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Recovering laundered money through CRS

| Updated: August 25, 2022 23:35:59


Recovering laundered money through CRS

The tax authorities in various countries utilise Exchange of Information (EOI) agreements for cross-border sharing of taxpayer information. This exchange can be of two types: on request; and voluntary or spontaneous. The latter or Automatic Exchange of Information (AEOI) is voluntary exchange of information without having to request it. It is mainly aimed at reducing tax evasions across borders. The Organisation for Economic Cooperation and Development (OECD) has been the pioneer in this area through development of 'The Convention on Mutual Administrative Assistance in Tax Matters' in 1988 jointly with the Council of Europe, which was subsequently amended by a protocol in 2010. It is considered to be the most comprehensive multilateral instrument available for all forms of cross-country cooperation to tackle tax evasion and avoidance. In line with it, the US Congress enacted The Foreign Account Tax Compliance Act (FATCA) in 2010, which is applicable for US residents and citizens as well as Green Card holders residing in other countries.

Over 100 countries have by now signed the 'Multilateral Competent Authority Agreements' for AEOI under Article 6 of the OECD convention. One of these agreements cover 'Exchange of CbC (country by country) Reports', and the other enables 'Exchange of Financial Account Information' based on Common Reporting Standard (CRS). The CRS has become the agreed global standard for AEOI that was approved by the OECD in February 2014. In May 2014, forty-seven countries including all 34 OECD nations formally consented to the CRS as the 'Standard for Automatic Exchange of Financial Account Information' on their residents' and citizens' assets and income in conformity with CRS. The European Union adopted the CRS on January 1, 6 and the first reporting was planned for September 2017. As of 28 July 2022, as many as 117 countries of the world have become signatories to CRS, including India, Pakistan and Maldives from South Asia. But mysteriously, countries like Bangladesh and Sri Lanka have so far refrained from signing it.

It is in the above backdrop that the Bangladesh Chapter of global anti-corruption outfit Transparency International (TIB) urged the Government of Bangladesh on Tuesday to adopt the CRS for curbing tax evasion and money laundering and thereby tackle the current financial crisis. In a statement, the TIB executive director contended, "The initiative to take loan from IMF and other international agencies to tackle the deficit in foreign exchange may be considered to be a normal step. But in that case, the burden of loan repayment including applicable interests will have to be fully borne by the citizens. Our question is - whether the on-going initiatives including the move for foreign credit assistance to tackle financial crisis, especially to deal with rising deficits in foreign exchange, are being taken by attaching highest importance to people's interest? That is, whether alternative means has been considered instead of piling up the burden of loans on our people!"

According to the reports of US-based NGO 'Global Financial Integrity', the money laundered annually from Bangladesh during the period 2008-15 through embezzlement had averaged USD 8.2 billion. TIB estimates this figure to be over USD 12 billion per year now if latest data are taken into account; and it claims that the gradual increase in laundered money is posing a huge challenge for Bangladesh. Most of this money is laundered through invoicing malpractices in international trade. As a result, huge amounts of taxes are being dodged or evaded side by side with laundering that money. The government should also keep in mind that tax evasion and money laundering rises during financial crises like the current one. Therefore, it has a legal and moral responsibility to adopt CRS for enhancing revenue collection alongside curbing huge sums of money from getting laundered out of the country.

Many of the destination countries as well as so-called safe havens for laundering money have now come under the purview of CRS. Bangladesh has therefore a window of opportunity to remove the complexities posed due to maintenance of confidentiality of clients practiced by banks. Even Switzerland is a signatory to CRS, and consequently Bangladesh can easily enquire about the accounts held by Bangladeshis in Swiss banks by signing the global standard.

But sadly, although there has been much clamour in the past regarding accounts of Bangladeshis in Swiss banks, the government has not made such requests to the Swiss authorities till now, as revealed by the Swiss Envoy Nathalie Chuard during a 'meet the press' event in Dhaka on Wednesday. Then on Thursday, the journalist Showkat Hossain has questioned whether the government actually wants to know the names of money launderers at all, while penning an analysis in a leading Bangla daily.

The treasury bench had promised during a session of the Jatiya Sangsad on June 28, 2014 that the Swiss government would be requested to send the list of Bangladeshis having accounts in Swiss banks. But the tone of government functionaries underwent change from 2016, when the then finance minister AMA Muhith told parliament on July 11 that laundering money to Swiss banks was an exaggeration. After that, the current finance minister AHM Mustafa Kamal told  parliament on June 7, 2021 that he did not have any list of those who had laundered money. Instead, he asked the opposition members to submit the list if they had any. And lastly, the outgoing Governor of Bangladesh Bank Fazle Kabir claimed at a post-budget press conference on 10 June this year that he had no information on whether any Bangladeshi had deposited laundered money in Swiss banks. It is therefore apparent that the government is continuously backtracking on its promise of bringing the money launderers under the purview of law.

During her 'meet the press' event, the Swiss envoy disclosed there were allegations that most of the money kept by Bangladeshi depositors in Swiss banks had been earned illegally. But the Bangladeshi authorities have not yet sought specific information on these. It may be recalled that according to the report of the Swiss central bank released in June 2022, the amount of money deposited by Bangladeshis in Swiss banks totalled 871.10 million Swiss Francs, equivalent to Taka 82.76 billion. And the amount has jumped by 55 per cent from the figure of 2020. The amount deposited by Bangladeshis in Swiss banks during the previous year alone totalled about Taka 30 billion. The Swiss envoy also revealed that exchange of information was very much possible if the two sides agreed, and there was no bar to disclosing information by the Swiss central bank about the status of deposits made by Bangladeshis there.

Interestingly, during a 'suo moto' hearing at a High Court (HC) Bench on August 14, the deputy attorney general AKM Aminuddin Manik quoted Bangladesh Financial Intelligence Unit (BFIU) of Bangladesh Bank as claiming that the unit had sent letters to the Money Laundering Reporting Office Switzerland (MROS) through Egmont Secure Web between July 2013 and 2022 inquiring about 67 persons and organizations who have allegedly deposited money at Swiss banks. But the MROS replied it had information about only one of them. On the other hand, the Anti Corruption Commission (ACC) told the court that it sought information from MROS in 2014, 2019, and 2021 through BFIU, but in vain, which actually contradicted the claim made by BFIU.  

It is clear from the HC hearing that the government sought information about individuals and organisations it had chosen arbitrarily, but did not ask for details of depositors irrespective of its preference. Besides, if the government was really sincere about getting all the details, then it would have opted for signing the CRS, of which Switzerland is also a signatory, for facilitating automatic exchange of information about money launderers. Instead, the only step the government has taken regarding laundered money in the recent past has been to issue a notification through NBR on August 8, whereby laundered money can be brought back to the country through banking channel by paying a tax of 7 per cent. It only translates into rewarding the money launderers instead of punishing them. And all of these point to a complete reluctance of the current government in Bangladesh to hold the money launderers to account for their misdeeds and thereby uphold the ideals of governmental transparency and democratic accountability. Consequently, it is most unlikely that the government would pay heed to TIB's call for adopting CRS to curb tax evasion and money laundering, as it apparently has something to hide.

Dr Helal Uddin Ahmed is a retired Additional Secretary and former Editor of Bangladesh Quarterly.

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