A negative trend in the performances of some major economic indicators for Bangladesh in 2017 has lead economists to ask a very important question: Is the scale of money siphoning on the rise?
The question becomes even more pertinent after the name of prominent businessman and politician Abdul Awal Mintoo emerged in the Paradise Papers, the second-largest leak of documents pertaining to tax avoidance.
Earlier in another leak, about 18 Bangladeshi citizens, including Awami League Presidium member Kazi Zafar Ullah, were named in the Panama Papers and were found to be shareholders in foreign shell companies.
A look at this year’s major economic indicators points to a disturbing trend.
The country’s current account deficit amounted to $7,655 million in the first nine months of 2017 calendar year, resulting in a wide trade gap. Export earnings experienced very slow growth, while imports went up by more than 30%.
Meanwhile, the overseas employment sector remained strong over this year, but the inflow of remittances faced a significant downtrend.
Moreover, the registration for a second home in Malaysia and many other countries has also increased in 2017.
From January to June of the current year, a total of 163 Bangladeshis invested in the Malaysia My Second Home (MM2H) project, and the number is likely to touch the 300-mark at the end of this year.
Though the amount of credit disbursement to the private sector has increased, the amount of defaulted loans also witnessed a similar increase this year.
According to the latest Bangladesh Bank data, as of June this year, the amount of accumulated default loans stood at around Tk1,19,000 crore, which is 12% of Bangladesh’s GDP.
Money siphoning routes
According to a recent Bangladesh Institute of Bank Management (BIBM) study titled “Review of the Trade Services Operations of Banks 2016”, every year a huge amount of money is being siphoned off the country.
It is happening primarily in four forms – over and under invoicing, over and under shipment, multiple invoices, and falsely declared goods and services.
Meanwhile, a study of Dhaka-based think tank the Centre for Policy Dialogue (CPD) revealed that 88% of illicit financial flows from Bangladesh in the last 10 years took place through trade mispricing.
BIBM Director General Toufic Ahmad Choudhury told the Dhaka Tribune: “There can be ups and downs in major economic indicators. If the change is short-term, there is nothing to worry. However, it will be a matter of concern if the changes persist for a long time.
“If you look at the banking sector, credit to private sector is increasing, but so are the non-performing loans [NPLs]. This has become a long-lasting problem. On the other hand, the current remittance inflow does not match the overseas employment sector.”
Toufic pointed out that to prevent money laundering, the bankers have to be alert, and especially the price verification mechanism has to be updated.
“Too many government agencies and offices deal with the issue of money laundering in a questionable manner. They might know many things about the illegal capital outflow, but they might be powerless to do anything to prevent it,” Toufic said.
Speaking on the issue, economist and former financial advisor to the caretaker government in Bangladesh AB Mirza Azizul Islam told the Dhaka Tribune: “Foreign trade, especially import of capital machineries, is being used illegally to siphon off money from our country.”
He pointed out that though there is no official data, the high growth of imports over the past few months, and the higher amount of second home registration in Malaysia and Toronto, could very well be indicators of money laundering.
“A sense of security in terms of law and order and an investment-friendly climate can prevent the outward flow of money from Bangladesh,” Azizul Islam added.
Meanwhile, speaking to the Dhaka Tribune, BIBM Supernumerary Professor Md Yasin Ali said: “Preventing money laundering is one of the major challenges for Bangladesh, which has an underground economy.
“As the quality of loans is decreasing, the NPL is going up. Businesses take advantage when banks fail to assess the capacity of its clients to pay back loans. So, these loans become NPLs, and the businesses could then transfer the money abroad.”
Yasin Ali pointed out that a recent trend called “Digital Hundi,” that uses the mobile banking network, is being used to launder money.
“This is the reason that remittance inflow has fallen despite a significant increase in the number of Bangladeshi nationals working overseas,” the professor added.
Another recent BIBM study titled, “Augmenting remittances through banking channel: Bangladesh context” revealed that a significant number of overseas workers have confessed that they are more interested in remitting the money through Digital Hundi, which is basically money laundering.
A former Bangladesh Bank Governor, Dr Salehuddin Ahmed told the Dhaka Tribune: “The present status of major economic indicators in some context indicates to the possibility of money laundering. This is bad and this is a result of a lack of good governance, transparency and timely and visible action against the perpetrators.”
He added that illicit financial flows cannot be prevented by creating new agencies and formulating fresh laws. The governance crisis is a major issue here.
“The problem in Bangladesh is not the lack of legal framework, but weak economic management and lack of skill of the regulatory bodies and lack of action or punishment when cases are detected. This is also encouraging outflow of capital,” Salehuddin said.
Former chairman of the National Board of Revenue (NBR) Mohammad Abdul Mazid said the Transfer Pricing Cell of NBR has to be strengthened further.
“The institutional capacity of NBR has to be improved, technology must be used in transfer pricing and other works, and NBR, Bangladesh Bank and export-import agencies need to coordinate better to combat money laundering,” he added.
Akbar Ali Khan, a former top bureaucrat and also a former Finance Adviser to a Caretaker Government in Bangladesh, saw the issue from a different angle.
He said the wealthy are scared of keeping their money in Bangladesh and believe that their money will be safer abroad, leading to the increasing outflow.
Akbar Ali blamed the Anti-Corruption Commission’s (ACC) failure in dealing with the issue and suggested that a separate commission be formed to address the menace.
To combat money laundering, Transparency International Bangladesh (TIB), a non-government organisation, suggested that an exclusive legal framework be set up by the government to conduct investigation into money laundering cases and dedicated prosecution units be formed for law enforcing agencies.
The TIB also recommended that a case management system for money laundering be created at the attorney general’s office.