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Counting the missing billions: taking care when reporting on money laundering

In reporting on financial and economic statistics, it is important to distinguish between stocks and flows as well relative and absolute numbers. Stocks (accumulated value of a variable over a given period) typically catches public attention in a way that annualised data usually do not. Similarly, relative figures usually turn out to be a lot more modest than absolute numbers.  I will illustrate these points by drawing on the Bangladesh experience.

In Bangladesh, media reports conflate typically stocks and flows. The currently popular citation is that US$ 150 billion has been siphoned off to various overseas havens by politically connected individuals over the last 15 years. Some media reports proceed to express stock estimates of money laundering as a proportion of flow data (annual GDP).  This can befuddle the lay reader.

The task of tracking money laundering falls on the Bangladesh Financial Intelligence Unit (BFIU).  I suspect, it is a small, under-resourced unit within the Bangladesh Bank (the best talent and resources probably go to units dealing with monetary policy). This does not make BFIU estimates less reliable than other estimates, but alternative estimates of annual rates of money laundering do exist and they ought to be acknowledged in public discourse. Transparency International Bangladesh (TIB) in the recent past has come up with an annualised figure of USD 3 billion, while the Washington-based Global Financial Integrity Institute (GFI) reported annualised figures of USD 8.7 billion. They note that most money laundering activities occur through trade mis-invoicing. One should not also overlook the use of the humble, but time-honoured, Hundi, as a source of money laundering. The bank heist by one of Bangladesh’s richest men is sensational but not a very common source of money laundering.

I personally prefer the use of annualised figure because they are easy to compare over time and across countries. Also, stock estimates can be made to assume astronomical magnitudes. For example, I understand that some Bangladeshi economists have come up with a stock estimate of money laundering for the 1972-2022 period. This understandably dwarfs the size of money laundering that are being reported now.

There is the issue of relative vs absolute numbers. Annualised data on money laundering can be expressed as a proportion of a country’s GDP. This is what the UN does. Another advantage is that this relative number offers an indication of the potential output loss from money laundering. In the case Bangladesh, a back-of-the envelope estimate (which is based on the annualised estimate of USD150 billion) suggests that it is 3.2% of GDP. The global norm ranges between 2-5% of GDP.

Has the incidence of money laundering has gotten worse over time? Here, the changes in country-specific ranking anchored in an ‘anti-money laundering index’ for 152 countries by a Swiss organisation, can be useful (1= worst, 152= best). BD ranked 82 in 2017, but then fell below 40 in later years before recovering to 46 in 2023. Why this has happened merits further investigation.

Finally, it is worth noting that, however measured, money laundering represents massive waste of resources enriching some at the expense of poorer nations. To be resolved, it needs global cooperation. Why is it that Singapore and London, for example, allow themselves to become havens for laundered funds? Indeed, London has been described as …’the main nerve centre of the darker global offshore system that hides and guards the world’s stolen wealth’. If the authorities there camp down on such havens (which they can), the incentive to park illicit funds abroad by crooks and criminals from developing countries will be significantly diminished.

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Politics and Governance

The gilded age of the robber barons and wealth inequality in Bangladesh: rhetoric vs reality

The ‘gilded age’ refers to a certain period of American history (most notably the 1870s) which was characterized by ‘a period of gross materialism and blatant political corruption’.  The key actors of the gilded age were a cohort of robber barons. They have been described as

‘…the powerful 19th-century American industrialists and financiers who made fortunes by monopolizing huge industries through the formation of trusts, engaging in unethical business practices, exploiting workers, and paying little heed to their customers or competition…The robber barons …amassed their fortunes by monopolizing essential industries. In turn, these monopolies were built upon the liberal use of …intimidation, violence, corruption, conspiracies, and fraud.’

Sounds familiar? One could readily argue that this is an apt description of a handful of ultra-wealthy individuals, often called oligarchs, in 21st century Bangladesh. They also lived in the gilded age during the now-defunct Ancien Regime of Hasina. A leading Bangladeshi economist (Dr. Debapriya Bhattacharya) has observed:

‘Oligarchs are the wealthy people and politically powerful. And we did not see such groups in Bangladesh in the past the way we are witnessing now…’

He declined to name them, but one can easily find such names through media reports. Figure 1 reveals pertinent details on the ten wealthiest individuals. Some have fallen on tough times after the downfall of the Hasina regime because they were so closely associated with it. Others live abroad and are safe from the long arm of Bangladeshi law enforcement agencies for their alleged crimes and misdemeanours.

Source:  Derived from Top 10 Billionaires in Bangladesh 2024 | Meet the Richest Titans from Bangladesh | Business Haunt

On top of the ten richest individuals identified above, one of the latest editions of the Credit Suisse Global Wealth Report estimates that, in 2021, there were 28,931 USD dollar millionaires in Bangladesh with an average net worth of US$ 3 million. If this group is added to the ten richest individuals identified above, one arrives at an aggregate net worth of US$ 107.4 billion. While this reads like a lot, standard measures of wealth inequality express the collective net worth of the wealthiest individuals in a country as a share of the aggregate wealth of a country. This turns out to be 12.9 %. Is this high or low relative to the past and relative to other countries?

This is where the world inequality database becomes extremely useful. It has been developed by a world class team of scholars working in the field of inequality. This team measures inequality in terms of the wealth share of the top 1% of the richest in a country. Using this method, one arrives at the evolution of wealth inequality in Bangladesh between 1995 and 2022. This is shown in Figure 2. Contrary to widespread belief, wealth inequality in Bangladesh has been falling moderately since 2005, after rising between 2000 and 2005. In particular, the idea that the thoroughly discredited Hasina regime was associated with rising wealth inequality does not seem to be compatible with the available evidence.

Figure 2

How does Bangladesh compare vis-à-vis other countries? Here too, there are some surprises. Compared with a selected group of middle-income countries (Brazil, India, Indonesia, South Africa), wealth inequality in Bangladesh (as recorded in 2022) seems noticeably low.

Source: Derived from world inequality database

Some caveats are in order. It is entirely possible that the degree of understatement of net worth in Bangladesh is higher than in other comparable countries due to tax evasion and money laundering. It is equally possible that the impact of such factors has increased over time leading to a spurious reduction in wealth disparities. Clearly, a lot more research needs to be done to explore and examine these critical issues so that one can sift rhetoric from reality. What one can at least say is that several individuals and business groups drew on their close political connections to acquire a great deal of wealth under the Hasina regime and thus behaved like the robber barons of 19th century America.

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Hasina and beyond: Bangladesh at a critical juncture

Sheikh Hasina, the longest serving Prime Minister of Bangladesh, and the longest serving female Prime Minister in the world, could not defy the ‘iron law’ of history. Iron law? Yes, all political regimes have a finite time-span.

Hasina ruled Bangladesh with an iron fist. Her security forces – enabled by a pliant judiciary and media – engaged in brutal repression of opposition politicians (Bangladesh National Party and Jamaat in particular) and suppressed any significant attempt at dissent by civic activists, students, and others. Over a period of 15 years (2009-2024), the 76 years old veteran politician built a ‘deep state’ teeming with party loyalists (that is, those affiliated with the Awami League: AL). Her governance structure appeared to be a seemingly impregnable fortress that sustained Hasina’s hold on the body politic. A succession of brazenly rigged elections ensured that she would return to power again and again. Yet, a short-lived movement led by students toppled this fortress like a sandcastle on August 5, 2024. The armed forces on which Hasina relied for her ability to cling to power refused to offer their unconditional allegiance in the face of an unrelenting student movement. Hasina fled in disgrace to neighbouring India which offered her sanctuary, at least temporarily.

Initially, the protest movement targeted a contentious job reservation scheme in the public sector. This scheme disproportionately favoured the descendants of those who fought in the 1971 Bangladesh Liberation War. Such a scheme was in essence a pernicious means to induct loyalists into the bureaucracy.

Tragically, the youth-led uprising against the Hasina regime led to many hundreds of deaths of innocent students and civilians at the hands of security forces and government-supported vigilantes. Thousands were injured and many thousands were incarcerated. Students stood firm against such repression and successfully sought Hasina’s resignation once the army abandoned its support to the government.

In retrospect, the Hasina regime represents a cruel paradox. Political repression was juxtaposed with substantial economic and social gains. Growth was sustained and rapid leading to a doubling of real per capita income between 2009 and 2023 – see Figure 1. Poverty fell significantly, and life expectancy increased substantially – see Figures 2 and 3. A UN assessment noted that ‘the country is internationally recognized for its good progress on several gender indicators’. The garments industry and remittances consolidated their position as leading export earners. New industries emerged, most notably pharmaceuticals and shipbuilding. Large-scale infrastructure projects were completed that enhanced communications and connectivity.

Source: https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?locations=BD
 

Source: https://pip.worldbank.org/country-profiles/BGD

Source: https://data.worldbank.org/country/bangladesh

On the other hand, such achievements were nullified by massive corruption, egregious levels of inequality, and environmental degradation. The fundamental failure of the Hasina regime is that it dented the legitimacy of durable economic and social gains by denying Bangladeshis basic rights and liberties, including the right to vote in free and fair elections.

Hasina was also seen as being beholden to India. This caused public resentment at India’s influence on Bangladesh’s national affairs. Her attempt at a balancing act by wooing China was insufficient to dispel the widely held notion that she was slavishly pro-Indian.

Now that Hasina is gone, what next? An interim government, consisting of seventeen members and headed by Nobel Laureate Mohammad Yunus, has been established. It has taken the historically unprecedented step of appointing two student leaders as part of the government with full ministerial rank.

It seems that an implicit rift has developed between the Army brass, the student leaders and professional politicians represented by the Bangladesh Nationalist Party (BNP) and Jamaat. The Army Chief and his enablers wanted to form an interim government that that did not include Yunus. The student leaders did not approve of such a move and offered their alternative configuration of an interim government headed by Yunus and one that is politically neutral.  They envisage an interim government that will run for a substantial period to complete its tasks and then ensure the holding of free and fair elections. So far, neither the tenure of the interim government nor its terms reference have been made explicit.

For now, the student leaders have prevailed because they have enormous street power, but they – and the interim government that they helped create – face monumental challenges: restoring law and order, reforming the governance structure, restarting an economy that effectively became moribund during the massive disruptions caused by the student-led movement and holding free and fair elections. These challenges are occurring against a background of high expectations about a bright future.

The BNP-Jamaat alliance meanwhile is getting impatient. More importantly, they would like the interim government to hold elections within three months – a time-frame that is unlikely to be accepted by the student leaders. The silent rift among the key actors will then become explicit.

One can understand why the BNP-Jamaat is so impatient. They have an electoral opportunity that they did not believe would ever occur. Their arch nemesis AL is thoroughly vanquished, at least for now. The BNP-Jamaat forces can romp home electorally. What will the student leaders do then?

There is growing realization that the real battle for the future of a new, inclusive Bangladesh has just started. The progressive forces unleashed by the youth-led uprising need to evolve into a new party that can prevail electorally over the old guard represented by professional politicians.

The two dominant parties (BNP and AL), backed by minor allies, have in the past accounted for more than 80 percent of votes cast in relatively free and fair elections (such as 2001). Sadly, they harbour a ‘legacy of blood’ that has tainted Bangladesh ever since its birth in 1971. The two parties treat each other as mortal enemies and display a deeply ingrained culture of revenge politics. This inhibits a robust and sustained commitment to peaceful transfer of power.  Professional politicians, regardless of their affiliations, come from a toxic gene pool representing a mix of ideologues, opportunists, crooks and criminals. Whether a genuinely third political force can emerge from the youth-led movement remains an open question.

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From hubris to humiliation: which way now for Modi?

Source: https://www.facebook.com/narendramodi/photos/?_rdr

Narendra Modi, poised to become Prime Minister of India after the conclusion of the 2024 Lok Sabha elections, is probably the most successful politician of contemporary India. He strode like a colossus, first as Chief Minister of Gujarat (13 years), and subsequently as Prime Minister of India (10 years). This is a record that is unlikely to be broken. He would love to surpass the late Jawaharlal Nehru’s distinction as India’s longest-serving Prime Minister, but will he?

There is an eternal truth in politics. Successful politicians typically get consumed by hubris which paves the way for their inevitable downfall. In Modi’s case, hubris has been compounded by notorious communal proclivities as well as a strong authoritarian streak. The party that he leads, the Bharatiya Janata Party (BJP), is conspicuous for its Hindutvya ideology that has marginalized and victimized Muslims and other minorities. What Modi has done is add to the Hindutvya ideology a potent mix of expanding welfare payments to the poor and aggressive investment in infrastructure. This has enabled Modi to take the BJP to dizzying heights of electoral victories that gave the party sizeable majorities in 2014 and 2019.

 It is difficult to comprehend that in 1984 the BJP under Advani had only two seats in the Lok Sabha. By 2014, the size of the BJP under Modi swelled to 303 seats.  An overconfident Modi simply ignored its allies as it could rely on its own majority. At the same time, a despondent Opposition which was led by Congress simply capitulated under the BJP electoral juggernaut.

Modi took advantage of these circumstances and held the governing institutions as of India as well as his own party under his arrogant grip. India soon found itself being classified as an ‘electoral autocracy’ ruled by someone who regarded himself as a divine avatar destined to shape the destiny of India.

The 2024 elections disrupted the status quo and humbled Modi. The BJP fell well short of its majority, its worst result since 2009. How will Modi cope now? Is he going to govern the way he did in the past or will he simply fade away and become another ordinary politician who came to power after a ‘Pyrrhic’ victory?

There are several reasons why one might witness the decline of Modi. First, he must contend with the preferences and machinations of capricious allies to run a coalition government. This is the kind of politics that Modi is simply not used to. He might react by asserting his authoritarian persona, but this might make his fragile hold on power even more fragile. Second, he must contend with a rejuvenated Opposition led by Rahul Gandhi and his allies. Third, there is the long-term issue of whether there are diminishing returns to exploiting the poisonous majoritarianism of Hindutvya as an electoral strategy. The fact that the BJP in the 2024 elections has shed seats heavily in the Hindu heartland of Uttar Pradesh is an indication of that trend. It is ironic that the incumbent BJP candidate lost his seat even in Ayodhya where the grand Ram Mandir that was built on the ruins of a mosque stands.

Reinforcing the limits of Hindutvya is the fact that India faces multiple challenges that the BJP has been unable to resolve: crony capitalism, conspicuously high inequality, lack of equitable access to health care and education, lack of good jobs, especially for young people, and the perils of climate change.  As Modi cannot hide from confronting these challenges by posing as a divine entity, ambitious power-seekers within the BJP itself might rise to the fore and force him to move away from his role as a party leader. After all he will soon be 75 years old, and he might be asked to retire in the same way that Advani and other party elders did.

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Israel’s future…

Source: Al Jazeera

Israel started its life as an independent nation by engaging in ethnic cleansing or ‘nakba’ as the Palestinians call it. It was forcefully done, but in the Israeli imagination, it became a choice-driven process. As John Mearsheimer, the redoubtable politician of Jewish heritage noted recently, ‘voluntary’ ethnic cleansing is the only ‘final solution’ – a land for Jews and Jews only, where there is no trace of indigenous Palestinians as they will have all moved to other neighbouring Arab countries. Hence, there is no need to engage in dangerous conversations on a ‘binational ‘ state of Israel-Palestine or two states of Israel and Palestine embodying peaceful co-existence.

The prized goal of voluntary ethnic cleansing has not happened. What has emerged is a dystopian world in which a highly militarized, ethno-nationalist, settler-colonial state brutally subjugates Palestinians while pining for the pipe dream of peaceful ethnic cleansing. The latest genocidal war on Gazans by Israel – admittedly in retaliation against the October 7 attacks by Hamas – is the latest example of this dystopian world that captures the bitter reality of a nation that has forsaken its future for ‘forever wars’ against a weak and largely defenceless enemy that it finds difficult to vanquish. It is Hamas today, but it could morph into another entity tomorrow.

As the Washington Post’s Ishaan Tharoor has emphasized, Israel is facing growing global isolation and is boxed into a corner. The United States continues to be Israel’s cheerleader (what ‘genocide’? there are no ‘red lines’), but several Western allies that meekly followed ‘follow-the-leader’ in the past are quietly eschewing this shameful strategy. Many EU nations, and dependable allies like Australia, have voted in favour of UN resolutions seeking a long-term ceasefire to stop the wanton bloodshed in Gaza. Many of these very countries have voted in favour of a UN resolution to grant Palestine full UN membership. Ireland, Norway and Spain have fully recognized the Palestinian state a few days ago.

The International Criminal Court of Justice (ICJ) has issued multiple injunctions against Israel’s current war on Gazans and might, in the fullness of time, decide that Israel has committed genocide in Gaza. . Most importantly, the International Criminal Court (ICC) is poised to issue arrest warrants against Israeli Prime Minister Benjamin Netanhayu and his Defence Minister Yoav Gallant along with three Hamas leaders.This is historically unprecedented. This has happened despite a relentless Israeli-led campaign, spread over a decade, of intimidating the ICC and attempting to tarnish its credibility. Even here, the US-led West has seen its facade of unity waver, with some countries arguing that the independence of the ICC must be upheld to ensure that no country – yes this includes Israel –  is above the law. Here again, the USA has been an embarrassing spectacle, with President Joe Biden sounding shrill and silly in his critique of ICC. The bitter reality is Netanyahu and Gallant may not be able to visit even Germany (officially the most pro-Israeli nation in Europe) as it is a signatory to ICC and hence would be obliged to enforce ICC-led arrest warrants.

In sum, Israel’s future is bleak if it continues in its current quest to subjugate the Palestinians. B’Tselem, a leading Israeli human rights organisation, laments “Israel’s rapid decline into a moral abyss”.

Israeli writer Yoana Gonen mourns the tragic transformation of his country.

“Toddlers go up in flames, and our Israeli public celebrates…that’s what our hell looks like…Israel has such a strong desire for revenge that it is slowly sinking into a dark abyss, hand in hand with the ruins of Gaza”.