Money-laundering: Restoring trust in banking system, monetary flows

Shadow-banking, discussed in the previous Scopus piece of this series (August 28, 2018), must be distinguished from money-laundering, the subject here. Both add to the title of the series: businesses being in increasing flux. There may be a slippery slope from shadow-banking, which focuses mostly on non-bank alternatives to banking functions, to money laundering, which is essentially giving illegal money legal status. Deductively, three stages can be discerned in this process: placing the ill-gotten funds into a financial system; layering it, meaning the laundering action itself; and integrating, that is, using that washed money for legal transactions.

Those illegitimate funds may be derived from counterfeiting money, drug-trafficking, arms-trafficking, migrant-trafficking, or even stealing from a bank or government, or corporations. GFI's (Global Financial Integrity's) March 2017 "Transnational crime and the developing world," attributed about 1.0 trillion dollars to counterfeiting, half that amount to drug-trafficking, with even illegal lumber logging getting about a $100 billion. It is then the bank's or financial institution's duty to monitor such deposits. Many banks have a "suspicious activity report" option they can take, depending on how loose or strict they are. If not nabbed at this stage, the money may be transferred to a fictitious or anonymous shell company, typically in locations known as tax-havens, islands, such as Nauru, or the recently exposed Panama Papers from that country. More than impose low- or no-taxes on such accounts, such havens complicate every bit of information about the account-holder, making that person difficult to find. Still unchecked, that money is then invested in some legal transactions.

Global Financial Integrity estimates, of more than two trillion worth of illicit dollar flows, about half return to developed countries (where a bulk of the drugs get sold in the first place, for example), with the other half stored in off-shore accounts. With more transparent banking and corporate operations, a lot of the money can be detected, as too the need to double-check to guard against mis-invoicing. Both the UN Convention Against Corruption (UNCAC) and the Financial Action Task Force (FATF) require countries and all financial institutions to monitor deposits from Politically Exposed Persons (PEPs), although both have been assailed for being lenient on anonymously owned corporations.

GFI country data of spiked illicit financial outflows show this to be 'developing country phenomena', with China leading the pack, followed by Russia, and then mid-level players like India and Mexico, before the growing presence of relative newcomers, such as Argentina, Bangladesh, Hungary, Indonesia, Malaysia, and Nigeria, among so many others. Over the past 30-odd years, Holly Whitehead listed the Top-five money laundering cases for International Compliance Training (ICT): the British Hongkong and Shanghai Banking Corporation (HSBC, in 2012), in the United States; Bank of Credit and Commercial Investment (1980s), a Luxembourg institution founded by a Pakistani (Agha Hasan Abedi in 1972), operating in places ranging from Argentina to Zimbabwe, with the scandal dubbing its name Bank of Crooks and Criminals International; Nauru (1998), mostly Russian mafia money, but with Nauru being so small, most of the money is kept in Australia; Standard Chartered (2012), the London-based British banking institution for helping Iran, Burma, Libya, and Sudan against US sanctions; and North Carolina's Wachovia Bank (2010), two years after it was sold to Wells Fargo and Company, it had to pay $160 million in a probe investigating Mexican cartel transactions with US banks.

While money-laundering is affecting increasingly more countries and companies than ever before, Dominic Suszek, who listed the Top-ten anti-money laundering cases for 2017 in Global Radar last December, noted (a) how artificial intelligence (AI) platforms might provide an effective way to control the problems, indeed its earlier advent might even have prevented the problem from arising through detailed cross-check and globally integrated information; and (b) why the emergence of those phenomenally expanding crypto-currencies and bitcoins may prove to be a curve-ball in controlling money-laundering, particularly because of their anonymous ownerships and the lack of regulations.

Bangladesh faces its own money-laundering can of worms. Writing in an English-language contemporary on June 18, 2017, Shariful Islam identified four ways this happens in the country: over- and under-invoicing; over- and under-shipment; multiple invoices; and falsely declared goods and services. As the problem expanded, from January 2013 Bangladesh Bank's AD (authorised dealer) banks began monitoring such transactions.

At least 24 Bangladeshi individuals, five entities, and 20 Bangladeshi addresses were found in the Panama Papers. Although that does not indicate any wrong-doing, very detailed scrutiny is needed to shore up the trust element and quench the loopholes in the banking system. This was also revealed at a bad time, since three other worrisome developments surfaced about the same time: a spike in Bangladeshi deposits in Swiss banks, especially the 20 per cent 2016 surge; the drainage of over $60 billion from the country (with over $9.0 billion in 2014 alone) from the country, mostly through questionable invoicing and trade-sheets; and the transshipments of gold to India from the Middle East through Bangladesh, estimated to be over 60 kilograms annually, based on the 27 kilograms seized by India's Border Security Forces in 2017 (as against 14 kilos the previous year), and 20 kilograms seized by Border Guards of Bangladesh for the same year.

Only last November, Customs Intelligence & Investigation Directorate (CIID) filed cases against seven individuals laundering Taka 10 billion (1,000 crores) through illicit imports of alcohol, cigarettes, and other foreign brands from China. A little earlier Aman Jewellers was charged for smuggling gold into the country, then re-exporting them in ornamented form. This followed the arrest of the owners, Dildar Ahmed Selim, Gulzar Ahmed and Azad Ahmed, the first of whom also had his son simultaneously thrown into jail for a rape case. With the Bangladesh Institute of Bank Management (BIBM) expressing concern about the problem, one must keep in mind the Bangladesh Bank had established the Anti-Money Laundering Department as early as in June 2002, before it became the Bangladesh Financial Intelligence Unit (BFIU) from January 2012. Its mandate is to review (a) Suspicious Transaction Reports, or STRs; (b) Cash Transaction Reports, or CTRs; (c) Money-laundering Information, MLI; and (d) all terror-financing information.

With so much border-smuggling, Bangladesh is sinking deeper into money-laundering. At least this Eid-ul-Azha cattle-smuggling was reduced (though not eliminated by a long shot, in spite of the methods becoming more cruel and increasingly un-Islamic), in turn boosting domestic production. Simultaneously, a lot of remittances and gold also leave Bangladesh, not just from white-collar workers here, but smugglers wherever there is an opportunity. Only this year, Home Minister Asaduzzaman Khan Kamal mentioned slightly more than 85,000 foreigners work in Bangladesh (more than three-quarters of them owners of businesses), although a 2016 Centre for Policy Dialogue (CPD) report mentioned 'industry insiders' claim there being 500,000 foreign workers, remitting up to $5.0 billion dollars from the country ("Stitching a better future for tomorrow").

Controlling seepages like these are imperative to restore trust in the banking system and monetary flows, an argument repeatedly entering the various pieces of this 'Businesses in Flux' series. Greater threats await us, as indeed every country in the world. Identifying and understanding them is left to the final article of this series, in the next Scopus piece.

Dr. Imtiaz A. Hussain is Professor & Head of the newly-built Department of Global Studies & Governance at Independent University, Bangladesh.

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