Scrap money-whitening facility for stock investors

The Financial Action Task Force (FATF), a global body to combat money laundering and terror financing, has asked the government to scrap the existing money whitening facility offered to the country's stock investors.

The FATF has said Bangladesh may be identified as a "risky country" such as North Korea in global financial transaction if the government fails to drop the provision immediately

A plenary meeting of the FATF, held in Paris on October 27-28, made the recommendation against the facility, which has been offered by the government in the budget for the current fiscal in an effort to boost the flagging stock market.

A three-member delegation, headed by Deb Prasad Debnath, General Manager, Anti-Money Laundering Department, Bangladesh Bank, represented the country in the meeting.

"We faced strong criticism from FATF and its influential members from European countries for offering money whitening facility in the capital market," a delegation member, told the FE on Monday.

"The FATF has asked us to scrap the scheme to avert being listed as one of the risky countries in the world like North Korea for financial transaction," the delegation member added, requesting anonymity.

He said a high-level team of FATF would visit the country in November and discuss the issue with the government.

The FATF has decided to refer the controversial scheme to International Cooperation Review Group (ICRG), a specialised professional body under the global task-force, before "blacklisting" Bangladesh, a government official said.

The FATF later disclosed the outcome of the meeting in its report.

'The FATF heard a report on the voluntary tax compliance (VTC) programme in Bangladesh (which has been enacted since July 2011 and is currently scheduled to complete in June 2012), and its possible negative impacts on AML (Anti-Money Laundering)/CFT measures in the country," the report said.

"The FATF also heard an update from the APG on the reviews and actions that it has taken in relation to this issue," it said.

"As there are concerns about the potential impact of the VTC programme on the effective application of the FATF standards, the FATF decided to refer consideration of the VTC programme to the ICRG, in the context of its ongoing process concerning Bangladesh," the report, posted in its website, added.

In his budget speech, the finance minister said no question will be asked from any agencies including tax department if anybody invests his or her undisclosed money in the capital market paying a 10 per cent tax against the whitened amount.

But following strong reservation from the FATF, the government brought some amendments to the offer in August, empowering some agencies excepting the tax department to question or investigate the sources of undisclosed money.

However, the effort failed to cool the FATF concerns.

"We could not satisfy the FATF despite the changes in the original offer. It seems the FATF has taken a strong position against the existing facility on the money whitening offer," said a finance ministry official.

The FATF is an inter-governmental body whose purpose is to develop and promote policies, both at national and international levels, to combat money laundering and terror financing.

The Task Force is a "policy-making body" which works to generate the necessary political will to bring about national legislative and regulatory reforms, the official added.

Earlier, Financial Action Task Force (FATF) in a report in 2010 said Bangladesh is still non-compliant in at least 10 key areas in attaining international standard against money laundering and terror financing.

The government had formed a National Coordination Council, headed by Finance Minister AMA Muhith, to implement the recommendations of FATF to combat money laundering.

The government finalised an Action Plan early last year outlining measures to combat the money laundering as recommended by FATF and Asia Pacific Group (APG) on Money Laundering.

The major areas included in the action plan are bringing amendments to Anti Money Laundering Act 2009 and Terrorist Financing Act, 2009, including the issues of anti-money laundering and terror financing in the existing Extradition Act, enacting Mutual Legal Assistance Act and ratifying the UN Convention against Transnational Organised Crime (Palermo Convention) and ratifying the UN Security Council Resolutions, 1267 and 1373.

A senior official in the finance ministry said, the finance minister is concerned over the latest development.

He, however, said if the money-whitening facility is withdrawn, it could cause widespread dissatisfaction in the capital market, which the government cannot afford under the prevailing circumstances.

Source: thefinancialexpress-bd.com

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Intel report suggests 18pt steps to resuscitate stock market

Nazmul Ahsan

An intelligence report has blamed the central bank, the securities regulator and "dishonest" sponsor-directors for the recent stock debacle, saying the market needs radical steps such as waiver or reschedule of interest on margin loans to revive its flagging fortune.

The report, a copy of which has been obtained by the FE, comes up with an 18-point suggestion to stabilise the plunging market including slowing down the legal action against the suspected scamsters in an effort to steer stocks out of the red-zone.

In a scathing critique on the forces it believes were behind the market crash, the report called for punitive action against the errant merchant banks, saying these financial institutions are not playing their due roles to boost trading.

The report pinpointed the blame for the market debacle on the Bangladesh Bank, the Securities and Exchange Commission (SEC) and the greedy investors who did not think twice to invest their life-long savings on junk shares.

It said the immoral activities of sponsor-directors of the listed companies in 2009 and 2010 also had a "significant role" in spiking share prices abnormally during the period, when the benchmark DGEN index gained more than 80 percent a year.

Citing SEC data, it said the sponsor directors took away Tk 24.27 billion from the market in the 2010-2011 fiscal year by selling parts of their stakes at high prices.

It asked the authorities to force these directors to invest at least 30 per cent of their firms' paid-up capital in the market as part of new measures to rescue the dipping bourses.

The report suggested that the SEC shorten the duration of lock- in period for placement shares in order to boost liquidity flow in the fund-starved exchanges.

The similar practice of loan rescheduling by scheduled banks may be introduced by the merchant banks and brokerage houses for margin loan defaulters, the report said.

"Initiative may be taken to waive the interest of margin loans for a particular period," according to the report, which has been sent to Prime Minister's Office (PMO), recently.

The report by a key intelligence agency also called for introducing two-day duration for share transaction settlement from the current three days, simplification of netting system and reducing charges of CDBL (Central Depository Bangladesh Ltd) by a third.

Among other key measures, it suggested a move to stop forced-sale of distressed portfolio, buying back share by directors of listed companies at fixed prices and lifting all existing taxes from the earnings to be generated from the mutual funds.

It asked the authorities to take punitive action against the rogue merchant banks, who benefited from the market when the index was abnormally high but are now shying away, and consider issuing new merchant bank licenses in a bid to bump up competition.

The dossier also called for government policies to help invest a significant portion of reserve funds of scheduled banks in the capital market and undertaking efforts to invest life insurers' Life Fund worth billions of taka in stocks.

Quoting BB statistics, it said scheduled banks earned one-third of their operating profits, or Tk 29.39 billion, from the share market in 2010. Of the total, private commercial banks (PCBs) alone earned Tk25.59 billion, which they kept as reserve.

"The reserve fund worth Tk 25.59 billion may be invested in the share market to (pump up) liquidity and (revitalise) the moribund market," reads the report.

The report said BB should ask all scheduled banks to invest 10 per cent of their liabilities in the capital market.

The aggregate investment of banks in the capital market as of October 15 was less than four per cent, a BB high official said.

The report also recommended a slow-down in legal action against the individual and institutional investors who have been accused of manipulating the market during the December-January crash.

Such "slowing process" may be taken in phases in the interest of market stabilisation, the report said.

The report suggested humane handling of the retail investors who have staged sit-ins and demonstrations to protest the debacle. It said the law-enforcing agencies should not be "rude" at the agitating small investors.

The report also backed a government move to woo undisclosed, or so-called black, money in the stock, urging the authorities to make an announcement assuring these money holders that they would not face any harassment from any agencies.

It said an increase in the Statutory liquidity Requirement (SLR) and Cash Reserve Ratio(CRR) by 0.5 per cent by the central bank earlier this year caused liquidity crisis in the market.

The report suggested the top officials and dignitaries make "sensible remarks and statements" on share market taking into account sensitivity of its nature.

Blaming BB, the intelligence report said the BB top brass lacked prudence when they allowed the scheduled banks to invest up to 30 per cent of their liabilities in the share market in 2010 defying relevant regulations.

Officials in the Ministry of Finance said they are pursuing all these suggestions made by the intelligence agency.

"As per the suggestions, the revenue board has already extended some tax exemptions and rolled back some taxes, while share transaction settlement time has been reduced," a top official in the ministry said.

Source: thefinancialexpress-bd.com

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