Intel finds money laundering 'almost unstoppable'
If the overall legal framework of the country improves, small-scale corruption will decrease, says BFIU
A lack of information on competitive prices of imported and exported goods makes it almost impossible to prevent money laundering through foreign trade and bring back assets already laundered or collect taxes on them, according to a report by the Bangladesh Financial Intelligence Unit (BFIU).
In the report presented at a meeting of the National Coordination Committee on Money Laundering and Terrorist Financing held in December last year with Finance Minister AHM Mustafa Kamal in the chair, the BFIU said individuals appointed in banks and financial institutions or their management, in collusion or through fraud, take loans abroad and they are highly influential.
Corruption, embezzlement of government funds, and tax evasion are prevalent due to a lack of effective laws, and there is a lack of skilled people in investigating and prosecuting these cases, mentions the intelligence agency of the financial sector under the control of Bangladesh Bank.
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If the overall legal framework of the country improves, small-scale corruption will decrease, it added.
According to the report, money is syphoned off from Bangladesh mostly through over-invoicing and under-invoicing. As there is no value-added tax on exports and no customs duty on imports, customs officials are less focused on verifying export shipments. Traffickers are increasingly taking advantage of this.
When an exporter receives more money than the value of goods sold to an importer, it is over-invoicing. On the other hand, when an importer receives more money while selling the goods in the local market after buying them at an unvalued price from an exporter, it is under-invoicing. Both the instances trigger an extra value transferred via trade between the parties as money laundering.
"Applications from Bangladeshis to missions in the US, UK, and Canada for power of attorney have increased a lot lately. This means properties are being sold in Bangladesh and money is being taken to those countries by any means."
Foreign Secretary Masud Bin Momen
It is also mentioned that many government officials and businessmen are buying houses and cars abroad by laundering money under the guise of their children's education abroad.
At the meeting, the finance minister advised all agencies concerned to take initiatives to bring back the money that has been smuggled out of the country. To this end, he gave instructions to amend the relevant laws and take measures to hire legal or professional firms abroad.
Foreign Secretary Masud Bin Momen said, "In recent times, applications from expatriate Bangladeshis to Bangladesh embassies in the US, the UK, and Canada for power of attorney have increased a lot. This power of attorney means properties are being sold in Bangladesh and money is being taken to those countries by any means."
Speaking on this issue at the meeting, Bangladesh Bank Governor Abdur Rauf Talukdar said those who are taking money abroad by selling land in Bangladesh are taking it completely unlawfully.
Money launderers are usually wealthy and influential, mentions the BFIU report, adding, "As a result, they spend a lot of money and hire big lawyers or try to delay the judicial process by some means. This often leads to frustration in the investigation process or judicial process. Moreover, the state counsels are often not experienced in the subject matter of the case."
When asked about this, Khurshid Alam Khan, chief lawyer of the Anti-Corruption Commission, told The Business Standard, "If the BFIU report mentions such things, then I would say they have failed to prevent money laundering. This means money laundering will continue. They do not deserve to hold these positions. They need to be removed and replaced with competent ones."
Mahbub Ahmed, former senior secretary of the Finance Department, however, disagreed with the BFIU observation that Bangladesh lacks the capacity to prevent trade-based money laundering.
He told TBS that the Bangladesh Bank cancelled several LCs due to the fear of over-invoicing by scrutinising a large number of LCs when the imports increased a lot amid the dollar crisis. "How could they do it if they don't have the capacity?"
He said Bangladesh has weaknesses in negotiations regarding the recovery of smuggled assets or tax recovery. This weakness is there in other areas as well. "Therefore, the negotiation capacity should be increased," he said.
Mentioning that the tax amnesty facility announced for the current financial year has not proved to be effective yet, he said, "I am waiting to see what happens during the rest of the financial year."
Why is Bangladesh more prone to money laundering?
The success rate of confiscating and repatriating laundered money or assets is very low despite that Bangladesh's legal and institutional framework is strong enough, the BFIU in its report observed, adding, "The way the United States, the United Kingdom, and even India can negotiate with other countries (destination countries) due to economic or geopolitical reasons is different in the case of Bangladesh. Therefore, international cooperation is not available as expected in many cases."
"Those who are taking money abroad by selling land [in Bangladesh] are taking it completely illegally."
Bangladesh Bank (BB) Governor Abdur Rauf Talikdar
Elaborating on how money can be siphoned off from Bangladesh rather easily, the BFIU said that the more complex the nature of imported goods or services, the more difficult it is for banks and customs authorities to determine their proper value. The agency cited the lack of sufficient information at most banks and customs ports to verify the value of goods as the reason behind this.
By way of example, the BFIU said customs authorities do not care about the value of any expensive complex scientific equipment or specialised capital machinery, which can be imported under the duty-free facility. Again, because the products are complex in nature, there is no opportunity to get the exact price information except from the supplier.
Again, the actual import price of a computer software CD (compact disk) can be less than $1 or more than $1 lakh. In this case, it is almost impossible for the customs authorities to determine the value of the imported CDs. Customs authorities face a more complicated situation when it comes to money laundering by importing software online.
Speaking about trade-based money laundering at the annual development conference organised by the Bangladesh Institute of Development Studies (BIDS) on 1 December last year, Bangladesh Bank Governor Abdur Rauf Talukder said, "Over invoicing in the import of goods means that extra money is being smuggled abroad through bank channels. The extra money remitted in the name of product prices is later accepted by someone abroad on behalf of the importer. Such complaints have been coming from economists for a long time.
"To our utter surprise, we saw that products were imported by over-invoicing up to 20%-200%. We have canceled 100 such LCs."
He also commented that trade-based money laundering can be prevented if over-invoicing and under-invoicing in foreign trade are curbed.
$74 billion siphoned off in nine years
According to the Washington-based Global Financial Integrity (GFI), Bangladesh lost $8.27 billion every year on average between 2009 and 2018 resulting from misinvoicing of the value of imported and exported goods by traders to evade taxes and illegally move money across international borders. As such, the country lost about $74 billion in nine years.
Why smuggled assets cannot be brought back
Highlighting the weakness of Bangladesh in two basic aspects in bringing back the money laundered, the BFIU said one of the challenges, in this case, is to correctly identify the money or assets that have been illegally taken abroad and confiscate those and bring them back to the country.
The report states that there is no problem in obtaining information from financial intelligence units of other countries except Switzerland if there is specific information about the laundered money or the launderer, the investigating agencies in the country cannot provide specific information in most cases. On the other hand, compliance with the Egmont Group Information Exchange Policy regarding the use of intelligence in the financial sector is also violated. As a result, foreign counterparties are not interested in providing information later.
"If the BFIU report says [it is almost impossible to prevent money laundering through foreign trade], I would say they have failed to prevent money laundering. This means money laundering will continue."
Anti-Corruption Commission (ACC) Chief Lawyer Khurshid Alam Khan
The report also pointed out that Bangladesh's legal framework is deficient in confiscating and repatriating laundered money.
Little success in tax recovery
As various countries, including India, followed tax recovery mechanisms with success as it is difficult to recover smuggled assets, Bangladesh also has announced a tax amnesty for money launderers in the national budget of the current fiscal year.
While announcing the amnesty, Finance Minister AHM Mustafa Kamal expressed hope that it would help the government earn a large amount of revenue. He said that those who had assets abroad would invest them back in the country by paying tax at the prescribed rate due to the tax amnesty facility.
But the initiative has proved to be futile, at least till now.
According to the National Board of Revenue, no money launderer took the facility till the end of the deadline for filing returns of individual taxpayers last December. The NBR also has been unable to identify the owners of money and assets abroad and collect evaded taxes and penalties.
After reviewing the success of various countries in following the tax recovery system and the situation in Bangladesh, the BFIU said based on the information received from Swiss banks, the US tax agency IRS has collected $6.5 billion in taxes, penalties and interest from 45,000 taxpayers under the Offshore Voluntary Disclosure Programme since 2009.
France collected 1.2 billion euros and Italy 570 million euros in evaded taxes and fines from taxpayers who held secret accounts in Swiss banks. Based on the same data, the UK collected 150 million pounds and Spain 210 million euros.
Meanwhile, Germany managed to recover 1.6 billion euros in taxes in 2010 by buying secret account information of Swiss and Liechtenstein banks from another whistleblower.
According to the laws of Bangladesh, if legitimate income is smuggled abroad to evade tax, even if the tax is collected from the smuggler, s/he can be prosecuted for money laundering. Therefore, the BFIU recommended that the government take a policy decision stating that the tax recovery system will not be effective in the existing situation. Besides, the organisation has asked for increasing the capacity of the NBR.
Meanwhile, the National Coordinating Committee headed by the finance minister has asked the NBR to seek the opinion of the law ministry on whether it would be legal to undertake tax recovery as an alternative method if it is not possible to recover the laundered assets.
Apart from this, the committee has decided to take policy decisions regarding the introduction of the tax recovery system, arrange the law and judicial process to suit this system, and increase the capacity of the NBR.
The National Coordinating Committee's meeting in December last also recommended forming an inter-agency task force headed by the attorney general to remove obstacles in the judicial process of cases filed to recover money laundered abroad.
In addition, the foreign ministry will take the initiative to strengthen the diplomatic efforts and sign agreements to obtain mutual legal assistance from the United States, United Kingdom, Canada, Australia, Switzerland and other European countries, United Arab Emirates, Malaysia, Singapore, Hong Kong-China and Thailand, among the destination countries of the smuggled money.
The coordination committee said that Bangladesh has limited economic and commercial relations with the countries that act as tax havens and offshore jurisdiction routes. The committee has instructed the NBR to sign tax information exchange agreements and mutual administrative assistance in customs matters with these countries and jurisdictions.
