Why are we still rewarding money launderers?

Finance Minister AHM Mustafa Kamal has placed a controversial suggestion in his budgetary proposal: money launderers – read financial criminals – will be allowed to legalise their laundered money without having to face any questions, if they pay a meagre 7-15 percent tax. The move is apparently aimed at creating scope to roll back the laundered money into the mainstream economy.  

While the proposal has been criticised as unconstitutional and discriminatory towards honest taxpayers, at this point, we need to ask ourselves, why are we failing to stop capital flight to begin with?

To understand the country's money laundering ecosystem and find answers to the above question, we need look no further than the much-publicised case of PK Halder. The Department of Financial Institutions and Markets (DFIM) of Bangladesh Bank had flagged PK Halder's fake companies as "risky borrowers" way back in 2016. Despite this, Haldar and Co. were allowed to carry on with their crimes, till those could no longer be kept under the wraps.

This particular case has raised questions about the competence and intentions of the financial institutions (FIs), intelligence agencies, and the regulators. Why was the DFIM flag not taken seriously in 2016? Why did the FIs keep lending Halder money, despite his companies being termed risky borrowers? Why did the law enforcers not catch him in the act? Is there a problem with the existing laws, or does the problem lie with their application?

In an attempt to unearth the answers to these questions, I caught up with Dr Iftekharuzzaman, Executive Director of Transparency International Bangladesh (TIB). The problem, he said, wasn't with the law, but with the lack of political will, as well as the technical capacity to implement them.

"The 2012 Anti-money Laundering Act (AMLA)… is a very strong law. To complement, there are robust and well-designed international procedures including mutual legal assistance facility against money laundering. It is the lack of enforcement of such national and international legal provisions that is making the nation vulnerable to the ever-increasing menace of money laundering… Apart from illicitly transferring money abroad through creation of paper-based, shady companies, a significant chunk – more than 70 percent – of money is laundered through trade misinvoicing, every year. The culpability of sections of the concerned authorities is also a possibility that cannot be overlooked," he explained.

A similar opinion was shared by former World Bank lead economist Dr Zahid Hussain: "It all boils down to governance. Financial scams cannot take place without cooperation between the criminals and the enablers, and there is almost always an inside enabler. In the past, the nation has been shocked by the massive scale scam of Hallmark Group and Bismillah Group, and in both the cases it was highly experienced state-owned banks – Sonali and Janata – which had been the lenders. One might be pardoned for asking, how could such experienced banks fall for the lies and fraudulence of these unscrupulous and dishonest businesses? The micro-prudential regulations that are in place are sound, so are the policies. The regulator and the financial institutions need to ensure compliance not selectively, but even-handedly."

One also wonders if nonentities like P K Halder or Tanvir Mahmud or Khaza Soleiman Anwar Chowdhury – who have aggressively looted financial institutions – operate only with the help of a few inside officials, or are there "influential" people behind them, holding the strings. Each time such a case gets exposed, it is usually only the small fries who get caught, who may face punishment. At best, political opponents are implicated. But are small players really capable of pulling off such stunts without political patronage? Would FI officials risk their jobs and reputations only for money, or under some form of external pressure?

These missing pieces of the puzzle need to be put together to understand the full picture. Bangladesh's struggle with capital flight is not new. Over the decades, this disease has spread across different layers of our financial sector, making it weak from within. And little has been done to cure it. Time and again, the authorities have not only been reluctant to bring financial criminals to justice, but have gone out of their way to protect them. The proposal of the finance minister to legalise laundered money without launderers even having to answer for them is only a continuation of that long tradition.

We cannot afford to give these criminals such impunity. The finance minister should rethink this esoteric and controversial proposal, and retract it. After all, we do have a legacy of going back on our words. For once, let it be for a good reason.

Tasneem Tayeb is a columnist for The Daily Star. Her Twitter handle is @tasneem_tayeb