• Friday, Jan 24, 2020
  • Last Update : 04:11 pm

Strong monitoring, rule of law stressed to rein in capital flight

  • Published at 09:42 pm June 29th, 2019
web-money laundering

After a downtrend in 2017, Bangladeshi nationals' deposits with various Swiss banks rose by 28.34% to Tk5,347  (617.72 million Swiss Francs) in 2018

The government needs to keep an eye on misinvoicing, ensure rule of law and improve investment climate to stop capital flight from Bangladesh, economists have said, expressing concern over the increasing volume of money being siphoned off the country. 

They also call for publishing the list of launderers prepared with help from the banks where the money has been parked in foreign countries and confiscating property of launderers in Bangladesh.

After a downtrend in 2017, Bangladeshi nationals' deposits with various Swiss banks rose by 28.34% to Tk5,347  (617.72 million Swiss Francs) in 2018.

According to the Swiss National Bank (SNB) annual report titled “Banks in Switzerland 2018” released on Thursday, Bangladeshis  deposit with Swiss banks stood at 617.72 million Swiss Francs in 2018, which was 481.31 million Francs (Tk4,166 crore) the previous year. 

The economists have blamed absence of rule of law, unfavorable business environment, and feeling of insecurity over the existing political situation in the country for the rise in capital flight.

Why people siphon money

“For a developing like Bangladesh, it is quite impossible to stop capital flight as investment climate is not good, while the rich people do not feel safe about keeping all their money in the country due to political uncertainty, especially during the change of power,” Policy Research Institute (PRI) executive director Ahsan H Mansur has told Dhaka Tribune.

On the other hand, corruption and complexities in getting services are among other reasons, which discourage the young generation grown up in foreign country to stay in Bangladesh, he mentions.

“As a result," he says, "rich people also launder money for safe stay of their children abroad as well as themselves as they do not feel safe here."    

He thinks that although there is opportunity to invest black money after a certain amount of penalty, people are unwilling to do so in fear of ACC moves. 

“People who earn money illegally do not want to let people know about it, while there little scope for keeping it or investing it,” World Bank Lead Economist in Bangladesh Zahid Hussain has told Dhaka Tribune.    

Ways to stop capital flight 

Proper implementation of money laundering laws and strong monitoring by the authorities concerned can check capital flight. 

“A significant amount of money is transacted through over and under invoicing in imports and exports. So taking proper measures to curb misinvocing is key to stopping illegal capital flight,” former advisor to caretaker government AB Mirza Azizul Islam told Dhaka Tribune.

He suggests proper implementation of money laundering act and collecting data on money launderers to bring them to book and confiscate their property. 

In addition, says Islam, the government has to ensure a business-friendly environment, where people can invest their money easily and bag healthy profits. 

Zahid suggests that Bangladesh Financial Intelligence Unit (BFIU) has to be more vigilant in monitoring financial transactions and the National Board of Revenue (NBR) has to be more careful about over and under voicing in exports and imports. 

Moreover, he says, the government has to have a strong political commitment to rooting out corruption and ensuring a favourable business environment.

Ensuring rule of law in the country and peaceful transition of political power is also essential, which lets people feel safe to stay and keep money in the country, the economist mentions.

Talking to Dhaka Tribune, BFIU Chief Abu Hena Mohd Razee Hassan says that Bangladesh Bank has always been working to prevent money laundering. 

"We fully comply with international rules and regulations for prevention of money laundering and are working jointly with different government organizations to prevent money laundering," he says.

He mentions that there are different categories of Swiss bank deposits — all of them are not illegal. 

How money is laundered 

Capital flight takes place in various ways but over and under invoicing during imports and exports are how most of it happens. Hundi and smuggling are also other channels for sending money abroad illegally 

According to the report published on Monday, $5.9 billion flew out of Bangladesh in 2015 via misinvoicing, down from $9.1 billion in 2014.  Of the total amount, $2.36 billion was siphoned through missinvoicing.  

Trade misinvoicing is a method of moving illicit financial flows (IFFs), and includes deliberate misrepresentation of the value of imports or exports in order to evade customs duties and VAT (value-added tax), to launder the proceeds earned from criminal activities, or to hide the proceeds of legitimate trade transactions offshore.