Bangladesh Now A Kleptocracy – OpEd

In November 2019 just after taking over as Bangladesh Finance Finister AHM Mustafa Kamal admitted money-laundering had attained a dangerous proposition in the country.

Addressing a seminar on “National Strategy for Prevention of Money Laundering and Combating Financing of Terrorism”, Mustafa Kamal said that it is not only that money laundering “creates macroeconomic distortion”, but it is “largely destroying our country in various ways”. 

Five years later, Kamal’s party Awami League is back in power for a third successive term through elections dismissed across the world as “a joke on democracy”, minus Opposition participation in polls inspite of which there were reports of largescale stuffing of ballot boxes in most booths to “manufacture a reasonable turnout” and get some Awami Leaguers, considered unacceptable to the ruling clique around Hasina, defeated.

Hasina administration insiders confide the real turnout was between 10 to 15 percent, between one-third to one-fourth of the claimed turnout of 40 percent.

Kamal has been replaced as finance minister partly because of his failures and partly for his failing health and evidence has now appeared in public domain of huge bank defaults and large scale money laundering that is threatening to sink Bangladesh’s economy.

CPD’s Startling Revealations 

A staggering BDT 922.61 billion ($ 8.4 billion) has been misappropriated from several banks in Bangladesh over the last 15 years of Awami League rule through irregularities, misuse of powers, and money laundering, say senior economists associated with top Dhaka-based think-tank Centre for Policy Dislogue ( CPD).

“The economy is grappling with crony capitalism, where influential individuals and groups have seized control by subduing state organs and institutions, consolidating power to their advantage. The astonishing amount of money embezzled through 24 major loan scams during the aforementioned (15 year) period underscores the lack of good governance in and vulnerability of the financial sector. The prospects of recovering the misappropriated funds remain uncertain, with a looming possibility of them being illicitly transferred abroad was the observations made at a media briefing titled ‘State of the Bangladesh Economy in FY2023-24 (First Reading)’ on Saturday, 23 December 2023, organised by the Centre for Policy Dialogue (CPD) under its flagship programme Independent Review of Bangladesh’s Development (IRBD). 

Dr Fahmida Khatun, Executive Director of CPD, said in her  keynote presentation: “As Bangladesh approaches the year 2024, the persisting macroeconomic issues should remain as the key focus for the policymakers. The economy is going through unprecedented challenges, and these are not going to recede to the backfront even after the national elections, scheduled to be held on 7 January 2024.”

She underscored that the crucial task confronting the policymakers is to restore macroeconomic stability by acknowledging the current economic realities and identifying concrete measures to address these. In this context, five areas warrant increased attention in the ongoing policy discourse — high inflation; diminishing prospects for a stable banking sector; vulnerabilities in external sector; weak public finance management; and concerns regarding labour rights issues.

‘High inflation is currently eroding the purchasing power of low-income people, while market manipulation and syndication are exacerbating the situation’, said the Executive Director. In the case of banking sector, comprehensive reforms are needed that will strengthen commercial banks, empower the central bank, create a conducive legal environment, and ensure availability of data.

While discussing the vulnerabilities of the external sector, Dr Khatun said that the apparel exports are emphasising volume over value. To address this, incentives should be adjusted to encourage diversification within RMG, and promote the shift to non-cotton-based exports for cater to a growing market. The lack of accountability in public finance management has led to overpriced and wasteful public expenditure. Also, it is advisable to reconsider the revision of minimum wage in the garment industry by 2025.

‘The government will also have to focus on structural issues since better economic performance will critically hinge on the efficiency of some of the important institutions including the National Board of Revenue (NBR), and the Bangladesh Bank’ proposed Dr Khatun.

An open-floor Q&A session with journalists from both print and electronic media followed the presentation.

Professor Mustafizur Rahman, Distinguished Fellow, CPD addressed the inquiries and said ‘The country is approaching a two-economy paradigm, driven by a widening income distribution gap that is fostering inequality’.

‘At least 12 institutions, including the central bank, Bangladesh Securities and Exchange Commission (BSEC), Bangladesh Export Processing Zones Authority (BEPZA), and the Ministry of Commerce, have been enfeebled. Restoring their status and functionality after the election appears to be a formidable challenge’ suggested the Research Director of CPD, Dr Khondaker Golam Moazzem.

Mr Towfiqul Islam Khan, Senior Research Fellow, CPD, pointed out that ‘the government’s expenditure is relatively low when measured against the size of the economy and the essential needs of the people’.

GFI says Bangladesh worst affected by money laundering 

A number of reports released by Global Financial Integrity (GFI) in recent times have mentioned Bangladesh as being among the worst-affected countries by the scourge of trade-based money laundering (TBML). 

Fingers have been pointed mainly at two leading business conglomerates, the Beximco Grouo founded and now run by PM Hasina’s private investment advisor Salman Fazlur Rahman and the Shah Alam group run by relatives of a former Awami League MP Akhtaruzzaman Babu.

According to GFI’s President Raymond Baker, “Illicit financial flows are the most damaging economic problems faced by the world’s developing and emerging economies.” According to GFI, USD 61.6 billion were siphoned out of Bangladesh between 2005 and 2014, which is equivalent to 25 percent of its GDP in FY 2016-17. Between 2008 and 2017, Bangladesh lost a staggering USD 7.53 billion per year on average to trade misinvoicing, which accounted for 17.95 percent of Bangladesh’s international trade with all its trading partners during the period. A more recent report, GFI revealed that USD 5.9 billion was siphoned out of Bangladesh through trade misinvoicing in 2015—and that Bangladesh is one of the top 30 countries in terms of illicit financial flows.

Similarly, Transparency International Bangladesh (TIB) reported this year that some USD 3.1 billion or Tk 26,400 crore is being illegally remitted from Bangladesh every year. Though it is lower in comparison to the GFI’s estimates between 2008 and 2017, even this amount would have deprived the government exchequer of about Tk 120 billion as revenue each year, which is significant.

In 2002, Bangladesh became the first country in South Asia to promulgate the Money Laundering Prevention Act in line with the recommendations from the Financial Action Task Force (FATF), an intergovernmental organisation which combats money laundering. But experts say  the Hasina government have goofed up in  implementing the recommendations. Among those that are unconvinced with the government’s work is the Asia/Pacific Group on Money Laundering, the global body that ranks countries. In 2016, the organisation even warned the government that Bangladesh was in danger of being branded as a “risky” country when it comes to money laundering and terror financing.

TIB blames Government 

Yet, according to Dr Iftekharuzzaman, Executive Director of Transparency International Bangladesh, money laundering still enjoys impunity in Bangladesh. In a recent article for The Daily Star, he wrote: “Any crime is bound to flourish when laws and regulations are not enforced and violators are not held accountable. This is exactly what has been happening with money laundering in Bangladesh.” Though there has been a decrease in total deposits by Bangladeshis in Swiss banks, as recently revealed by the Swiss Banking authorities, Dr Iftekharuzzaman highlighted that it was more likely due to money launderers preferring other destinations, rather than the amount of money being laundered from Bangladesh actually decreasing.

Only recently, the Nikkei Asian Review did a story on how the Directorate General of Health Services quoted prices paid for procurement of medical personnel safety goggles at USD 59 a pair, which is almost five times more than its market rate. Other purchases of medical gowns, software, website development and audiovisual clips under an emergency coronavirus project were similarly excessively billed.

Similarly, grain imports from Canada jumped up from USD 438 million in 2018 to USD 1.08 billion in 2019, according to Statistics Canada, representing a 128.31 percent rise. But according to the Bangladesh Bank’s statistics, the country-wise import payments for grain do not match with the Canadian figures. According to the BB, import payments to Canada in the fiscal year 2017-18 stood at around USD 500 million only. Therefore, it is quite likely that at least some part of that huge discrepancy occurred due to money laundering.

Islami Bank case 

The case of Islami Bank, the largest private sector bank in Bangladesh, is another example of how people’s deposits are looted by bank owners themselves.

In January 2017, the bank fell into a severe financial crisis, just 15 months after its ownership came into the hands of S Alam Group. According to BB’s audit report, S Alam Group has taken out more than Tk 30,000 crore in loans from Islami Bank using various unethical mechanisms.

Loan restructuring to help.Defaulters 

Default loans are becoming more and more prevalent because vested groups are using their political backing and colluding with bank directors and owners to obtain the loans. Far from recovering thousands of crores of the people’s money and punishing the defaulters, the banks are instead giving them rescheduling benefits, with relatively low interest rates and long-term restructuring facilities.

According to a report published by The Daily Star, in 2015, 11 big business groups – each of them having taken out loans of over Tk 500 crore from different banks – led by Beximco made a proposal to Bangladesh Bank for restructuring their bad loans. The BB agreed and the companies were given a rescheduling benefit of only one to two percent down payment, instead of the usual 10 percent. The total amount of the restructured loan was Tk 15,000 crore. Despite these concessions, after two years, six of these companies – Beximco, SA Group, Ratanpur Group, RSRM, Keya, and MR Group – failed to repay instalments. Interestingly, Beximco – which had obtained one-third of the restructured loan – made profits and paid dividends, yet did not pay back loans.

In May 2019, BB issued a directive providing loan defaulters the opportunity to reschedule their classified loans by making a down payment of only two percent, instead of the previous 10-50 percent. The interest rate was capped at nine percent from 12-16 percent and the tenure for repayment was made 10 years.

In July 2022, the central bank allowed businesses to reschedule their loans by making a down payment of 2.5 to 6.5 percent on their term loan, instead of the previous 10 to 30 percent. It also extended their payment tenure to five to eight years, from the previous maximum of two years. In the meantime, businesses could also avail new loans. In this way, through rescheduling, defaulted loans are shown to be reduced without even collecting them.

Two other methods used to mask the reality of default loans are the relaxation of loan write-offs and classification policies. In February 2019, BB reduced the time period after which banks can write-off bad debts from five years to three years, and increased the amount which banks can write off without filing a lawsuit with the Artha Rin Adalat from Tk 50,000 to Tk 2 lakh. This has been further increased to Tk 5 lakh, according to the latest directive issued on January 5, 2023. And in April 2019, the time period after which an overdue loan can be classified as “substandard,” “doubtful,” or “bad/loss” was increased to three month

Habitual bank loan defaulters who are politically connected are not punished for embezzling public money. Only the small fish are caught and put in jail. The probes and trials go on for years without any conclusion. This culture of impunity encourages defaulters to continue to steal money from banks.

Although  an investigation was carried out in the case of the central bank reserve theft, the investigation report was not published and the guilty persons were not prosecuted. The parliamentary committee related to the finance ministry has not published the investigation report on the Sonali Bank-Hallmark scam, either. The trial of 38 cases filed by the Anti-Corruption Commission (ACC) against Hallmark is still continuing at snail’s pace.

Authorities were reportedly fully aware of the irregularities and corruption of the former chairman of BASIC Bank, Sheikh Abdul Hye Bachchu. But no action was taken against him. The ACC filed 56 cases in this regard, but Bachchu, accused of being the mastermind, was not charged in any of them. Expressing dissatisfaction with the ACC’s role in this case, the High Court recently said, “Crores of taka have been embezzled. But no work is being done though the Anti-Corruption Commission and so many judges and lawyers are there. Why are they [ACC] silent? This is just like a drama. We are watching the drama. This is not acceptable.”

The views expressed are the author’s own