The government needs to keep an eye on over and under invoicing, ensure rule of law and prop up the investment climate to stop capital flight, say experts expressing concern over the increasing volume of money being siphoned off the country.
They also called for listing money launderers with help from foreign banks where funds has been parked and making it public as well as seizing assets of launderers in Bangladesh.
After a downtrend in 2017, deposits made by Bangladeshi citizens deposits with various Swiss banks rose by 28.34% in 2018.
The amount rose to Tk 53.47 billion (617.72 million Swiss Francs) last year from Tk 41.66 billion (481.31 million Francs) the previous year.
The Swiss National Bank (SNB) came up with the data in its annual report ‘Banks in Switzerland 2018’ released on Thursday (Jun 27).
Analysts have attributed absence of rule of law, poor investment climate and insecurity over the existing political situation in the country for the rise in capital flight.
“For a developing country like Bangladesh, it is quite impossible to stop capital flight as investment climate is not good, while the rich people do not feel safe about keeping all their money in the country due to political uncertainty, especially during the change of power,” says economist Ahsan H Mansur.
On the other hand, corruption and complexities in getting services are among other reasons, which discourage the young generation grown up in foreign country to stay in Bangladesh, according to him.
“As a result, the rich also launder money for safe stay of their children abroad as well as themselves as they do not feel safe here," said Mansur, the executive director of private think tank Policy Research Institute (PRI).
He thinks that although there is opportunity to invest black money after a certain amount of penalty, people are unwilling to do so in fear of moves by the graft watchdog.
“People who earn money illegally do not want to let people know about it, while there little scope for keeping it or investing it,” said World Bank Lead Economist in Bangladesh Zahid Hussain.
Stopping capital flight
Proper implementation of money laundering laws and strong monitoring by the authorities concerned can check capital flight.
“A significant amount of money is laundered out of the country through over and under invoicing in imports and exports. So taking proper measures to curb it is the key to rein in capital flight,” said former advisor to caretaker government AB Mirza Azizul Islam.
He suggests proper implementation of money laundering act and collecting data on money launderers to bring them to book and confiscate their property.
In addition, says Islam, the government has to ensure a business-friendly environment, where people can invest their money easily and get good return on their investments.
World Bank Dhaka office’s Zahid suggests central bank’s Bangladesh Financial Intelligence Unit (BFIU) has to be more vigilant in monitoring transactions and the National Board of Revenue (NBR) has to be more careful about over and under voicing in exports and imports.
Moreover, he says, the government has to have a strong political commitment to rooting out corruption and ensuring a favourable business environment.
Ensuring rule of law in the country and peaceful transition of political power is also essential, which lets people feel safe to stay and keep money in the country, the economist mentions.
BFIU Chief Abu Hena Mohd Razee Hassan says that Bangladesh Bank has always been working to prevent money laundering.
"We fully comply with international rules and regulations for prevention of money laundering and are working jointly with different government organizations to prevent money laundering," he says.
He, however, says said that there are different categories of Swiss bank deposits — all of them are not illegal.
How money siphons off out of the country
Capital flight occurs in various ways with over and under invoicing during imports and exports accounting a large portion of it.
Hundi [illegal fund transferring channels] and smuggling are also other ways for sending money abroad illegally
According to a recent report, $5.9 billion flew out of Bangladesh in 2015 via over and under invoicing, down from $9.1 billion in 2014. Of the total amount, $2.36 billion was siphoned through this misinvoicing.
Trade misinvoicing is a method for moving money illicitly across borders which involves the deliberate falsification of the value, volume, and/or type of commodity in an international commercial transaction of goods or services by at least one party to the transaction.