• corruption (bribery, speed money, kickbacks etc.)
• financial fraud (accounting, check, credit card, mortgage, insurance fraud, counterfeit notes, securities or investment fraud, computer fraud etc.)
• money laundering
• tax evasion
• circumvention of exchange restriction
• illegal cross border fund transfer or capital flight
• abuse of the financial system/institution etc.

Financial crime in Bangladesh
Bangladesh is considered to be a safe heaven for financial crime. The relatively large informal economy compared to the formal one as frequently reported in various independent reports is a testimony of that. Hundi or a black market money exchange (also known as hawala) is the mode used for cross border fund transfers. The two major global financial hubs Dubai and Singapore are known to be the most popular centres for hundi settlements. A portion of the wage earners income is the primary source for financing all payments through hundis, while over-invoicing or holding of various commissions/fees abroad are also being discussed as sources. Our most prominent financial crimes are:

Corruption- Abuse of public power or position for personal gain or for the benefit of a group to which one owes allegiance.

Tax evasion- Remaining outside the tax net, non-disclosure of actual income, non-payment of income tax, underhand agreement with the tax authority, gross abuse of the tax holiday provisions may be mentioned under this category. The provision of payment of a low rate of tax that legalises any income without a need to declare source has been considered and criticised as a crime-friendly environment. Purchase of property and investments in the capital market may also be done without declaring the source of income. Under-invoicing of dutiable imports also deprives the government from the due revenues.

Loan defaulting- Intentional defaulting, siphoning off money from the ventures for which the loan was taken, etc.

Accounting fraud- Concocting books of accounts, making different books for different constituencies (tax authority, banks, shareholders, etc.), amalgamating personal and company/business financials, etc.

Regular fraud- Pyramid savings schemes, misleading overseas job seekers (recently local job seeking has also come under the net). Counterfeit notes are also areas of concerns.

Capital flight- Use of over invoicing and hundi to transfer money, front companies to retain portions of export proceeds, overseas accounts to get commissions/ kickbacks/ bribes. It is frequently heard that a good number of Bangladeshis has been obtaining foreign nationality or residence under investor category!

Smuggling- An estimated amount of US Dollar 1 billion worth of dutiable goods are smuggled each year from India alone.

Use of financial institutions in financial crimes
A financial institution involved in a financial crime can play one of the three roles: (i) perpetrator, (ii) victim, or (iii) knowing or unknowing vehicle of crime. Of these, the most common is when the financial institution is a victim of fraud and when it is used as an instrument/vehicle for money laundering. Financial institutions that include both banks and non-bank financial institutions may not always be used for financial crimes. This is more so in Bangladesh since our informal economy is very large and it is a predominantly cash transaction based ( not leaving any records).

However, the financial institutions cannot shy away from their responsibilities. They are one of the conduits used. They do not do (1) adequate KYC (know your customer) due diligence in accepting a customer, (2) be reasonably satisfied about the legitimacy/ legality of the source and use of funds, (3) conduct continuous review of customer's transactions. In case of trade (especially import and export), banks deal in documents only. Interestingly enough, they do not check invoice prices against the market or why the LCs for the same goods has large variation in unit price.

Economic effects of financial crimes
Bad money can gradually drive away the good money. A market dominated by ill practices result in difficulty for the genuine business entities. A company evading tax has a lower product cost through which it can drive away the genuine business person which has higher product cost. At an individual level, proceeds of this crime bring extra money to the hands of the undeserved. People with larger amounts in hand go for property acquisition and spending and/or savings overseas. These have multiple negative consequences to the economy. Some of the people become entrepreneurs and hike the entry barriers, crowding out the true entrepreneurs who would otherwise have created real value to the economy.

There are other negative macroeconomic consequences. For example, it could compromise bank soundness with potentially large fiscal liabilities, lessen the ability to attract foreign investment, and increase the volatility of money flows and exchange rates. In this era of technological developments in almost all aspects and very high capital mobility, financial crime makes national tax collection and law enforcement more difficult. Financial system abuse, financial crime, and money laundering may also distort the allocation of resources and the distribution of wealth and can be costly to detect and eradicate.

Combating financial crimes - Current situation
Bangladesh Penal Code, Foreign Exchange Regulations Act, 1947 (FERA), Income Tax Ordinance, 1984, Money Laundering Prevention Act, 2002 (MLPA) and Anti-Corruption Commission (ACC) Act, 2004 are laws to prevent such crimes. While there is always room for improvement in the legal framework, the blame cannot be put squarely on that. It's the implementation of the laws that leaves a lot to be said.

• We do not have a functioning Financial Intelligence Unit (FIU) that can collect information, the capability to analyse the same, and identify specific cases and trend of money laundering and other financial crimes. The existing FIU under Bangladesh Bank is not recognized by the Egmont Group, the international forum of FIUs. Hence it cannot sign information sharing agreements with any foreign FIU.
• Our investigative agencies are not well equipped in knowledge and procedures to investigate financial crimes/corporate corruptions and file cases.
• Our prosecutors and the legal system lack understanding of the complexities involved in financial crimes.
• Lack of know-how, interagency cooperation and inbuilt corruption within the agencies has resulted in a virtual free reign for the perpetrators.
• Overall, our social moral and ethical standards have deteriorated to a level that such criminals are looked at with admiration. Sometimes they are treated like heroes or royalty.
• No history of exemplary punishments.

At present only banks are submitting suspicious transaction reports to Bangladesh Bank. There is no whistle blower or safe heaven provisions for the people reporting a crime. There have been cases where investigative agencies have haunted the reporting banks and its officials as if they have committed the crime. Penalties are imposed only to the non-compliant bank where the highest penalty is Tk. 100,000 fine. ABN Amro, a globally reputed European bank has recently been fined USD 500 million by the US Government for money laundering case. At least two Russian banks have lost their banking license during the last twelve months for the same.

Actions for keeping money and wealth outside Bangladesh
As Bangladesh is not a member of Egmont Group, neither it would be possible to get information nor the money. The government could do the following:

1. Use the accountholder to repatriate the funds remitted illegally.

2. Confiscate account related documents and use as evidence in legal proceedings.

3. In case repatriation is impossible, we could attempt to ensure that the funds cannot be used by the concerned criminal. Almost every country has an anti money laundering law. We could:

a. Approach the governments and international bodies to freeze the accounts and return the money to Bangladesh.

b. Advice the bank that the person is ineligible to maintain account/ wealth outside Bangladesh and the funds with them is a result of crime done under money laundering, foreign exchange regulation, etc. laws of Bangladesh.

4. In the cases where we are unaware of the money/ wealth kept overseas, give the holder a chance to bring back the same. Provide a one-time amnesty to people to declare their overseas accounts and wealth, bring back the same, explain sources and pay necessary taxes. Confiscate the money where law necessitates.

5. Frequent media advertisements that resident Bangladesh nationals are not entitled to keep account/ wealth outside Bangladesh.

Concluding thoughts
Charity begins at home. Each one of us need to wake up, look at ourselves, realize how we are initiating or engaging in a financial crime knowingly or unknowingly, and take steps to prevent it. Moral standard of our society is not very encouraging. Our children learn how extra profit can be made by mixing water with milk, how one can have a laugh by making a fool of another or sidestepping promises. As an economy we need to put strict control on the size of cash transactions, improve the availability of information, and stop the schemes to legitimise proceeds of crime without declaring sourcese. Otherwise, combating financial crime:

• would remain a subject of discussion in intellectual forums and seminars, and
• once in a decade or two would become a hot topic for cleaning up the society of its woes (or an instrument of witch-hunt) giving minimal results as the initial fervor dies down soon on the face of stark reality.

The writer is a banker