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The unstoppable growth of capital flight

  • Published at 04:11 am July 9th, 2017
The unstoppable growth of capital flight
Large amounts of money continues to be siphoned off as the country’s anti-money laundering act appears inadequate in deterring capital flight. The biggest chunk of laundered money ends up in Malaysia, Singapore, Thailand, USA, Canada, Switzerland, UK, and other places where the laws protect the capital inflows into their countries. The Swiss National Bank (SNB) published a series of annual reports on June 29 which revealed that deposits by Bangladeshi citizens had gone up remarkably. Last year’s report revealed that there had been a 19% increase in deposits since 2015. The total deposit by Bangladeshi citizens to various Swiss banks totalled Tk5,566 crore in 2016, which was Tk4,417 crore in 2015. Overall, the United Kingdom has the biggest deposit in Swiss banks. In South Asia, Pakistan leads with the largest deposit, followed by India whose deposits are down by more than a half, with Bangladesh in third position. The unrecorded capital flow from Bangladesh stood at $61.63 billion between 2005 and 2014, riding mostly on mis-invoicing, according to a report of Global Financial Integrity. The GFI report also revealed that illicit capital outflow from Bangladesh has been on a growing curve from 2007, in the wake of political turmoil during the period, and it continued till 2013 when the highest $9.66 billion was siphoned off. Of the total $61.63 billion illicit capital flight, $56.83 billion went off through trade mis-invoicing while the rest $4.8 billion could not be traced in the balance of payments data, added the report. The Washington-based research and advisory organisation unveiled the report titled “Illicit Financial Flows (IFFs) to and from Developing Countries: 2005-2014” on May 2. Experts say the racket of money launderers are a tight knit group, building a community with any incumbent government high-ups. Former Finance Adviser to the caretaker government AB Miza Azizul Islam claimed that wealthy people who launder money out of the country enjoyed political backing. Most of the money was laundered by unscrupulous businessmen through under- and over-invoicing in international trade, he said. “The government should take stern action against dishonest individuals involved in money laundering,” Mirza Aziz told the Dhaka Tribune. “However, the existing laws are insufficient and failing to stop money being siphoned off from the country. Admitting the fact, Finance Minister AMA Muhith said the current laws are not adequate to stop money from being laundered. “Money laundering has recently risen due to existing laws and regulations. We are going to reform them,” he said at the signing ceremony of Annual Performance Agreement between the ministry and 16 state-run banks and financial institutions at the ministry auditorium on June 18. Capture2 Laundering likely to go up ahead of next national polls Given the current situation and the next general elections looming, more money is likely to flow out of the country. According to reports from a host of foreign agencies, it is evident that a big chunk of wealth goes off from the country ahead of every national election. Economists apprehend that such a situation could emerge again. PRI Executive Director Ahsan H Mansur said: “If Tk4 or Tk5 billion had been laundered before, this year might witness 20% more capital flight than the previous year. In the next year, such asset flight could go up 30%-40% than the year gone by. ” Mansur termed the capital flight “internal bleeding” of the country. Four ways money is laundered Every year a vast amount of money goes off primarily in four forms - through over and under-invoicing, tampering with shipment figures, multiple invoices and false declaration on goods and services, according to a study report of Bangladesh Institution of Bank Management (BIBM). BIBM Research Director Shah Md Ahsan Habib launched the report “Review of the Trade Services Operations of Banks-2016”. Habib said: “Among various forms of trade-related frauds, trade-based money laundering is perhaps the most concerning issue to policymakers all over the world, and the four basic techniques are followed by fraudsters in Bangladesh to launder money.” “The new online reporting system of Bangladesh Bank has turned out to be a great achievement in the banking sector, which greatly helps in monitoring and supervising day-to-day trade transactions. Also, this is a vital tool for data validation.” In spite of these improvements and achievements, cases of under-reporting and misreporting are still concerning, added Habib. Collective efforts necessary to curb money laundering A series of concerted efforts need to be taken to stem money laundering. According to think tanks and economists, if Bangladesh Bank, Anti-corruption Commission, NBR and the office of the attorney general work together, capital flight can be stopped while money siphoned off can be brought back to the country. Transparency International Executive Director Dr Iftekharuzzaman said: “If the financial unit of the central bank, Anti-Corruption Commission, National Board of Revenue and office of the attorney general team up, the move can prove effective to stop money laundering.” BB fails to get info about Bangladeshi depositors in Swiss Banks Over the last three years, the central bank has sought information about Bangladeshi depositors in Swiss banks but are yet to get any reply, said Finance Division officials. BB also sent two letters to SNB seeking wealth information about controversial Bangladeshi businessman Moosa Bin Shamsher and his family, but SNB didn’t respond. Unlike Bangladesh, India receives information about its depositors in Swiss Banks under the “Automatic Exchange of Information” agreement with Switzerland. However, Bangladesh has no such agreement with Switzerland. Last May, Switzerland succumbed to pressure from the United States and the European Union and relaxed its law of secrecy, which for generations has been the principal cause of attraction for deposits. It is alleged that a large amount of cash is laundered from different branches of multinational banks in Bangladesh to SNB. Subhankar Saha, executive director of Bangladesh Bank, said different government agencies including Bangladesh Bank are trying to take strict measures against money laundering by Bangladeshi businessmen through over and under-invoicing. However, all of the deposits by Bangladeshis in Swiss banks were not directly from Bangladesh; a large portion of the money came from across the globe, he added. Subhankar Saha, executive director of Bangladesh Bank, told reporters that Bangladesh Bank is unaware of what the Swiss central bank based the report on. He said Bangladesh Bank works diligently to prevent money laundering. Seeking anonymity, a Bangladesh Bank official said they are not clear about the manner in which money goes out, but a lot of the money is actually siphoned off from Bangladesh. BB to seek info about Bangladeshi clients of Swiss Banks again Though the Swiss National Bank has not responded to the previous BB requests for information about Bangladeshi account holders in SNB, Bangladesh is going to make further requests as a new report suggests a rise in Bangladeshi deposits. “A letter has already been drafted in consultation with the government high-ups and it will be sent to Swiss authorities shortly,” according to an official of Bangladesh Bank. He said they hope SNB  will respond with a list of Bangladeshi account holders in Swiss banks.
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