That the country has earned some infamy in recent years for capital flight is no secret. In 2015 around $9.0 billion, an amount equivalent to 75 per cent of its annual remittance earning, had illegally flown out of the country. The Global Integrity Report 2016 said the major part of the sum went out of the country through external trade transactions.
Since the GIR findings hit the media headlines, there were lots of hullabaloos both in the public domain and the policymakers' circle. But nothing tangible has come out as yet. No effective steps have been taken to get back the illegally transferred funds or to plug the holes that are used to take out funds by an unscrupulous section of people, including so-called businessmen.
Even before the GI report revelation, people concerned suspected the trade transactions as major means of illegal fund transfer from Bangladesh. But almost nothing was done to retrieve the funds or plug the holes in the system by the relevant players, banks being the most important ones.
In such a situation, the National Board of Revenue (NBR) has decided to do something to stop the flight of capital as far as possible. The Board, according to a report published in the Financial Express last Sunday, is likely to launch full physical inspection of both inbound and outbound goods in the event of incomplete information in 'any suspect letter of credit or invoice'.
Though checking money laundering is not the job of the NBR, wrong information given in LCs does affect its revenue earning. Customs duty once was the number one revenue earner for the national exchequer. But under the deregulatory trade regime, the earning has remained almost stagnant for the last few years. So, duty evasion through under-invoicing has become a major challenge for the NBR.
The NBR recently organised a meeting between customs officials and bankers with a view to reducing the extent of this financial menace. The NBR urged bankers to follow certain rules to help reduce the trade-based money laundering and duty evasion.
Illegal transfer of funds, it is suspected, is being done through both exports and imports. Funds are taken out showing imports at prices higher than the real ones. A section of exporters, allegedly, have been keeping a part of their earnings outside the country by mentioning the sale price at lower than actual levels. A section of buyers tend to help unscrupulous exporters.
The import of capital machinery has gone up substantially in recent years. People overseeing the matter have found a gross mismatch between the volume of capital machinery import and actual investment situation prevailing in the country. There is no denying that the public sector import of capital goods of late has increased to meet the requirement of a number of large infrastructure projects. But, they feel, the increase is not sufficient to support the growth of capital machinery imports as shown in the central bank statistics.
Banks can help check transfer of funds through over-invoicing if they furnish the details of products, HS code, generic names, brand names, commercial names, model etc., in their LCs. Banks would do a great job if they take the trouble of checking the authenticity of the information given in the import documents. A good number of banks do not bother about checking the authenticity of information despite the fact that finding actual information is not hard to get in this age of information technology. But such a need is ignored because of intense competition among banks to grab clients and complicity on the part of a section of bankers with the dishonest traders wanting to take away funds out of the country illegally.
However, NBR, which is trying to stop duty evasion and money laundering through trade transactions, itself is also not immune to vices involved in the illegal transfer of funds. Customs officials like to work at the ports, preferably at the seaports. For dishonest ones, the posting proves to be a money-spinner. It is no secret that duty evasion does also take place with the connivance of customs officials.
So, money laundering or tax evasion cannot be stopped or effectively reduced by any single organisation. In this digital age a crime like money laundering has otherwise become an easy affair. The oraganisations involved in the whole process of external trade transactions do need to work in cohesion and with due earnestness to stop the menace. The NBR appears serious about the issue. But others are not adequately motivated and geared up. The NBR wants to stop duty evasion, for it needs more revenue to help the government bankroll the budget. But the task might prove really difficult as opposition is likely to come from within and beyond.
Banks, as mentioned earlier, do play an important role in trade transactions. Unless and until the bankers are serious about cross checking the information given in the LCs by the importers or exporters concerned, money laundering and duty evasion would continue. The central bank, however, can play a very important role here in asking the banks to ensure the authenticity of LCs.