How to check illegal outflow of funds

| Updated: October 18, 2017 03:40:38

How to check illegal outflow of funds
Illicit financial flow (IFF) from Bangladesh has registered a phenomenal rise in recent years. The amount of money, illegally transferred from the country, stood at US$9.66 billion in 2013 in a rapid rise from US$7.22 billion in 2012, a survey of the Global Financial Integrity (GFI) said last week.
The amount is equivalent to three-fourths of the country's current development budget. The size of the Annual Development Programme (ADP) for the current fiscal is Tk 970 billion. 
Capital flight is the unrecorded movement of funds between a country and the rest of the world. This money is intended to disappear from any record in the country of origin, and earnings on the stock of flight capital abroad don't normally return to the country of origin. 
During the last 10 years, black money amounting to $55.87 billion flowed out of Bangladesh to different destinations -- mostly to tax havens like Switzerland, Mauritius, British Virgin Island, Dubai and Singapore. However, the highest amount of illicit money had flown out of the country in 2013. Due to substantial increase in illegal transfer of financial assets, Bangladesh ranked 26th in illicit financial flow (IFF) during 2004-2013 period among 149 countries under review of the organisation.
According to GFI, maximum amount of outflow of dirty money takes place through trade mis-invoicing and the rest through 'hot money' as reflected in the leakages in the balance of payments (BoP). In the 10 years under review, some $49.13 billion had been siphoned off Bangladesh through trade mis-invoicing.  In 2013, the amount was $8.35 billion.
Expressing grave concern over the situation, experts say lack of good governance and political uncertainty is to blame for such situation. Their concern on capital flight is also confirmed from deposits by Bangladeshi citizens in Switzerland banks rising by 36.55 per cent in 2014 compared to that  in 2013. The total deposits by Bangladeshi citizens soared to 508 million Swiss franc from 372 million franc.
In fact, the outflow of fund from the country was much higher than other South Asian countries. Such trend, if continued, will further push down private investment and the ountry's goal of attaining middle-income country status in the new decade.
On the other hand, the private sector is very nominal in the country. Private sector businesses are showing less interest for credit which has left the banks sitting on growing idle fund. It slipped two notches down to 174 among 189 countries from 172 a year back in the World Bank Group's latest ranking on the ease of doing business.
What is true about the country is that it is counting millions of dollars in capital flight every year owing to leakage in the balance of payments and trade mis-invoicing by businesses. Over the last four decades, the country lost $800 million a year on average in capital flight driven by balance of payment leakages, trade mis-invoicing and unreported remittances.
The United Nations Development Programme (UNDP), in the meantime, conducted a survey on illicit financial flows from eight low-income and Least Developed Countries (LDCs). By 2008, the LDCs were losing between $20 billion and $28 billion annually due to illicit financial flows. This sum is roughly equivalent to the amount of Official Development Assistance (ODA) that flows into these economies annually. 
The study blames leakages in balance of payments, export and import mis-invoicing and unreported remittances for the capital flight. Leakages in the balance of payments account for 83.1 per cent of the capital that went out of Bangladesh over the four decades.
Such leakage occurs when there is a mismatch between inflow and outflow of foreign currency. The authorities then put the lost money under the heading of 'Error and Omission' in the country's balance of payments account. The amount of such losses, according to reports, was $764 million in 2012-13 and $676 million in the first six months of 2013-14. Trade mis-invoicing, which includes mis-pricing in imports and exports, accounts for the rest 16.9 per cent of the capital flight. The actual amount of money going out of the country might be higher as updated figures are not available as yet.
The Bangladesh Bank (BB) is expected to take measures to prevent under- and over-invoicing. As part of the initiatives, the BB will check its data on letters of credit with the customs data at the NBR (National Board of Revenue). A joint cell of the central bank and the NBR will be set up to collect data on commodity and machinery prices in overseas markets to stop under and over-invoicing. This will help check tax evasion and capital flight. 
There is no denying that political and governance environment of a country influences capital flight. An unstable political environment raises the risk of losses of private wealth through expropriation or destruction of assets in violence. Poor governance, in turn, facilitates theft, embezzlement of national resources, trade mis-invoicing, and smuggling of goods and capital across borders, all of which can induce illicit financial flows.
There appears to be a strong connection between high levels of illicit financial flows and the poverty gap. A plotting of illicit outflows against the number of people living on $1.25 per day and those living on $2.0 per day shows that when illicit financial flows are high, poverty rates are high at both poverty levels.
However, concerted action needs to be taken by the world community to assist not only the nations that have high levels of illicit money flow but also to help those that that have such huge percentages of their economic foundation eroded by them. The world leaders should focus on addressing trade mis-invoicing, which accounts for the vast majority of measurable illicit outflows, as well as on curbing the opacity in the global financial system.
As for Bangladesh, the government should adopt and fully implement all of the Financial Action Task Force's anti-money laundering recommendations. Regulators and law enforcement authorities should ensure that all of the anti-money laundering regulations, which are already on the books, are strongly enforced.

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