One year ago we had a rude wake-up call because of Panama-gate. The Panama Papers were the latest in a long line of leaks that generated political repercussions across frontiers. The revelations came when more than eleven million documents held by the Panama-based law firm Mossack Fonseca were passed on to German newspaper Suddeutsche Zeitung, which was then shared with the International Consortium of Investigative Journalists (ICIJ) and 107 other media organisations in 78 countries -- including UK newspaper, the Guardian and also the BBC.
It was mentioned in these documents that some persons from Bangladesh were involved in this illegal activity. It was suggested at that time that relevant authorities in Bangladesh should immediately set up a Committee to ascertain the scope of involvement of any Bangladeshi named in these Panama Papers. The Bangladesh Bank was also asked to initiate an enquiry as to whether any of the Shell Units in Panama was formed through capital flight associated with over invoicing or under invoicing.
Since then, at different times, we have seen reports in the media of funds being laundered out of Bangladesh to several destinations including Switzerland. We have stressed in this regard that relevant authorities should take necessary measures to stop this. Such a course of action was recommended because of the possibility that lack of accountability might end up in Bangladesh being classified as "risky" by the Asia/Pacific Group on Money Laundering (APC). It was underlined that illicit money outflow had to be prevented to stem corruption. This, it was re-affirmed by many, including myself, was essential for our national security and would require not only more intensive, transparent and accountable coordination between the concerned agencies, including the NBR but also effective political will.
In the beginning of May this year, our monitors of financial integrity appear to have been caught once again with their pants down. On May 1, Washington-based research and advisory organisation the Global Financial Integrity Report (GFI) unveiled a report titled "Illicit Financial Flows to and from Developing Countries: 2005-2014". This revealed that unrecorded capital flow from Bangladesh stood at US$61.63 billion between 2005 and 2014, relying mostly on deliberate over-invoicing and under-invoicing in trade transactions. The report also revealed that illicit capital flight from Bangladesh had a higher trajectory from 2007 onwards. Data available with the GFI indicated that this illegal outflow had grown from about US$ 4.1 billion in 2007 to US$ 9.66 billion in 2013. In 2014, there was a minor reduction when the outflow was estimated to have dropped to US$ 9.1 billion (about 13 per cent of total trade in that year).
The report indicated that Bangladesh's total trade value during 2005-14 was around US$ 446.153 billion. It was also mentioned that on an average between 12 per cent and 17 per cent of the trade value had annually flown out of Bangladesh during this period till December 2014. It has also been pointed out that if the figure of 17 per cent of the trade value is taken into consideration, then total financial outflow would be in the region of US$ 75.84 billion over this period of ten years. If, however, it was on the lower of 12 per cent, then the annual outflow on an average would be about US$ 5.35 billion. It may be mentioned here that an earlier report released by the same agency in December 2015 had suggested that annual average outflow from Bangladesh was on a higher plane at around US$ 5.58 billion during 2004-13.
This time round the GFI report was slightly different. In its global study, it gave equal emphasis on both illicit outflows as well as inflows. While doing so, it drew the attention of the reader to the fact that both outflows as well as inflows were "persistently high over the period between 2005 and 2014". Apparently, combined, this dynamics has "been estimated to account for between 14.1 and 24.0 per cent of the developing-country trade, on average". The other significant aspect about this report is that unlike previous years, this year, the report has failed to mention country-specific amount of the "dirty money" that has allegedly moved in and out of developing countries. This factor has consequently affected its credibility and our Chairman, National Board of Revenue referring to the accuracy of the report pointed out that "there are questions about the methodology of the report as it has not clearly mentioned the sources of information". He, however, also assured the press that his organisation was not only studying the report but would also take further steps to control money laundering and the use of 'hundi' in illegal money transactions. It might have helped if he had outlined the pro-active measures that the relevant agencies have already initiated since the Panamagate revelations.
One interesting aspect that has attracted the attention of the Bangladesh authorities is the claim in the report that illegal outflow of money from external destinations has also persistently been entering Bangladesh. It has been indicated that in 2010, an estimated US$ 9,47 billion left Bangladesh and about US$ 6.135 billion came into the country. In 2011, about US$ 7.14 billion left and about US$ 10.5 billion came in. In 2012, about US$ 8,73 billion left and US$ 7.218 billion came in. In 2013, US$ 10.043 billion left Bangladesh and US$ 9.669 billion entered the country. In 2014, about US$ 8.972 billion went out and US$ 12.575 billion entered Bangladesh.
This dynamics of money-flow has allegedly acquired an even greater dimension in the case of India. Apparently, an estimated US$ 770 billion-plus of undeclared black money entered that country during the 2005-14 period while US$ 165 billion (about three per cent of India's total trade flow of US$ 5.5 trillion) exited that country during that time.
United Nations in 2013 classified Illicit Financial Flow (IFF) into three main forms: (a) proceeds of theft, bribery and other forms of corruption by government officials; (b) proceeds of criminal activities including drug trading, racketeering, counterfeiting, contraband and terrorist financing and (c) proceeds of tax evasion and laundered commercial transactions.
It has also been pointed out by several quasi-judicial organisations that IFF can be characterised as cross-border transfer of funds that are illegally earned, transferred or utilised.
In this context, the GFI has recommended certain steps that may be undertaken to overcome this challenge. They have suggested that governments and international regulators can emphasise on greater financial transparency. That could curtail illicit outflows. They have also mentioned about the need to have wider information exchange on tax as is practiced within the OECD and G-20 member states. In addition, it has been underlined that Customs agencies should treat all trade transactions with the highest level of scrutiny, particularly when the transaction involves any known tax haven.
It may be recalled here that in 2015, the European Union adopted legislation requiring each EU member state to create registers of beneficial ownership information by May 2017. It has also been emphasised in this regard that information within such registers would have to be freely accessible by law enforcement authorities and other relevant financial institutions. This has been done to strengthen accountability and participatory management. In a similar vein, in most EU member states, regulations have been put in place whereby multinational corporations are required to publicly disclose their revenues, profits, losses, sales, taxes paid, subsidiaries and staff levels on a country-to-country basis to facilitate detecting and deterring abusive tax avoidance practices.
It would be important to note here that GFI studies have indicated that trade mis-invoicing is the primary measurable means for shifting funds out of developing countries illicitly. Over the ten year time period of this study, on an average 83.4 per cent of illicit financial outflows were due to fraudulent mis-invoicing.
Despite all the above proof of the use of mis-invoicing by Bangladeshis and deposit of such illicit amounts elsewhere including Malaysia, Canada and in Swiss banks, only a total of 284 money laundering cases have been filed by Bangladesh authorities during 2009 to 2015.
We all need to understand and remember that illegal gratification and availing of different means which erode financial integrity only undermine rights of citizens and lead to mis-governance. This dynamics that promotes and encourages such informal black economy has to be stopped through concerted effort of all relevant agencies.
The writer, a former Ambassador and Chief Information Commissioner of the Information Commission, is an analyst specialized in foreign affairs, right to information and good governance.
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