Published in The Financial Express on Thursday, 26 June 2014.
Capital flight issue stirs up concern at different levels
FE Report
The actual size of the fund that has flown out of the country in recent years through both formal and informal routes remains a mystery.
A few very recent reports by competent international agencies on the issue have kept the policymakers, central bankers and financial experts guessing about the extent of capital flight.
Experts concerned said the factors involving the flight of capital are multiple and without a close watch on the part of the agencies concerned it is hard to deal with the problem effectively.
Besides, they said, since the destinations of such capital, in most cases accumulated through illegal means and abuse of power, are many it is really a tough task to track down those without adequate preparations.
A few days back the Swiss national bank report had revealed that deposits by Bangladesh nationals in the banks of Switzerland recorded a 62 per cent increase in 2013. Only a couple of days after the publication of that report, a study by the United Nations Development Programme (UNDP) claimed that Bangladesh lost on an average US$800 million annually in capital flight during the last four decades driven by balance of payment leakages, dubious trade invoicing and unreported remittances.
The issue of capital flight has been raised on a number of occasions by experts and private think-tanks, including the Centre for Policy Dialogue (CPD). Even Finance Minister AMA Muhith on a couple of occasions recently had expressed his resentment in public over the flight of capital.
When contacted, Dhaka University Professor of Economics Department M. A. Taslim said the fear of action against the
holders of unaccounted for funds, feeling of growing insecurity about life and property, and political instability might have prompted some individuals to take out their capital out of the country.Besides, illicit financial outflows might have taken place in the form of over and under invoicing, Mr. Taslim said, adding a section of local businesses is learnt to have been engaged in either investing money or shifting their business abroad.”The act of such capital flight will continue unless a stable political situation and security of people’s life and property are ensured,” said the economist.
He also suggested a well-coordinated effort on the part of central bank, National Board of Revenue (NBR), and other law-enforcing and intelligence agencies to prevent such capital flights.
According to Mr. Taslim, if the NBR is able to bring the unaccounted for incomes under its tax net, then it will help check such illegal capital outflows from the country.
When his attention was drawn to UNDP study on capital flight from Bangladesh and its citizens’ deposits with Swiss Bank, Mr. Taslim said the volume of siphoned-off money could have been much higher than what has been mentioned in those reports.
Another financial sector insider mentioned that these days capital does not fly to one or two destinations. A part of it may go to Swiss banks and some others might be taken to offshore financial centres, known as ‘tax havens’ or invested in the ‘second home programme in Malaysia or in real estates and businesses in Canada or any other country, he said.
Meanwhile, the central bank has intensified its efforts to check capital flight using over-and under- invoicing in the name foreign trade.
“We’ve discussed with senior officials of the National Board of Revenue (NBR) on Tuesday to establish an integrated automated system shortly for sharing information on foreign trade between the two authorities,” a BB senior official told the FE Wednesday. He also said the system will help both check tax evasion and capital flight.
“The realisation of export bills has been improved following introduction of electronic monitoring system, generally known as ‘dashboard’ to check fraud and forgery in the country’s banking sector,” the central banker noted.
Earlier on February 12 last year, the BB launched the dashboard for monitoring all kind of foreign exchange transactions.
The dashboard provides summary of export, import, inland back to back letter of credit (LC), inward and outward remittances separately.
Besides, the central bank, the NBR and the Anti-Corruption Commission (ACC) are now working jointly to check illegal fund transferred.
“We’ve already signed a deal with the ACC for sharing information on money laundering between the two agencies,” another BB official said.
Expressing deep concern over the issue of capital flight, Executive Director of Transparency International Bangladesh (TIB) Dr Iftekharuzzaman said poor enforcement of the country’s existing laws is a major reason for such illegal acts. “So, we need to ensure enforcement of the laws,” he said.
Giving another suggestion to bring back the money into the country, he said that Bangladesh being a signatory state to the UN (United Nations) convention against corruption can go for mutual legal assistance (MLA) with the government of Switzerland, which also signed in the convention, for bringing back the flown-out money.
He said the key state entities like Anti Corruption Commission (ACC), National Board of Revenue (NBR) and Anti Money Laundering Unit of the Bangladesh Bank must start the process of bringing back the funds in a coordinated way as they did earlier in the case of bringing some funds from Singapore.
“At the same time, the illicit money senders should be brought to book and given exemplary punishment so that none can show the courage to commit such crimes in the future,” he added.