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Money flies away from Bangladesh

UNDP study shows grim trend of massive illicit capital flight

Rejaul Karim Byron ami Md Fazlur Rahman
Bangladesh counts millions of dollars in capital flight every year owing to leakage in the balance of payments and trade misinvoicing by businesses.
Over the last four decades, the country lost $800 million a year on average in capital flight driven by balance of payment leakages, trade misinvoicing and unreported remittances, according to a United Nations study.
The total capital flight from Bangladesh accounts for 30.4 percent of its GDP of over $100 billion in 2010, says the study by the United Nations Development Programme.
The UNDP looked into illicit financial flows from eight low income and Least Developed Countries (LDCs): Bangladesh,Bolivia, C6te d'Ivoire, Guinea, Nepal, Sierra Leone, Tanzania and Zambia.
By 2008, the LDCs were losing between $20 billion and $28 billion annually due to illicit financial flows. This sum is roughly equivalent to the amount of Official Development Assistance that flows into these economies annually.
The study blames leakages in balance of payments, export and import misinvoicing and unreported remittances for the capital flight.
According to the World Bank, capital flight is the unrecorded movement of funds between a country and the rest of the world.
This money is intended to disappear from any record in the country of origin, and earnings on the stock of flight capital abroad don't normally return to the country of origin. The term, "illicit financial flows', is commonly used to describe this form ofcapital flight.
Leakages in the balance of payments account for 83.1 percent of the capital that went out of Bangladesh over the four decades, show UNDP data.
Such leakage occurs when there is a mismatch between inflow and outflow of foreign currency. The authorities then put the lost money under the heading of 'Error and Omission* in the country's balance of payments account.
The amount of such losses was $977 million in fiscal 2011-12. $764 million in 2012-13 and $676 million in the first six months of 2013-14, according to the government's Economic Review 2014.
Trade misinvoicing, which includes mispricing in imports and exports, accounts for the rest 16.9 percent of the capital flight, says the UNDP.
The actual amount of money going out of the country might be higher as updated figures are not available.
The issue came to the fore on Thursday after Switzerland's central bank disclosed that Bangladeshi citizens' deposits with different Swiss banks rose by 62 percent year-on-year in 2013.
The deposits, which stood at Tk 3,236 crore (372 million Swiss franc) at the end of 2013, were Tk 1,991 crore in 2012, show the latest data of
the Swiss National Bank.
Officials say Bangladesh Bank, the National Board of Revenue (NBR) and the Anti - Corruption Commission ( ACC) are working on a mechanism to stop capital flight.
They would soon hold a joint meeting, said an official on condition of anonymity.
An ACC senior official said it would be tough to bring back the ’lost money’. ’We will take steps to stop any further capital flight."
Asking not to be named, a BB official said the central bank would take measures to prevent under and over-invoicing.
As part of the initiatives, the BB will check its data on letters of credit with the customs data at the NBR.
A joint cell of the central bank and the NBR will be set up to collect data on commodity and machinery prices in overseas markets to stop under and over-invoicing.
This would help check tax evasion and capital flight, saida BB official.
The BB has started working with the Export Promotion Bureau and banks to ensure that export proceeds return to the country in time, said a senior BB official.
The move came after a state-owned commercial bank was fined for not bringing in export proceeds to the country in time, said the official.
Another UNDP publication. 'Illicit Financial Flows from the Least Developed Countries: 1990-2008', ranked Bangladesh as the top exporter of illicit capital among all
LDCs between 1990 and 2008 when $34.8 billion leaked out of the coun-try.
For every dollar received in official development assistance. $1.4 goes out of the country in illicit flows.
The UNDP said political and governance environment of a country influences capital flight. An unstable political environment raises the risk of losses of private wealth through expropriation or destruction of assets in violence.
Poor governance, in turn, facilitates theft, embezzlement of national resources, trade misinvoicing, and smuggling of goods and capital across borders, all of which can induce illicit financial flows, said the UN agency.
BB WRITES TO SWISS AUTHORITY Bangladesh Financial Intelligence Unit yesterday wrote to the Money Laundering Reporting Office Switzerland, showing an interest in signing a memorandum of understanding with it for sharing information on money laundering.
’If Switzerland agrees to sign the Moll, we will discuss whether the country will cooperate with us on the issue of Bangladeshi citizens' deposits with Swiss banks.’ Mahfuzur Rahman, who heads the unit at the central bank, toldThe Daily Star.
Bangladesh has already signed agreements with financial intelligence units of 24 countries after it became a member of the EGMONT Group, the global anti-money launderingbody, last year, he said.