2006 INSCR PART II - BANGLADESH

UNCLAS SECTION 01 OF 02 DHAKA 006193

SIPDIS

STATE FOR INL, SCA AND EB/ESC/TFS
JUSTICE FOR OIA AND AFMLS
TREASURY FOR FINCEN

E.O. 12958: N/A
TAGS: EFIN KCRM KTFN PTER SNAR BG
SUBJECT: 2006 INSCR PART II - BANGLADESH

REF: STATE 210691

The text of Post's 2006 INCSR Part II submission, requested
reftel, is set forth below:

Bangladesh

Bangladesh is not an important regional financial center.
There are no indications that substantial funds are laundered
through the official banking system. The principal money
laundering vulnerability remains the widespread use of the
underground hawala or "hundi" system to transfer value
outside the formal banking network. The vast majority of
hundi transactions in Bangladesh are used to repatriate wages
from Bangladeshi workers abroad. However, as elsewhere, the
hundi system is also used to avoid taxes, customs duties and
currency controls and as a compensation mechanism for the
significant amount of goods smuggled into Bangladesh.
Traditionally, trade goods provide counter valuation in hundi
transactions.

An estimated $1 billion dollars worth of dutiable goods is
smuggled every year from India into Bangladesh. A
comparatively small amount of goods is smuggled out of the
country into India. Instead, hard currency and other assets
flow out of Bangladesh to support the smuggling networks.
Corruption is a major area of concern in Bangladesh. The
non-convertibility of the local currency (the taka) coupled
with intense scrutiny on foreign currency transactions in
formal financial institutions also contribute to the
popularity of both hundi and black market money exchanges.
Money exchanges outside the formal banking system are
illegal. Offshore financial accounts are not permitted in
Bangladesh. During the last year, there has been a
significant increase in the amount of money transferred
through the formal banking system as a result of the efforts
by the Bangladesh Government to increase the efficiency of
the process.

Bangladeshis are not allowed to take more than 3,000 taka
(approximately $50) out of the country. There is no limit as
to how much currency can be brought into the country, but
amounts over $5,000 must be declared. Customs is primarily a
revenue collection agency, accounting for 40-50 percent of
annual Bangladesh government income.

Since 2004, the central Bank, Bangladesh Bank (BB) has
conducted training for every bank's headquarters around the
county in "know your customer" practices. Since Bangladesh
does not have a national identify card and because most
Bangladeshis do not have a passport, there are difficulties
in enforcing customer identification requirements. In most
cases, banking records are maintained manually with little
support technology, although this is changing, especially in
head offices. Accounting procedures used by the Bangladesh
Bank may not in every respect achieve international
standards.

In 2004, the Bangladesh Bank issued "Guidance Notes on
Prevention of Money Laundering" and designated effective
anti-money laundering compliance programs as a "core risk"
subject to the annual bank supervision process of the
Bangladesh Bank. Banks are required to have an anti-money
laundering compliance unit in their head office and a
designated anti-money laundering compliance officer in each
bank branch. The Bangladesh Bank conducts regular training
programs for compliance officers based on the guidance notes.
In December, 2005, the central bank brought all compliance
officers to Dhaka for a discussion about their obligations
and heightened police interest in money laundering and
terrorist financing.

Currently, Bangladesh does not have a Financial Intelligence
Unit (FIU) per se. However, under the 2002 Money Laundering
Prevention Act (MLPA),the Anti-Money Laundering Unit (AMLU)
of Bangladesh Bank acts as a de facto FIU and has authority
to freeze assets without a court order and seize them with a
court order. As noted below, this will soon be remedied. The
Bangladesh Bank has received 45 suspicious transaction
reports in 2005 to make a total of 193 suspicious transaction
reports since the MLPA was passed in 2002. By 2004, 134 were
resolved without further action. The remaining reports were
transferred from the now defunct Bureau of Anti-Corruption to
the newly created Anti-Corruption Commission (ACC). The ACC
has advised the bank that they will not investigate these
cases and stated it will send the files back to the bank by
December 31, 2005. Currently, there are 29 cases pending
with the Criminal Investigation Division of Bangladesh Police
Headquarters which Bangladesh Bank referred to them after the
ACC abruptly refused to investigate.

There have been important developments in 2005 in the
anti-money laundering and terrorist financing arena. A new
law, The Anti-Money Laundering and Terrorist Financing Act
2005 (AMLTF),has been drafted to replace the 2002 Money
Laundering Prevention Act (MLPA). It will be presented to the
cabinet for approval in mid-December 2005. After Cabinet
approval it will be vetted by the Law Ministry and then
presented to Parliament. The current draft addresses most of
the shortcomings noted in last year's report.

AMLTF criminalizes terrorist financing. It provides powers
required for a an FIU to meet international recommendations
set forth by Financial Action Task Force (FATF) including
sharing information with law enforcement at home and abroad.
The new legislation also provides for the establishment of a
Financial Investigation and Prosecution Office wherein law
enforcement investigators and prosecutors will work as a team
from the beginning of the case to trial. The 2005
legislation also addresses asset forfeiture and provides that
assets, substitute assets (without proving the relation to
the crime) and instrumentalities of the crime can be
forfeited. The legislation does not address the nuts and
bolts of asset forfeiture which BB claims can be done
administratively and via regulatory procedures.

Another major development is that Bangladesh has signed and
ratified the UN International Conventions for the Suppression
of the Financing of Terrorism. The government is now party to
the 12 UN Conventions on Terrorism. The 13th
terrorist-related convention was announced by the UN last
summer and is under consideration. Bangladesh has not signed
the convention against Transnational Organized Crimes.
Bangladesh is a party to the 1988 UN Drug Convention, and is
a member of the Asia/Pacific Group on Money Laundering.

As mentioned earlier, Bangladesh does not have a law that
makes terrorist financing a crime though one has been drafted
for Cabinet approval. In 2003, Bangladesh froze a nominal sum
in an account of a designated entity on the UNSCR 1267
Sanctions Committee's Consolidated List and identified an
empty account of another entity. In 2004, following
investigation of the accounts of an entity listed on the
UNSCR 1267 consolidated list, Bangladesh Bank fined two local
banks for failure to comply with Bangladesh Bank regulatory
directives.

Despite advancements and demonstrable political will to
address shortcomings in the money laundering and terrorist
financing regime, lack of training, resources, computer
technology including computer links with the outlying
districts continue to hinder the necessary progress. Further
crippling efforts is the staggering degree of corruption that
merits Bangladesh's last place position in Transparency
International's Index for the last four years.
CHAMMAS