Capital machinery import

BB checking banks’ BoE to unearth capital flight


The central bank has started scrutinising bills of entry (BoE) received from commercial banks to unearth possible capital flight in the form of capital machinery import, officials said.
A good number of banks, particularly the private commercial ones, have already provided their information regarding capital machinery import over the last two years.
The Bangladesh Bank (BB) recently asked the commercial banks concerned to provide the information against the backdrop of alleged capital outflow from the country through capital machinery import.
“We may conduct physical inspection, if necessary, to know about actual capital machinery import,” a senior BB official told on Monday.
He also said the central bank will submit a report in this connection to its board of directors for approval.
Besides, the government has already approved two core strategies, out of 11, to curb illicit financial flows by preventing creation of black money, addressing trade-based money laundering, and curbing domestic and cross-border tax evasion.
The BB’s latest move came in the wake of a sustained upward trend in the capital machinery import in value terms despite political stalemate over the past few months.
Import of capital machinery or industrial equipment used for production rose by nearly 23 per cent to $2.23 billion during the July-March period of this fiscal year (FY), 2014-15, against $1.81 billion of the corresponding period of the previous fiscal.
The central bank has also strengthened coordination with the National Board of Revenue (NBR) to check fake import and other trade-invoice mismatches, officials added.
However, the tax authorities find themselves in a difficult situation to nab people engaged in illicit capital flight, as the taxmen are not empowered to do so in the existing Money Laundering Act, officials said.
Income tax and customs wings of NBR face different complexities to take legal action after detection of several cases of money laundering.
In absence of relevant provisions, taxmen cannot investigate the suspected money laundering. They have to refer the cases to the Anti-Corruption Commission (ACC) to take legal actions.
Besides, several attempts have been made by the taxmen to find out the people, having second home in different countries, including Malaysia, Canada and the UAE. However, no progress has so far been visible in this regard.
In last November, NBR formed a four-member committee to frame a work-plan for tracing out the Bangladeshi citizens, who own second home and have shifted undisclosed income to other countries.
The committee has already submitted its investigation report to the NBR chairman with lists of some 3,500 Bangladeshi citizens. Most of them have invested in Malaysia.
The report recommended framing a rule through which tax representatives of Bangladesh can be appointed in those countries to monitor investment in second home scheme.
According to a recommendation of Financial Action Task Force (FATF), the government took a decision in November to empower BB, NBR and Narcotics Department to probe money laundering.
Currently, ACC is performing the task, having the sole authority to investigate and take legal steps under the Money Laundering Prevention Act 2012.
Officials said the existing double taxation treaty also lacks the provision of exchanging information on a ‘class of people’ or ‘second home owners’ with other countries.
Bangladesh has so far signed DTAs with 32 countries, most of which are at least one or two decades old.
Among the countries, DTA with Singapore was signed in 1980, Malaysia in 1982, Canada in 1983, India in 1992, the US in 2006, Switzerland in 2007, the KSA in 2011, and the UAE in 2012.
Meanwhile, balance of payments (BoP) leakages, trade miss-invoicing and unreported remittance are considered as major tools for capital flight, which has eaten up more than 30 per cent of Bangladesh’s GDP (gross domestic product).
Although the actual size of the funds that has flown out of the country in the recent years through both formal and informal routes remains rather unknown. But some recent reports by competent local and international agencies on the issue have kept the policymakers, bankers and financial experts guessing about the extent of capital flight.
Equity and Justice Working Group Bangladesh (EquityBD) in its latest findings revealed on Sunday that Bangladesh has lost US$ 18.41 billion in capital flight over the last one decade.
According to a study, Bangladesh accounted for nearly $ 1.84 billion year-on-year between 2003 and 2014 for it. It also mentioned that the amount of capital flight was five times higher in 2014 than in 2011.
According to a study of the United Nations Development Programme (UNDP), the country lost $ 800 million per year on an average in capital flight over the last four decades.
It said the total capital flight from Bangladesh accounts for 30.4 per cent of its GDP of over $ 100 billion in 2010.
Swiss National Bank in another report revealed that deposits by Bangladesh nationals in the banks of Switzerland recorded a 62 per cent increase in 2013 to Tk 32.36 billion (372 million Swiss francs) in 2013, from Tk 19.91 billion in 2012.
Expressing concern over the trend of illicit capital outflow from the country, experts have suggested necessary steps from the agencies concerned to check it.
Chairman of Policy Research Institute (PRI) Dr. Zaidi Sattar told the FE-PRI Economic Analysis Unit that BOP conduit (under current account convertibility) is the easiest way to move capital out through under-invoicing of export or over-invoicing of import.
Without exception, the developing countries, having no capital account convertibility, face the experience of capital flight, which certainly is a loss to the country’s economy, he said.
Dr. Sattar opined that the way to reverse the outflow from Bangladesh would be to create conditions that give owners of capital the confidence to invest at home. Better economic times and comfortable foreign exchange reserve levels will also allow selective relaxation of capital control.
When opportunities for domestic investment become limited (due to poor investment climate), some Bangladeshi entrepreneurs will be seeking investment abroad where return to investment is more certain, he added.
When contacted, Ali Reza Iftekhar, chairman of the Association of Bankers, Bangladesh (ABB), told the FE that the banks had provided capital machinery import-related data as per the requirement of the BB.
“Now it is the central bank’s task to see whether any irregularity in import of capital machinery took place or not,” said Mr. Iftekhar, who is also managing director and chief executive officer of the Eastern Bank Limited.