Whether it is due to a lack of commitment, the existence of political obligations or the complexities involved, South Asian Governments have been unable to meet a persistent demand from their citizens that the billions stashed away abroad by corrupt elements be retrieved and the guilty punished.
In July 2022, a weekend newspaper reported that an investigation carried out by the Washington-based think tank, Global Finance Integrity (GFI), had found that between 2009 and 2017, Sri Lanka had not received US$ 36 billion due to it from its exporters.
The money was being held offshore.
W. Vishnu Gupta writing in the Colombo Telegraph said that even if a fraction of the US$ 36 billion was brought back to the country, Sri Lanka need not have gone to the IMF with a begging bowl for a measly US$ 3 billion.
In 2015, the ‘Yahapalanaya’ Government led by President Maithripala Sirisena had set up a Presidential Task Force to trace the monies hidden away overseas but nothing came of it.
Corruption
Currently, the left-wing National People’s Front (NPP) is in power with its voters expecting it to crush corruption and malfeasance. The party is set to do that, but its election manifesto had not mentioned bringing back money hidden overseas.
Therefore, there is doubt if this issue will be tackled, though there is a commitment to unravel the Central Bank bond scam.
Gupta outlined the various nexuses between politicians, officials, and money changers. Then, there are the Undial (Hawala) operators serving Sri Lankan expatriate workers. That money circumvents the banking system and is not accounted for.
In October 2023, the Indian Government revealed that between US$181 billion and US$1.8 trillion due to India was hidden abroad. Of this, only US$623 million was recovered through an amnesty scheme.
Syed Shabbar Zaidi, former chairman of the Pakistan Federal Board of Revenue, recently said that about US$ 150 billion was kept in foreign countries by Pakistanis in the form of properties and other assets. Of this, mysteriously, US$100 billion had no money trail.
As of December 2023, Pakistan’s total external debt was US$131.15 billion. If the hidden money had been brought to the country, Pakistan need not have sought an IMF Extended Fund Facility of US$ 7 billion.
Writing in Dhaka’s The Daily Star (October 2, 2024) US-based Bangladeshi financial expert, Tasneem Raihan said at least US$ 100 billion was laundered abroad by Bangladeshis.US$100 billion was nearly equivalent to Bangladesh’s national budget for two years and to its total external debt. It is noteworthy that Bangladesh went to the IMF and got US$ 4.7 billion in 2023.
After the corrupt Prime Minister Sheikh Hasina quit, officials from the Anti-Corruption Commission met representatives of the US Federal Bureau of Investigation (FBI) and the UN Office on Drugs and Crime (UNODC). Both offered assistance to recover laundered funds. In addition, the US Department of Treasury Assistant Secretary, Brent Neiman met officials of the Interim Government.
The US has successfully helped countries such as Malaysia, Philippines and Nigeria recover laundered funds.
Between 1993 and 1998, Nigerian dictator Sani Abacha and his associates stole about US$5 billion, much of which was deposited in international banks in Switzerland, US, UK and in offshore accounts.
Following Abacha’s death, Nigeria initiated efforts to recover the money. These efforts relied heavily on international legal frameworks such as the UN Convention Against Corruption (UNCAC), which enabled mutual legal assistance (MLA) agreements with other countries.
Abacha’s assets
Switzerland was the first to cooperate, freezing Abacha’s assets in 1999. The Swiss Federal Supreme Court ruled in 2002 in favour of returning US$500 million of the laundered funds to Nigeria.
By 2006, Switzerland had sent most of the frozen assets under condition that the funds be used for public projects such as infrastructure, health and education.
To ensure that the funds were not misappropriated again, international organisations such as the World Bank closely monitored how Nigeria used them. Thus, the recovered funds directly benefited Nigerian citizens, Raihan said.
The United States played a crucial role in Nigeria’s recovery efforts in 2014 too. This led to the freezing of assets across several jurisdictions, including France, the UK and the Crown Dependency of Jersey. By March 2020, the US, Jersey and Nigeria signed a landmark agreement to send over US$308 million laundered through Jersey’s financial system.
The US and New Jersey required that Nigeria use the funds for specific public projects. More recently, in August 2022, the Department of Justice announced another agreement to return an additional U$23 million to Nigeria.
To implement such agreements, Bangladesh must suitably change its governance practices and norms in doing politics and business. Presently, it appears to be doing the needful.
Economist Dhananath Fernando of the Advocata Institute, Colombo, said that in the pursuit of hidden wealth overseas, it won’t do to put all the blame on exporters, accusing them of keeping most of their earnings abroad.
He said that some Sri Lankan companies have scaled up their operations around the world and are perfectly legally. For instance, there are energy investments in Bangladesh and Senegal and manufacturing plants in Africa and neighbouring India.
The IT sector is expanding to the Middle East and to different regions around the globe. For these their foreign exchange is used.
But he said that there are malpractices too. There are three main factors for people dodging the formal banking system and using other channels to send dollars home. The first reason is: market interventions by the Central Bank.
When the Central Bank infuses more money into the system, the exchange rate comes under pressure. The currency depreciates. The fear of currency collapse makes people withdraw money or avoid bringing money into the country, he said.
“Not only exporters, but even Sri Lankan expatriates who were sending remittances stopped sending their money through the banking system. Instead, they sent money through unofficial means at a depreciated exchange rate.”
And when domestic prices are rising due to money printing or import controls, their families back home naturally need more money to buy goods.
However, exporters cannot keep unlimited amounts of money outside the country. They need money to run their operations in Sri Lanka, so they convert their export proceedings and get Sri Lankan Rupees to run the operation. When interest rates are kept artificially low, there is an incentive to borrow domestically and delay the conversion of dollars into rupees, Fernando points out.
“The policy of the Central Bank has simply created a highly unstable financial situation and it is human behaviour to protect one’s hard-earned money, so they will obviously keep their money outside. Understanding this does not require any financial expertise; even basic logic is enough. This is understood by our unskilled workforce contributing to our economy through remittances,” Fernando said.
Business environment
Another reason to keep dollars abroad is that Sri Lanka’s business environment is ‘extremely poor’ he said and added, “We have to ask ourselves why our own people leave the country and why they are reluctant to bring their money into the country. The answer is not complicated; we may act rationally or emotionally at times, but when it comes to money, we all tend to make rational decisions, especially when there is a tangible cost or benefit associated with it.”
It is obvious that people consider all alternative options to protect their hard-earned money. This is one reason remittances were not sent through official channels, Fernando said adding that now that the Central Bank has raised rates and reduced money printing, leading to reduced exchange rates, people are sending their money through official channels.
If a stable and consistent system is available, most people will prefer to send their money through official and legal channels, making it accountable.
