The trail of billions of dollars siphoned out of Bangladesh every year can be traced. Governments also make announcements about initiatives to bring the money back. But no government has been able to recover the funds.
Who is responsible for this failure? How is the money laundered, and who is involved? TIMES of Bangladesh has uncovered the story by analysing thousands of pages of documents.
The country’s renowned business conglomerates, leading banks, mobile financial service providers, government ministers and advisers, and institutions responsible for preventing money laundering—all are part of the same network.
An analysis of the patterns of money laundering shows the source of the funds is first created through bribery, corruption, loan fraud and various other irregularities. The money is then moved out of the country mainly through four major corridors—international trade, hundi, the banking system and cryptocurrency.
In the next stage, launderers gradually conceal the true ownership of the money through offshore shell companies, entities linked to their own interests, nominee owners and multilayered international transactions.
Only after the ownership of the money has been obscured do the institutions responsible for preventing money laundering begin tracing it. Some assets are identified. Some are also seized in different countries.
But the complexity of proving ownership, the legal jurisdictions of multiple countries, weak international cooperation, institutional corruption and failure to act in time mean that the money ultimately cannot be brought back to Bangladesh.
As a result, Bangladesh loses money once – and then loses a second time the opportunity to recover.
As part of its investigation, TIMES analysed several thousand pages of documents and more than a hundred investigation records from Bangladesh Bank, Bangladesh Financial Intelligence Unit (BFIU), Criminal Investigation Department (CID) of police, National Board of Revenue, courts and international organisations.
Although almost the same routes and methods are followed in each case, the failure to take effective measures against money laundering has allowed the siphoned amount to increase year after year.
According to estimates by global and domestic organisations, between $7 billion and $15 billion has been laundered out of Bangladesh every year. Even if the lowest estimate is taken into account, the amount siphoned out over four years is equivalent to Bangladesh’s current foreign exchange reserves.
Like other Third World countries, international trade is the principal channel for laundering money. It is also the most popular and least visible route. Instead of physically carrying cash in luggage, hundreds of millions of dollars are moved abroad under the cover of an import bill, an export consignment or a legitimate banking transaction.
Global Financial Integrity, an international research organisation, showed in its latest analysis that half of the money laundered yearly is moved to developed countries through trade alone.
Most of Bangladesh’s ready-made garment exports go to developed countries. A significant portion of the raw materials and machinery used by the sector is also imported from those countries.
Evidence of large-scale money laundering through trade has emerged in a recent study by the Bangladesh Institute of Bank Management. Revealing that money laundering is one of the major reasons, it concludes nearly half of the Tk9.5 lakh crore in loans disbursed to the sector have become classified as defaulted.
In many cases, loans are taken specifically for the purpose of siphoning money abroad.
Bangladesh Bank Executive Director and spokesperson Arif Hossain Khan said that in most cases, loans become classified as defaulted when funds are diverted from one sector to another or siphoned out of the country.
Information from more than two dozen investigation reports of BFIU and Bangladesh Bank shows both old and new methods of money laundering continue to be repeated.
Several cases have made it clear that although goods were destined for one country, payment for them was made from another. In some cases, transactions were conducted with foreign companies owned by the same business group. In others, the flow of funds was concealed through multiple layers of transactions among several companies and financial institutions.
Recently, one of the country’s leading consumer-goods conglomerates attempted to siphon Tk 405 crore ($33 million) through in-house trading. The conglomerate opened a letter of credit through its Bangladeshi company to import a ship from another company of its own based in Singapore.
The Singapore company, in turn, purchased the ship from a Marshall Islands-based company also owned by the same group.
The group attempted to launder money through three successive transactions among its own companies, but Bangladesh Bank stopped that.
Documents obtained from Bangladesh Bank and a financial intelligence agency detail it. Most of the conglomerate’s factories are located in Narayanganj.
Investigators say, transactions among a group’s own entities can give such trade a veneer of legitimacy, while making it increasingly difficult to trace where the money came from, where it went and who ultimately controlled it. As a result, even when money or assets belonging to a businessman are traced abroad, recovering them becomes extremely difficult.
Recovering money from abroad requires proving in court that the money belongs to Bangladesh, which investigators say is the most difficult part of the process.
Alongside trade, corporate hundi networks have also emerged as a major channel for money laundering.
A recent investigation by the central bank found that Tk800 crore belonging to a former minister had been sent abroad through hundi. Using the same method, a controversial Chattogram-based business group siphoned several thousand crore taka abroad after looting the banking sector.
Investigators said the launderers remain beyond the reach of law enforcement as they use employees of their own companies, associates or shell entities to operate hundi networks.
The banking channel is emerging as another major avenue for money laundering.
Bangladesh Bank recently fined a leading private bank Tk30 lakh after its involvement in facilitating money laundering was established. The bank is controlled by one of the country’s leading trading groups in the automobile sector.
TIMES has also found evidence of the involvement of four other private, multinational and state-owned banks in money laundering.
Recently, a Bangladesh Bank investigation team examined the foreign-exchange transactions of six leading banks. Governor Md Mostaqur Rahman told TIMES that the investigation had found evidence of “very unusual” transactions.
Another Bangladesh Bank investigation report reveals at least Tk 407 crore was siphoned out of the country under the guise of remittances through a network involving a leading mobile financial service (MFS), a private bank and two exchange houses. The bank was previously controlled by the Gazi Group.
Investigators believe the amount of money laundered could be considerably higher if all transactions involving the MFS and the exchange houses concerned are reviewed.
Cryptocurrency has emerged as another new channel for money laundering. Although virtual currencies are prohibited in Bangladesh, transactions can be carried out instantly through various online and offline apps. The investigation found that transactions with these crypto apps can be made smoothly from any bank or MFS account in Bangladesh.
A huge amount of money is also being siphoned abroad through online gambling. The scale has grown so significantly that financial intelligence officials have found multiple online gambling transactions from the account of a former student adviser to the Muhammad Yunus-led interim government.
The bank account used by the former adviser was held with a leading private bank established as a joint venture between two countries. The adviser is the most influential leader of National Citizens Party (NCP).
Recently, CID recovered $3.6 million that had been laundered through cryptocurrency. However, officials of the agency told TIMES that they are unable to trace most cryptocurrency transactions because they do not have blockchain-analysis software. BFIU recently proposed purchasing software from US but denied by the central bank.
Although the government has changed its strategy over the past two years to break up money-laundering networks, it recently missed a major opportunity to recover $25 million, or Tk 306 crore, that had been siphoned out of the country.
The incident has exposed the institutional weaknesses of Bangladesh’s financial intelligence agency.
Earlier this year, UK’s financial intelligence agency identified $25 million belonging to a former chairman of a private bank and froze the money for four weeks to give Bangladesh an opportunity to take the necessary legal action.
But BFIU failed to take effective action within that period, and the entire amount was subsequently transferred to the UAE. Recovering the money from the UAE, known as a “tax haven”, has now become even more complicated.
Had effective action been taken in time and the money recovered from the UK, it would have been the BFIU’s first successful recovery of laundered money since its establishment.
Executive Director of Transparency International Bangladesh Iftekharuzzaman does not consider Bangladesh’s efforts to recover laundered money adequate. “There are some complications under international law when it comes to recovering laundered money.
However, the two countries can sign agreements and move the process forward.”
Pointing out that Bangladesh’s anti-money-laundering law provides for a fine equivalent to twice the amount laundered and imprisonment of four to 12 years for the offender, he said, “Unless these fines and punishments are ensured, money laundering cannot be stopped.”
