The amount of money flown out of Bangladesh through illicit means tripled in 2012 to stand at $1.78 billion, riding mainly on trade misinvoicing.
The figure was $593 million the year before.
On average, $1.31 billion funneled out of the country per year between 2003 and 2012, according to the latest study by the Global Financial Integrity (GFI), a Washington-based research organisation, released on Monday.
The study ranked Bangladesh 51st among 145 developing countries that lost most money to siphoning.
Among Bangladesh’s South Asian peers, India ranked 4th as $43.96 billion went out of the country every year over the last decade. Nepal was placed at 68th ($754m), Myanmar 72nd ($682m), Afghanistan 104th ($222m), Sri Lanka 105th ($221m), Pakistan 111th ($143m), the Maldives 123rd ($75m) and Bhutan 131st ($45m).
China, Russia and Mexico topped the list in the descending order.
The study—Illicit Financial Flows from Developing Countries: 2003-2012 — estimates nearly $1 trillion of unrecorded money shifted out of emerging markets and developing countries every year during the time. It shows illicit outflows are growing at an inflation-adjusted 9.4 percent a year—roughly double the global GDP growth over the same period.
The GFI uses data from the International Monetary Fund, the World Bank, the UN COMTRADE, the US Department of Commerce and the European Statistics.
The authors combed through discrepancies in balance of payments data and direction of trade statistics, as reported to the IMF, to detect flows of capital that are illegally earned, transferred, and/or utilised.
The authors said the estimates were extremely conservative as they did not include trade misinvoicing in services, same-invoice trade misinvoicing, hawala transactions and dealings conducted in bulk cash.
In a statement, GFI President Raymond Baker said as this report demonstrates illicit financial flows were the most damaging economic problem plaguing the world’s developing and emerging economies.
The fraudulent misinvoicing of trade transactions was revealed to be the largest component of illicit financial flows from developing countries, accounting for 77.8 percent of all the illegal flows. This highlights that any effort to significantly curtail illicit financial flows must address trade misinvoicing.
Joseph Spanjers, an economist of GFI, said emerging and developing countries hemorrhaged a trillion dollars from their economies in 2012 that could have been invested in local business, healthcare, education or infrastructure.
The report recommends that world leaders focus on curbing the opacity in the global financial system, which facilitates these outflows.
Financial regulators should require that all banks in their country know the true owner or owners of any account opened in their financial institution, said GFI.
Regulators and law enforcement authorities should ensure that all the existing anti-money laundering regulations are strongly enforced, it said.
Also, the UN should adopt a clear and concise Sustainable Development Goal to halve trade-related illicit financial flows by 2030.
“It is simply impossible to achieve sustainable global development unless world leaders agree to address this issue head-on. That’s why it is essential for the United Nations to include a specific target next year to halve all trade-related illicit flows by 2030 as part of post-2015 Sustainable Development Agenda,” said Baker, the GFI president.
AB Mirza Azizul Islam, former finance adviser to a caretaker government, Zahid Hussain, lead economist of World Bank, Bangladesh, and Mustafizur Rahman, executive director of Centre for Policy Dialogue, all attributed the rise to the pre-election political instability.
They pointed out that money earned through corruption, crimes and other illegal means are normally sent abroad.
“Ensuring overall political stability and dissipating political uncertainties can help address the problem of this illicit outflow,” Zahid said.
The economist added the amount of money laundered from Bangladesh is quite sizable although it is small in relation to the GDP when compared with developing countries in general and Asia in particular.
About 61 percent of illicit outflows from Bangladesh occur through trade misinvoicing.
The WB economist explained: “There is under-invoicing of both exports and imports. Export under-invoicing are intended to keep the foreign exchange abroad either to avoid foreign exchange surrender requirement or because there is concern about safety of money because of domestic instabilities. Import under-invoicing is intended to minimise payment of import duties.”
Data also suggest that unlawful outflows tend to increase when election approaches in Bangladesh. Outflows in 2006 were much higher than those in 2005 and outflows in 2012 were much higher than those in 2011.
Clearly, political instability induces illicit outflows, Zahid said.
He added import under-invoicing, which causes revenue losses for the government, could be prevented by rationalising the import tax regime. “Export under-invoicing can be prevented by reforming foreign exchange regulation, and the hot money outflows can be restrained through better implementation of anti-money laundering measures.”
Azizul said the increase in the illicit money outflow also became clear from the rise in capital machinery imports in the months ahead of the election in January, although investment did not pick up.
“The illicit outflow has deprived Bangladesh of potential revenue income. Had the money remained in the country, it would have increased the consumption and would have boosted the GDP growth ultimately,” he told The Daily Star yesterday by phone.
Mustafizur of CPD said the illegal money holders took advantage of imports of goods and products carrying zero duties to send their illegally earned money abroad.
“In order to discourage capital flight, the recently established Transfer Pricing Unit at the National Board of Revenue should be strengthened,” he said.
Baker of GFI argues that it would cost only $300m to equip every developing country with the data they need to curtail misinvoicing