Why Bangladesh investigators struggling to recover laundered money

Infograph: TBS

Investigators in Bangladesh attempting to claw back billions of dollars in laundered funds are facing a sophisticated global maze as money launderers deploy complex, "multi-layered" tactics to completely obscure the final destination of illicit wealth.

While the authorities have managed to trace the initial exit routes of the stolen capital partially, the trail frequently goes cold as it crosses into third and fourth jurisdictions, leaving local officials struggling to pinpoint exactly where the assets are currently held.

The macroeconomic impact of capital flight remains severe. According to the recently published White Paper on the State of the Economy, an estimated $234 billion was illicitly transferred out of Bangladesh between 2009 and 2023, equivalent to an average of about $16 billion a year.

The report emphasised that these outflows have severely crippled domestic investment, employment, foreign exchange reserves, and overall tax collection. It identified banking sector loan defaults, trade misinvoicing through over-invoicing and under-invoicing, and other financial irregularities as major channels for money laundering.

The scale of the challenge was laid bare in the minutes of the 28th meeting of the Working Committee on Preventing Money Laundering and Terrorist Financing, operating under the finance ministry.

Held on 21 May, the high-level meeting brought together representatives from the finance ministry, the Bangladesh Bank, the Bangladesh Financial Intelligence Unit (BFIU), the Anti-Corruption Commission, the Criminal Investigation Department, and the foreign affairs ministry.

The BFIU is investigating the scale of illicit financial outflows from Bangladesh to various global destinations. To date, it has uncovered evidence of money laundering tracing from Bangladesh to the UK, the US, Canada, Switzerland, Australia, Cyprus, the UAE, Singapore, Malaysia, Hong Kong, Thailand, the Philippines, India, Luxembourg, and the British Virgin Islands.

It has also traced laundered funds to several offshore tax havens and crown dependencies, including the Isle of Man, Jersey, Guernsey, and the Caribbean island nation of Saint Kitts and Nevis.

The layering roadblock

According to officials present at the meeting, identifying the initial flight of capital is only the first step. The real roadblock arises during actual asset recovery. Launderers are systematically utilising shell companies, offshore accounts, and complex layering techniques to bounce funds through multiple countries, effectively breaking the paper trail and exploiting gaps in international legal cooperation.

Speaking on the condition of anonymity, a senior official from the finance ministry told TBS that an analysis of data gathered over the last few years reveals a stark reality: Bangladesh lacks any information regarding the majority of overseas accounts where laundered funds have been deposited.

"Furthermore, for the accounts where details have been obtained, the funds are no longer there. The money has already been transferred to accounts belonging to other institutions, companies, or individuals – entities whose information the respective host countries have not disclosed," he said.

Former governor Ahsan H Mansur said, "Obtaining information from international sources is inherently difficult. This is primarily because Bangladesh does not yet have information-sharing agreements with the countries where the money has been confirmed to be laundered.

"On top of that, these funds have often been further routed to a third, fourth, or even fifth country."

Mansur added that tracking down the perpetrators is equally challenging as most of them are no longer in Bangladesh.

"While several banks have conducted forensic audits and successfully identified who laundered the money, apprehending them has proven impossible. Consequently, we must pursue a dual strategy: gathering intelligence from international sources while simultaneously initiating criminal cases to arrest the money launderers," he said.

Jurisdictional hurdles

A representative of the home affairs ministry told the 21 May meeting that the principal obstacle to sending Mutual Legal Assistance Requests (MLARs) is providing sufficient evidence to satisfy the stringent legal requirements in the requested jurisdiction.

To counter this, the committee concluded that, alongside pursuing MLARs, Bangladesh should strengthen direct engagement with foreign financial intelligence units. It also recommended closer coordination between Bangladeshi missions abroad and the corresponding financial intelligence agencies in countries receiving MLARs.

Government strategy and priority cases

An inter-agency task force on stolen asset recovery, led by the Bangladesh Bank, is coordinating these efforts. The taskforce comprises the BFIU, the ACC, the CID, the National Board of Revenue, and the Attorney General's Office. The BFIU is responsible for tracing illicit financial flows and presenting evidence to the task force.

The government has identified 10 potential destination countries for laundered assets. Malaysia, Hong Kong and the UAE have agreed in principle to cooperate under mutual legal assistance arrangements, while the US, the UK, Canada, Australia and Switzerland have indicated their willingness to cooperate under international legal frameworks.

Officials told the meeting that 11 priority money laundering cases are under continuous review, with progress reports presented regularly and information shared among relevant agencies.

Government sources said the strategy in these cases extends beyond identifying overseas assets to pursuing both criminal prosecution and civil legal action against the accused.

Parliamentary disclosure

Finance Minister Amir Khosru Mahmud Chowdhury recently informed Parliament that movable and immovable assets worth Tk76,814 crore had been seized or frozen both at home and abroad as of May this year.

A total of 142 cases have been filed over allegations of money laundering, charge sheets have been submitted in 17 cases, and verdicts have been delivered in six, he said.

Khosru, in a written reply to a question in Jatiya Sangsad on 24 June, said Bangladesh has not yet signed any formal agreement with any country on the repatriation of funds illicitly transferred abroad.

He added, "However, the government has initiated efforts to sign Mutual Legal Assistance agreements with 10 countries initially identified as likely destinations of laundered funds: Canada, the US, the UK, the UAE, Singapore, Malaysia, Australia, Switzerland, Thailand and Hong Kong.

"Among them, negotiations with Malaysia, Hong Kong and the UAE have made positive progress. Meanwhile, the US, the UK and Switzerland have suggested alternative approaches, such as memorandums of understanding and case-by-case agreements."

The minister added that several other countries have also been identified as potential destinations for laundered funds, and the government plans to pursue Mutual Legal Assistance agreements with them as well.

Alongside criminal proceedings, the government is leveraging civil legal processes. Under this approach, around 30 banks that suffered massive losses from defaulted loans that were illicitly transferred abroad have begun the process of appointing nine international law firms. These firms are being engaged on a no-win, no-fee basis under strict non-disclosure agreements, to track and recover the outstanding loans.

Crypto threats and international assessment

The working committee meeting also expressed rising concern over the increasing use of virtual assets and cryptocurrencies. Although cryptocurrencies are prohibited in Bangladesh, a CID representative testified that their use in virtual financial transactions is expanding rapidly, primarily to facilitate transactions related to online gambling. The committee decided that the BFIU, CID, and ACC would jointly organise specialised training programmes to strengthen digital investigative capacity.

These steps come ahead of a critical mutual evaluation by the Asia-Pacific Group on Money Laundering. The committee has moved to appoint a lead agency, a technical coordinator, and designated focal points across relevant ministries to streamline Bangladesh's engagement with the international assessment process.

Experts call for prevention

Money laundering specialists warn that recovering illicit assets from overseas is a decades-long, expensive process with historically low success rates.

Transparency International Bangladesh Executive Director Iftekharuzzaman said the government's latest initiative was long overdue, suggesting previous delays reflected deficiencies in technical knowledge and a poor understanding of sophisticated layering methods.

He criticised successive governments for failing to enact beneficial ownership transparency legislation or join the international Common Reporting Standard, which would facilitate access to financial information on Bangladeshi individuals and entities abroad.

He argued that while only a small proportion of stolen assets is typically recovered through lengthy, expensive and uncertain legal proceedings, preventing illicit financial outflows is generally faster, less costly and considerably more effective.