After 5 August 2024, Bangladesh has faced a different reality. As the country attempts to navigate a new direction through political upheaval, administrative reorganisation, and policy reassessment, numerous sensitive economic data and complex questions have surfaced.
A white paper released by the new government attempts to highlight these issues with statistics and evidence. It officially acknowledges that a large sum of illicit funds was siphoned abroad, exploiting weaknesses in the banking sector, foreign exchange system, and weak control structures. This money laundering is not an isolated crime but rather the result of long-standing institutional failure, political patronage, weak regulation, and gaps in banking governance. The picture presented in the white paper is alarming. From under or over-invoicing in imports and exports, fake loans, shell companies, anonymous accounts, offshore banking structures, to the misuse of remittance systems—all contributed to making money laundering a systemic problem.
The most unfortunate aspect is that not only criminal groups but also various parts of the state have played a direct or indirect supportive role in this process. Consequently, questions arise about who holds responsibility in such a reality. Who will recover the vast amounts laundered over the past decade? How will it be recovered, and is it even possible? Furthermore, who will lead the recovery initiative?
The picture presented in the white paper is alarming. From under or over-invoicing in imports and exports, fake loans, shell companies, anonymous accounts, offshore banking structures, to the misuse of remittance systems—all contributed to making money laundering a systemic problem.
The interim government is discussing initiatives to recover laundered money. Identifying assets abroad, activating legal cooperation agreements with relevant countries, using Mutual Legal Assistance (MLA) pathways, and leveraging international financial intelligence structures are under consideration.
Some progress has been claimed, such as identifying suspicious accounts and initiating communication and information exchange with some foreign regulatory agencies. However, the reality is that repatriating laundered funds is a lengthy, costly, and uncertain process. Challenges include the standard of proof, timelines, political will, and international cooperation.
In this context, determining the roles, responsibilities, and leadership of involved government agencies and banks should be case-specific and incident-based. Because not all instances of money laundering prevention and recovery are the same; in some cases, negligence or compliance failures of banks are crucial, while in others, state policy laxity or administrative support has played a primary role. Therefore, it is not realistic to explain all situations within the framework of singular accountability.
Legally, banks operate customer transactions under specific laws and regulations. According to money laundering prevention laws and related rules, reporting suspicious transactions, Know Your Customer(KYC), risk-based customer classification, and regular transaction monitoring are all direct responsibilities of banks. If failures are proven in these areas, ensuring accountability of the respective banks and management will be the normal application of the law. However, it must also be acknowledged that even though effective laws exist, if their application is weak, banks alone cannot confront this risk.
The role of relevant government agencies, particularly the central bank, financial intelligence agency, revenue authorities, and law enforcement is extremely important. Their task is not only to issue directives but also to formulate realistic, timely, and effective regulations and to ensure their strict implementation.
Here, a fundamental division must be made clear. Money laundering poses a sovereign risk to a country, particularly when it occurs for a prolonged period due to institutional weaknesses. It may also represent a compliance risk for banks if it is proven that a bank deliberately or negligently violated laws. Thus, a bank's responsibility depends on whether it failed to comply with laws and regulations. Additionally, if various parts of the government were silent supporters or active enablers when money laundering occurred, how can banks protect themselves?
In many cases, it has been alleged that bank officials made decisions under political pressure, policy leniencies, or verbal directives—this is not a new allegation. If these decisions are viewed solely as bank failures today, justice becomes questionable. Thus, it is crucial to consider the timeframe, context, and decision-making framework when determining responsibility.
Many instances have shown that despite existing regulations, effective oversight did not occur due to hesitation in application, political considerations, or institutional weaknesses. This created a confusing message for banks: laws exist, but their application is uncertain.
In such a situation, anti-money laundering activities become mere formalities rather than effective measures. On the other hand, once money goes abroad, conducting complex and time-consuming processes like obtaining international legal assistance, coordinating with foreign regulators, asset freezing, and repatriation does not seem to be within the banks' capabilities. Here, the government must lead, and banks must assist with information, documents, and analysis.
In efforts to repatriate laundered funds, banks can play a supportive role by providing information, re-evaluating old transactions, and acknowledging compliance failures to take necessary corrections. However, expecting banks to lead asset freezing, litigation, or fund repatriation in international legal processes does not seem reasonable. This is primarily the domain of the state and law enforcement agencies.
However, this position is not unconditional. If an investigation proves that a bank or its top management was directly involved in money laundering, deliberately overlooked suspicious transactions, accepted fake documents, or facilitated the laundering process by violating laws, then the respective bank's liability must be financial as well as moral. In such situations, it is reasonable and justifiable to impose hefty financial penalties on banks, recover compensation, and impose the cost of legal processes for asset recovery.
For banks that build strong compliance frameworks by adhering to laws and regulations, implement effective risk-based monitoring, and maintain an uncompromising stance on suspicious transactions, it is crucial to have policy support and incentives from the central bank.
Such exemplary measures would, on one hand, ensure accountability for past irregularities, and on the other, send a strong deterrent message to the banking sector in the future. In other words, if the bank is merely a victim of negligence, then correction and collaboration are sufficient; but if proven to be a direct accomplice, financial liability should be the natural outcome of compliance and governance failures.
In this reality, clearly defining the boundaries of responsibility is crucial. Banks must be stringent in their compliance duties, government agencies must be impartial and firm in formulating and enforcing regulations, and the state must lead in repatriating laundered funds globally. This integrated and field-based distribution of responsibilities can bring desired outcomes in preventing money laundering and repatriating laundered money.
In this reality, it is clear that retrieving all funds from the past will not be easy. Yet, efforts must continue. The most pragmatic and effective strategy now is to focus on the future. The priority should now be to establish strong preventive measures to ensure that such money laundering does not occur in the future. The first requirement for this is a practical and effective compliance reform in the banking sector. Instead of policies on paper, risk-based oversight, technology-driven transaction monitoring, and a zero-tolerance policy for high-risk customers must be implemented. The bank management and board must be clearly informed that compliance failures will not be tolerated in any way.
Simultaneously, creating a proper incentive structure is now the demand of the times. Currently, in many banks, meeting income targets is considered the main indicator of success, not compliance. If this mindset and culture cannot be changed, no matter how many laws, rules, or directives are issued, their practical application will remain limited.
In this process, the role of the central bank and the Bangladesh Financial Intelligence Unit is most crucial, and they must lead from the front. This leadership should be technical, administrative, moral, and institutional. Because without impartiality, transparency, and moral firmness in policy enforcement, the desired behavioural change in the banking sector will not occur.
For banks that build strong compliance frameworks by adhering to laws and regulations, implement effective risk-based monitoring, and maintain an uncompromising stance on suspicious transactions, it is crucial to have policy support and incentives from the central bank. This could be in the form of positive recognition, prioritisation in regulatory processes, or capacity-building support. This would send a clear message to banks that compliance is not just an obligation but a valuable institutional strength.
On the other hand, for banks that consistently fail in compliance, overlook suspicious transactions, or deliberately weaken legal enforcement, visible and exemplary punishment must be ensured. Whether it's fines, administrative measures, management accountability, or business limitations—whatever measures are taken, they must be clear, timely, and nondiscriminatory.
If punishment is uncertain or selective, a compliance culture cannot develop. To implement this balance of support and punishment, the integrated, courageous, and moral leadership of the central bank and BFIU is essential. Without the effective and coordinated leadership of these two institutions, expecting desired behavioural changes from banks is unrealistic.
#Shah Md Ahsan Habib is a professor at the Bangladesh Institute of Bank Management.
*The article, originally published in Prothom Alo online edition, has been rewritten in English by Rabiul Islam.