December 18, 2012
On Dirty Money Outflow, Malaysia is No 2
by Steven Gan@http://www.malaysiakini.com
GFI has introduced a new and more conservative methodology in its estimates of illicit financial outflows, which help to zero in exclusively on dirty money. As such, estimates from its previous reports have been revised.
Last year, GFI put the figure of illicit outflows for Malaysia in 2009 at US$46.86 billion (RM143.3 billion). This has been altered to US$30.41 billion (RM93 billion).
The latest report finds a dramatic jump of capital flight in Malaysia – from US$30.41 billion (RM93 billion) in 2009 to US$64.38 billion (RM196.8 billion) in 2010.
GFI has yet to obtain data for 2011 and 2012, but these will be included in future reports.
The global financial watchdog has warned that capital flight in Malaysia is “at a scale seen in few Asian countries”.
The GFI report, ‘Illicit Financial Flows From Developing Countries: 2001-2010′, is co-authored by GFI economists Sarah Freitas and Dev Kar, who is a former senior economist at the International Monetary Fund.
According to GFI, for the cumulative illicit financial outflows over 10 years – from 2001 to 2010 – Malaysia is ranked No 3 in the world, after China and Mexico.
The total 10-year estimate for Malaysia is US$285 billion (RM871.4 billion), while China is US$2,740 billion, and Mexico, US$476 billion.
Prime Minister Najib Abdul Razak has disputed GFI’s figures. Last year, he gave Parliament a much lower figure of RM135.3 billion for illicit capital outflows from 2000 to 2009.
Nevertheless, GFI data was backed by a different study earlier this year by another organisation – the London-based Tax Justice Network, which found Malaysia among the top countries when it comes to capital flight.
Graft accounts for 20% of dirty money
GFI said that trade mispricing – the practice of shifting profits overseas by over- or under-invoicing intra-company transactions – accounts for an average of 80.1 percent of illicit financial flows from developing countries. The rest of the dirty money involves corruption.
“Illicit transfers of the proceeds of corruption, bribery, theft, and kickbacks, accounting on average for 19.9 percent of illicit outflows over the decade, are on the rise as a percentage of total illicit financial outflows,” said GFI.
“Crime, corruption, and tax evasion cost the developing world US$858.8 billion in 2010, just below the all-time high of US$871.3 billion set in 2008.”
GFI described its estimates of global dirty money as “extremely conservative” as they do not include trade mispricing in services, same-invoice trade mispricing, hawala transactions, and dealings conducted in bulk cash.
“This means that much of the proceeds of drug trafficking, human smuggling, and other criminal activities, which are often settled in cash, are not included in these estimates,” said Kar (right).
Asia is the biggest losers of capital, says the GFI report. “We found that Asia, accounting for 61.2 percent of cumulative outflows, was still the main driver of such flows from developing countries.
“Indeed, five of the 10 countries with the largest illicit outflows – China, Malaysia, the Philippines, India, and Indonesia – are in Asia.”
GFI said increasing transparency in the global financial system is critical to stemming the outflow of illicit money from developing countries.
Following the release of the previous GFI report in January last year, Najib, who is also the Finance Minister, kicked the ball to Bank Negara’s court, saying that it would provide an explanation on the findings.
Soon after, Deputy Finance Minister Donald Lim announced that Bank Negara has launched a probe.
But to date, Bank Negara has yet to announce the result of its investigations or explain the massive illicit capital flight, despite offers of help from top GFI economists.
Din Merican: the Malaysian DJ Blogger 
Satu lagi projek sumbangan kerajaan Barisan Nasional.
On a per capita basis Malaysia is truly a world champion in this dirty business, but then soon to be nonagenarian will dismiss anything coming out of this Washington-based institution as hubris.
And someone should explain the sudden removal of the Old Goat from the second spot of Wikipedia’s list of world’s richest ex-head of State at USD 44 billion. On the top of the list is Mubarak.
Donald Duck has announced Bank Negara has launched anal probes?
What for? Syiok sendiri ah? This el stupido has definitely flown over the cuckoo’s nest!
How can Bank Negara ‘probe’ something that they, themselves were supposed to monitor and regulate, but negligently and irresponsibly did not? Same thing with the humongous Ponzi Gold Scam – but that’s minuscule compared with this!
Isn’t this like getting the musang to guard the hen-house?
Look, we need to have an independent auditing body of impeccable, international repute and not useless eye lotions like RCI, PSC and other Establishment controlled ‘dikir barats’. Whatever the reasons are – illicit means illicit, illegal and ill-willed. Comprendo?
This isn’t a job for BNM, it’s a job for Customs and LHDN. Despite the term, trade mispricing/misinvoicing doesn’t really involve money “flows”, it’s really about offshore shifting of income tax and trade duty liability. Nor does it really involve Malaysians either, it’s really about MNCs – those foreign investments we’re so keen to attract.
I’ve looked at some of the data – most of our “illicit” outflows involve trade with China and Singapore. The same pattern doesn’t occur with trade with Japan, or the US or Europe – all three have more rigorous regulations governing affiliated company transfer pricing and borrowing.
BNM won’t really find anything – they can’t, as you have to have the documentation from both sides of a trade and there’s the tricky question of jurisdiction. Nor will any independent audit body if they can only work with local data and documentation. The solution has to be multilateral, government to government. I’m told there’s already a team at MoF working on this (we brought up the issue with them early this year).
One thing you won’t find in the GFI “report” – “illicit” “inflows” from trade mispricing are very nearly as big as the “outflows”. That’s a rather big hole to miss, and a rather big flaw in GFI’s methodology.
Well done Malaysia!! Most corrupted in awarding business and now second in illegal money outflow. We are now real world class material. Can’t wait to see our latest standing on media freedom and human rights to complete the package. We can then send the country to the dogs.
UMNO/BN BOLEH!!
If the current Gov Of Bank Negara was much2 younger, I would have probe her myself n see how dirty we can get…and that’s what we call shiok sendiri,in this case 2 diri laa….Oouch!!!!!!!
Negative news on governance cannot be good for our country. They affect confidence and trust in our system to the point of discouraging foreign and domestic investment.
I agree with Hishamh that Bank Negara cannot do everything. It should focus on monetary policy and sound banking, in stead of trying to bear the burden of policing illegal activity.
It is time we fix the system and over time eliminate our culture of impunity. Greed knows no limits and when left unchecked it will breed more greed. It is greed that will bankrupt our country.–Din Merican
“The Najib administration has rescinded its quotas, age floor and other travel limits imposed last year on Christian Malaysians wishing to make their pilgrimage to Jerusalem, say church leaders and a tour agent.The Barisan Nasional (BN) government’s move, ahead of Christmas and national polls, is seen as a bid to win … ” Malaysian Insider
Sorry for the interruption.
But does this mean that I can travel to Israel now on my Malaysian passport and not have my passport confiscated upon my return to Malaysia??
And if Najib as Prime Minister is honest about showing his caring side, how is that “twenty little angels” who lost their lives to a mad man somehow doesn’t resonate with him??
This very corrupted govt led by BN/Unmo is the main cause. Only way to save this country is to vote them out and put them in jail! If the head is crooked, how can we expect the rest to follow?
“Only way to save this country is to vote them out and put them in jail” — Ricky
Yeah right! It is not like Najib and his band of merry thieves are waiting for Goolbatok to do his ass job on them.
Congratulations to Malaysia for having achieved the 2nd highest in the world in outflow of RM200 billions since 2001 to 2010 only after China according to the Global Financial Integrity in Washington. With the present UMNO leadership, we believe we can be number one.
It is disgusting that most of the politicians are corrupted and we need to address this issue with the combination of voters to vote out the corrupted politicians to save our beloved country from close to bankruptcy. We are now tangling on the rope with petroleum for survival at this present time and can expect that GST to be implemented together with other new taxes should they retain to rule the country. In the final chapter, all of us will suffer with higher cost of living together with the next generation.
@hishamh, I agree with the explanation but beyond the big picture a fundamental issue is there a political will to address this systemic bleeding in a holistic manner and not knee-jerk reaction for cheap electoral posturing.
Why not start with illicit outflows to Singapore on G to G basis? And I am surprised that Singapore is not in the Japan, US and Europe league where “more rigorous regulation governing affiliated company transfer pricing and borrowing.”
In the battle of public perception, transparency is everything. Anything less is seen as a cover-up.
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QUOTE: “Close to RM200 billion of dirty money was siphoned out of Malaysia in 2010, putting the country second only to Asian economic.”
“GFI said that trade mispricing – the practice of shifting profits overseas by over- or under-invoicing intra-company transactions – accounts for an average of 80.1 percent of illicit financial flows from developing countries. The rest of the dirty money involves corruption.”
“This means that much of the proceeds of drug trafficking, human smuggling, and other criminal activities, which are often settled in cash, are not included in these estimates,” said Kar (right).UNQUOTE.
From the above report and quotations Bank Negara, the Federal and States governments, the Police, the Customs and all other relevant authorities like the Registrar of Business, Registrar of Companies, Ministry of International Trade and Industry have to work harder to investigate, to track (backward and forward) the illegal business, the inflow and outflow of the black money, the perpetrators, the companies, the companies directors, within and outside Malaysia involved in the illegal trade and business and the illegal transactions.
In today’s world of IT money can be transmitted into and out of the country within seconds.
Bank Negara, CCID of the RMP and the Customs Department have to have better Intelligence, Enforcement and Investigation Divisions and personnel in their department and agency and at all entry/exit on land, airports and seaports.
The public must continue to give information to the authorities.