Need for reviewing anti-money laundering law to serve its real purpose
Monday, 27 July 2009
M S Siddiqui
EVERYBODY needs money both for living and luxury. People may earn money in honest ways or through illegal and criminal means. Money laundering is an illegal means of making money. It is the disguising, transferring, retaining, remitting or investing of illegally derived money on moveable or immovable property at home or abroad by concealing the true source of income, ownership or the use of the fund.
What constitutes the offence of money laundering under Bangladesh law is laid down in Section 2 (Tha) of the Prevention of Money Laundering Act 2009 (Act No. 8 of 2009). Money laundering means -
(Au) Money or property earned or acquired directly or indirectly through predicate offence, transferring within or outside of Bangladesh or converted for hiding the source.
(Aa) Any sort of such transaction or attempt of transaction which may need to be reported (by listed financial institutions entrusted by MLPA).
(e) Any other acts to conceal or attempting to conceal money or property.
According to the Bangladesh Penal Code, the act of aiding any person in illegal transfer, conversion or concealing of any property amounts to 'money laundering' and as such is punishable in accordance with the MLPA, 2009. Moreover, the Penal Code, 1860 makes dishonest or fraudulent removal or concealment of property, dishonestly received or retained stolen property and any assistance in concealing the stolen property a crime.
Money laundering, which is commonly known as 'Hundi' in our country for transferring money from one country to another country through means other than legal, is quite an old phenomenon. The hundi is a very common process of transferring money by the expatriates, specially the less educated ones. In this age of globalisation, people send money abroad for various purposes but the transaction of foreign currency is strictly restricted; so they use unofficial means for transferring money. Hundi is an offence under foreign Exchange Control act 1947 and MLPA 2009 but it is so widely used a process of transaction that many citizens don't even know that it is a criminal offence. The Bangladesh authorities became seriously concerned about hundi only after they received advice from the United Nations and the Western countries to prevent terrorism, drug trafficking etc. Bangladesh was persuaded to enact laws following the 1988 United Nations Convention on illicit traffic in narcotic drugs and psychotropic substances. The Money Laundering Prevention Act, 2002 came into force on April 5, 2002; the act has been amended in 2009. In line with the UN Convention, Bangladesh also passed the Anti-Terrorist Act, 2009.
There is no single method of laundering money. Methods can range from the purchase and re-sale of a luxury item to making investment in business. It is convenient in Bangladesh to sell and buy properties as the payment of tax is calculated on the basis of value fixed at government rate and not on transacted amount. This has been going on for many, many years whether the amount transacted involves the financial institutions or cash. It would be highly unfair to discriminate between the two, because both in essence represent excess of payments over the registered deed value, as is fixed by the relevant government authority, to the seller or his representative by the buyer or his representative. For systemic reasons, it would not be proper to treat such payments within the country as money laundering, without revamping the documentation and registration arrangements. If the same is considered money laundering, hardly anyone involved in all kinds of land or property transfers by sales and purchases over the years would be spread.
Furthermore, there are some 'shell' companies in documents which hardly transact any business or produce anything and always make loss but are maintained by black-money holders for the purpose of whitening their black money by way of showing profit. There are a number of crimes in which the initial procedure usually takes the form of cash that needs to enter the financial system by some means. Bribery, extortion, robbery and transaction of drugs always need safe routes to enter the valid financial system. This money may be hidden in the process of investment in commercial concerns, which may, knowingly or unknowingly, be part of the laundering scheme and which ultimately proves to be the interface between the criminal and the financial sector. The money launderer may transfer, sell and buy assets and change the shape and size of the lump of money so as to obfuscate the trail between money and crime or money and the criminal. The stock market is also used for whitening black money. Money-laundering is widespread in the country.
The black money holders don't keep the entire amount in the country; they send much of the money abroad. There is no exact estimation of the amount of capital flight. According to the general secretary of the Bangladesh Economic Association (BEA), about Tk 342.15 billion was laundered in the fiscal year 2002-03. Presenting the estimate at a seminar, he said, smuggling topped the list with 52.6 per cent of the total transactions in the monetary underworld in Bangladesh. It was also revealed in the seminar that, foreign remittances, worth around Tk 72.00 billion, remitted by the expatriate Bangladeshis, were transferred through money laundering during the said fiscal year. The amount is 21 per cent of the total amount laundered in the fiscal year. The amount spent for treatment abroad in 2001-2002 stood at Tk 12 billion of which Tk 9.6 billion (80 per cent of the total) was laundered.
In the UK, law makes it a money laundering offence when a person enters into or become concerned in an arrangement, which facilitates by whatever means the acquisition, retention, use, or control of criminal property by another person. Some concerned lawyers and other professional advisers, who act for clients, are also charged with these offences. But in Bangladesh, anti-money laundering law does not have such provisions.
Difficulties in tax collection: Money laundering affects government tax revenue and therefore indirectly harms honest taxpayers. It also makes government tax collection more difficult. This loss of revenue generally means higher tax rates than would normally be the case if the untaxed proceeds of crime were brought under the tax net.
One of the most serious microeconomic effects of money laundering is felt in the private sector. Money launderers often use front companies, which co-mingle the proceeds of illicit activities with legitimate funds to hide the illegal gains. These front companies have access to substantial amount of illicit funds which allows them to subsidise the products and services of the front companies and fix prices and rates below the market rates. This makes it difficult for genuine business to compete with the front companies.
The first step against money laundering is that the financial institutions should follow the system of KYC (know your customer). Financial institutions will often be able to identify unusual or suspicious behaviour, including false identities, unusual transactions or other indicators of laundering by knowing their customers.
The Bangladesh Bank has an anti-money laundering department and it also requires the banks and the financial institutions (FIs) to report certain categories of transactions. The binding rule was imposed after the activation of money laundering act. BB is empowered to suspend a transaction for the sake of investigation, ask for clarification of certain sources of money and also investigate further and refer the matter to the Anti-Corruption Commission for further investigation etc. The banks, other FIs, insurance companies, money changers, money transfer companies and any other institutions, asked by BB, are obliged to report all transactions, amounting to Tk 500,000 and above, or any other suspicious transaction. These institutions are obliged to maintain secrecy of any information, which may hamper investigation against money laundering. There is a financial penalty of non-compliance of the rule.
The popularity of hundi: The non-convertibility of 'Taka', coupled with intense scrutiny on foreign currency transactions in formal financial institutions, also contribute to the popularity of hundi and money exchange through the black market. Money exchanges outside the formal banking system are illegal. Offshore financial accounts are not permitted in Bangladesh. During the last year, there has been a significant increase in the amount of money transferred through the formal banking system as a result of the efforts by the government to increase the efficiency of the process. Bangladesh has also instituted regulatory restriction over inward remittance of business income. The foreign currency transaction is regulated by the Foreign Exchange Control Act 1947 which is rather an outdated law and hampers the development of the economy.
Bangladeshi citizens are not allowed to take in a year more than US$ 3,500 out of the country while travelling from Bangladesh. There is no limit as to how much currency can be brought into the country, but amounts over $5,000 must be declared. Many citizens travel to other countries for medical treatment but the permitted amount is very insignificant. Everybody knows how the money is transferred for these expenses. Import regulations are complicated and encourage payment by hundi to evade customs duties on import. Let the laws to prevent money-laundering and fight corruption be updated to help establish a corruption-free society.
The writer is a Guest Teacher at the Leading University. He can be reached at e-mail: shah@banglachemical.com
EVERYBODY needs money both for living and luxury. People may earn money in honest ways or through illegal and criminal means. Money laundering is an illegal means of making money. It is the disguising, transferring, retaining, remitting or investing of illegally derived money on moveable or immovable property at home or abroad by concealing the true source of income, ownership or the use of the fund.
What constitutes the offence of money laundering under Bangladesh law is laid down in Section 2 (Tha) of the Prevention of Money Laundering Act 2009 (Act No. 8 of 2009). Money laundering means -
(Au) Money or property earned or acquired directly or indirectly through predicate offence, transferring within or outside of Bangladesh or converted for hiding the source.
(Aa) Any sort of such transaction or attempt of transaction which may need to be reported (by listed financial institutions entrusted by MLPA).
(e) Any other acts to conceal or attempting to conceal money or property.
According to the Bangladesh Penal Code, the act of aiding any person in illegal transfer, conversion or concealing of any property amounts to 'money laundering' and as such is punishable in accordance with the MLPA, 2009. Moreover, the Penal Code, 1860 makes dishonest or fraudulent removal or concealment of property, dishonestly received or retained stolen property and any assistance in concealing the stolen property a crime.
Money laundering, which is commonly known as 'Hundi' in our country for transferring money from one country to another country through means other than legal, is quite an old phenomenon. The hundi is a very common process of transferring money by the expatriates, specially the less educated ones. In this age of globalisation, people send money abroad for various purposes but the transaction of foreign currency is strictly restricted; so they use unofficial means for transferring money. Hundi is an offence under foreign Exchange Control act 1947 and MLPA 2009 but it is so widely used a process of transaction that many citizens don't even know that it is a criminal offence. The Bangladesh authorities became seriously concerned about hundi only after they received advice from the United Nations and the Western countries to prevent terrorism, drug trafficking etc. Bangladesh was persuaded to enact laws following the 1988 United Nations Convention on illicit traffic in narcotic drugs and psychotropic substances. The Money Laundering Prevention Act, 2002 came into force on April 5, 2002; the act has been amended in 2009. In line with the UN Convention, Bangladesh also passed the Anti-Terrorist Act, 2009.
There is no single method of laundering money. Methods can range from the purchase and re-sale of a luxury item to making investment in business. It is convenient in Bangladesh to sell and buy properties as the payment of tax is calculated on the basis of value fixed at government rate and not on transacted amount. This has been going on for many, many years whether the amount transacted involves the financial institutions or cash. It would be highly unfair to discriminate between the two, because both in essence represent excess of payments over the registered deed value, as is fixed by the relevant government authority, to the seller or his representative by the buyer or his representative. For systemic reasons, it would not be proper to treat such payments within the country as money laundering, without revamping the documentation and registration arrangements. If the same is considered money laundering, hardly anyone involved in all kinds of land or property transfers by sales and purchases over the years would be spread.
Furthermore, there are some 'shell' companies in documents which hardly transact any business or produce anything and always make loss but are maintained by black-money holders for the purpose of whitening their black money by way of showing profit. There are a number of crimes in which the initial procedure usually takes the form of cash that needs to enter the financial system by some means. Bribery, extortion, robbery and transaction of drugs always need safe routes to enter the valid financial system. This money may be hidden in the process of investment in commercial concerns, which may, knowingly or unknowingly, be part of the laundering scheme and which ultimately proves to be the interface between the criminal and the financial sector. The money launderer may transfer, sell and buy assets and change the shape and size of the lump of money so as to obfuscate the trail between money and crime or money and the criminal. The stock market is also used for whitening black money. Money-laundering is widespread in the country.
The black money holders don't keep the entire amount in the country; they send much of the money abroad. There is no exact estimation of the amount of capital flight. According to the general secretary of the Bangladesh Economic Association (BEA), about Tk 342.15 billion was laundered in the fiscal year 2002-03. Presenting the estimate at a seminar, he said, smuggling topped the list with 52.6 per cent of the total transactions in the monetary underworld in Bangladesh. It was also revealed in the seminar that, foreign remittances, worth around Tk 72.00 billion, remitted by the expatriate Bangladeshis, were transferred through money laundering during the said fiscal year. The amount is 21 per cent of the total amount laundered in the fiscal year. The amount spent for treatment abroad in 2001-2002 stood at Tk 12 billion of which Tk 9.6 billion (80 per cent of the total) was laundered.
In the UK, law makes it a money laundering offence when a person enters into or become concerned in an arrangement, which facilitates by whatever means the acquisition, retention, use, or control of criminal property by another person. Some concerned lawyers and other professional advisers, who act for clients, are also charged with these offences. But in Bangladesh, anti-money laundering law does not have such provisions.
Difficulties in tax collection: Money laundering affects government tax revenue and therefore indirectly harms honest taxpayers. It also makes government tax collection more difficult. This loss of revenue generally means higher tax rates than would normally be the case if the untaxed proceeds of crime were brought under the tax net.
One of the most serious microeconomic effects of money laundering is felt in the private sector. Money launderers often use front companies, which co-mingle the proceeds of illicit activities with legitimate funds to hide the illegal gains. These front companies have access to substantial amount of illicit funds which allows them to subsidise the products and services of the front companies and fix prices and rates below the market rates. This makes it difficult for genuine business to compete with the front companies.
The first step against money laundering is that the financial institutions should follow the system of KYC (know your customer). Financial institutions will often be able to identify unusual or suspicious behaviour, including false identities, unusual transactions or other indicators of laundering by knowing their customers.
The Bangladesh Bank has an anti-money laundering department and it also requires the banks and the financial institutions (FIs) to report certain categories of transactions. The binding rule was imposed after the activation of money laundering act. BB is empowered to suspend a transaction for the sake of investigation, ask for clarification of certain sources of money and also investigate further and refer the matter to the Anti-Corruption Commission for further investigation etc. The banks, other FIs, insurance companies, money changers, money transfer companies and any other institutions, asked by BB, are obliged to report all transactions, amounting to Tk 500,000 and above, or any other suspicious transaction. These institutions are obliged to maintain secrecy of any information, which may hamper investigation against money laundering. There is a financial penalty of non-compliance of the rule.
The popularity of hundi: The non-convertibility of 'Taka', coupled with intense scrutiny on foreign currency transactions in formal financial institutions, also contribute to the popularity of hundi and money exchange through the black market. Money exchanges outside the formal banking system are illegal. Offshore financial accounts are not permitted in Bangladesh. During the last year, there has been a significant increase in the amount of money transferred through the formal banking system as a result of the efforts by the government to increase the efficiency of the process. Bangladesh has also instituted regulatory restriction over inward remittance of business income. The foreign currency transaction is regulated by the Foreign Exchange Control Act 1947 which is rather an outdated law and hampers the development of the economy.
Bangladeshi citizens are not allowed to take in a year more than US$ 3,500 out of the country while travelling from Bangladesh. There is no limit as to how much currency can be brought into the country, but amounts over $5,000 must be declared. Many citizens travel to other countries for medical treatment but the permitted amount is very insignificant. Everybody knows how the money is transferred for these expenses. Import regulations are complicated and encourage payment by hundi to evade customs duties on import. Let the laws to prevent money-laundering and fight corruption be updated to help establish a corruption-free society.
The writer is a Guest Teacher at the Leading University. He can be reached at e-mail: shah@banglachemical.com