Feb 22
Illicit money outflows Bangladesh losses U$75 b for trade mis-invoicing PDF Print E-mail

BB asked to examine, take step


By Ziaur Rahman


A recent news published in various national dailies regarding illicit money outflows from the country made people astonished. The government, however, seems to be quite usual except making some statements in the parliament.


According to the report, Bangladesh losses billions of dollars every year mainly due to trade mis-invoicing and other unrecorded outflows between 2005 and 2014. Although the report didn’t mention anything about the recent past, experts and economists believed that the trend is going on unabated till now.


A Washington-based research organisation -- Global Financial Integrity (GFI) -- released the report on Monday (May 1) based on a research on 150 countries. According to the report, Bangladesh lost about US$75 billion due to trade mis-invoicing and other unrecorded outflows between 2005 and 2014.


The amount is more than 17 percent of the country’s total trade volume, as the report put the country's total trade value for 2005-2014 at $446.153 billion. In its earlier report, released on December 2015, the US spy agency on the financial front had shown annual average outflow from Bangladesh was about $5.58 billion during 2004-2013.


According to the latest count, illicit financial outflows from Bangladesh stood at $9.10 billion in 2014 as it is the amount of worth 13 per cent of total trade in the year under review.


Economists blamed the high outflow in 2013 to the general elections of early 2014 and the political turmoil in 2013. On an average, 87 per cent of illicit financial outflows took place through fraudulent trade mis-invoicing; under invoicing of exports and over-invoicing of imports.


According to experts, industrialisation is not taking place keeping in pace with the rise in import of capital machinery and raw materials. It is feared that money launderers with the help of dishonest importers and exporters and in connivance with a section of port and custom officials managed to siphon off money abroad. A significant part of remittance earning also gets way to safe vaults of foreign banks through hundi business as well.


Poor investment climate and political uncertainty, many of the experts, identified as the reasons behind the huge amount of capital flight from Bangladesh. Besides, lack of good governance, weak anti-money laundering authority and poor anti-corruption activities are also blamed for the chronic unethical practice.

The GFI's measure of illicit financial flows identified two major sources of origin. One is the deliberate mis-invoicing in merchandise trade. The other one is leakages in the balance of payments or hot money flows. "Of those two sources, trade mis-invoicing is the primary measurable means for shifting funds in and out of developing countries illicitly," says the GFI report. "Even using the lower of GFI's two estimates for trade mis-invoicing, GFI finds that an average of 87 per cent of illicit financial outflows was due to the fraudulent mis-invoice," it adds.


"Private sector investment in our country decreased in the last couple of years but import has increased during the same time which made us to think that a section of people are laundering money through over invoicing," said the Center for Policy Dialogue (CPD) Distinguished Fellow Dr Mustafizur Rahman while talking to the press."Infrastructural drawback discourages businessmen to make fresh investment. On the other hand, political uncertainty encourages them to send their cash to a safe place," he also pointed out.  He, however, hoped that the government would adopt and fully implement all anti-money laundering recommendations of the Financial Action Task Force.

BB tightens screw on money laundering

Some experts also held the government responsible for the steady outflow of fund due rigid policy for investment in aboard which they said one of the reasons behind the large scale outflow of unauthorized financial fund.


According to business people, overseas investment has numerous potentialities to increases the efficient use of productive resources and being more competitive in the international market. Bangladeshi investors, they said, are now have become much experienced and skilled to carry out diversified business activities and quite able to invest abroad and harness the maximum benefit.  But there remain a lot of restrictions for investment in abroad hindering legal transfer of money even for business purposes.


Several attempts had been initiated by the government to liberalize the investment procedures abroad but the central bank did not allow the proposals as the reserve was not much higher. Now time has come for Bangladesh to invest abroad especially when the country has a good amount of foreign currency reserve.

Many of the industries are now facing infrastructural inadequacies including shortage of adequate power and energy which also encourage business people to relocate their businesses abroad.


The incidents of illicit financial outflow are taking place at a time when the government is tightening screws on money laundering as the country faces significant money laundering (ML) and terrorism financing (TF) risks.


As part of the moves, the Bangladesh Financial Intelligence Unit (BFIU) of the central bank is going to identify the high-risk areas of trade-based money laundering and terror financing by following risk-based assessment procedures.


To facilitate international cooperation, Mutual Legal Assistance on Criminal Matters Act 2012 has been passed, while money laundering and terrorist financing offences have been included in the schedule of the Extradition Act 1974. The government has also formed a national coordination committee to make policies and directive on anti-money laundering and combat financing of terrorism.

To facilitate exchange of information and intelligence, the BFIU has also signed memoranda of understanding with 16 foreign FIUs and has obtained membership of the Egmont Group, a group of FIUs that meet regularly to collaborate in information exchange, training and expertise sharing. Despite the efforts, the illicit outflow of funds is growing on.


Although belated the government, however, has initiated the process of exploring the need for policy guidelines to facilitate Bangladeshi investment abroad, suiting the country's present economic status. For ascertaining such need, the Prime Minister's Office (PMO) recently formed an inter-ministerial committee.


Presently, making equity investment abroad for resident Bangladeshis is not open under the foreign-exchange regulation act. But under sub-section 6 of section-4 of the act, the central bank in consultation with the government can identify areas of equity investments abroad.


In the recent months the Bangladesh Bank has received a good number of applications seeking permission to make equity investment abroad. However, the central bank has cautioned the government to weigh a number of factors, including the ratio of private-sector investment in the country and foreign-exchange-reserve situation, before allowing Bangladeshi investors to make offshore investment.


BB to investigate trade misinvoicing


Outbreak of the GFI’s report on illicit money outflows came to the government as the straw that broke the camel's back.  After publishing the news -- Bangladeshis investment in Malaysia under Second Home programme and Bangladeshis’ deposits with various Swiss banks -- outburst of the GFI’s report made the government concerned.


State minister for finance and planning MA Mannan has already asked the Bangladesh Bank to examine the news of siphoning of $9 billion from the country and take actions accordingly. The state minister issued the order in the parliament on Wednesday (May 3) while replying to a question from Jatiya Party lawmaker Pir Fazlur Rahman in absence of finance minister AMA Muhith.


He said that the government would extend its overall assistance to the central bank to this end so that the government could take proper steps to prevent such money laundering.


Vexed by the outbreak of a series of reports on financial outflows, the government now plans to find out the figures that siphoned off from the country over the last couple of decades in different ways.


The Anti-Corruption Commission also plans to send sleuths to Malaysia to find out Bangladeshis who invested in Malaysia under Second Home programme. The idea of widening surveillance against the illegal investments from Bangladesh came from ACC’s sleuths who could make no headway in the investigations since 2012.


Since 2002, when the Malaysian government invited Bangladeshis to invest in the so called ‘2nd home project’ a good number of Bangladeshis illegally sent their money there to have their 2nd homes in prosperous Malaysia. In 2016, at least 189 Bangladeshis invested in Malaysia under My Second Home programme while the figure was 215 in 2015.


‘Malaysia My Second Home’ is a lucrative investment opportunity to foreigners. In 2014, Bangladesh Bank’s Financial Intelligence Unit officials visited Kuala Lumpur in, what turned out to be a futile exercise to gather information about Bangladeshis who bought homes in Malaysia. According to information released by Malaysian government some 2,850 Bangladeshis bought their 2nd homes in Malaysia from 2004 to 2014.


Earlier a disclosure by Switzerland's central bank, Swiss National Bank (SNB) said that a total of 371.9 Swiss francs, equal to $ 414 million or Tk 3,162.36 crore was deposited with several Swiss banks by Bangladeshi nationals.


The deposit amount in Swiss banks by Bangladeshis has increased by 36.02 percent year-on-year in 2014. According to the Swiss central bank, the total deposit in the banks by this time went up to Tk 4,283 crore (506 million Swiss franc) from the previous year Tk 3,149 crore (372 million franc).


According to experts, money kept outside the country for safety is generally earned through dubious methods. “Political uncertainty coupled with a sense of insecurity about money earned through such means makes the owners of those funds seek safety. This might have been the case in 2014,” said an expert while talking to the journalists. They also noted that a part of the money went out of the country for lack of congenial environment for investment at home.


The outflow of money from the country has marked an alarming rise especially in recent days, which deserves serious attention of the policymakers. The huge outflow of money has become a systematic problem in the economy for more than a decade. Experts believe that unsound business environment is also one of the major causes of illicit outflow of money. They stressed the need for enactment and implementation of more stringent laws and ensuring good governance to curb the illicit outflow of money.