Swiss banks mystery: Homecoming or new hideaways?

Illustration: TBS

The gap between the value of merchandise shipped abroad and the actual export receipts doubled to $12 billion in the last fiscal compared to the year before. The difference reached the same level in nine months of the current fiscal year, according to the latest available data. And the question, whether or not the gap points to export proceeds being held abroad remains unanswered.

Amid recent discoveries of high-profile corruption cases with suspected transfer of assets away from the country, immediate past state minister for planning on Thursday made a guess at a public event: On an average between $7 billion and $8 billion is being transferred from Bangladesh every year.

On the same day a disclosure from the Swiss National Bank, that money parked by Bangladeshis in Swiss banks dipped to its lowest in decades, might sound comforting. The amount dropped to less than a third last year compared to the year before and was the lowest in 28 years.

Is money from Swiss accounts coming home?

What is the reason for this drastic fall? Are Bangladeshis withdrawing their deposits from Swiss banks and bringing those back home? The amount stashed away in Swiss banks by Bangladeshi individuals, banks and entities reached its peak of Swiss francs (CHF) 871 million in 2021 from 563 million the year before, and sank straight to 55.3 million in 2022 and again to 17.7 million in 2023, marking 94% and 68% drop year-on-year.

In the last two years, the deposits of Bangladeshis in Swiss banks declined by CHF796 million (equivalent to $892 million), which should have been reflected in inflows from Switzerland if remitted back home duly. Switzerland does not appear in the top 30 sources of remittance for Bangladesh, with Belgium at the bottom of the list with $17.64 million during July-April period of the current fiscal year.

Or did it go somewhere else?

This gives an indication that the deposits might have moved somewhere else other than Bangladesh, as  inferred by analysts at home. Switzerland seems no longer a safe haven for those who want to hide their untaxed, unaccounted for incomes. They now have safer abodes with more lucrative offers such as citizenships with investors' status, with visa-free travels to a hundred countries or more. There are island states where they can own farms without paying tax, Asian countries where they can buy homes and run businesses.

Not all money in Swiss bank deposits is ill-gotten. There is no problem if someone deposits his or her legal income, which is properly taxed in their home country, with banks in Switzerland. This is why Swiss banks are having billions in deposits from countries such as the USA and UK as banks in Switzerland accept "clean" money from developed countries with which the country has signed automatic exchange of information agreements. Swiss authorities are obliged to share bank information of individuals with their home countries.

Swiss authorities claim transparency

The problem is with deposits, from countries with loose tax regimes and weak financial systems that create black money, finding its way out of the country. Swiss banking authorities claim their transparent rules have now shut the door for deposits from potentially dubious clients from developing countries which do not have access to Swiss accounts of their citizens. When deposits from such countries drop drastically, the first question comes to one's mind is whose money was that, why they withdrew and where they stashed that away. Still, who is holding their accounts in Swiss banks?

Deposits of Indian and Pakistani citizens in Swiss banks also declined, by 70% and 26% respectively, and the questions remain the same for all of them.

The difference is India has got an automatic exchange of information agreement with Switzerland since 2018 and can access account details of its citizens. This framework also obliges Swiss authorities to share details of accounts information involving suspected financial wrongdoings.

Bangladesh so far has nothing of that sort. Bangladesh Bank's spokesperson and executive director Mezbaul Haque said the Bangladesh Financial Intelligence Unit (BFIU) must have some arrangements to collect information from Swiss banks about Bangladeshis accounts.

In August 2022, months after the Swiss National Bank's annual disclosure, the High Court had asked the BFIU to form a cell to prevent money laundering and bring the laundered money back.

The directive followed the remark of the Swiss ambassador to Dhaka who said that they were supposed to share information of Bangladeshis' accounts, but there was no such request from Bangladesh's side on any particular account.

BFIU sought Swiss account details of 67, got one

The BFIU told the court that they had sought Swiss account information of 67 Bangladeshis but got the details of only one individual.

Nothing more has been heard since then. Even then, the last two annual disclosures of Swiss National Bank show money of Bangladeshis in Swiss accounts declined. Former central bank governor Salehuddin Ahmed sees nothing to be excited about as he believes the funds must have found other safer places.

The central bank spokesperson Mezbaul Haque, however, hopes that raising interest rates for foreign deposits with offshore bank accounts, along with some other recent measures, will encourage Bangladeshis to bring their deposits back home.

Higher yields on money must be an incentive for depositors. But this is not all. There are common factors such as political and economic uncertainties, tax rate unpredictability, exchange rate volatility, interest rate instability among others that influence depositors' decision where to put their money.

For Bangladesh, there are more reasons that lead to large scale transfer of funds from home. These funds include money from over and under-invoicing in trades, ill-gotten money from corruption and billions taken out of banks.

Unchecked capital flight behind dollar crisis?

Former state minister for planning Dr Shamsul Alam told an event in Dhaka on Thursday that the persisting dollar crisis stemmed from unchecked capital flight. Former foreign minister Dr AK Abdul Momen spoke in the Parliament about corruption in bureaucracy and called for measures to prevent corruption and money laundering.

The true story behind the Swiss deposit exodus remains unclear. Is it a victory for financial transparency reforms in Switzerland, or simply a reshuffling of dirty money to new hiding places? Only time, and perhaps Bangladesh's commitment to information exchange, will tell.

Capital flight bleeds an economy white. Measures are needed to check it, because once money flies out, it is gone forever, not unlike toothpaste squeezed out of a tube.