In Bangladesh, Weak Audits Are Fueling An Increase in Money Laundering and Loan Defaults

Bangladesh is grappling with a growing financial crisis marked by surging loan defaults and rampant money laundering, largely driven by inadequate auditing and oversight mechanisms in its banking sector.

According to recent figures, non-performing loans (NPLs) in the country have ballooned to over Tk 345,000 crore by the end of 2024, marking a historic high. At the same time, large volumes of capital are reportedly being siphoned off through fraudulent loans and financial misconduct, contributing to billions of dollars in illicit outflows annually.

Due to the weakness of the country's audit system, hundreds of billions of taka were laundered out of the country and defaults became easy. As a result, investor confidence plummeted, foreign direct investment (FDI) declined and the country's economic progress was hampered. Corruption, irregularities and a lack of good governance are now a common reality in the country's financial sector, one of the reasons for which is the qualitative weakness of the audit ecosystem and the crisis among professional accountants.

As a result of the anarchic situation that has persisted for more than a decade and a half, the country's audit ecosystem has become virtually ineffective. This situation has had a direct negative impact on the national economy. In his view, weak controls and a lack of accountability have spread throughout the system, including private and government institutions, banks and the financial sector. 

Even the alleged laundering of nearly $17 billion in bank assets is the result of this deficient audit framework. Similarly, the volatility and uncertainty of the stock market are a reflection of the weak governance that prevails.

Poor audit quality has undermined investor confidence, leading to a significant decline in foreign direct investment (FDI) (USD 1.6 billion in Bangladesh, compared to USD 38.5 billion in Vietnam), and has hampered economic growth. Non-performing loans (NPLs) in Bangladesh amount to Tk 420,000 crore, about 25% of the total loans extended. Lack of adequate supervision, weak enforcement and limited institutional capacity is a long-standing problem, where supervisory lapses have become the norm. As a result, the Financial Reporting Law was enacted in 2015, taking into account global best practice examples, advice from donor agencies (particularly the World Bank) and the views of other stakeholders. At the time, ICMAB played a key role as an effective partner in the implementation of these reforms.

The number of chartered accountants in Bangladesh is only 2,050, compared to 3,75,000 in India, 10,096 in Pakistan, 7,000 in Sri Lanka and 9,052 in Nepal, showing the shortage of professional accountants in Bangladesh compared to other countries in the region. The number of firms registered with the Financial Reporting Council (FRC) is only 209, and there are about 500 practising members of the ICAB, who are responsible for auditing over 300,000 registered companies (the number of active companies may be less). This clearly shows the current reality of the audit environment in Bangladesh.

In countries such as the UK, Canada, Australia, South Africa and Nigeria, several professional bodies have been empowered to carry out statutory audits to increase competition and prevent monopolistic control. Another example is the formation of the CPA by the combination of the three professional bodies of Chartered Accountants (CAs), Certified General Accountants (CGAs) and Chartered Management Accountants (CMAs) in Canada, which collectively created an example of successful coordination and cooperation in economic development. This demonstrates that, under certain conditions, several professional bodies other than chartered accountants are involved in statutory audits. In the context of Bangladesh. There is no accounting body other than the OEC. There is no accounting body other than the CMA.

According to the experts, the reality of the audit world today is clear: there are around 3 lakh registered audit reports a year in the country and many more unregistered institutions need to be audited. It is simply unrealistic to do this effectively with only 500 practising chartered accountants and 209 audit firms. These firms not only carry out audits, they also provide a range of services, including tax and VAT advice. It is impossible to provide services that meet national needs with such a small number of firms. Moreover, auditing is a specialised service, where quality is more important than quantity.

“No One’s Watching the Watchdogs”
At the heart of the crisis is a glaring weakness in how banks are audited. Internal audits are often superficial, say industry insiders, with little to no independence from the bank’s management. In many cases, auditors are under pressure to look the other way when large or politically connected borrowers bend the rules. “There’s a serious breakdown of accountability,” said a senior official at Bangladesh Bank, who requested anonymity. “Too many loans are being issued without proper checks, and once they go bad, there’s no real consequence.”

Experts argue that the lack of transparency and poor enforcement have created an environment where bad actors thrive. Loans are often issued based on inflated project values or nonexistent collateral, while regulators struggle to keep pace with the scale of misconduct.

The Bigger Picture
The fallout from this mismanagement is being felt across the economy. With a growing number of banks sitting on mountains of bad debt, access to credit has tightened for small businesses and honest borrowers. The government has had to step in repeatedly to rescue struggling banks, straining public finances and sparking concerns over economic stability. Meanwhile, money laundering continues to bleed the country’s reserves. Many illicit transactions are routed through fake imports, shell companies, and overseas real estate investments. In one recent case, UK authorities froze £185 million worth of properties allegedly linked to a former Bangladeshi minister — a sign that global scrutiny is growing.

Government Pushes for Reform
Faced with mounting pressure, the government has begun taking steps to restore order. The central bank has hired global audit firms — including KPMG, Deloitte, and EY — to conduct forensic audits of several commercial banks suspected of facilitating large-scale fraud.

A Crisis of Trust
For many in Bangladesh, the crisis is as much about public confidence as it is about economics. As stories of elite borrowers defaulting without consequences dominate headlines, trust in the country’s financial system is eroding. Restoring that trust will take more than audits and investigations. It will require a wholesale commitment to transparency, accountability, and the rule of law — values that have long been in short supply in Bangladesh’s financial sector.


Shahidul Alam Swapan is a
private banking financial crime
compliance expert and columnist
based in Geneva, Switzerland.