Banks instrumental in curbing illicit money outflow

Banks can play an important role in stalling the flow of money laundered illegally out of Bangladesh, bankers said yesterday.

Every taka going out of the country has to be purposeful, said Sheikh Mozaffar Hossain, a general manager of Bangladesh Bank.

Hossain spoke at a plenary session on the first day of the Annual Banking Conference 2015, organised by the Bangladesh Institute of Bank Management (BIBM) in the capital.

"It is tough to stifle hundi. But bankers can definitely stop the illegal outflow of capital through trade over- and under-invoicing. For example, when a letter of credit opens, bankers can check the price of the product."

Banks should train its officials on trade-based money-laundering so they can easily detect the illegal outflow of capital, another banker said at the two-day conference.

Faisal Ahmed, senior economic adviser to the governor of Bangladesh Bank, said there is growing transparency in sharing information globally to tackle money laundering.

Ahmed called for enforcement of laws to stall the illegal outflow of capital.

Rahat Banu and M Abdul Halim, BIBM lecturers, presented a paper highlighting the trend in the illicit outflow of money and recommendations to tackle the menace.

Bangladesh is the first country in South Asia to establish an anti-money laundering department, in 2002. It now works as the financial intelligence unit of the country.

The country has signed agreements with financial intelligence units of 24 countries after it became a member of the EGMONT Group, the global anti-money laundering body. Bangladesh is also a founding member of Asia Pacific Group on Money Laundering.

Still, in December 2014, Washington-based Global Financial Integrity ranked Bangladesh 51st among 145 countries adversely affected by illicit capital flight.

Between 2001 and 2010, the country lost around $14 billion through illicit capital outflow, while 75 percent of the amount was through the manipulation of export and import invoicing, according to the paper.

Swiss National Bank's annual report says deposits by Bangladeshi citizens at various Swiss banks rose by 62 percent year-on-year in 2013, bringing the aggregate amount of deposits to $401 million. 

According to the paper, the main reason behind capital flight from Bangladesh is economic crimes that are generated through huge illegal incomes whether from the wilful default of bank loans, manipulation in stock exchanges, and over- and under-invoicing in trade settlements. 

Among these means, leakage in the balance of payments and trade misinvoicing by businesses are key conduits of capital flight.

Researchers called for efforts to make the anti-money laundering department of the central bank fully active and operative. The government may actively consider gradual movement toward capital account convertibility, they said.

Bangladesh Bank Governor Atiur Rahman, who inaugurated the conference, said Bangladesh Bank has strategically lengthened its policy horizon through various initiatives.

"In addition to ensuring the traditional focus on macro-financial stability, Bangladesh Bank has emphasised a sustainable and inclusive central banking agenda."

"The goal is to have higher and better quality growth that can lift all Bangladeshis, ensure social cohesion and empowerment, and protect the environment," Rahman said.

To promote good corporate governance, monitoring has been enhanced in the areas of responsibility and accountability of the board, said Rahman.

"Internal control structures are being strengthened and the process of risk identification, measurement and mitigation streamlined, to move closer to international best practices."

Banks would have to adopt the best global practices of corporate governance and implement it with a broad mindset, said Toufic Ahmad Choudhury, BIBM director general.

"More transparent, accountable and ethical human resource practices may ensure that banks resort to self-regulation rather than base their working on regulatory requirements."

In another paper authored by Md Akhtaruzzaman, economic adviser of Bangladesh Bank, and M Abdul Wahab and Mohammad Shahriar Siddiqui, joint directors, said the risk management practices in the banking sector in Bangladesh have served their purposes fairly in averting systemic crises.

"But there is no room for complacency. These practices must be improved."