When the findings of the Global Financial Integrity (GFI), a Washington-based research organisation, about the flight of capital from Bangladesh along with other countries for the first time hit the newspaper headlines, it had jolted society. The jolt came because of the sheer size of the fund, on an average, transferred from the country annually between 2003 and 2013. The highest amount was taken out of the country in 2013, amounting to more than US$9.6 billion.
It seemed that the GFI report on capital flight had also given rise to serious concern among the policymakers. In fact there was a flurry of activities at the related levels and institutions to reduce the extent of capital flight. The government updated the anti-money laundering act and the central bank put in place the financial intelligence unit (FIU) with instructions to the relevant agencies to be vigilant against illegal fund transfer. The National Board of Revenue (NBR) also said it was initiating necessary measures to help combat the problem of capital flight.
But the latest report of the GFI on illicit fund transfers across the globe would equally frustrate the people of this country since the outflow of illegal funds from Bangladesh was over US$ 9.1 billion in 2014. The development does establish one thing rather clearly that all the routes used to transfer the illicit funds from this country are intact and transferors have been facing no barrier to using the same.
The striking feature of capital flight from the country is that the size of funds taken out of the country illegally was quite big in 2007, 2008, 2013 and 2014. The plausible reason for a sizeable amount going out of the country during the years 2007and 2008 could be the so-called crackdown on the high-profile 'corrupt' elements by the military-backed caretaker government. Some people did not feel it safe to keep their tainted money at home and transferred the same abroad. The situation in 2013 and 2014 was different. The deteriorating political situation forced many to shift their liquid assets abroad for safety reasons.
Many tend to suspect that corruption situation has deteriorated further with more and more people, involved in politics, administration and business activities, choosing to make unearned income in greater volumes. The anti-graft body, Anti-corruption Commission (ACC), appears to be active than before, but it hardly touches corrupt elements at high places.
In fact, a very thin section of the population has been transferring funds abroad. But the size of funds that are taking out is quite large. It is not that all the money being transferred is earned illegally. A part of it surely is earned using normal and legal channels. But the routes chosen to take that out are often illegal.
However, an obvious reason for a section of affluent people, particularly businessmen, to select illegal routes for fund transfer is the non-availability of legal channels. Under the foreign exchange rules, transfer of capital is now allowed. It can be done for certain purposes with the permission from the central bank. Many Bangladeshi businesses have invested their funds in businesses and bought houses and flats abroad. They have used both legal and illegal channels for taking out funds. Legal channels? Yes, most businesses have taken recourse to trade transactions for siphoning off funds. The latest GFI report on illegal fund transfer has also confirmed it. It has identified 'misinvoicing' in trade transactions as a major conduit for fund transfers from the developing countries, including Bangladesh.
Suspicion about abuse of trade transactions has grown stronger in recent years than before. The policymakers are also aware of the problem. But nothing tangible has been done to stop this evil practice.
For instance, there has been a phenomenal rise in the import of capital machinery in recent years. The rise, however, does not match the pace of investment, both local and foreign, and export growth. In fact, private sector investment situation has been sluggish for quite some time. The private sector credit growth does indicate such sluggishness. The capital goods import by the public sector agencies involved with the implementation of mega projects have been importing capital goods in large volumes. But that is not enough to support the overall growth in capital goods import in recent times.
It is widely suspected that funds are being taken out of the country by a section of unscrupulous businesses through both under-invoicing and over-invoicing. Exporters, generally, take recourse to under-invoicing to keep a part of their export proceeds abroad for investment in business enterprises or real estate. The transferors of funds, on the other hand, have been using the method of over-invoicing. The capital goods import is one way of doing that.
However, if the banks concerned and the Customs are alert enough, it is not difficult for them to check over-invoicing, to a large extent. Advanced Information Technology (IT) has made it very much possible. However, graft, apparently, plays a role in making the transfer of capital rather easy. Yet the government and the central bank may play a role in curbing the outflow of capital from the country.
There are, of course, other ways of transferring funds abroad. International hundi operators are always available to do the job. What they need is just a phone call. You deposit the money in Dhaka and get paid abroad. The size of funds matters little to the hundi operators.