BANGLADESH'S FINANCE MINISTRY PARTIALLY ADDRESSES

C O N F I D E N T I A L SECTION 01 OF 03 DHAKA 000858

SIPDIS

DEPT FOR SCA/INSB
WHITE HOUSE FOR USTR VKADER
COMMERCE FOR SLEWIS-KHANNA, DFONOVICH
NEW DELHI FOR FAS
DOJ FOR OPDAT, LSAMUEL

E.O. 12958: DECL: 08/24/2019
TAGS: ECON EFIN ETRD PGOV EAGR PTER KTFN KCRM EAID
BG
SUBJECT: BANGLADESH'S FINANCE MINISTRY PARTIALLY ADDRESSES
AMNESTY CONCERNS

REF: DHAKA 686 - GOB BUDGET

Classified By: Ambassador James F. Moriarty. Reasons: 1.4 (b) and (d)

Summary
--------------


1. (C) Bangladesh's Finance Minister maintains the
government's revised tax amnesty does not violate
international standards or domestic laws against
money-laundering and anti-terrorism finance. In a recent
letter to the Ambassador and other diplomatic Heads of
Mission in Dhaka, Finance Minister Abul Maal Abdul Muhit
responded to concerns that the tax amnesty approved June 30
by Parliament as part of its budget package permitted
Bangladeshis to legitimize previously undisclosed income,
regardless of the source. Though the Government of
Bangladesh (GOB) amended slightly the tax amnesty language
and Bangladesh Bank, the central bank, promised to issue
instructions to financial institutions regarding the
disclosure of sources of funds, the tax amnesty does not
rigorously close corruption loopholes and could permit the
laundering of the proceeds of crimes and facilitate the
funding of terrorist acts. End Summary.

GOB Seeks to Placate Diplomats
--------------


2. (SBU) The Ambassador and seven other Heads of Mission in
a June 23 letter raised concerns about a proposed tax amnesty
that would permit individual and corporate taxpayers in
Bangladesh to "whiten" so-called "black money" regardless of
the source of funds. In the letter and in discussions with
GOB officials, diplomats noted that the proposed legislation
contravened both international standards laid down to prevent
financial crimes and Bangladesh's own laws on
money-laundering and terrorism finance (reftel). The GOB's
money-whitening legislation, which allegedly aimed to
encourage investment and economic growth, was broadly
condemned by many in Bangladesh as simply an opportunity for
politicians to legitimize the proceeds of corruption.

GOB Offers One-Year Tax Amnesty
--------------


3. (SBU) Bangladesh's Finance Minister responded to the
diplomats' concerns in a July 28 letter, noting the revised
legislation - which passed June 30 as part of the GOB's
budget package - had "adequate provisions" that balanced
declaration of undisclosed income with combating money
laundering and terrorism financing. He explained the amnesty
was conditional, restricted to one year, and did not
compromise Bangladesh's anti-money-laundering and
anti-terrorism laws. (Note: The full text of the Finance
Minister's letter is repeated in paragraph 6. End note.)

Will Bangladesh Bank Help or Not?
--------------


4. (C) In Mission Dhaka's view, the revised tax amnesty
legislation no longer explicitly overrides domestic laws on
money-laundering and terrorism finance; however, it still
provides some cover to those who would wish to hide the
sources of their income. At a July meeting of the Asia
Pacific Group (APG),an international body affiliated with
the Financial Action Task Force (FATF) that seeks to
implement international standards to prevent financial
crimes, Bangladesh Bank pledged that the bank would issue
rules to ensure that financial institutions continued to:

-- implement laws that combat money-laundering and terrorism
finance;
-- exercise due diligence over customers and transactions;
and,
-- verify sources of income.

Since the APG meeting, however, Bangladesh Bank has denied it

DHAKA 00000858 002 OF 003


committed to issuing such regulations. Bank officials said,
rather, they would verbally instruct financial institutions
to continue these practices.

Comment
--------------


5. (C) Despite the fact that many GOB officials opposed the
tax amnesty, the GOB is moving forward with the
"money-whitening" program. The vague wording of the revised
legislation and Bangladesh Bank's apparent backtracking on
clarifying rules mean the tax amnesty could be a loophole for
corruption, criminality and terrorist financing. Mission
Dhaka will continue to press the GOB to apply its laws
against financial crimes and improve its adherence to
international financial standards; we will also monitor
closely the implementation of the tax amnesty program. We
will also reiterate to the GOB that, if necessary, the APG
and FATF could recommend member nations, including the United
States, sanction Bangladesh.

Full Text of the Finance Minister's July 28 Letter
-------------- --------------


6. (SBU) Begin text:

Excellencies,

Please refer to your letter of June 23, 2009 with regard to
the tax amnesty clauses of the draft amendments to the Income
Tax Ordinance of 1984, as proposed in the budget speech. I
had assured you that a satisfactory resolution of your
concern would be made. In fact, long before I received your
letter, the anomaly had drawn our attention and we were
thinking of ways to take care of it.

I appreciate your concern on the issue and thank you for
highlighting the implications of the enactment leading to
possible violation of international financial crime
standards. I believe that while finalizing the budget
proposals, we made adequate provisions to find a balance
between declarations of undisclosed income and pursuit of
crimes involving money laundering and financing of terrorism.

The present Government was swept into power on the promises
of lifting the poor out of the clutches of poverty by putting
the country on a higher trajectory of growth. You will
appreciate that one of the fundamental imperatives of a
resource-poor country like Bangladesh is to secure maximum
growth, which can only be ensured by higher investment of
domestic as well as foreign resources.

The amendments were aimed at pooling in resources, which
remained outside the formal sector of the economy. The
Government, however, took into cognizance concerns as that of
yours and those of many quarters from within the country like
business, civil society, intelligentsia, and others.
Elaborate discussions in the Parliament and in civil society
led us to modify the original proposals. The scheme now
provides for conditional amnesty granted under Income Tax
Ordinance of 1984 only and restricted to one year. This is
in alignment with the practice followed earlier to promote
investment, employment generation, economic growth, and
poverty reduction. I may add further that this opportunity
was also given to investors when Money Laundering Prevention
and Anti-Terrorism Legislations were in force as ordinances
without compromising the provision of these laws.

In order to strengthen the drive against money laundering and
clandestine financing of terrorism and other illegal
activities and at the same time recovering resources smuggled
out of the country, special steps are being taken in several
fronts. He investigative work of Bangladesh Bank and the
National Board of Revenue is being streamlined and
intensified. A separate government unit for taking care of
legal as well as international aspects of the drive is under
process.

DHAKA 00000858 003 OF 003



I thought of discussing the issue with you after the passing
of the budget but as it was getting late in setting up this
meeting I thought that I should provide you with a statement
on the subject. You can be rest assured that the government
is committed to zero tolerance for corruption. And
controlling and eliminating terrorism is a matter of the
highest concern to us.

With my warmest regards and highest compliments.

End text.

MORIARTY