TRADE-BASED money laundering is continuing unabated as news reports said by a section of businessmen taking advantage of the shortcoming in the regulatory bodies and their poor oversight capacity to detect them in time. Businessmen transfer substantial amounts of money every year through banking channels by showing highly inflated prices of imported capital machinery and other goods. As the economy remained stuck for the last several years due to political instability, huge capital remains idle in banks and since businessmen get no option to invest, they are siphoning funds abroad on regular basis using trade channel as the safe way to repatriate money abroad. The regulatory bodies — Central Bank and Customs Department — are not well equipped to trace the laundering quickly and so effective preventive measures are also lacking. Moreover many officials work as facilitator to such money laundering under the cover of import bills payment.
Businessmen are widely using over-invoicing of imported capital goods and machinery through formal banking channels for the purpose. They are also using under-reporting to deprive the government of huge revenues. A transparent, coherent and fully integrated valuation system of imported goods including capital machinery is needed to check the misuse of over and under invoicing. But due to lack of adequate manpower, technical knowledge and logistics, the government is failing to make its system foolproof. According to Bangladesh Bank data, the country’s overall import payments in 2014-15 Fiscal Year increased by 3.0 percent but the payment for capital machinery imports soared by around 23 percent. Despite lower growths in overall import payment, the LC settlement for capital machinery imports increased by 22.97 percent to $3.09 billion which was $2.52 billion in FY14.
Money laundering by businessmen through formal trade channels is a global phenomenon. A former Bangladesh Bank governor said that the sudden rise in capital machinery import raised further suspicion that the intensity of such trade-based money laundering is on the rise. The issue needs immediate attention from the regulators, including the central bank; otherwise, such a crime would leave significant implications on the national economy.
The central bank has already intensified surveillance and asked other commercial banks to check each trade document to avoid the risk of money laundering. Establishment of a valuation database and modernization of Customs Department is important at this stage to plug the loopholes. All the more, the country needs a sound political environment which is business friendly and offers scope to the businesses to reengage in new investment over the fear of political uncertainty. In our view only a pro-investment business environment can effectively resist the illegal capital flight through legal or illegal channels.
