In November 2019, Bangladesh Finance Minister AHM Mustafa Kamal admitted that money-laundering had become a dangerous proposition in the country, creating macroeconomic distortion and destroying the country in various ways. Five years later, Kamal’s party Awami League is back in power for a third successive term, with opposition participation in polls being dismissed as “a joke on democracy”.
However, insiders believe the real turnout was between 10 to 15 percent, one-third to one-fourth of the claimed 40 percent. Kamal has been replaced as finance minister partly due to his failures and partly for his failing health. Evidence of huge bank defaults and large-scale money laundering has emerged in the public domain, threatening to sink Bangladesh’s economy.
Economists from the Centre for Policy Dialogue reveal that BDT 922.61 billion ($ 8.4 billion) has been misappropriated from Bangladeshi banks over the last 15 years, highlighting the country’s economic struggle with crony capitalism.
Dr Fahmida Khatun, Executive Director of CPD, highlighted five areas that need to be addressed in Bangladesh’s policy discourse as the country approaches 2024. These include high inflation, diminishing prospects for a stable banking sector, vulnerabilities in the external sector, weak public finance management, and labor rights issues. High inflation is eroding the purchasing power of low-income people, while market manipulation and syndication are exacerbating the situation. Comprehensive reforms are needed to strengthen commercial banks, empower the central bank, create a conducive legal environment, and ensure data availability.
The external sector’s vulnerabilities include apparel exports emphasizing volume over value, which should be addressed by adjusting incentives to encourage diversification within RMG and promoting the shift to non-cotton-based exports. The garment industry’s minimum wage revision is recommended to be reconsidered by 2025 due to overpriced and wasteful public expenditure due to inadequate accountability in public finance management.
The government will also need to focus on structural issues, as better economic performance depends on the efficiency of important institutions like the National Board of Revenue and the Bangladesh Bank. Professor Mustafizur Rahman, Distinguished Fellow of CPD, emphasized the country’s approaching two-economy paradigm due to a widening income distribution gap and the challenges of restoring the status and functionality of at least 12 institutions.
Bangladesh has been accused of a significant amount of illicit financial flows, with the country losing an average of USD 7.53 billion per year to trade misinvoicing between 2008 and 2017. This has led to the country being one of the top 30 countries in terms of illicit financial flows. Transparency International Bangladesh reports annual illegal remittance of USD 3.1 billion, reducing revenue by Tk 120 billion. Bangladesh became the first South Asian country to implement the Money Laundering Prevention Act in 2002.
However, experts say the Hasina government has gone wrong in implementing the recommendations. The Asia/Pacific Group on Money Laundering warned the government in 2016 that Bangladesh was in danger of being branded as a “risky” country when it comes to money laundering and terror financing.
Dr Iftekharuzzaman, Executive Director of Transparency International Bangladesh, believes that money laundering still enjoys impunity in Bangladesh. He believes that any crime is bound to flourish when laws and regulations are not enforced and violators are not held accountable. The recent increase in grain imports from Canada from USD 438 million in 2018 to USD 1.08 billion in 2019 represents a 128.31% rise, but the Bangladesh Bank’s statistics do not match the Canadian figures. It is likely that at least some part of that huge discrepancy occurred due to money laundering.
The Islami Bank case in Bangladesh illustrates how bank owners can loot people’s deposits. In 2017, the bank faced a severe financial crisis, with S Alam Group taking out over Tk 30,000 crore in loans using unethical mechanisms. Default loans are becoming more prevalent due to vested groups using political backing and colluding with bank directors and owners to obtain loans. Instead of recovering thousands of crores of people’s money and punishing defaulters, banks are providing them rescheduling benefits with low interest rates and long-term restructuring facilities. In 2015, 11 business groups, including Beximco, restructured their bad loans to Bangladesh Bank, receiving a rescheduling benefit of 1% to 2% down payment.
In May 2019, the Bangladesh Bank issued a directive providing loan defaulters the opportunity to reschedule their classified loans with a down payment of only two percent. 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, and extended their payment tenure to five to eight years. In this way, defaulted loans are reduced without even collecting them.
The Bangladesh Bank (BB) has been criticized for its handling of default loans, with the government relaxing loan write-offs and classification policies. In February 2019, the BB reduced the time period for banks to write off bad debts from five years to three years, and increased the amount banks can write off without filing a lawsuit with the Artha Rin Adalat from Tk 50,000 to Tk 2 lakh. The time period for overdue loans to be classified as “substandard,” “doubtful,” or “bad/loss” was increased to three months.
Despite these measures, bank loan defaulters who are politically connected are not punished for embezzling public money, with only small fish being caught and put in jail. The culture of impunity encourages defaulters to continue stealing money from banks. Investigations into the central bank reserve theft, Sonali Bank-Hallmark scam, and the former chairman of BASIC Bank, Sheikh Abdul Hye Bachchu, have not been published or prosecuted. The High Court expressed dissatisfaction with the Anti-Corruption Commission (ACC)’s role in embezzlement cases, stating that despite numerous judges and lawyers present, the commission remains silent.