The print and electronic media are once again abuzz on a report from Washington-based research organisation named Global Financial Integrity (GFI) regarding $9.66 billion illegally transferred from Bangladesh in 2013. An English daily, known for its penchant for sensationalising ordinary news, ran a headline in the front page that "Money laundering from Bangladesh hits decade high". Apparently, the message that is sought to be sent out is that illegal flight of capital has grown under the tutelage of the present Government. This news, based on incomplete data, will obviously endear them to the quarters opposed to the government. Anti-government stance, it seems, is what many think is a potent recipe for success in politics and journalism.
Our eagerness to swallow the 'hook, line and sinkers' thrown in by international research outfits reflects our national passion to see ourselves through the prisms supplied by people from the distant lands. That precisely is the reason why many people lend credence to the reports from an obscure research outfit in an equally obscure corner of the US regarding the existence of ISIL terrorists in Bangladesh. And, again, many do not hesitate to join the chorus orchestrated by anti-Bangladesh forces at home and abroad that trial process of war criminals does not conform to international standard. What they overlook is that there is no common international standard. If anything, the fair standard set by Bangladesh would soon be used as the bench mark by other countries.
Admittedly, the illicit outflow of funds from the country is quite heavy - in fact, heavier than that reported by GFI - but the phenomenon is neither recent nor has it shown an unusual upward trend in recent years. My estimate which I mentioned in a series of articles in the Financial Express is that no less than $15 billion is transferred from Bangladesh each year through illicit channels. The articles also dealt with the issues that are not captured by mere recitation of the numbers. [Capital flight - myths versus realities, June 12, 2015; Quiet flows capital despite anti-money laundering laws, June 13,2015; Capital flight from Bangladesh: GFI clarifies, June 18, 2015]
I do not want to question the integrity of the Global Financial Integrity. They have indeed been candid enough to admit that their "estimates for illicit flows are conservative, for Bangladesh and other developing countries". It would be of some interest to recall that in June last they reported that illegal flight of capital from Bangladesh in 2003-12 averaged only $1,136 million per year. Intrigued by this small number I exchanged emails with them to get at the root of this conundrum. What I found out is that they do not take into account the hundi transactions which, as everyone knows, constitute the most important source of clandestine transfer of money from Bangladesh. My correspondence with GFI is reproduced below verbatim:
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 [Illicit Financial Flows) 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 that 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 [Federal Anti-Tampering Act] 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 [anti-money laundering] 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.
Thanks and regards.
Syed Ashraf Ali
June 15, 2015
From Joseph Spanjers
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
The bottom line of this little piece is to remind ourselves that everything that comes from across the seas is not necessarily true. It must be taken, as they say, with a grain of salt.
The writer is a retired central banker. The views expressed, however, are his own and do not necessarily reflect those of the Financial Express.
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