What is a Financial Crime?
There is no internationally accepted definition of financial crime. Rather, the term expresses different concepts depending on the jurisdiction and on the context. In general, financial crime can refer to any non-violent crime that results in a financial gain to the perpetrators and loss to others or the state. It includes a range of illegal activities such as: •
corruption (bribery, speed money, kickbacks etc.)
financial fraud (accounting, check, credit card, mortgage, insurance fraud, counterfeit notes, securities or investment fraud, computer fraud etc.) •
circumvention of exchange restriction
illegal cross border fund transfer or capital flight
abuse of the financial system/institution etc.
Financial Crime in Bangladesh
Bangladesh is considered to be a safe heaven for financial crime. The relatively large informal economy compared to the formal one as frequently reported in various independent reports is a testimony of that. Hundi or a black market money exchange (also known as hawala) is the mode used for cross border fund transfers. The two major global financial hubs Dubai and Singapore are known to be the most popular centres for hundi settlements. A portion of the wage earners income is the primary source for financing all payments through hundis, while over-invoicing or holding of various commissions/fees abroad are also being discussed as sources. Our most prominent financial crimes are: 1.
Abuse of public power or position for personal gain or for the benefit of a group to which one owes allegiance. 2.
Remaining outside the tax net, non-disclosure of actual income, non-payment of income tax, underhand agreement with the tax authority, gross abuse of the tax holiday provisions may be mentioned under this category. The provision of payment of a low rate of tax that legalises any income without a need to declare source has been considered and criticised as a crime-friendly environment. Purchase of property and investments in the capital market may also be done without declaring the source of income. Under-invoicing of dutiable imports also deprives the government from the due revenues. 3.
Intentional defaulting, siphoning off money from the ventures for which the loan was taken, etc. 4.
Concocting books of accounts, making different books for different constituencies (tax authority, banks, shareholders, etc.), amalgamating personal and company/business financials, etc. 5.
Pyramid savings schemes, misleading overseas job seekers (recently local job seeking has also come under the net). Counterfeit notes are also areas of concerns. 6.
Use of over invoicing and hundi to transfer money, front companies to retain portions of export proceeds, overseas accounts to get commissions/ kickbacks/ bribes. It is frequently heard that a good number of Bangladeshis has been obtaining foreign nationality or residence under investor category! 7.
An estimated amount of US Dollar 1 billion worth of dutiable goods are smuggled each year from India alone.
Use of financial institutions in financial crimes
A financial institution involved in a financial crime can play one of the three roles: (i) perpetrator, (ii) victim, or (iii) knowing or unknowing vehicle of crime. Of these, the most common is when the financial institution is a victim of fraud and when it is used as an instrument/vehicle for money laundering. Financial institutions that include both banks and non-bank financial institutions may not always be used for financial crimes. This is more so in Bangladesh since our informal economy is very large and it is a predominantly cash transaction based ( not leaving any records). However, the financial institutions cannot shy away from their responsibilities. They are one of the conduits used. They do not do (1) adequate KYC (know your...
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