A recent report prepared by the Global Financial Integrity (GFI) ranked Bangladesh second in South Asia in respect of illicit outflow of money. It said a staggering amount of $5.9 billion was siphoned out of Bangladesh in 2015 through trade mis-invoicing.
The findings of the Washington-based research and advisory organisation were based on International Monetary Fund's (IMF) trade analysis data of 148 developing countries with advanced economies. The report also said $2.36 billion entered the country in 2015. The data showed that the amount of illicit financial flows (IFFs) from Bangladesh was 17.5 per cent of the country's total trade with advanced countries at $33.73 billion in the said year.
The GFI defines IFFs as money that is illegally earned, used or moved and which crosses an international border. Trade mis-invoicing is a method of moving IFFs, and includes deliberate misrepresentation of the value of imports or exports in order to evade customs duties and VAT, launder the proceeds for criminal activity or to hide those in offshore locations.
The new GFT study comes more than a year after its 2017 report estimated that Bangladesh had lost between $6.0 billion and $9.0 billion to illicit money outflows in 2014. At that time, the GFI analysed discrepancies between bilateral trade statistics and balance of payments data to detect flow of capital illegally earned, transferred or utilised.
Bangladesh lost, according to the latest report, the second highest amount of fund through IFFs after India in South Asia. The illegal outflow through trade mis-invoicing in other South Asian countries including Pakistan, Sri Lanka was less than a billion dollar.
High levels of mis-invoicing, as a percentage of total trade, indicate that most governments in the developing countries do not benefit from a significant portion of their international trade transactions with advanced economies. Bangladesh tops the list of less developed countries for illicit financial outflow and ranks 40th among top 100 countries in this regard. This is enough to understand the enormity of capital flight from the country.
The amount of money transferred unlawfully from the country over the past 10 years, exceeds the current fiscal year's budget by over a trillion taka. Capital flight is a global problem but the situation in Bangladesh is something alarming. It has been observed that lack of congenial investment environment encourages illegal outflow of finance.
At a recent discussion, economists, bankers and businesspersons said there is no alternative but to take immediate and effective measures to address the situation. The relevant institutions should be strengthened against capital flight and a task force may be formed to ensure proper coordination.
Meantime, Bangladesh Financial Intelligence Unit has recently detected cases of money laundering involving Tk 40 billion and is carrying out a thorough probe into it. Information on the irregularities has already been sent to all agencies concerned for taking necessary steps.
The deposits of Bangladeshis in various Swiss banks dropped recently as the central bank is reportedly keeping a close watch on money laundering. The central bank has taken cautious steps in the new monetary policy, keeping in mind the issue of money laundering. In recent times, it has found some gross violations in foreign exchange transactions that have raised concern about money laundering.
Bangladesh's per capita debt is $378 and the debt burden will be low if it could curb illegal capital flight. Many Bangladeshis have accounts in Swiss banks, while names of some Bangladeshis came in the recently leaked Panama papers. The country must learn how to prevent illicit capital flow out of the country.
Cooperation with the relevant countries should also be stepped up to prevent this transfer of money. According to GFI, 85 of 90 per cent of this illegal wealth transfer is done in the guise of international trade. This sector needs to be closely monitored. However, political will appears to be the most important tool to prevent such illegal capital flight.
It is shocking to know that such a huge illegal outflow of capital is happening at a time when the country is suffering from lack of investment. It also shows businesses' lack of confidence in investing in the country. This has to be reversed at any cost.
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