Lifting the veil on Bangladeshi firms’ secrecy

"There should be a fine balance between transparency and disclosure"

Ahsan H Mansur, Economist

We need a fine balance between secrecy and transparency in every society/country. The right to privacy for private individuals or companies is a constitutional or fundamental human right, and governments in most countries respect such fundamental rights.  At the same time, publicly listed companies, public enterprises and government and do not have the right to privacy, except for national security reasons. 

A private company or an individual has the right to keep their financial statements secret. General public of a country do not have any right to know what an individual citizen is doing with his or her money. Furthermore, no one can force even the elected representatives to publish his/her financial statement as he/she has full rights to keep his financial transactions secret from the masses. 

Bangladeshi firms veiled in secrecy

If a business is a publicly listed company, then it does not have any right to keep basic financial transactions secret, as they run on public money. Also public listed companies are bound by law to publish their financial reports every year, as it is mentioned in the Companies' Act and by the laws and rules of the Securities Exchange Commission (SEC). Additionally, companies registered with the Registrar of Joint Stock Companies and Firms (RJSC) must conduct audit every year for submission to RJSC and for tax purposes. But it remains a question whether the registered companies comply with this regulatory provision and the RJSC in reality enforces such provisions or not. 

There should not be any secrecy in government transactions when they are not national security related. Every contract and every transaction is subject to public audit and people has the right to access such information in public interest. There are also provisions in the Right to Information (TRI) Act in this regard.  

Leaving aside issues of compliance with the laws, citizens and nongovernment organizations (NGOs) and public interest bodies may have reasons to formally evaluate the reports of the transactions. In reality, in most of the cases we do not want to seek the reports, despite the provisions of RTI Act, and as a result they do not come to the light, though information gathered In that manner may shed light on many aspects of public sector operations and management. 

Be it a private person or a public listed company, both have to give taxes and thus may have to reveal their income statements including profit and loss accounts and audit reports to the tax department. Here the tax department must also maintain secrecy. For example— citizens and many political opponents are eager to see the tax files of President Donald Trump in the USA, but their The Internal Revenue Service (IRS), the US tax department cannot disclose the tax files under the current law.

However, in some countries governments use the tax files of individuals to harass them to meet political ends, which is unfortunate.

From another perspective, when there is strict financial secrecy protection under the law, some people may use this as a cover to accumulate illegal income and also launder money. Of course, in every country, the institutions like the Anti-Corruption Commission, anti-money laundering watchdogs or tax department must be vigilant and if irregularities are found should pursue them vigorously. Once investigations indicate the evidence of wrongdoing and the concerned persons or companies are indicted, such activities should be brought to public notice.

Transparency and respecting privacy are fine balancing acts. No country should allow sweeping secrecy protection or complete transparency on private matters. We must respect financial secrecy but when persons or institutions are engaged in illegal activities or activities against the interests of the public, the cover of secrecy must give away to transparent and proper public scrutiny.  If the fine balancing job is maintained properly, the result will be beneficial for everybody. 

'A higher rank on the index does not mean there is lack of legal framework'

Mazharul Islam, Corporate Legal Practioner

The recently published Financial Secrecy Index 2020 has revealed how Bangladesh's legal and financial system allow corrupted individuals to hide and launder money. By dint of such practices of secrecy, many corrupted individuals hide their black money, explore opportunities for tax evasion, and corruption continues under the veil. 

Every year in Bangladesh, a large amount of money is being laundered thanks to the political influence and lack of proper action taken by law enforcing agencies. The incomes generated by crimes, for example – human trafficking, tax evasion, and corruption etc. are kept hidden by dint of money laundering.

If we look why such practices go on, the lack of good governance and compliance within the enterprises is a major reason. This is largely contributing and helping the enterprises hide information and launder money. The lack of regulatory monitoring and supervision of financial activities of individuals and enterprises also help corrupted individuals and enterprises hide their actual financial reports. 

Private organizations are not legally bound to publish annual reports publicly. It is only the public limited companies who are legally bound to declare their reports publicly. This plays a big role in enabling secretive financial reports. 

Corruption in all sectors is also playing a role as regulators, tax officials, auditors are being managed in exchange of bribes. And thus individuals and enterprises are being able to manipulate their financial reports.

A higher rank on the index, however, does not necessarily mean there is lack of legal framework and regulatory guidelines in Bangladesh.  It is the lack of implementation of such laws and guidelines, lack of proper monitoring, supervision and lack of ensuring justice that allows wealthy individuals and criminals to hide and launder money.

In consideration of the above issues, along with improving legal application, monitoring and supervision, adoption of blockchain technology, also known as decentralized and distributed ledger technology in financial sectors, can ensure more transparency and greater traceability for many business processes.