NEW YORK, Oct 4 (IPS) – Khalid Saifullah, Fellow, Save Bangladesh USA Inc. The common Bangla expression for siphoning money out of the country – ‘taka pachar’ – is quite misleading. Because taka, the Bengali currency, is never taken out of Bangladesh. It’s not useful anywhere else. What comes out is its equivalence in foreign currencies, especially US dollars. The technical term for such criminal acts is Illicit Financial Flows (IFFs). IFFs are sometimes incorrectly referred to as money laundering – a processing of criminal proceeds to disguise their illegal origin.
Money laundering and illegal money transfers
While there are some links between money laundering and IFFs, they are not the same activity. The United Nations Office on Drugs and Crime defines money laundering as “the conversion or transfer of property, knowing that such property is derived from one or more criminal offenses, with the aim of concealing or disguising the illegal origin of the property or to assist any person involved in such offenses to avoid the legal consequences from his actions.”
On the other hand, Illicit financial flows (IFFs) refer to illegal movements or transfers of money or capital from one country to another. However, the sources of such funds do not have to be illegal (e.g. corruption, smuggling).
In practice, IFFs can also involve ill-gotten money – in the worst case, as in Bangladesh. The billions of dollars taken out of the country were largely obtained through corruption and theft of public funds.
How do illegal money transfers happen?
Nearly $3.15 billion flows out illegally from Bangladesh annually. If an ordinary person wants to travel abroad with a few hundred thousand dollars, he can simply put it in his pocket and take a flight, which is perfectly legal if that amount is within a country’s legal limit. For example, one can legally withdraw (or bring in) a maximum of AUD 10,000 from Australia without having to file a declaration. For Bangladesh this is only US$5,000.
But henchmen of Hasina’s kleptocratic regime have robbed and transferred millions and billions of dollars. According to a recent report Nearly $150 billion was siphoned out of the country during fifteen years of misrule by the kleptocratic Hasina regime. So they must have carried out these highly illegal activities through legal channels. How did it work though?
Well, it’s very difficult to know for sure, but it is believed that most IFFs occur through trade misinvoicing or trade-based money laundering. Let’s try to understand the design with an example.
Suppose you want to launder a million dollars. You or your accomplice have an export-import business. Suppose you need to import 10,000 units of a product that costs $50 each. But instead of €50, you declare that the unit value was €150. By ‘securing’ the help of some key figures within the authorities, you get the Bangladesh Bank to transfer one and a half million dollars in payment for your over-declared imports to a foreign company you set up for this purpose. You pay the exporter half a million dollars for your legitimate imports, and in the process you have managed to launder the million dollars you wanted to leave Bangladesh. The same can be done for exports, but in reverse. Of course, this is a simplistic example and there can be many creative variations on this threat.
There are reasons to believe that this has happened a lot in the case of Bangladesh. Why? Well, for starters, Bangladesh has a vibrant export-import sector that can make trade-based money laundering accessible and difficult to trace. Second, many of Hasina’s accomplices were themselves involved in international trade. Thirdly – and I don’t think many people know this – Bangladesh stopped sharing detailed international trade data with the UN after 2015. There may of course be other explanations for this, but the timing still raises questions. UN comradeThe world’s largest source of international trade data, it has data on most of the world’s countries, but not on Bangladesh, the world’s eighth largest population and thirty-fifth largest economy.
We need detailed trading data
International trade data has the special feature of being double-sided. Bangladesh’s export of cotton T-shirts to the US is also US imports of cotton T-shirts from Bangladesh. In practice, there are some other factors at play, but generally this is how it is. Users can easily compare international trade data and any glaring differences become immediately apparent.
One could argue that this is still possible, as the Bangladesh Bureau of Statistics (BBS), the Exports Promotion Bureau (EPB) and the Bangladesh Bank (BB) all publish external trade data. It seems that way, but that’s not really the case. Without going into much detail, the data published by these agencies lacks the necessary detail to be comparable. Their data is at an aggregated level and is not distributed in a comparable manner. EPB doesn’t even publish import data (this is probably not within their mandate).
Then there’s the matter of accuracy. Weeks before Sheikh Hasina’s ouster, BB revised the export data and stated that EPB’s figure was USD 10 billion higher than actual exports. Chief advisor Muhammad Yunus pledged to publish accurate trade data in his latest address to the public. It is a very necessary and welcome step. However, it is not enough. We need the necessary detail in the data to allow comparison with the data from our trading partner countries. In particular we need:
• Data per calendar year (January-Dec) and not just per financial year. • Data per monthly frequency. • Breakdown by commodity codes up to a minimum of HS (Harmonized System) 6-digit level. There are approximately 6,000 six-digit HS codes available from the World Customs Organization (WCO). These codes can specify an item with sufficient detail. • Descriptions of goods. • Breakdown by trading partner (ISO codes for country of origin for imports, country of last known destination for exports). • Breakdown by country of shipment (ISO codes for any third country through which the goods may have passed). • Mode of transport (sea, air, road, rail, etc.). • Breakdown by customs procedure codes (for what purpose the goods were imported or exported). • Breakdown by trade flow (export, import, re-export, etc.) • Value (free on board for export; cost, insurance and freight basis for import), net weight and quantity.
Towards modernization and automation of financial intelligence
Accurate, timely and detailed trade data is important for analysis of potential trade invoice errors, but is not sufficient to prevent money laundering altogether. What we need is an overhaul and automation of financial intelligence itself.
The backbone of such an automated system should be a business register (BR). A BR is exactly what it sounds like: it is a register of all companies in a country. An important part of the BR is the unique identification. Each company or business is assigned a unique ID. Once set up, businesses must use this ID in all types of activities, from setting up bank accounts to trading.
The BR can contain a lot of other information about the companies, including size, sector, economic activities and so on. Thanks to its unique identification, BR can be used to link data from different domains, for example by linking trade data to companies and their banking activities.
Given the wealth of linked data available from customs declarations, banks and other sources – much of which cannot be published for public use due to confidentiality – the information can still be used to build highly intelligent and sophisticated systems thanks to statistical modeling and machine learning. learning and artificial intelligence that can identify suspicious activity in real time. I mean, something has to be ‘wrong’ in a transaction involving money laundering, and the technology is there to detect it.
The existence of such a system in itself could reduce the problem of money laundering to a great extent as it will serve as a strong deterrent. Building this level of data capacity obviously requires investments. But looking at the estimated $150 billion laundered by Sheikh Hasina’s kleptocratic regime, the return on investment seems very tempting.
Khalid Saifullah is a trained statistician with 14 years of experience in international organizations.
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© Inter Press Service (2024) — All rights reservedOriginal source: Inter Press Service