Import value drops in 0-1% duty goods, marking decline in trade-based money laundering

Infograph: TBS

Import value of goods with zero to 1% duty has dropped to the lowest in four years during the July-November period of the current fiscal year – indicating a decline in trade-based money laundering amid the tough stance of the interim government against capital flight.

Officials at the National Board of Revenue (NBR) and trade analysts also attribute the 9% decline in average import cost of duty-free and 1%-duty goods in five months of this fiscal compared to a year-ago period to falling global prices of some goods.

The duty-free and 1% duty list primarily includes capital machinery for economic zones, food grains, fertilisers, cotton, and some other industrial raw materials.

In the first five months (July-November) of FY25, the import cost of duty-free goods averaged just over Tk58,000 per tonne, a decline from Tk64,000 in the same period of FY24 and Tk81,000 in FY23. This period recorded the lowest average import cost for these goods over the past four fiscal years.

Similarly, the import value of goods subject to a 1% duty, primarily capital machinery, also decreased. In FY25's first five months, the average value per tonne was Tk7,82,780, compared to Tk8,68,213 in the same period of FY24 and Tk7,89,000 in FY23.

A senior NBR official, on condition of anonymity, told TBS, "We believe the reduction in import value can be attributed to a decrease in over-invoicing for this category of goods, which, due to changed political circumstances, indicates a decline in trade-based money laundering."

The official also said that although in some cases the global drop in goods prices could account for part of the decline in the import value of these goods, the reduction is still notably significant.

According to the Bangladesh Financial Intelligence Unit (BFIU), over 80% of money laundering occurs under the guise of import-export, a practice known as trade-based money laundering.

Experts said most of the launderers tend to inflate the value of goods with low or zero duties to minimise taxes and facilitate money laundering.

The scope for over-invoicing is low for high-duty goods, as businesses typically undervalue these items to evade taxes. NBR data also shows that the average value of high-duty goods (25% import duty) from July to November has increased, compared to the same period last year.

$8.27b lost annually due to trade misinvoicing

A report by the Washington-based think tank Global Financial Integrity (GFI) estimates that Bangladesh loses $8.27 billion annually due to trade misinvoicing, with $62 billion smuggled out of the country from 2005 to 2014.

Dr M Masrur Reaz, chairman of Policy Exchange Bangladesh, said, "Despite a 40% devaluation of the local currency, the significant decrease in the average import value of certain selected items in recent months clearly indicates that these items were likely used for money laundering."

He said, "Since last August, the interim government has taken a firm stance against malpractices, such as combating capital flight and money siphoning." 

"It is also believed that a large portion of trade-based money laundering was done to benefit corrupt politicians and officials from the previous regime. The majority of them are either absconding or in jail," Masrur added.

Hossain Ahmed, an NBR member of customs policy, told TBS that the political changes have led to the inactivity of both small and large players involved in money laundering, which could be a contributing factor.

He said that AI-based data analysis has significantly reduced opportunities for money laundering by ensuring the accurate valuation of imported goods.

"We are using data from ASYCUDA software and other sources, analysed through AI, which has improved compliance," he explained.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank Ltd, said, "Money laundering should decrease now as many suspicious individuals are either not in the country or are inactive or in jail."

'$234b laundered in 15 years'

Earlier this month, the White Paper Committee reported that $234 billion (approximately Tk28 lakh crore) was smuggled out of the country during the 15 years of the previous Awami League government. 

The country's export-oriented industries rely on importing raw materials and capital machinery. A segment of entrepreneurs in this sector also believes that money laundering has decreased in recent months.

Mohammad Hatem, president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), told TBS, "Since July, most of the key players involved in laundering are either absconding or in jail."

However, he added, "If those responsible for verifying mis-invoicing had properly carried out their duties in the past, such large sums of money would not have been laundered."

Not conclusive

However, some remain uncertain whether the decrease in the average import value of certain goods has definitively reduced over-invoicing.

Md Lutfor Rahman, former NBR member of customs policy, told TBS, "It cannot be concluded for certain that the decrease in the average value of duty-free and 1% duty products has led to a reduction in over-invoicing or money laundering."

He explained, "There are various types of products under zero and 1% duty. Has the value decreased for all types of products? If the value has decreased, is it due to a drop in global market prices, or is it related to the value of commercial imports (which pay relatively higher import taxes) of the same products at that time? Real insights can only be gained by analysing these factors."