Money laundering (ML) and financial crimes (FCs) are considered as a curse for the country’s economic growth. These criminal activities not only weaken the backbone of the economy but also put the country’s reputations at risk. Besides, the ML and FCs also enhance the cost of doing business especially for trade transactions.
1.Introduction:
Money laundering (ML) is not a new phenomenon. The practice has started since 3400 BC through opium trafficking.It has inflicted an adverse impact on financial management and sustainable economic growth of any country especially the developing ones.
On the other hand, financial crimes (FCs) committed against propertyand always for the personal benefit of the criminals.
ML is one of the major components of the FCs. As per Global Economic Crime Survey-Financial Sector Insight 2020 (PwC), the top 4 financial crimes are customer fraud(35%), cybercrime (34%), asset misappropriation (31%) and bribery and corruption (30%).
2. Economic Impacts of Money Laundering:
The amount laundered globally in a year is estimated around 2% to 5% of global Gross Domestic Product (GDP) or $800 billion to $2 trillion in current US dollars. ML influences economy in various ways — decrease in revenue, loss of actual entrepreneurs, unequal distribution of wealthand fallinginstitutions at risk, destruction of private investment and increase in climate and capital flight. Cross-border flow of proceeds from criminal activities, corruption and tax evasion is US$1.6 to US$1.8 trillion a year.
3.Scenario of Money Laundering in Bangladesh:
In 2006,the Financial Action Task Force (FATF) recognized misuse of trade system as one of the main methods by which criminal organisations and terrorfinanciers move money for the purpose of disguising its origins and integrating it into the stream of formal economy. As per Global Financial Integrity (GFI) report about 80% money laundering done through trade transactions.GFI report ranks Bangladesh as one of the top countries facing trade-based money laundering, which is a significant threat to growth and sustainable development. According to GFI, $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 $7.53 billion a 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.
In a recent report, GFI revealed that $5.9 billion was siphoned out of Bangladesh through trade misinvoicing in 2015. The report also said Bangladesh is one of the top 30 countries in terms of illicit financial flows.
According to a report of Transparency International Bangladesh (TIB), some $3.1 billion, or Tk 26,400 crore is being illegally remitted from Bangladesh in a year. This siphoning of money is depriving the government exchequer of about Tk 12,000 crore as revenue per year.
4. Relationship between Money Laundering and Financial Crimes:
There is a direct relationship between money laundering and financial crimes.The economic theory (supply theory) states that keeping other factors constant, if there is favorable situation for money laundering, then the quantity of financial crimes is increased. If money laundering decreases then financial crimes decrease. Quantities of financial crimes respond in the same direction as money laundering changes.
5.Emerging Challenges for Prevention of Money Laundering and Financial Crimes:
The criminals are always faster than the regulators and reporting organisations. They usually use very sophisticated techniques to launder the proceeds of crimes or conduct the financial crimes.As a result the reporting organisations have to face a lot of challenges like cryptocurrency regulations, identification of ultimate beneficial owner, complexity of sanction screening environment, continuing raise of technology, automation of AML and transaction monitoring.
6.Recommendations and Conclusion:
Recommendations:
Each reporting organisation in Bangladesh must ensure the following techniques to prevent ML and FCs:
1.Applying Risk Based Approach (RBA) for accepting customers. Appropriate and proper resources should be deployed in order to prevent money laundering at placement stage. Other stages-layering and integration will automatically be controlledif placement stage can be controlled properly.Reporting Organisations must comply with FATF recommendation 10: Customer Due Diligence (CDD) for providing any financial service to the customers;
2. Introducing structured (need based) training for all the officials (board of directors to junior officials of the organisation);
3.Ensuring the best ethical practices in the financial sectors;
4.Encouraging customers for digitalized mode of transactions like using ATM/CRM/POS and building up customer awareness regarding negative impact of ML and FCs;
5. Using world-class sanction screening software and vessel tracking/container tracking software to minimize the risk of de-risking;
6.Utilization of AI (artificial intelligence) for monitoring all transactions as well as identification of ultimate beneficial owner;
7.Monitoring the accounts of Politically Exposed Persons (PEPs), Influential Persons (IPs) or domestic PEPs, heads of international organisations and their close associates and family members because they have the opportunities to engage in financial crimes;
8.Encouraging public- private partnership for fighting against ML and FCs;
9.Reluctant to make relationship with the shell bank and
10. Reporting of suspicious transaction/activity immediately to the Financial Intelligence Unit (FIU) as per section-25 of MLPA, 2012 (amended 2015) and section-16(1) of ATA, 2009 (amended 2012 & 2013).
Prevention is better than cure. In order to achieve the Sustainable Development Goals (SDGs) by 2030, we need to take rigorous initiatives jointly by the public and private sectors to prevent money laundering and financial crimes. The government should take ‘zero-tolerance’ principle against ML and FCs. Ensuring good governance as well as corporate governance for all the reporting organisations is also essential for prevention of ML & FCs and accelerates economic growth of the country.
Md. Mashiur Rahman is Assistant Vice President, Anti-Money Laundering Divisionof the Shahjalal Islami Bank Limited
