One year ago we had a rude wake-up call because of Panama-gate. The Panama Papers were the latest in a long line of leaks that generated political repercussions across frontiers.
The revelations came when more than 11 million documents held by the Panama-based law firm Mossack Fonseca were passed on to German newspaper Suddeutsche Zeitung, which was then shared with the International Consortium of Investigative Journalists (ICIJ) and 107 other media organisations in 78 countries, including UK newspaper The Guardian and also the BBC.
It was mentioned in these documents that some persons from Bangladesh were involved in this illegal activity. It was suggested at that time that relevant authorities in Bangladesh should immediately set up a committee to ascertain the scope of involvement of any Bangladeshi named in the Panama Papers.
Bangladesh Bank was also asked to initiate an inquiry as to whether any of the Shell Units in Panama was formed through capital flight associated with over-invoicing or under-invoicing.
Since then, we have seen reports of funds being laundered out of Bangladesh to several destinations including Switzerland. We have stressed in this regard that relevant authorities should take necessary measures to stop this so that Bangladesh does not end up being classified as “risky” by the Asia/Pacific Group on Money Laundering (APC).
It was underlined that illicit money outflow had to be prevented to stem corruption. This, it was re-affirmed by many, including myself, was essential for our national security and would require not only more intensive, transparent, and accountable coordination between the concerned agencies, including the NBR, but also effective political will.
Caught with their pants down
In the beginning of May this year, our monitors of financial integrity appear to have been caught once again with their pants down. On May 1, the Washington-based research and advisory organisation the Global Financial Integrity Report (GFI) unveiled a report titled “Illicit Financial Flows to and from Developing Countries: 2005-2014.”
The report revealed that unrecorded capital flow from Bangladesh stood at $61.63 billion between 2005 and 2014, relying mostly on deliberate over-invoicing and under-invoicing in trade transactions, and illicit capital flight from Bangladesh had a higher trajectory from 2007 onwards.
GFI data indicated that this illegal outflow had grown from about $4.1 billion in 2007 to $9.66 billion in 2013.
In 2014 there was a minor reduction when the outflow was estimated to have dropped to $9.1 billion (about 13% of total trade in that year).
According to the report, on average, between 12-17% of Bangladesh’s total trade value of $446.153 billion during 2005-14 had annually flown out of the country during this period until December 2014. If the figure of 17% of the trade value is taken into consideration, then the total financial outflow from the region would stand at $75.84 billion over this 10 year period.
If, however, it was on the minimum side of 12% then the annual outflow on average would be about $5.35 billion. It may be mentioned here that an earlier report released by the same agency in December 2015 had suggested that annual average outflow from Bangladesh was on a higher plane at around $5.58 billion during 2004-13.
This time around, the GFI report was slightly different. In this global study it gave equal emphasis on both illicit outflows as well as inflows. While doing so, it drew the attention of the reader to the fact that both outflows as well as inflows were “persistently high over the period between 2005 and 2014.”
Apparently, combined, this dynamics has “been estimated to account for between 14.1-24.0% of the developing-country trade, on average.”
In the beginning of May this year, our monitors of financial integrity appear to have been caught once again with their pants down
The other significant aspect about this report is that unlike previous years, this year, the report has failed to mention country-specific amount of the “dirty money” that has allegedly moved in and out of developing countries individually. This factor has consequently affected its credibility and our chairman, National Board of Revenue referring to the accuracy of the report and pointing out that “there are questions about the methodology of the report as it has not clearly mentioned the sources of information.”
He has however also assured the press that his organisation was not only studying the report but would also take further steps to control money laundering and the use of “hundi” in illegal money transactions. It might have helped if he had outlined the pro-active measures that the relevant agencies have already initiated since the Panamagate revelations.
One interesting aspect that has attracted the attention of Bangladeshi authorities is the claim in the report that illegal outflow of money from external destinations has also persistently been entering Bangladesh. It has been indicated that in 2010, an estimated $9.47 billion left Bangladesh and about $6.135 billion came into the country. The corresponding amounts for 2011 were about $7.14 billion and $10.5 billion; 2012, $8.73 billion and $7.218 billion; 2013, $10.043 billion and $9.669 billion; and 2014, $8.972 billion and $12.575 billion.
United Nations in 2013 classified Illicit Financial Flow (IFF) into three main forms: (a) The proceeds of theft, bribery, and other forms of corruption by government officials; (b) the proceeds of criminal activities including drug trading, racketeering, counterfeiting, contraband and terrorist financing and (c) the proceeds of tax evasion and laundered commercial transactions. It has also been pointed out by several quasi-judicial organisations that IFF can be characterised as cross-border transfer of funds that are illegally earned, transferred, or utilised.
In this context the GFI has recommended that governments and international regulators emphasise on greater financial transparency. That could curtail illicit outflows.
They have also mentioned the need to have wider information exchange on tax as is practiced within the OECD and G-20 member states. In addition, it has been underlined that customs agencies should treat all trade transactions with the highest level of scrutiny, particularly when the transaction involves any known tax haven.
It would be important to note here that GFI studies have indicated that trade mis-invoicing is the primary measurable means for shifting funds out of developing countries illicitly. Over the 10 year time period of this study, on average, 83.4% of illicit financial outflows were due to fraudulent mis-invoicing.
Despite all the above proof of use of mis-invoicing by Bangladeshis and deposit of such illicit amounts elsewhere including Malaysia, Canada, and in Swiss banks, only a total of 284 money laundering cases have been filed by Bangladesh authorities during 2009 to 2015.
We all need to understand and remember that illegal gratification and availing of different means which erode financial integrity only undermine rights of citizens and lead to mis-governance.
The dynamics that promote and encourage such informal black economy have to be stopped through the concerted effort of all relevant agencies.
Muhammad Zamir, a former Ambassador and Chief Information Commissioner of the Information Commission, is an analyst specialized in foreign affairs, right to information and good governance, can be reached at [email protected]