What does the Offshore Banking Act bring to the table?
The new law allows a wider planning horizon for investors
Thirty-eight years after introducing offshore banking, Bangladesh got its first law to regulate the activity.
The Parliament passed the Offshore Banking Act 2024 on 5 March, aiming to enhance the country's reserves of foreign currency and attract foreign investment. Before that, offshore banking activities were regulated through guidelines issued by the central bank.
Economists, though satisfied with the enactment of the law, have called for strict implementation to achieve its objectives.
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According to the law, non-resident individuals or foreign firms who will invest in Bangladesh can open offshore bank accounts. An offshore banking unit (OBU) will require the Bangladesh Bank's licence to operate, and only scheduled banks working in Bangladesh can provide offshore banking services.
The law also states that offshore banking operations can be executed with five currencies — the US Dollar, Pound, Euro, Yen, and the Yuan.
Moreover, no income tax or any direct or indirect charges will be imposed on the interest or profit earned by the OBUs, and no fees or levies will be imposed on the accounts of depositors or foreign lenders.
OBUs can take deposits from 100% foreign-owned companies located in Export Processing Zones (EPZs), economic zones and hi-tech parks. The units can also provide short-term loans, open letters of credit, provide guarantees, bill discounting, bill negotiating and other foreign trade-related outsourcing services.
In case of resident Bangladeshis, such units can provide deferred export bill discounting facilities on imports, and direct and indirect exports. Subject to approval from the Bangladesh Bank, they can also provide medium and long-term loans to local industrial enterprises.
But how does the law differ from the previous guidelines?
Muhammad A Rumee Ali, a former central bank deputy governor, believes that the previous guidelines lacked certain provisions.
"So improvement was needed. Investors, and particularly the users, needed confidence that the OBUs would function; that they could deposit and trade through dollars. These issues needed to be addressed. So I appreciate this law," he explained.
Can it boost foreign investment?
Economists do not think it realistic that this new law will create a fountain of foreign investment as, whether investors feel interested in depositing dollars in an OBU is solely dependent on how confident they feel about the entire system.
Could an OBU check suspicious transactions?
Rumee Ali added that a bank's internal risk mechanism has two prongs — preemptive factors, meaning system inspection, and remedial factors, i.e., transactional audits.
"If these two factors are monitored properly, there is zero chance of money laundering," Ali said.
He emphasised that law enforcement and exemplary punishment of rule violators are crucial.
"We have not seen such a good example though. We saw people get arrested for money laundering, but seldom punished. But I believe the government is serious about checking money laundering and that is why the previous central bank guidelines have now been shaped into a law," he added.
Muhammad A Rumee Ali, a former central bank deputy governor, believes that the previous guidelines lacked certain provisions. "So improvement was needed. Investors, and particularly the users, needed confidence that the OBUs would function; that they could deposit and trade through dollars. These issues needed to be addressed. So I appreciate this law.
