Taskforce needed to repatriate laundered money

Several days have passed since the interim government was established under the leadership of Dr Muhammad Yunus. The Interim Government faces an ongoing challenge: to create a stable environment for import and export activities, increase foreign exchange reserves and revenue collection, ensure a steady supply of daily necessities, control commodity prices, combat inflation, and tackle widespread bribery and corruption. Additionally, it must address the issue of defaulted loans and restore order in the banking sector. Among the significant concerns during the Awami League government's tenure were corruption and money laundering. This discussion will focus specifically on money laundering and the repatriation of illicit funds. The current financial adviser, Saleh Uddin Ahmed, who previously served as the Governor of Bangladesh Bank, and Governor Ahsan H. Mansoor, a renowned economist, have both contributed regularly to various newspapers on banking sector issues and macroeconomic policies. Their expertise is expected to play a crucial role in restoring economic order.

Under Bangladeshi law, transferring money through channels other than authorized banking systems is a criminal offense. Although some countries have managed to recover a portion of laundered money, the subcontinent has seen limited success in repatriating such funds despite numerous attempts. Major destinations for the substantial sums of money laundered from Bangladesh include the USA, UK, Canada, Australia, Singapore, Hong Kong, the United Arab Emirates, Malaysia, the Cayman Islands, and the British Virgin Islands. These countries often accept laundered money either directly or indirectly. For instance, Bangladesh is one of the top investors in Malaysia's second home project. Developed nations like those in Europe, Canada, the USA, and Australia also attract illicit funds, as they offer citizenship or residency through substantial financial investments and do not disclose information about money laundering activities. Consequently, the repatriation of laundered money remains a significant challenge.

Reckless corruption is a primary driver of money laundering. While some individuals, like Benazir Ahmed, may invest ill-gotten funds domestically, others more astutely move their corrupt earnings abroad. Another significant contributor to money laundering is the drug trade. Bangladesh ranks fifth globally in terms of drug-related money laundering. Drug dealers in countries like Afghanistan and Myanmar profit immensely from drug sales, and since this trade is illegal, the resulting profits are also illicit and subject to laundering. Despite an unfavorable investment climate in the country, money laundering persists. Political violence has exacerbated instability, while inadequate legal channels for transferring funds abroad compel many individuals to resort to illegal means to obtain foreign currency for urgent needs.

Recently, a newspaper reported on S. Alam's investment in Singapore, funded by money smuggled from Bangladesh. Such investments, while considered criminal in Bangladesh, are not illegal in many wealthy countries. While foreign investors are welcomed in Bangladesh, the reverse—exporting capital from the country for investment abroad—is heavily restricted. For instance, businessmen in several African countries, including Uganda, have successfully leased land and invested in agriculture. Bangladeshi entrepreneurs sought similar opportunities but faced refusal. The main reasons for these restrictions include concerns that our limited reserves could be jeopardized by foreign investments and the challenge of preventing illegal money laundering under the guise of legitimate investments.

Not all money smuggled out of Bangladesh comes from illegal sources. Many traders and local representatives of foreign companies choose not to repatriate their legitimate earnings for several reasons: Tax Evasion: Bringing money into Bangladesh is subject to taxation, which encourages individuals to keep their earnings abroad.

Spending Flexibility: By keeping money in foreign accounts, individuals can spend it more freely while abroad, without the constraints imposed by local regulations.

Ease of Bribery: Bribery is more manageable abroad, as corrupt officials in Bangladesh may refuse bribes in Bangladeshi taka, preferring payments in dollars deposited into foreign bank accounts.

Opportunities for Relocation: Having money abroad provides opportunities for individuals or their children to live abroad or pursue other advantages.

Export revenues are sometimes not fully repatriated for various reasons. If repatriation were coordinated with export documentation more effectively, many of these issues could be mitigated.

Regarding money laundering abroad, businessmen often use methods like under-invoicing or over-invoicing. Exporters may declare a lower value for goods on invoices than the actual price, resulting in only the lower invoice amount being sent to Bangladesh. The remaining funds are deposited into the exporter's foreign account. While depositing money into a foreign account is legal, the practice of declaring a lower sale price and not bringing the full amount into the country is illegal and constitutes a crime. The illicit funds are then used for bribery or purchasing property abroad.

Importers also engage in under-invoicing to evade duties by declaring a lower value for goods than their actual worth, and then remitting the remaining amount to the foreign exporter through informal channels like hundi. Conversely, for products with low or negligible import duties, importers may over-invoice, inflating the product’s price to launder money. The primary aim of money laundering is to conceal various types of crimes, including financial crimes and tax evasion.

While under-invoicing and over-invoicing can be mitigated through integrity, vigilance, and the diligence of institutions such as Scheduled Bank, the National Board of Revenue (NBR), and Bangladesh Bank, it is challenging to completely eradicate these practices. Effective monitoring can be enhanced by collecting and updating information about international product prices. However, determining accurate pricing can be complicated by variations in product quality, and traders may still face difficulties even when quoting actual prices.

Corruption within customs can also undermine efforts to curb these practices. Traders often encounter bribery and corruption from customs officials, which can force them to engage in dishonest practices. Honest attempts to declare the true value of goods may lead to delays in the release of goods and additional charges. If the National Board of Revenue were more transparent and effective, it would be easier to prevent fraudulent practices such as importing low-value goods under false pretenses.

In addition to businessmen, bribery takers, and corrupt officials, many ordinary citizens also engage in money laundering abroad, despite being vocal against it on social media. Individuals who have moved abroad for citizenship, those who have acquired citizenship while studying, or those who have no intention of returning, sometimes sell fixed assets or inherited property in Bangladesh and transfer the proceeds abroad through informal channels like hundi. Although this money is legally obtained, transferring or smuggling it abroad remains illegal. Thousands of people travel to countries like India, Thailand, and Singapore for medical treatment. Due to difficulties in obtaining foreign currency legally for medical expenses, many patients resort to illegal methods like hundi to facilitate their treatment abroad. It is troubling that those involved in such practices are often also outspoken against money laundering.

Current measures to prevent money laundering from Bangladesh are inadequate. The government has attempted to address the issue by offering various incentives for bringing back smuggled money. A new provision in the Income Tax Ordinance last fiscal year states that if tax is paid on assets located abroad, no questions will be raised by authorities, including the Income Tax department. While this provision does not specifically address the repatriation of cash, it allows for the tax on immovable and movable property held abroad at the prescribed rate to be considered valid. There have been multiple opportunities to legalize black money through provisions allowing its conversion to white, including opportunities to invest in the capital market and housing sector by paying fines and taxes. Despite these provisions, there has been little significant uptake. The only notable response was during Dr. Fakhruddin's caretaker government, when there was a notable attempt to launder undisclosed income or black money. Unfortunately, corruption has persisted, and bribery has even increased in various offices since the interim government took office.

Citizens are entitled to their legitimately earned money while residing in Bangladesh, but they do not have the right to transfer that money abroad freely. Although commercial banks are authorized to convert money into foreign currency for imports, no Bangladeshi has yet utilized this policy to transfer funds from the sale of their own property abroad. As a result, strict regulations have led to significant amounts of legal money being smuggled through illegal channels. The current governor is committed to repatriating laundered money and believes it is achievable. The Bangladesh Financial Intelligence Unit (BFIU) has been activated to assist in this effort. However, the unit's success has been constrained by the limitations of international policies. Anti-money laundering regulations are often designed more to prevent illicit funds from reaching anti-American international terrorists rather than addressing domestic money laundering issues directly. To tackle this challenge, the government has established a task force dedicated to recovering laundered money. If successful, this initiative would represent a major accomplishment for the interim government and could significantly improve the country's macroeconomic situation.

Ziauddin Ahmed: Former Executive Director of Bangladesh Bank and former MD of Mint.