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Hundi still unabated: Need to be regulated by laws

18 April 2023

Salim Ahmed, CDCS, CAMS :
Bangladesh has two major sources of foreign currency earnings. One is export and another is inward remittance from expatriate workers. The former is heavily influenced by external factors, where the latter is negatively influenced by internal factors, i.e., Hundi business. As per Bangladesh Bank data, country received $1.56 billion inward remittance in February, 2023 which was $1.95 billion in January. It shows, remittance sharply decreased by 20 per cent on a month-to-month basis, despite the fact that we are sending more workers abroad. But the inward remittance fell by 6.65 per cent from $22 billion to $21.28 billion in 2022. The only reason behind this is the widespread use of unregulated Hundi. During this Eid festival surely remittance will increase in banking channel but Hundi may decrease its inflow again.
Hundi, no doubt, is a curse for our economy because monies are redirected from formal economy to informal economy and used for laundering, terrorist financing and other illegal activities. According to various newspaper reports only 51 per cent of remittance comes through formal banking channels and the rest, 49 per cent of remittances comes through Hundi.
To encourage migrant workers to use formal banking channels, the government has increased cash incentives on expatriate remittance to 2.5 per cent from 2 per cent as on January 16, 2022. On November 16, 2022 Central Bank issued a public statement, indicating that sending and receiving foreign remittance through Hundi is illegal and punishable offence. But after so many attempts still Hundi can't be controlled, which is clearly understandable by recent negative remittance growth. As a last resort it could be registered, regulated and controlled by proper authority.
On an average, country received $1.5 billion to $2.00 billion foreign remittance through formal banking channel in each month and nearly the same amount through the Hundi. If we can turn the Hundi in formal channel by regulation our remittance per month will be approximately $4.00 billion. So, nothing but regulating the Hundi business can be a solution to bring them into the mainstream economy and thus we can double the remittance income in the coming days.
For legal basis as well as procedure, we can follow FATF's (Financial Action Task Force) recommendation on Myanmar and UAE. By indicating Myanmar as a High-Risk Jurisdiction for money laundering and terrorist financing, FATF already instructed the country (Myanmar) to register and supervise Hundi operators in its paper of high-risk jurisdictions subject to a call for action - 21 October, 2022. We can also learn from the UAE central bank, how they registered, regulated and controlled the illegal Hundi into Registered Hawala Providers. Both the reference shows, illegal Hundi business can be turn into legal one through a set of procedures. Bangladesh may initiate the process to regulate the unregulated Hundi under following steps
Hundi registration
A competent authority may be formed to act as registers of Hundi Business or any existing authority can do so. After registration they will be called Register Hundi Provider (RHP).
Followed by completing registration, RHP should apply to the Central Bank for getting license by submitting trade license issued from proper authority. Being the regulator of the financial sector, Bangladesh Bank should be the only authority to issue Hundi Business licenses like other banking and non-banking business licenses in the country. A person may not carry out Hundi Business throughout the country unless having licensing from the central bank.    
Permitted and non-permitted services by RHP
RHP is only permitted to provide well-defined services, which include non-commercial personal remittances or money transfer service. RHP is not permitted to engage in any of the following transactions: take deposits and provide loans, foreign trade, exchange of virtual assets or crypto currencies etc.
Post license requirement
RHP should install necessary security system, connected with BFIU's (Bangladesh Financial Intelligence Unit) goAML portal and Bangladesh Banks online dashboard reporting system.
Required for bank account
RHP must open and maintain a bank account to be used for settlement of all Hundi transactions. Regulators can easily track the movement of funds by this account.
AML/CFT program and compliance officer
RHP are required to establish and maintain effective AML/CFT compliance program designed to prevent them from being misused to facilitate money laundering or terrorist financing. The program must be risk-based and appropriate to the risk of the RHP, taking into consideration its size, volume of transactions, types of remittances offered, the nature of its customer base and the geographic areas in which it operates. Each RHP must have a qualified compliance officer to oversee the overall compliance function including risk assessment and mitigation plan.
Reporting obligation
RHP should be brought under daily reporting of remittance received and disbursed through BB dashboard, CTR (cash transaction report) or STR (suspicious transaction report) reporting through goAML of BFIU and quarterly settlement statement.   
Sanction obligation and freezing without delay
RHP must comply with the sanctions obligations issued by United Nations Security Council (UNSC) or OFAC or local sanction list issued by government. Before the transaction, check the name of customers based on the sanction list. Immediately freeze any funds in the possession or under the control of RHP that may belong to the listed person and cancel (where possible) any transaction involving the listed person. Report any listed persons and the actions the RHP has taken to the BFIU (via goAML portal)
Violation of any provision should be subject to supervisory action by the regulatory authority including monetary penalty, license cancellation, jail or imprisonment for any personal liability of authorized persons etc.
If we can do it, surely it will double the foreign remittance income and foreign currency reserve of the country by deterring money laundering, terrorist financing and other illegal activities.

(The writer is a banker and analyst).

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