Laundered money retrievable? Bankers say yes

Bangladesh needs to make a concerted effort to recover billions in laundered funds by investing in strong frameworks and expertise, said seasoned bankers.

The retrieval process is rather complex and requires genuine determination and commitment to succeed, they said while speaking at a discussion titled "Save the Banks," organised by The Business Standard at its Eskaton Garden office on Saturday. 

Selim RF Hussain, chairman of the Association of Bankers Bangladesh (ABB) and managing director of BRAC Bank, said it would be wrong to say there was no corruption during the BNP or earlier Awami League era. 

However, the scale was much smaller. Before that, the then government began issuing licences for new banks and these licences were nothing more than sign boards for money laundering, he said. "By this strategy, they syphoned off billions of dollars."

Hussain said that a wave of corruption began in 2017, with the emergence of a new model — takeover banks — operating with the active support of the Bangladesh Bank.

"To bring back the laundered money, we need to invest in making a framework and in experts. If we don't have the necessary expertise locally, we must bring in experts from abroad," he said.

ABB chairman also said the current chief adviser Dr Yunus has global-level networking, knowledge, and a profile and he can do everything necessary. "What we need is the will and commitment and it is possible to recover the money stashed abroad."

How laundering works

Syed Mahbubur Rahman, managing director of Mutual Trust Bank (MTB), said money laundering exists in every economy, but the level it reached here was unbelievable.

"We saw how the Bangladeshi diaspora purchased properties in Dubai, Singapore, Canada, the UK, and the USA," he said. 

After the Fakhruddin-Moeenuddin era in 2007-2008, people realised they could lead much better lives abroad, he continued.

"Families started staying abroad while income was earned in Bangladesh and sent out of the country. At the same time, many shell companies were created," said Rahman, adding that they engaged in under-invoicing for exports and over-invoicing for imports.

He said earlier, they used to open LCs for imports in sourcing countries, but later they started opening LCs in Singapore and now in Dubai. Rahman said this was because they were opening LCs against their shell companies.

"This practice became rampant and the central bank gave preferential treatment to these parties. The institution supposed to regulate was aiding these manipulations," said the MTB CEO.

Mohammad Abdul Mannan, chairman of the newly restructured First Security Islami Bank board and former managing director of Islami Bank Bangladesh, also echoed concerns over massive capital flight. 

Citing a specific case, he revealed that one group syphoned off Tk75,000 crore from Islami Bank Bangladesh, laundering much of it abroad. "Will this money ever be brought back?" he asked.

Expensive but possible

Anis A Khan, former chairman of ABB and former managing director of MTB and IDLC, said there are some agencies and experts who can help bring back laundered money, but they are very expensive.

"It is a complex process. The police need to be involved in filing cases, lawyers need to be hired to take it to court," he said, citing an example that at MTB, in 2018, they successfully repatriated money through reverse money laundering to London, with the legal approval of the Bangladesh Bank.

The bankers said there are examples of the recovery of laundered or stolen money by various countries.

For example, Malaysia recovered $1.4 billion related to the 1MDB scandal, with assistance from the USA's Department of Justice. 

Also, Switzerland returned to Nigeria around $321 million in assets seized from the family of former military ruler Sani Abacha via a deal signed with the World Bank, according to a Reuters report in 2017. There are many more examples of recovery and laundered money, bankers said.

At the programme, moderated by Inam Ahmed, editor of The Business Standard, bankers addressed key issues affecting the banking sector, including the factors behind its decline, the roles of the finance ministry and the Bangladesh Association of Banks (BAB), and the necessary steps to restore confidence in the sector.

When businesses become lawmakers, bank sponsors

According to Selim RF Hussain of BRAC Bank, the root of the financial sector's issues lies in the fact that all bank sponsors are business owners — a problem not seen in India. 

"When 70% of lawmakers are businesspeople, you can guess what kind of laws they pass," Hussain said, pointing to this as a key factor behind the sector's anomalies and corruption.

Syed Mahbubur Rahman of Mutual Trust Bank (MTB) said that business ownership of banks represents a clear conflict of interest, noting that many businessmen have greater access to the central bank than top bankers. 

He also criticised the composition of many bank boards, particularly the appointment of independent directors, who are often close associates or relatives of directors and serve the interests of those who appointed them.

Mandating 2% shareholding detrimental to banks

MA Mannan, former managing director of Islami Bank Bangladesh, believes that the securities regulator BSEC's 2011 order mandating a 2% stake to become a bank director was a mistake, allowing individuals with vested interests to join boards and exploit their positions for personal gain. 

He suggested that the 2% threshold should be removed as a requirement for directors and instead be the limit on individual shareholding.

Anis A Khan also criticised the 2% shareholding rule for directors, arguing that it led to undue influence over loan approvals and the appointment of individuals serving the directors' interests. 

Such directors often influence concealing non-performing loans and waiving interest for their own benefit, he said.

FID was created for manipulation

Soon after coming to power in January 2009, the Awami League government, led by Sheikh Hasina, reinstated the Financial Institution Division (FID) under the Ministry of Finance, which diminished the Bangladesh Bank's authority, particularly over state-owned banks, according to bankers.

"The FID does not want the central bank to be independent, and quite often the Bangladesh Bank has to report to the FID," said MA Mannan. 

He added that the FID is also interfering with banking regulations. 

Syed Mahbubur Rahman echoed these concerns, saying that the FID was created to enable manipulation.

Trust is the foundation of stability and growth in banking

Banks handle sensitive financial information, manage deposits, and facilitate investments, making trust crucial for both individual and corporate clients. 

However, bankers said that a current lack of trust could lead to bank runs, reduced deposits, and reluctance to engage in financial transactions, ultimately destabilising the industry.

"Restoring trust in banks is the top priority," said Selim RF Hussain, adding that regulatory reforms — short, medium, and long-term — are needed to ensure good governance and rebuild confidence.

Anis A Khan emphasised the need for genuine autonomy of the central bank, while Syed Mahbubur Rahman stressed that improved governance is key to regaining public trust.