NEW YORK, Oct 04 (IPS) – Khalid Saifullah, Fellow, Save Bangladesh USA Inc. The Bangla phrase commonly used for remittances – “taka pachar” – is misleading. Because the taka, the Bangladeshi currency, is not issued in Bangladesh. It is useless elsewhere. Derivatives are their equivalents in foreign currencies, mainly, US dollars. The technical term for such criminal activity is Illicit Financial Flows (IFFs). Incorrectly, IFFs are sometimes called money laundering – the processing of criminal proceeds to hide their illegal origin.
Money laundering and illegal money transfers
Although there are connections 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 the property was taken from any crime(s), with the intention of concealing or disguising the illegal origin of the property or helping a person involved in that crime to avoid the legal consequences of his actions”.
On the other hand, illicit financial flows (IFFs) refer to the illegal movement or transfer of money or capital from one country to another. However, the sources of such funds may be illegitimate (eg, corruption, smuggling).
In practice, IFFs can reinvest ill-gotten gains – a worst-case scenario like in Bangladesh. The billions of rands that were taken out of the country were mostly obtained through corruption and theft of public funds.
How does illegal money transfer happen?
About US$3.15 billion is illegally exported from Bangladesh every year. If the average person wants to go abroad with a few hundred thousand dollars, they can just stick it in their pocket and catch a perfectly legal flight if that amount is within the country’s legal limit. For example, a person can legally withdraw up to AUD10,000 from Australia (or bring it in) without having to make a declaration. In Bangladesh, it is only USD5,000.
But the followers of Hasina’s kleptocratic regime looted and transferred millions and billions of dollars. According to a recent report, nearly $150 billion was taken from the country during the 15 years of kleptocratic Hasina’s rule. Therefore, they must have done these illegal activities through legal channels. How did it work though?
Well, it is very difficult to know for sure, but it is believed that most IFFs are made through trade invoices or trade-based money laundering. Let’s try to understand the design with an example.
Let’s say, you want to withdraw a million dollars. Either you or your partner have an export business. Let’s say you need to import 10,000 units of each product that costs $50. But instead of $50, he announces that their unit price was $150. By “getting” help from certain key people within the authorities, you get the Bangladesh Bank to transfer one and a half million dollars as payment for your over-exposed imports to a foreign company you set up for this purpose. You pay the exporter half a million dollars for your legitimate purchase, and in the process, you successfully defraud the million dollars you wanted to take out of Bangladesh. The same can be done for exports but in reverse. This is a simple example and there can be many variations of creating this threat.
There are reasons to believe that this is especially true in the case of Bangladesh. Why? First of all, Bangladesh has an active export sector that can make trade-based money laundering accessible and difficult to track. Secondly, most of Hasina’s friends themselves were involved in international trade. Third – and I don’t think many people know this – Bangladesh stopped sharing international trade data with the UN after 2015. There may be other explanations for this, but the timing nevertheless raises questions. UN Comtrade, the world’s largest source of international trade data, has data on most countries in the world but not Bangladesh, the world’s eighth largest and thirty-fifth largest economy.
We need detailed trade data
International trade data has the special feature of being a two-sided account. Bangladesh’s exports of cotton t-shirts to the US are also US imports of cotton t-shirts from Bangladesh. Actually, there are other factors at play but overall, how is it. Users can easily compare international trade data and any obvious differences are quickly identified.
One could argue that this is still possible as Bangladesh Bureau of Statistics (BBS), Exports Promotion Bureau (EPB) and Bangladesh Bank (BB) all publish foreign trade data. It may seem that way but it really isn’t. Without going into great detail, the data published by these organizations lacks the necessary information for comparison. Their data is aggregated and not uniformly distributed. EPB does not even publish import data (probably not in its jurisdiction).
Then there is the matter of accuracy. A few weeks before Sheikh Hasina’s ouster, BB updated export data saying the EPB figure was more than 10 billion USD more than actual exports. Senior Advisor Muhammad Yunus in his recent public address promised to publish accurate trade data. It is a much needed and welcome step. However, it is not enough. We need the necessary detail in the data to allow comparison with data from countries we trade with. In particular, we need:
• Data for calendar year (Jan-Dec) not fiscal year only. • Data on a monthly basis. • Classification by commodity codes up to at least 6 digit level in HS (Harmonized System). There are approximately 6,000 HS 6 codes available from the World Customs Organization (WCO). These codes can specify the property with sufficient detail. • Property descriptions. • Classification by trading partner (ISO codes of country of origin of import, country of last known destination of export). • Classification by country of shipment (ISO codes of any third country through which the goods may pass). • Mode of transportation (sea, air, road, rail, etc.). • Classification by tax procedure codes (for what purposes the goods were imported or exported). • Breakdown by trade flow (exports, imports, re-exports, etc.) • Value (free board basis for exports; cost, insurance, and export basis), net weight and value.
We are looking towards modern processes and automation of financial intelligence
Accurate, timely and detailed trade data is essential for the analysis of potentially erroneous trade invoices but is not sufficient to prevent money laundering altogether. What we need is a restructuring and self-transformation of financial intelligence itself.
The backbone of this automated system should be the Business Register (BR). BR is exactly what it sounds like – it is a register of all businesses in the country. The main component of BR is a unique identifier. Each entity or business is assigned a unique ID. Once established, businesses should be required to use this ID for all types of transactions, from setting up bank accounts to trading.
BR can contain a lot of other information on businesses including size, sector, economic activities and more. Thanks to the unique identifier, BR can be used to link data from different domains, eg, to link trading data with businesses and their banking activities.
Given the wealth of linked data available from tax declarations, banks and other sources – much of which cannot be published for public use due to confidentiality – the information can nevertheless be used to build more intelligent and complex systems thanks to mathematical modeling, machine learning. and artificial intelligence that can flag any suspicious activities in real time. I mean, something has to be “off” in a transaction involving money laundering and the technology is there to detect it.
The existence of this system itself can greatly reduce the problem of money laundering because it will be a powerful deterrent. Building this level of data capacity will require investment. But when you look at the estimated 150 billion dollars that Sheikh Hasina’s kleptocratic regime has received, it seems that the return on investment is very attractive.
Khalid Saifullah is a qualified statistician with 14 years of experience working in international organizations.
IPS UN Bureau
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