Dealing with hundi and money laundering

Hundi is a much-discussed medium of money laundering. Hundi traders are spreading their tentacles across the globe and they are very strong and always active. Within moments they have the ability to transfer hundi money illegally from one end of the world to the other. Medium and small traders are also building houses, buying land and setting up factories by smuggling money abroad. Traders are smuggling money under the guise of import-export, showing higher prices of imported goods and lower prices of exported goods. The hundi money is being delivered to the address of their relatives as soon as the remittance money is deposited with the designated agent. There is no doubt that hundi and money laundering have a highly negative impact on the country's economy. Hundi is considered as a deadly threat to the economy and many term it as a cancer of the economy.

According to Global Financial Integrity (GFI), a Washington-based think tank, hundi has recently become so active in various countries that it is delivering money to customers faster than banking or any other formal channel. According to economists, hundi is a particularly vicious means of money laundering. In case of money laundering through import or export, different types of documents have to be displayed. As a result, the identity of the culprit is found at once. But in hundi, money is transacted mainly through agents, it is all about hundred per cent trust and no paperwork in transaction is necessary. If money is smuggled in this process, it is very difficult to identify the traffickers. In addition to this, the cost of transferring money through hundi is low, that is why many prefer hundi. Not only money comes to Bangladesh, money also goes out of the country through hundi. Migrant workers are also sending remittances to the country with the help of hundi as there are many problems in sending money legally. Basically, those who have gone abroad illegally and staying abroad are being forced to send remittances through hundi. According to a survey by the ILO, 40 per cent of remittances sent by expatriates to the country come through banking channels, 30 per cent comes directly through expatriates or their relatives in the form of cash and the remaining 30 per cent comes through hundi.

Bangladesh is one of the top 30 countries in the world in the list of money laundering through trade manipulation. Money flows out of Bangladesh through trade manipulation in two ways. One way is money laundering by mentioning higher prices in the paper when importing goods; another is to show lower prices on paper when exporting goods. As a result of showing lower prices during exports, a portion of the money that foreign buyers are paying remains abroad. Only that amount of money is coming to Bangladesh is the amount of money that is being shown, i.e., the amount that has been mentioned in the papers. There are also instances where goods are imported and exported, but in reality, empty containers or other goods have come and gone instead of an actual product.

Due to the prevention of illegal hundi, the collection of remittances through legal channels has increased significantly in the recent past. The flow of legal remittances has increased more than at any time in the past. Expatriates are now much more aware and they are interested in sending remittances legally, avoiding illegal routes. Legally, remittances to banking channels have increased, not just increased, new records have been set. This is of course a positive aspect and good news for the country's economy. It is a crime to smuggle money abroad from the country through hundi, which hinders investment. The agencies concerned are always working to stop the money laundering through hundi. There is no hundi information in the statistics of Bangladesh Bank. However, GFI (global Financial Integrity is one of the organizations that monitor the phenomenon of money laundering. According to their latest information, the amount of money laundering from our country has decreased.

However, the declining rate of remittances in the country in recent months is worrying. Experts have cited the introduction of illegal channels of hundi, a decline in new foreign employment and the loss of jobs for expatriates as pandemic restrictions have been lifted. According to Bangladesh Bank, between July and September this year, about US$5.4 billion has come through the country's official channels and in the same time last year, the amount was US$6.7 billion. According to the Bangladesh Bank, Bangladesh received US$771.6 million less remittances in the first quarter of FY 2021-2022 than in the last quarter of last fiscal year.

According to a GFI report, US$11.51 billion or Tk. 980 billion was smuggled from Bangladesh in 2015, Tk 728.72 billion in 2014 and Tk 763.61 billion in 2013. In all, from 2005 to 2015, a total of Tk. 7048.68 billion was smuggled from Bangladesh- which is almost equal to two budgets of Bangladesh. On the other hand, GFI says that only in 2015, about US$6 billion was smuggled abroad from Bangladesh through trade manipulation. In Bangladeshi currency it is about Tk. 500 billion. It is mentioned in the report that this manipulation has been done during the import and export of goods in Bangladesh. Most money is smuggled from Bangladesh to Dubai, Malaysia, Singapore, Hong Kong and Thailand. Apart from this, questions have been raised for a long time about second homes in Canada, Australia and Malaysia.

According to a data of the Central Bank of Switzerland in 2019, the amount of money deposited by Bangladeshis in the banks there is Tk. 53.67 billion. However, the Bangladesh government does not have precise information about who kept the money in those banks– not only in Switzerland, but also in Singapore, Malaysia and Canada. When money is actually smuggled out of the country, the value of the dollar artificially rises and the country's currency becomes unstable. The money that is being sent out of the country is not being invested in the country. If there was investment in the country then employment would have increased and would have played a role in economic development and growth. According to bank officials and lawyers, it is difficult to bring money back into the country once it has been laundered.

In order to stop hundi in the country and money laundering, first of all we have to increase the investment opportunities in the budget and mete out strict punishment to the smuggling. As the main source of money laundering is black money, so the sources of black money must be stopped completely. In this connection, the first step will have to be the prevention of corruption. In addition, if evidence of money laundering and black money is found, strict punishment will have to be meted out. A few cases of exemplary punishment will reduce this tendency a lot.

On the other hand, in order to increase foreign investment, the investment environment needs to be further improved. If the investment takes more time, if there are bureaucratic complications, then the entrepreneurs will be discouraged. So, the policies need to be simpler and clearer. The banking system needs to be strengthened. The bureaucratic inertia needs to stop. The policy cannot be changed in the budget every year. Ports, IT and infrastructural facilities need to be further enhanced. Before that, domestic investors ought to be encouraged. Otherwise, the risk of money laundering will remain. Savings facilities in the country should be increased. Reducing interest rates on savings and deposits does not encourage people to keep money there.

Moreover, the cost of bringing remittances from abroad should be reduced, the remittance incentive system should be kept running, monitoring needs to be intensified and punishment provisions must be enforced. The main reason people opt for hundi is to get money quickly. It has become popular because people from any region get money through hundi quickly. Moreover, in order to strengthen the banking sector, good governance needs to be established. There are instances of corruption and irregularities in the banks. Smaller banks should consider merging. The banks need to expand their customer service. Then people will become interested in banks. If the cancer hundi of the economy cannot be prevented, it will continue to hamper the economic development and progress of the country. For this, the authorities concerned have to take active measures.

The writer is a banker. He can be contacted at zrbbbp@gmail.com