, should rather go more to those who would set up labour-intensive industries in Bangladesh.
Fat cats finding a haven in Bangladesh to bring in their money stashed outside may then be tempted to undertake a different kind of misinvoicing, this time undervaluing imports or overvaluing exports, to slip money back into Bangladesh. They may, for an instance, sell US$ 1.0million worth of readymade garments to an American importer while creating paperwork (through an overseas shell company) for US$ 3.0 million-worth, giving it cover to send US$ 2.0 million, laundered fresh, legally back to Bangladesh through a banking channel. Such money may be dirty or black from the laundering point of view; but what can we do? After all, Bangladesh needs the siphoned-off money back to its own soil.
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