Believe it or not, Bangladesh lost US$ 911 crore, equivalent to Taka around 73 thousand crore in the way of capital flight in the year 2014. This amount is equivalent to our 2016-17 fiscal budget allocation in the field of education, health, transport, power, and agriculture and water resource, nearly all the major heads of development.
The country lost a total amount of US dollar 7,585 crore, equivalent to Taka 606,868 crore from 2005 to 2014 in the form of capital flight.This amount is big enough to meet total expenditure of three Padma bridges construction.
This has been revealed by the Global Financial Integrity (GFI) in its recent report titled ‘Illicit Financial Flows to and from Developed Countries: 2005-2014’. The report said that Bangladesh has lost US dollar 7,585 crore, equivalent to Taka 606,868 crore from 2005 to 2014 thanks to trade over invoicing and other unrecorded outflows. As per 2014 data, the total international trade value of the country stood slightly over US dollar 70 billion and trade over invoicing was between 7 to 11 per cent. The US-based Global organisation GFI released its study report on May 1, with information on the money laundering situation in 149 countries across the globe from 2005 to 2014. The report observed that the money was laundered through a process of over-invoicing during imports and under-invoicing during exports.
The Illicit financial flows (IFFs) represent a major hurdle for emerging economies like Bangladesh. The decade under review, i.e. from 2005 to 2014, revealed that the flow of capital flight has been nearly doubled over the 2004-2013 period and the highest capital flight was recorded in 2013 when Bangladesh experienced serious political turmoil. Moreover, the flow of capital flight from Bangladesh is higher than some of the neighbouring countries.
The capital flight from Sri Lanka was US dollar 90 crore which was three per cent of their total commercial transactions. Though the amount of capital flight from India was US dollar 2334 crore, it was only three per cent of their total commercial transactions. The amount of capital flight in Thailand was US dollar 1812 crore and it was four per cent of their total commercial transactions. Sadly, it is 13 per cent in Bangladesh.
It is over invoicing and under invoicing that remains the primary tool for illegal transfer of funds out of a country. In this practice, trading partners write their own trade documents, or arrange to have the documents prepared in a third country. The practice allows for fraudulent manipulation of the price, quantity, or quality of a good or service on an invoice and allows criminals, government officials, and commercial tax evaders to shift vast amounts of money across international borders quickly depriving the national economy.
The GFI report also revealed that money laundering is increasing with every passing year. The amount of money laundered from developing countries during the past 10 years stood at US dollar 3.5 trillion from US dollar two trillion. Around 24 per cent of the money was laundered from the developing countries alone, the report disclosed. According to the report, on an average, US dollar 558 crore have been laundered from Bangladesh each year till 2013. The amount of money laundering in 2010 was US dollar 540 crore, rising to US dollar 911 crore 2014.
The GFI study ranked Bangladesh 51st among 145 developing countries in 2014 that lost most money to capital flight. China, Russia and Mexico topped the list in the descending order in the study ‘Illicit Financial Flows from Developing Countries: 2003-2012’ which estimated that nearly one trillion dollar of unrecorded money shifted out of emerging markets and developing countries every year during the time. The GFI study also revealed that illicit outflows are growing at an inflation-adjusted 9.4 per cent a year, roughly double the global GDP growth over the same period.
The big amount of capital flight from the country happened mainly because of the lack of confidence on safe keeping of money in the country’s prevailing political scenario. The local experts attributed the serious political instability for the rise in the illegal outflow of money from Bangladesh.
Available data also suggested that illicit outflows of money increased when election approached in Bangladesh. Outflows in 2006 were much higher than those in 2005 and outflows in 2012 were much higher than those in 2011.The transfer of huge money out of the country is surely a big blow for the economy as it means lost investments and revenue income for the government.
The Swiss National Bank (SNB), the central bank of Switzerland, in its annual report 2013 said that the volume of money deposited in the Swiss banks by the Bangladeshis has increased by 62 per cent in one year. The report titled ‘Banks in Switzerland 2013’ also said that money deposited by Indians increased by 45 per cent. But the money deposited by the people from other countries has decreased significantly.
The SNB’s annual report revealed that, money deposited by Bangladeshis in Swiss banks by the end of 2013 rose to around 41.40 crore US dollar which is equivalent to Tk 3,163 crore. But the amount deposited by Bangladeshis in Swiss banks stood at Tk 1,908 crore in 2012. This amount was the sum total of money deposited in various banks over there by various individuals and organisations of Bangladesh. On the other hand, the Indians deposited 217.32 crore US dollar, which is equivalent to IRS 13,600 crore in Swiss banks in 2013 and IRS 9,000 crore in the previous year.
Following the facts revealed in the SNB’s annual report, Bangladesh Bank (BB) authorities decided to investigate as to whether the money deposited by the Bangladeshis in Swiss banks was siphoned off. BB said that it was planning to take initiative to sign MoU with the SNB in this regard. As the volume of the money deposited in Swiss banks increased significantly in the recent times, the BB took the decision to conduct the investigation. But the development in this regard is yet to be known.
Bangladesh is among the top three countries after China and Japan to avail itself of the “Malaysia My Second Home (MM2H)” programme with more than 3,000 Bangladeshis so far have taken the offer. More Bangladeshis have also applied for enrolment in the programme to get five years’ residence permit by making minimum investment of US $100,000. According to the Malaysian government rules, to settle there under the MM2H programme, one needs to deposit liquid assets worth at least RM 500,000 (about Tk 1.22 crore) and show offshore income of RM 10,000 (about Tk 2.45 lakh) per month. Bangladeshis started taking up the offer in 2003 when 32 citizens chose to settle in Malaysia under the programme. This is another source of capital flight from the country.
It is really alarming to know that, a staggering amount of Tk 606,868 crore, which is quite enough to meet total expenditure of construction of three Padma bridges, was diverted from Bangladesh in the period from 2005 to 2014. Taka 73 thousand crore was siphoned off the country only in the year 2014. This amount is higher than the money diverted in the last two years and was equal to one per cent of GDP of that year. Capital flight has become a serious concern for Bangladesh’s struggling economy. Silently but enormously, money is being laundered to safe destinations worldwide. Latest data shows Bangladeshis’ deposits with Swiss banks rose by 10 per cent last year, while it decreased for India.
The flight of such a big amount of capital from the country also indicates that there is little control of the authorities concerned over the transfer of such huge amounts through illegal means. The over and under-invoicing of imports or exports has become a common facet in our trading sector the aim of which is to keep foreign exchange abroad. Hundi also remains as one of the choices for transferring ill gotten money, either through corruption or proceeds for criminal activities.
The volume of money laundered from Bangladesh is a matter of concern, as the amount of laundered money was more than the foreign aid the country receives every year. According to GFI report, political instability in a country encourages capital flight and money laundering. Money laundering increased on large scale in Bangladesh during the political unrest in 2012 following the parliamentary elections. Bangladesh badly needs Foreign Direct Investment for achieving the status of Middle-income countries. In this situation fruitful measures should be taken to stop capital flight from the country.
The writer is a columnist