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Can illicit financial transfers be controlled?

According to the latest report of the US-based NGO Global Financial Integrity (GFI) on trade-based illicit financial transfers, between 2009 and 2018, Bangladesh lost a staggering USD 8.275 billion (Tk 71,000 crore) per year, on average, through misinvoicing in export and import trade. The amount is reported to account for over 17 percent of the annual international trade value of the country.

As stunning as it is, the estimated average loss to misinvoicing, which implies deliberate over-reporting or under-reporting of the value of imported or exported goods to the customs authority, is only a part of the total volume of illicit financial transfers out of the country, widely known as money laundering.

Firstly, due to the lack of data for Bangladesh for the years 2014, 2016, 2017 and 2018, the GFI had to estimate the average annual outflow on the basis of the figures from 2009-2013 and 2015. Notably, the estimated transfers for the years for which data were available showed an upward trend, having increased from USD 5.212 billion in 2009 to USD 11.871 billion in 2015. The reasonable conjecture, therefore, is that in the subsequent years (2016-2019), the annual illicit outflow on account of misinvoicing could only be higher than USD 12 billion.

Secondly, as in the cases of most other poor and developing countries, illicit financial outflows take place in several other different ways. These include movement of money and wealth acquired, transferred or spent across borders in various illegal and corrupt means, like drug and human trafficking, arms trade or trafficking, and the age-old methods of hundi as well as such provisions as "investment visas" or "golden visas" for residency.

Most of such illicit transfers take place in processes that are hard to accurately estimate. The Transparency International Bangladesh (TIB) identified two additional categories of illicit financial transfers. One of them involves foreign workers employed in Bangladesh, and the other is related to the exploitation of Bangladeshi migrant workers.

A study released in 2020 showed that a section of foreign nationals, employed mostly in the private sector, illicitly transferred out of Bangladesh an estimated USD 3.15 billion (Tk 26,400 crore) annually. At least USD 1.35 billion (Tk 12,000 crore) of revenue was annually lost due to tax evasion on this account.

The other channel of illicit transfers that the TIB exposed earlier in 2017 was related to the illegal charges collected by the recruiting agencies from Bangladeshi migrant workers on account of visa issuance to seven selected Middle Eastern and Southeast Asian countries, the bulk of which—over USD 615 million (Tk 5,234 crore)—was illicitly laundered in 2016 alone to the destination countries.

If one goes on to add illicit transfers through hundi and other means used by Bangladeshi customers of the likes of Malaysian Second Home or Canada's Begum Para, the total amount will be mind-boggling.

The lion's share of illicit transfers globally take place out of the poor and developing countries to richer countries and offshore territories in trillions of dollars every year. Illicitly transferred money and wealth from Bangladesh also ultimately end up in developed countries. In each destination of illicit transfers, there are powerful syndicates of highly skilled law firms, trust companies, offshore specialists, real estate agents, accountants, regulators, and banking and financial services companies that collectively facilitate the secret deals.

The data that was recently disclosed in the Pandora Papers show, for instance, the growing role of the US as a haven for illicit transfers. While the US federal authorities have made useful efforts to control the international dimension of the menace, domestically it has been persistently failing to practise what it preaches, as it continues to sustain provisions to establish tax-free secret trusts as investment opportunities out of illicit transfers in many of its states.

Developed countries are indeed the net beneficiaries of illicit transfers. Being the demand side, they facilitate, promote and sustain illicit transfers through such means as secrecy of beneficial ownerships, banking secrecy provisions, weak supervision, and sanctions. Such manipulations in the destination countries contribute to the complexity of enforcement of the existing national and international anti-money laundering and asset recovery mechanisms.

On the other hand, for the supply side countries like Bangladesh, in addition to the criminality of the process itself, illicit transfers mean billions of dollars of direct capital flight that could be used in investment for economic development, creating jobs, reducing poverty and inequality, and building socioeconomic infrastructure like schools, hospitals, roads, bridges, housing, etc, as well as promoting public welfare through social safety nets. No less important are additional hundreds of millions lost in terms of potential revenues due to tax evasion.

Given the attractive opportunities prevailing in the destinations, prevention and control of illicit transfers and money laundering remain highly complex challenges for countries like Bangladesh. Nevertheless, it is not impossible to prevent, detect and repatriate such stolen assets, thanks to the increasingly advanced international arrangements created over the recent years, such as the UN Convention against Corruption. These include the mutual legal assistance facility between the supply side and demand side to take joint actions to prevent, control and recover illicitly transferred wealth, and hold the perpetrators to account.

Bangladesh already took advantage of such international collaboration when illicit income of a high-profile politically linked individual was successfully repatriated from Singapore. Although it took nearly five years (2008-2013) for the money to be transferred to a special account of the Anti-Corruption Commission (ACC) created for this purpose, it demonstrated that repatriation of illicitly transferred money and wealth was possible.

What was needed then in terms of the scope for international collaboration are still available—at a more advanced stage, in fact. On its own, Bangladesh also has a relatively strong anti-money laundering law and designated institutions to enforce the relevant legal provisions through national and international collaborations.

It is not known, however, whether there exists a similar level of appetite for rigorous and collaborative initiatives from the relevant authorities within the country, backed by determination and the will to ensure accountability. The question that remains is: If it was possible once, what prevents the same from happening further?

The failure to effectively stop money laundering is not due to the absence of laws, policies, institutions, or capacities and skills, or even complexities involved in securing cooperation of the destination countries. Given that money laundering is a near monopoly of the powerful, the problem lies in the deficit of courage and commitment to act without fear or favour.

One vital could be the relevant authorities—especially the ACC, the Criminal Investigation Department (CID) of police, the Attorney General's Office, Bangladesh Financial Intelligence Unit (BFIU), and the National Board of Revenue (NBR)—coming together to track the process of the successful repatriation of stolen money from Singapore. Together, they could prepare a checklist of things to do and act accordingly with commitment, courage, patience and perseverance, without being influenced by the identity or status of the individuals involved in illicit money transfers.

Dr Iftekharuzzaman is the executive director of Transparency International Bangladesh (TIB).

The Daily Star,

December 20, 2021