The Financial Express

Bangladesh black money in Swiss banks--a reality check

| Updated: October 24, 2017 20:18:37

Lankabangla and Fianancial Express Lankabangla and Fianancial Express
Bangladesh black money in Swiss banks--a reality check

The Zurich-based Swiss National Bank (SNB) recently published the data on money held in Swiss banks by foreign clients. According to that report, the total money held in Swiss banks by all their foreign clients marginally increased to CHF 1.42 trillion (USD 1.48 trillion) in 2016 from the preceding year's CHF 1.41 trillion (USD 1.45 trillion).
Although, globally the deposit of foreign money in Swiss banks in 2016  rose only marginally-far less than 1 per cent-- deposits from Bangladesh escalated sharply by 20 per cent to CHF 667.5 million. This amount translates into a staggering TK 53.40 billion at the current exchange rate. To this must be added an unspecified amount of money that Bangladesh nationals, NRBs or others might have in Swiss banks from outside Bangladesh either in their own names or in the names of shell companies. 
In terms of money stashed in Switzerland from the subcontinent, Pakistan, the citadel of black money, with drug smuggling and proxy wars in Afghanistan as the main sources of easy money-led the sub-continental bunch with about CHF 1.4 billion. The amount of deposits (CHF 670 million) in Switzerland from India was only a shade higher than those from Bangladesh (CHF 667.5 million) although India's GDP ($2,264) is more than 10 times bigger ($221.4 billion) than ours. India occupied the 88th rank in the SNB dossier while Bangladesh closely followed the big neighbour to claim the 89th slot. Himalaya's former kingdom, Nepal chipped in with CHF 312 million, closely trailed by Sri Lanka with CHF 307 million. 
Switzerland is not the only place where the fugitive money takes wings from our capital-starved country. Money in Swiss banks is only a proverbial tip of the iceberg. So, we need not lull ourselves into a state of complacency or draw comfort by looking at the modest numbers supplied by the SNB alone.
Due to international pressure, Switzerland is not as secretive as it had been before with regard to money held in its banks. Next year Swiss banks will even start supplying data to foreign tax authorities regarding money held by their nationals with the Swiss banking system. Worried black money holders, including those of Bangladesh vintage, have shifted a big chunk of their money away from the alpine country to park in Singapore, Hong Kong, Malaysia, Canada and other offshore money centres.
SNB's disclosure of Bangladesh data has triggered, as it always does, heated discussions among cross sections of people. The political parties also rose to the occasion to trade blames and innuendos to score a point or two against their rivals. Even the National Assembly picked up the thread to debate the issue with usual fervour and gusto. In the midst of usual heated rhetoric of the lawmakers, the charismatic Finance Minister threw a bucket of ice-cold water to play down the size of hidden money in Swiss banks and its damaging effects on the national economy.
This time around, the Minister mercifully refrained from using his trade mark invective-'rubbish', but came quite close to that. "Bangladeshi citizens' deposits in Swiss Banks are not a big amount," he chastised his detractors. "Trade and commerce between Bangladesh and Switzerland has significantly increased, and financial transactions are increasing as well. This is not money laundering," the respected Minister surmised. 
The Finance Minister commands respect and enjoys reputation as a man of honesty and integrity. Why he often takes the role of a devil's advocate remains an abiding mystery. After all, corruption in this country, the source of flying money, is a grim reality and serves as a damper to progress and prosperity. After the tragic death of Bangabandhu Sheikh Mujibur Rahman in 1975, corruption started to take roots and flourished under the autocratic rules of the duo in uniform. They had probably taken a cue from Machiavelli who taught the princes that it is easier to maintain a stranglehold on a corrupt society. 
It would be no exaggeration to say that the present government has many impressive achievements to its credit; chief being the restoration of the spirit of the war of freedom, trial of the war criminals, poverty alleviation, improved social indicators and sustained economic growth at the rate of 6.0 to 7.0 per cent per annum. Corruption, however, continues to remain a nagging problem, a perpetual sore in the throat. Refusal to recognise this menace and unwillingness to weed it out will only neutralise the good works done by the government and serve as a strong deterrent to translate the ideals for which millions sacrificed their lives and honour. 
The bottom line is that instead of turning a blind eye to this grim reality, the Minister and his colleagues would need to work towards cleaning the monstrous Augean Stables of corruption that generates black money. On his part, the Minister would rather be doing a favour to the nation by clearing another Augean Stables called the banking sector currently reeling under the dead weight of bad loans and poor management. 
Turning to the issue of sharp rise of Bangladesh money in Swiss banks, the Minister's contention that it is due to 'significantly' increased trade between the two countries is not borne out by facts. The following table shows that while trade grew at snail's pace, the deposits leapfrogged from the equivalent of TK.12.22 billion to TK.55.75 billion within a span of only 5 years. There is no spatial correlation between the volume of trade and volume of money in Swiss banks.
Secondly, the Minister's perception about strong Swiss currency and its increasing use for financial transactions that caused the rise of Bangladesh money is borne out of inadequate appreciation of the operation of the exchange control regulations in Bangladesh and the ways international transactions are settled.
According to exchange control regulations in the country, export proceeds have to be compulsorily repatriated to Bangladesh; there is no scope for retaining these with banks abroad. A part of the proceeds can, however, be kept in foreign currency accounts under the retention quota scheme with banks in Bangladesh-not with banks abroad. Moreover, the quota money can be retained in US dollar, pound sterling, euro and Japanese yen. Swiss money does not feature in this scheme.
Swiss money is no doubt a strong currency but it accounts for a very small part of international transactions. According to the latest triennial survey conducted by the Bank for International Settlement, Basel in Switzerland, the US dollar is the most dominant currency accounting for 87.6 per cent of OTC (Over the Counter) turnover for settlement of payments; Swiss franc's share being a bare 4.8 per cent. The following is how the relative importance of 7 top currencies looks like:
Only the banks in Bangladesh can legally maintain accounts -- the so-called 'nostro' accounts with foreign banks. But Switzerland is not at all an attractive place for banks to maintain a balance. The interest rate offered by the banks on deposits is among the lowest. Secondly, Bangladesh Bank has set a limit for each bank on the amount of money it can maintain abroad in 'nostro' accounts. Bulk of this money is maintained in US dollar, mostly in New York to facilitate settlement of payment and investment. Many of the export/import trade with Switzerland also are settled through the dollar or euro accounts in Paris or Frankfurt. A few banks in Bangladesh maintain only token amounts in Swiss banks. For instance, Sonali Bank had only CHF 20,837 with Union Bank of Switzerland at the end of December 2015 constituting only 0.015 per cent of its overseas balance. Janata Bank too had only 0.26 per cent of its overseas balances deposited in the same bank.  
The conclusion one can draw from these discussions is that, leaving aside the small amounts of money legally held by banks in Bangladesh, at least 90 per cent of deposits in Swiss banks are black money. It must not be forgotten that every year capital flies from Bangladesh at the rate of $7 to 10 billion to various destinations including Switzerland. So, the total amount of black money accumulated abroad would add up to the proverbial king's ransom. There is not much that the government can do to repatriate or confiscate the money, as suggested by some quarters. The legal hassles are too complex and costs are too high. What it needs is to strike at the source of black money which will automatically stop, or reduce the flow of capital away from Bangladesh in future.
The writer is a retired central banker.
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