I believe that you are correct about the environmental damage done by producers in poorly-regulated countries. I believe that you are incorrect about how expensive it would be to do it cleanly instead.

Dumping untreated wastewater back into the river will always be cheaper than treating it, but dye residues in particular are fairly easy to treat so that the waste water is again safe to drink. Dyeing enough denim for a pair of jeans with proper post-treatment for wastewater is only slightly more expensive than doing it by dumping the untreated wastewater. But if there are no laws or weak enforcement, a lot of companies (individuals for that matter) will behave destructively to save less than a dollar per unit.