Restraining winged capital from flying

Capital worth over $18 billion went out of country between 2005 and 2014 using both legal and illegal channels, the keynote paper presented at a 'press meet' held by a group of civil society organisations in Dhaka Sunday last estimated.
The 'press meet' was told that the leakages in the Bangladesh's balance of payments (BOP) accounted for 83 per cent of the capital that had flown out since its independence.
When the BoP is used for siphoning off funds abroad it is obvious that the people who transfer funds make the best use of the legal mechanism involved in both import and export, transfer pricing and remittance of profits by the foreign companies.  
The bulk of the fund, it is alleged, goes out of the country through over-invoicing in the case of import of capital goods, including machinery and industrial equipment and repatriation of export proceeds by the exporters back home.
A case in point is the substantial increase in the import of capital machinery and industrial equipment during the first nine months of the current fiscal, the third quarter of which had seen one of the worst political troubles in the history of this country.
In fact, several months ahead of the last general election held on January 05, 2014, the political instability of serious nature had gripped the country. The businesses had then lost enthusiasm in making fresh investments.
However, in such a difficult time, the import of capital machinery during the first three quarters of this fiscal (2014-15) increased by more than $420 million over that of the corresponding period of last fiscal. Such an increase does not match with the overall economic activities and investment that were prevailing during the period under review.
It is widely believed that some unscrupulous exporters, mainly belonging to the apparel industry, keep a part of their export proceeds in countries of their choice through an arrangement reached with the buyers. Buyers are told to quote their prices lower than actual ones in the buy-orders. The price differences are paid to the exporters personally abroad. Buyers do not mind such payments for the same do not cause any monetary loss or gain to them.
The net 'error and omission' figures showed in the BOP of recent years do also indicate to the withholding of a sizeable sum by the exporters abroad. The size of the net 'error and omission' amount was over $400 million in 2010, $590 million in 2011 and $1.02 billion in 2012. The 'error and omission' in the BOP relates to the discrepancies in the value of goods exported and the actual receipts against the same in a particular year. In fact this remains a grey area in the BOP estimation.     
There could be some other ways of abusing the legal channels to transfer funds abroad that are still unknown to most people.
The central bank though belatedly has decided to look into the issue of alleged fund transfer through imports. According to a report published in this paper, the Bangladesh Bank (BB) has started scrutiny of bills of entry received from commercial banks.
The Bangladesh Bank reportedly strengthened its coordination with the National Board of Revenue (NBR) to check illegal fund transfer abroad which is a crime under the money laundering prevention act. But the NBR can do little either to stop such transfer or make probe into it. The taxmen are not legally authorised to do these jobs.
The Anti-Corruption Commission (ACC) is mandated to probe allegations of money laundering under the Money Laundering Prevention Act 2012 and initiate necessary legal actions.
But the problem is that once a fund is transferred abroad through the abuse of legal means and the ways beyond the law, it is very hard to retrieve it. In fact, there remains zero chance of getting back the money.
So, the best possible way of preventing the flight of capital through external trade remains to be the demonstration of due alertness on the part of banks concerned  while opening the import letters of credit. These days, information about the price of any commodity or industrial equipment in the international market is just a click away. The internet provides the prices of all goods almost instantly. Such check can save transfer of fund through over-invoicing.
The rest is dependent on the honesty and integrity of the customs officials. Their job would be to ensure the arrival of goods, capital or otherwise, as stipulated in the L/Cs. Thus, a few watchful eyes at the banks and the all types of ports can contribute a lot to the acts of stopping the capital flight.
However, the job of arresting the outflow of funds through hundi channels seems the toughest of all. Yet the people concerned prefer legal channels to hundi operators because of the size of their funds and trust factor.
But it is truly difficult to contain capital in one place even under constant watch. In a country where political uncertainty and policy instability are more or less routine affairs, the task of containing capital within its territorial limits naturally is a daunting one. Once good governance through the proper functioning of all democratic and constitutional institutions is ensured, there would be no dearth of peace, tranquillity and fair play at all levels of society and economic activities. The flight of capital will automatically come down to a minimum. Rather there could be a reverse flow.
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