The issues of black money and capital flight or illicit financial outflow are getting more and more space in the media in recent times. It is an open secret that the amount of black money in the country is huge and a good amount of black money is regularly sent outside the country through illegal means.
The government has initiated many measures to combat money laundering and terror financing. These steps include formation of a core committee and a working committee to address the issues. The core committee includes representatives of Anti-Corruption Commission (ACC), Bangladesh Financial Intelligence Unit (BFIU) and Criminal Investigation Department (CID). The working committee has representatives of 25 government agencies. Moreover, the government this month adopted the 'Prevention of Money Laundering (Amendment) Ordinance' with stricter punishment for the offenders. The recent visit of the Asia-Pacific Group on Money Laundering seems to have prompted the government to adopt the ordinance.
Nevertheless, there is still a lack of concrete moves to track black money and illegal transfer of financial assets. Without properly defining the yardsticks, scopes and modes of black money and illegal fund transfer, all other efforts might be misleading. Moreover, overemphasising money laundering and terror financing without having necessary yardsticks will also not bring the desired outcome. A long-term strategy to contain black money requires a comprehensive understanding and updated data or estimation of black money and the outflow of funds.
BLACK MONEY PUZZLE: Despite a lot of debate on black money, it appears that there is a lack of understanding on the economics of black money as a whole. The government is yet to convincingly define the so called black money and its nature.
To put it simply, any taxable earning that evades tax is black money or undisclosed income. Incomes generated from illegal activities like smuggling, drug dealing, bribe taking and so on are 'totally black'-- jet-black -- as these are intended to dodge tax. Again, incomes generated from normal activities but which are kept concealed to evade taxes are also black. Tax authority in Bangladesh, however, termed this 'undisclosed income.'
The latest statistics, revealed by the National Board of Revenue (NBR), shows that undisclosed income or black money worth Tk 6.76 billion was voluntarily disclosed or whitened by paying taxes worth Tk 0.27 billion in the last fiscal year (FY15). NBR data also show that black money worth some Tk 160 billion has been whitened since the independence of the country. The amount is indeed too small.
But black money or undisclosed income is not simply cash money one could keep in his/her personal vault. Like regular income, the so-called undisclosed money is also held in the form of financial assets or real estate or both. So, the black money gets invested in the economy in the form of bond, stock, equity, bank deposit or in lands and apartments. So, it is not kept in any idle form which can be easily disclosed by offering some incentives or tax amnesties. Two eminent economists of the country, Professor M A Taslim and Dr Ahsan H Mansur explained the issue in 2009. But, many of the policymakers, businesses and civil society members including economists are yet to pay attention to the matter.
ILLEGAL OUTFLOW: Illegal outflow of fund or financial asset is another form of black money in the sense that such transfer takes place mainly to evade tax and keep assets safe.
Like black money, estimation of illegal transfer is also difficult. Global Financial Integrity (GFI), a Washington-based research and advocacy organisation, is working on this issue and estimating the amount. The latest estimation, revealed last year, shows that developing world has lost some $991.2 billion in illicit financial flows in 2012 -- over 10 times the amount of foreign aid received by them in that year, and greater than the amount of net Foreign Direct Investment (FDI). During the 10 year period 2003-2012, some $6.6 trillion left developing country economies illicitly, mostly through trade mis-invoicing.
Like black money within the country, fund that fly out from the country is kept in different forms of investment in foreign countries, especially in 'tax heavens' like Dubai, Singapore and Virgin Islands. Those who transfer their funds either purchase house or invest in special bonds or other financial assets. For instance, a good number of people from Bangladesh have already availed Malaysia's My Second Home (MM2H) programme by purchasing an apartment in Kuala Lumpur or in other parts of the country and depositing sufficient amount with Malaysian banks/s. In a similar vein, there are enough opportunities to purchase land or real estate or invest in government-sponsored special schemes in different developed countries like the United States, Canada, United Arab Emirates, Spain and Australia. By investing in those schemes any one can transfer his/her assets and also gain permanent residency.
Transfer of funds is, however, not easy and there is no legal way for such transfer from Bangladesh. Thus interested people have to adopt dubious ways. One of the commonly adopted ways is the so-called 'asset swap'. Suppose, a Bangladeshi already settled in Canada wants to purchase an apartment in Dhaka and a Bangladeshi wants to avail permanent residency in Canada by investing in real estate of that country. To avoid complicacy of fund transfer and risks involved, they can arrange a mechanism among themselves. The Bangladeshi staying in the country can complete the procedure of purchasing an apartment on behalf of the Bangladeshi residing in Canada. Similarly, the Bangladeshi in Canada can do the same there. Though not as simple as described, it is a common practice, and can't be termed 'illegal.'
There is more to the issue. Those who avail residency facilities in other countries by investing their incomes are not necessarily owners of black money. Many of them have good business and tax -paid incomes. But, it is the procedure of fund transfer that is illegal in most cases. And many people who made money illegally and evaded taxes also transfer their funds illegally.
WHITE PAPER: Black money and illegal financial outflow are complicated issues. So, some methodical work is required to present a clear picture in this regard. In fact, a white paper on black money should be published to unveil the actual situation of black money and capital flight along with detailed definitions of the two.
Generally, a white paper doesn't contain too detailed technical explanations. It generally explains the results, conclusions or construction of conclusion derived from evidences or some organised research. It was three years ago when the government of India prepared and published a white paper on black money in that country. President Pranab Mukharjee, who was finance minister at that time wrote in the forward of the white paper: "There is no doubt that manifestation of black money in social, economic and political space of our lives has a debilitating effect on the institutions of governance and conduct of public policy in the country. Governance failure and corruption in the system affect the poor disproportionately. The success of an inclusive development strategy critically depends on the capacity of our society to root out the evil of corruption and black money from its very foundations." The observations are apparently valid for Bangladesh.
The Indian white paper describes the problems and complexities of tracking black money, defines black money, identifies the source and method of generation of black money, and also presents an estimate. Bangladesh can take a cue from the Indian initiative and prepare a white paper on black money to effectively curb it as well as to establish good governance.
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