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Underground banking and money laundering
Rashid ul Ahsan Chowdhury

THE hundi system is used to pay for gold, contraband and high duty items which are smuggled into Bangladesh. The country faces a major gold smuggling problem, mostly by gold smuggling syndicates based in Dubai and Hong Kong. The gold is used in black money transactions because it is easier to handle than large amounts of currency. Since the gold has to be paid for with a suitable foreign currency, hundi is an easy way to convert the sale proceeds of gold in Bangladesh to hard currency. Other smuggled items which are financed by the hundi system in Bangladesh include electronic items, consumer goods, cigarettes, liquor and arms.
The hundi system is also used in Bangladesh for false import. The operator opens a current account in a Bangladeshi bank authorised to deal in foreign exchange. He usually poses as a small scale businessman. His partners abroad prepare a set of export documents such as an invoice, bill of lading or bill of exchange and sends them through their foreign bank branches for collection. On receipt of these documents, the importer's agent deposits the amount of Bangladeshi taka in his banks' current account and the bank remits the foreign exchange. However, no goods are ever imported.
Since the early 90's, Bangladesh has become a transit route, especially by seas for drug trafficking to the Western Europe and the United States. This drug originates from the golden crescent comprising Pakistan, Afghanistan and Iran and the golden triangle consisting of Myanmar, Thailand and Laos. The drug from the golden crescent is sent via India to Bangladesh and then shipped through the sea route to the Western Europe and the United States. The drug trafficking from the golden triangle comes via the land, river and sea routes into Bangladesh and then smuggled into ships in the ports destined for Europe and the United States. Nearly 70% of the drug seizure in Bangladesh originated from the two destinations and annually opium with a whole sale value of US $ 1.0 million is seized in Bangladesh almost every year. All the drug financing is done through the hundi.
A recent study by the European Drug Intelligence Agency states that while it would be impossible to estimate the amount of funds that had moved through Europe, they could document the movement of two million euro in a six-month period. In a case involving the seizure of 200 kgs of hashish it was shown that a number of false companies and bank accounts were established in Bangladesh. These companies were used to ship frozen shrimp export to Europe in which the 'hashish' was concealed. In return, the proceeds from the sale of the 'hashish' in Europe were returned to Bangladesh by the hundi system.
The hundi system of moving and converting money maintains no records. Yet the hundi operators can move millions of dollars around the world and convert it to any desired currency in a matter of hours. While based in long-standing traditions of reliability and discretion, the hundi system has also recognised the virtues of some modem developments in communication and transportation. The system has incorporated these developments into their operations to improve speed and efficiency, Some hundi operators in Bangladesh are known to employ modern telecommunications, including satellite telephone communications, to speed up and secure the arrangement of transactions.
As a result of money laundering activities in Bangladesh, the government is annually losing a huge sum of revenue. At the same time the laundering activity is distorting the market mechanism and creating impediment to facilitating legitimate money transactions and promoting fair and competitive economy in the country. In order to curb down money laundering activities, it is important for the law enforcement agencies in Bangladesh to have a thorough and authoritative knowledge of the working methods of the money laundering system. The law enforcement agencies should no longer simply be competent in criminal investigations, they must have knowledge of the workings of the financial markets, how money moves through them and how illegitimate proceeds can be disguised as legitimate financial transactions. The under-trained and under equipped law enforcement and banking staff should also be geared up for the detection and successful prosecution of money laundering offences. Experience has shown that law enforcement obtains its best results when financial investigators become involved in major criminal investigations. Therefore, there is a definite need to pool scarce resources in the most efficient and effective way. Total cooperation is to be encouraged, not only locally, but also at regional, national and international levels.
The writer is Permanent Representative of Bangladesh to the World Customs Organisation, Brussels, Belgium