New move to contain illicit financial flows

Rise of illicit financial flows (IFF) from the developing countries including Bangladesh becomes a matter of serious concern. Every year developing countries lose at least $660 billion on average due to illegal outflows of financial assets from these countries. These are mostly tax evaded incomes and parked mostly in tax heavens, developed countries and territories that allow tax-free benefit for perking and investing transferred money from other countries. Transfer of incomes generated from corruption and criminal activities like drug trading and counterfeiting are also considered as IFF.   
Although it is very difficult to stop outflows of financial resources from developing countries, it is possible to contain or reduce illicit financial flows if there is a global consensus. The Sustainable Development Goals (SDGs), a new set of development agenda initiated by the United Nations (UN), brings an opportunity to work in this regard.
The member countries of the UN are now at the final stage of negotiation to set goals and targets of SDGs which will be finalised in September this year in the UN General Assembly. It will be considered as the second phase of Millennium Development Goals (MDGs) which is formally going to expire on September this year.  
FROM MDGS TO SDGS: It was in September, 2000 when heads of states and the governments of 147 countries attended the UN Millennium Summit in New York. There they made commitments to bring down poverty level to at least half, ensure universal primary education and halt the spread of HIV/AIDS along with some other development goals, all within the targeted date of 2015. It is known as MDGs which have 8 goals divided in 21 quantifiable targets and 60 indicators.
The fundamental idea behind MDGs is to achieve a certain level of development by 2015 so that the world has less poor people, the children have access to primary education, child mortality rate becomes very low, mothers of new born get adequate nutrition and care, speared of life threatening diseases like malaria and HIV/AIDS come to an halt, women get empowered with equal treatment, the world becomes greener and countries cooperate with each other for a true global partnership for development. To attain these broad set of goals, developed countries made their commitment to extend aid and support to the poor ones.        
But, as time moves on, it is becoming clear that by 2015, many of the goals would not be achieved. The issue of climate change and unfinished talks on global trade rules make the development process more complex. So, in June 2012 at Rio 20 (the UN Conference on Sustainable Development that took place in Brazil) countries agreed to establish an intergovernmental process to develop a set of "action-oriented, concise and easy to communicate" sustainable development goals (SDGs). Later, a 30-member Open Working Group (OWG) of the UN General Assembly was assigned with designing a proposal on the SDGs.
The OWG has finally proposed 17 goals divided into 169 targets which have to be achieved by 2030. As the negotiation is going on to finalise a number of goals and targets, development and social activists, academics, researches, businessmen, policymakers around the world are now pursing different agendas to accommodate in the final set of goals.
ACKNOWLEDGING ILLICIT FINANCIAL FLOWS: Restricting capital flight or illicit financial flows (IFF) as a part of a target of SDGs is a modest acknowledgement of global concern in this regard. There is no denying the fact that IFF, in the form of trade mis-invoicing and hot money outflow, has been increasing every year. Global Financial Integrity (GFI), a Washington-based research and advocacy organisation, is working on this issue. The latest estimation, revealed last year, shows that the developing world has lost $991.2 billion in illicit financial flows in 2012, over 10 times the amount of foreign aid received by these countries in that year, and greater than the amount of net Foreign Direct Investment (FDI) received. From 2003 to 2012, $6.6 trillion has reportedly left the developing economies illicitly, mostly through trade mis-invoicing. It also shows that Sub-Saharan Africa accounted for 8 per cent of the cumulative IFFs from the developing world during the last 10 years while Asia accounted for 40.3 per cent of the cumulative outflows during the period. Illicit outflows from developing countries increased at a rate of 9.4 per cent per annum in real terms over the time period from 2003 to 2012.

The target of SDGs in this respect is to "significantly reduce illicit financial and arms flows, strengthen recovery and return of stolen assets, and combat all forms of organised crime by 2030." The target is not clear and no indictor is set till date to precisely measure attainments regarding control of capital flight.
As part of global soliciting, economist Alex Cobham of the Centre for Global Development has proposed three targets to contain IFF. These are: elimination of anonymous ownership of companies, trusts and foundations; ensuring that all bilateral trade and investment flows occur between jurisdictions which exchange tax information on an automatic basis; and ensuring all multinational corporations to publish data about their economic activity and taxation on a country-by-country basis. Copenhagen Consensus Centre, an international think-tank, has moved ahead with these proposals and turned these into a set of precise targets. It has also done a cost-benefit analysis.
Target setting, however, is not enough if the reasons behind the surge of illicit financial outflow are not identified properly. The Southern Voice on Post-MDG International Development Goals has highlighted the issue. It said, "Not only it is important to have dedicated targets and indicators towards curbing IIF in the post-2015 development agenda, but it is also necessary to understand the necessary factors behind the growing IIF phenomenon."
DEVELOPMENT IMPLICATIONS FOR BANGLADESH: Illegal outflow of financial resources from Bangladesh already poses threat to balanced development.  When the country is struggling to increase FDI or higher inflow of remittances from abroad, illegal outflow or capital flight becomes a disturbing trend. In 2012, Bangladesh has received FDI worth $1.3 billion. At the same time, as per GFI estimation, IIF from Bangladesh stood at $1.78 billion. To put in a lighter vain, the total amount of FDI has ultimately moved outside the country along with some more financial assets. Or, in 2012, total inflow of foreign remittances stood at $14.21 billion. Thus, around 12.5 per cent of the hard earn remittances has virtually vanished.        
The illegal outflow of financial resources from Bangladeshi has reflected in different indicators. A good example is the increasing trend of adopting Malaysia as My Second Home (MM2H) programme. So far, some 3,000 Bangladeshi have received 10-year visa waiver facility in Malaysia by investing in property in Kula Lumpur and some other parts of the country. Bangladeshis comprise 11.2 per cent of the total MM2H beneficiaries and are ranked third after China and Japan. A second home applicant has to open a bank account in Malaysia depositing RM0.8 million (around $81,000) at least for one year. From Bangladesh, one cannot officially transfer such amount, as there is no legal provision (capital account is not convertible). So, people resort to illegal means. Similarly, when a Bangladeshi applies for permanent residency in Canada or Australia under business category, he/she has to transfer huge amount of money. Currently, one can avail residency in USA by investing $0.5 million in new commercial ventures in rural areas. Again by investing at least AS$5 million in Australia, one can get permanent residency.
Besides, a huge amount of money is flying outside the country as tax dozed income or illegal income generated from extortion, bribe and illegal activities. As the owners of the money don't feel safe within the country, they transfer and park their income in tax heavens.   
Thus, containing such capital flight or asset transfer requires international cooperation. Although there is an arrangement like the Egmont Group (where Bangladesh is also a member) on exchange of information, the process is not easy and it is very difficult to bring back such money back to the country.
Against the backdrop, SDGs can be helpful as all UN members are in commitment to cooperate with each other. But to make things work, a concrete set of targets needs to be devised along with putting in place a host of other activities integral to effective monitoring and execution.   
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