AML in Bangladesh

Despite Bangladesh’s efforts to address money laundering, it continues to be a significant issue in the country. Following the declaration of a state of emergency on January 11, 2007, a caretaker government assumed power. Unfortunately, money laundering through the formal banking system has seen an increase during the current regime. Consequently, combating corruption has become a key objective for the caretaker administration.

The underground hawala or “hundi” system, which operates outside the regular banking channels to transfer money and valuables, remains a major risk for money laundering. The hundi mechanism is commonly used to repatriate wages earned by Bangladeshi expatriate workers. Despite recent improvements in speed and efficiency within the banking sector, the hundi system thrives due to its ability to evade taxes, customs fees, and currency regulations.

In 2002, the government enacted the Money Laundering Prevention Act as a measure to tackle the issue. Subsequently, in 2007, Bangladesh implemented the United Nations Convention Against Corruption (UNCAC). In the same year, the Anti-Money Laundering Department (AMLD) of the Central Bank was designated as the national Financial Intelligence Unit (FIU) responsible for combating money laundering. The government further strengthened its efforts by introducing the Money Laundering Prevention Ordinance (MLPO 2008) and the Anti-Terrorism Ordinance (ATO 2008). These laws facilitate international cooperation in combating money laundering and enable the recovery of unlawfully transferred funds to and from other nations.

Bangladesh’s economy has experienced steady growth, averaging 5 to 6% annually since 1996. The country’s economy relies on export sales and remittances from Bangladeshis working abroad, primarily in the Middle East and East Asia. However, several factors hinder the economy’s progress, including inefficiencies in state-owned enterprises, delays in harnessing natural gas resources, insufficient electricity supply, and slow implementation of economic reforms. Additionally, although agriculture employs approximately two-thirds of the population, the service sector contributes over half of the country’s GDP.

Established in 1971, the Bangladesh Bank serves as the central bank of the country. It operates under the oversight of a nine-member Board of Directors, which includes the Governor, Deputy Governor, three government officials, and four individuals with specialized expertise in banking, trade, and finance.

The primary responsibilities of the Bangladesh Bank encompass various objectives, including the regulation of currency issuance and reserve management, the establishment and organization of the monetary and credit system in Bangladesh, the maintenance of domestic economic stability, the preservation of the par value of the Bangladesh Taka, and the promotion of increased employment, industrial production, and real income in Bangladesh.

The official currency of Bangladesh is the Taka, which replaced the Pakistani rupee at par in 1972. The term “taka” is derived from the Sanskrit word “tanka,” denoting an ancient silver currency. The Taka is subdivided into 100 poisha. Banknotes and coins are both issued by the Bangladesh Bank, the country’s central bank.

In the 2016 International Narcotics Control Strategy Report (INCSR) by the US Department of State, Bangladesh was designated as a Jurisdiction of Concern. The report highlighted several key observations:

While Bangladesh may not be a regional economic hub, its strategic geographical location, shipping ports, and extensive border controls with India and Burma make it a transshipment center for narcotics originating from the “golden triangle” in Southeast Asia and the “golden crescent” in Central Asia. The main sources of illicit revenue in Bangladesh include drug trafficking, bribery, fraud, counterfeit money, gold smuggling, and human trafficking. The country also faces a threat from terrorist financing, particularly through the hawala/hundi system and cash transport. Notably, the terrorist group Jamaat-ul-Mujahideen Bangladesh, based in Bangladesh, has openly acknowledged receiving funds from Saudi Arabia.

Remittances play a significant role in Bangladesh’s economy, with official remittances surpassing $15.3 billion in the year 2015. Despite the prevalence of the underground and illegal hawala/hundi remittance system, the central bank reports an increase in the percentage of remittances being transferred through official channels.

Due to the limitations on currency convertibility, the prevalence of a cash-based economy, and the monitoring of foreign currency transactions through official channels, black market money exchanges remain popular in Bangladesh. Alternative remittance and value transfer methods are also employed to avoid taxes and customs duties. Additionally, there are other avenues used to fund terrorism, such as non-governmental organizations (NGOs), charities, counterfeiting, and unregulated private banks.