Why didn't 'all-knowing' Bangladesh Bank, BFIU stop money being smuggled out of the country?

Experts blame the regulators for turning a blind eye despite clear signs of financial misconduct

Fresh findings from the interim government’s White Paper Committee on money laundering have given rise to questions about why Bangladesh Bank and the Bangladesh Financial Intelligence Unit, or BFIU, the nation’s top financial watchdogs, did not step in to stop the illicit flow of funds.

Despite existing laws and regulations, money laundering through the banking sector has risen over time, and financial sector experts believe the two regulatory bodies cannot dodge the blame for this.

Experts argue that it was the responsibility of these agencies to curb illicit financial flows.

However, instead of stepping in, they allegedly aided in the laundering process.

Transparency International Bangladesh, or TIB, Executive Director Iftekharuzzaman directly blamed officials of both organisations for their failure, suggesting that their negligence outweighed any legal weaknesses.

The white paper submitted to Chief Advisor Muhammad Yunus on Dec 1 estimates that during the 15-year reign of the ousted Awami League government, around $16 billion was laundered out of the country annually.

The committee, set up to assess the state of the nation’s economy, said $240 billion, equivalent to Tk 28.8 trillion at current exchange rates, was siphoned out of the country during the Awami League’s three consecutive terms in power.

The BFIU, tasked with tackling irregularities in the financial sector and preventing money laundering, failed to act effectively, despite being aware of the scale of the crime.

The unit’s former chief Abu Hena Md Razee Hassan, who also served as deputy governor of Bangladesh Bank, pointed to political pressure and restrictions from senior officials as key obstacles that hindered his department’s efforts to combat these activities.

Al Amin, a professor in the Department of Accounting and Information Systems at Dhaka University, told bdnews24.com: “International research group Global Financial Integrity [GFI] says money laundering increased because of the corrupt actions of regulators, government officials, businesspeople, and bureaucrats. The whole system has been working together. The regulators and officials definitely know who are behind it."

Bankers and industry insiders have claimed that most money laundering occurred via banking channels, raising concerns about whether the central bank’s measures were sufficient to tackle the issue.

Bangladesh Bank spokesperson Husne Ara Sikha told bdnews24.com, “It’s not possible to comment on such a major issue immediately. If you submit a written query, we can respond after consulting with the governor.”

bdnews24.com submitted written questions over a week ago, but no response was received from the central bank as of Tuesday.

Governor Ahsan H Mansur also did not respond to attempts for comment.

NEW INITIATIVES

Since taking office, the interim administration has prioritised efforts to recover funds siphoned off to foreign countries.

Governor Mansur and several advisors have talked about efforts to retrieve these illicit funds.

Yunus has also sought help from the United Kingdom, the World Bank, and the European Union to recover these stolen assets.

A high-level inter-agency task force has been restructured under the governor's leadership.

The goal of the task force is to bring back assets that were smuggled out of the country and focus on asset management.

QUESTIONS RAISED OVER BFIU’S ACTIVITIES

The BFIU continued operating as a unit under the Bangladesh Bank even when the Awami League formed the government after the 2008 general election.

However, to comply with international pressure and requirements, the unit was made an independent body in 2012.

Despite this, since its establishment, the central bank has continued to provide BFIU with staffing, funding, and infrastructure support.

Even after becoming independent under the new legal framework, BFIU's first chief executive officer, or CEO, was Razee, the then deputy governor of Bangladesh Bank.

He remained the head of the organisation even when it was under the central bank.

Razee served as the head of BFIU until September 2021, extending his tenure multiple times.

This meant he held the position for most of the Awami League's three terms in office.

Regarding the failure to prevent large-scale money laundering, the former BFIU chief told bdnews24.com: "We were under constant pressure, facing restrictions from political and higher authorities. They dictated what could or couldn't be pursued, limiting our actions."

Without revealing who the "higher-ups" were, he added: "We had weaknesses in our legal and policy frameworks. The policy was weak, and there were flaws in implementation. Taking advantage of those weaknesses and exerting influence, money laundering was happening, and we could understand that."

Razee continued, “As regulators, we needed capacity building. We needed support from bankers. At one point, many banks didn’t have the staff to handle this. Now, capacity building has improved.”

Following the change in government, no new head has been appointed to BFIU, and an executive director is currently overseeing its operations.

Despite submitting written questions to the spokesperson of the central bank, no response was received within a week regarding the BFIU’s failure to prevent money laundering.

There had been dissatisfaction with the BFIU’s performance even during the Sheikh Hasina regime.

On Aug 11, 2016, the issue of the agency's performance was discussed in a meeting of the Parliamentary Standing Committee on the Ministry of Finance.

Abdur Razzak, the then chairman of the committee, told bdnews24.com: “In 2013, Tk 9.96 billion was laundered. Over the last decade, an average of Tk 5 billion was siphoned off each year. Money was being funnelled out through over-invoicing and under-invoicing. So, what exactly is the Financial Intelligence Unit doing?”

“We are deeply frustrated by this matter. Money is being laundered in Canada’s Begum Para, and we are third in Malaysia’s My Second Home [MM2H] programme. Yet, not a single person has been identified, and not even one case has been brought forward.”

The former agriculture minister said, “In May 2015, 400-500 tonnes of rice worth 800-1000 dollars were imported, yet on paper the figure was shown as 400-500 dollars. These issues need to be investigated.”

RISING MONEY LAUNDERING LINKED TO LOAN STRUCTURING?

There are primarily two methods through which money is laundered. The first involves over-invoicing and under-invoicing in import-export transactions, typically carried out through banking channels.

All legitimate transactions between Bangladesh and the outside world occur through these banking channels.

The second method involves hundi, where transactions happen at an individual level without any legal documents.

To curb money laundering, there’s no shortage of laws and government initiatives.

Alongside the measures taken by Bangladesh Bank, there is also a National Coordination Committee to tackle money laundering and prevent financing for terrorism.

The committee consists of the governor, the head of the BFIU, heads of financial regulators, the chairman of the Anti-Corruption Commission, or ACC, and secretaries from different ministries.

The Money Laundering Prevention Act (Amendment), 2015 was enacted to curb this issue, followed by the Money Laundering Prevention Rules, 2019.

However, these measures often remain on paper while money continues to be laundered at large.

Former BFIU head Razee also links this to the weak structure and limitations of human resources within Bangladesh Bank’s loan restructuring and rescheduling policies.

“Bangladesh Bank repeatedly creates policies for rescheduling defaulted loans. What did defaulters do after not paying? How could they launder the money if they didn’t have it? The failure to recover the loans is also a cause of the money being laundered," he said.

Masud Biswas, the former head of the BFIU, also held bankers accountable for the rise in money laundering.

During a press conference at the central bank in February, he said: “Bankers are to blame for this. They are not performing their duties properly.”

When asked why incidents of money laundering were increasing, Masud said: “80 percent of money laundering is trade-based [foreign trade, such as imports and exports]. The banking sector is the most vulnerable for money laundering.”

He continued, “Money laundering is not decreasing because of us. The responsibility for loan classification lies with the banks; they are the ones who handle it. If they don’t do it, how can it be done? Bangladesh Bank cannot inspect everything all the time. In many branches, inspections only happen every three years.”

However, Selim RF Hussain, chairman of the Association of Bankers Bangladesh, or ABB, and managing director of BRAC Bank, accused central bank officials of being responsible for the banking sector's issues.

During a discussion organised by the Bangladesh Institute of Bank Management, or BIBM, in Dhaka’s Mirpur on Wednesday, he said: “Central bank officials interfere with promotions, transfers, and hiring in commercial banks, often favouring their own preferred individuals.”

Bangladesh Bank provides the opportunity to restructure and reschedule non-performing loans to show them as regular.

In 2015, under special consideration, non-performing loans worth nearly Tk 120 billion from 15 industrial groups were rescheduled.

At that time, the central bank said this concession of rescheduling loans with a 2 percent payment would be granted only once, in order to protect the industrial sector at the request of businesspeople.

However, later on, the Bangladesh Bank was forced to extend the rescheduling opportunity to loans exceeding Tk 5 billion in default, most of which have now turned into non-performing loans again.

By rescheduling repeatedly, defaulted loans are not shown as non-performing, pushing the total defaulted loans figure to Tk 2.88 trillion by September.

Economists in the country and international bodies have always raised concerns over the central bank's figures on bad loans.

The white paper on the economy reveals that the actual amount of non-performing loans stands at Tk 6.75 trillion.

Economists believe that a large portion of these non-performing loans has been laundered. This observation is further strengthened by the recent comments of the energy advisor.

Two major industrial groups, Beximco and S Alam, have borrowed massive amounts from the country's banking sector, with a large portion of these loans now on the verge of default.

During a seminar on Nov 30 organised by the Economic Reporters Forum, or ERF, Energy Advisor Fouzul Kabir Khan revealed that both companies have no money in their bank accounts.

“They can't even pay salaries, and their entire balance sheet is empty,” he added.

Beximco Group alone owes over Tk 270 billion to Janata Bank, and more than Tk 360 billion in total, including loans from other banks and bonds.

S Alam Group has taken loans worth Tk 800 billion from Islami Bank Bangladesh PLC, along with loans from other Shariah-based banks and National Bank.

When asked about the risk of loan defaults in the current situation, Ashish Kumar Nath, deputy general manager of S Alam Group’s Chittagong office, told bdnews24.com: “We are working to restore normal operations for all companies, including those dealing in consumer goods. However, some companies still have inactive bank accounts.”

“S Alam Group also participated in a meeting with the commerce advisor, where we requested support from the government," he added. "We also emphasised the need for administrative assistance to revive the businesses and repay the bank loans.”

ARE OFFICIALS ASLO INVOLVED?

Police’s Criminal Investigation Department, or CID, is investigating former BFUI head Masud over money laundering charges.

He resigned in August amid pressure after the fall of the Awami League government.

TIB boss Iftekharuzzaman said, “A huge amount of money has been laundered from the country, and both the central bank and BFUI have been complicit; they know everything.”

Razee argues that political and economic pressure prevented the complete prevention of money laundering.

Iftekharuzzaman believes that officials in these institutions also benefited from the crime, saying: "The recent investigations into Masud Biswas highlight that he too is being investigated for money laundering."

He added, "Just as the launderers have gained, so have the officials of the supporting agencies, who helped these criminals for personal gain."

“Pressure is always there, and it will remain.”

However, Iftekharuzzaman emphasised that not all officials were involved in the wrongdoing.

“There are honest and courageous officials,” he said, adding: “If necessary, their legal protection can be enhanced. However, those officials who benefited from facilitating money laundering must be held accountable and punished. This is achievable under the current government, and it would serve as a precedent for the future.”

When trying to get a response from Masud about his role in anti-money laundering actions during his tenure, no reply was received.

[Writing in English by Sheikh Fariha Bristy]