M'sia is world's No 2 in illegal capital flight (revisited)

Close to RM200 billion of dirty money was siphoned out of Malaysia in 2010, putting the country second only to Asian economic powerhouse China in global capital flight.

Washington-based financial watchdog Global Financial Integrity (GFI), in its latest report which tracks capital flight, says the level of illicit flows from Malaysia in 2010 was the highest in 10 years.

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.

Steven Gan
.....................................comments from msiakini blog .........................follows


Dirty money - a case of see no evil?

 'Zeti, the illicit outflow of funds from RM90 billion in 2009 to RM196 billion in 2010 is too big a hole to cover.'

Anwar wants Bank Negara to explain illicit outflows

Onyourtoes: I think sufficient warning must be given that the state will pursue wrongdoers relentlessly once the change in government has taken place.

We cannot allow massive plundering and pilferage to go on unpunished. It will set a very bad precedence for this country.

All leaders must eventually account for their actions. This is the only way this nation can find peace with itself.

Otherwise it is the same old moronic mentality when the present leaders protect the past and the future leaders protect the present. We must break this evil chain forever.

I want Pakatan Rakyat to propose new legislations, once taking power, to seek the return of all stolen monies no matter where they have hidden.

Anonymous #07521476: There is no country in the world where the PM choose to remain silent in the wake of such massive capital flight.

Our economy is small yet we the world no 2 in capital flight. There must be something seriously wrong.

Jesse: The laws are more than adequate to tackle the problem but because powerful figures are involved, the authorities keep both eyes shut.

It is an indictment of the state of affairs of the nation and yet, the finance minister and Bank Negara are all deafening in their silence. See no evil?

Mahashitla: Bank Negara governor Zeti Akhtar, the illicit outflow of funds from RM90 billion in 2009 to RM196 billion in 2010 is too big a hole to cover.

We hope you are not doing a Pak Lah's nap. You have built quite a good reputation for yourself internationally and we expect explanations. We do not want to see you as an individual who is in cahoots with those criminals.

Anonymous_3f4b: Bank Negara has failed to stem the illegal money laundering trail in spite of much fanfare and big talk a couple of years back.

The only conclusion which I can derive is that big time politicians and businessmen are involved with the connivance of officials in Bank Negara who chose to work with them for personal gain at the expense of national integrity, pride and honour.

The recent Genneva fiasco which happened right under the eyes of Bank Negara, which only act after a good number of ordinary Malaysians were fleeced, is a good example. By right, Genneva should not be given the right to operate its business scheme.

Bank Negara should instead tackle the problem of rising cost of living and high prices of housing and cars which affects the average low middle classes what with the weakening ringgit and household debt.

Fair Play: DSAI (Anwar Ibrahim), you were a former cabinet minister and a seasoned politician. You are not addressing the root cause of the problem and you had placed the Bank Negara governor between a rock and a hard place by your suggestion.

Besides, the deputy finance minister already said the report was a misrepresentation of the fact. What would you expect the Bank Negara governor to say?

Not Confused: Najib Razak is not only a failed finance minister, but also a lame duck prime minister. He has zero courage of his convictions but stays silent on some of the most important issues faced by the country.

His silence is indeed deafening and as a result, respect for him has sunk to an all-time low. The mainstream media may fawn over him but then they are beholden to the BN government in so many ways.

They prostitute themselves every day by suppressing or spinning stories.

Ren Ai: In the face of the revelations of the illicit capital outflow and dastardly deception leading to a high governmental level cover-up of the murder of Altantuya Shaariibuu, I take to task the New Straits Times, The Star, Utusan Malaysia and other mainstream Malaysian media for their obvious connivance and shameful cover-up of the truth by not reporting these revelations as any responsible media should.

Remember this week as that lowest point in Malaysian mainstream journalism. Shame on all of you.

ACR: Illicit fund flow figures are estimates computed based on two models - one by the World Bank and the other by the International Monetary Fund (read it on Wikipedia). It cannot pinpoint who the culprits are.

What it tells you is a country received X$ in inflows (FDI, borrowings from abroad) and notes the uses of those funds. The excess Y$ over the recorded uses of the funds is illicit capital.

Culprits can be even MNCs (multinational companies) which generate profits here and move them to low-tax jurisdictions by abusing transfer pricing provisions.

The more popular culprits are those earning monies from illegal activities (drug dealing, smuggling) and those with unaccounted earnings (corruption money).

Monies that go abroad do not return generally. Zeti is only one of six global central bankers who earned a 'A' rating from Global Finance Magazine for two years in a row.

Besides Bank Negara, which is actually the last stop (at the point funds leave the country) in a series of lapses on this issue, the Inland Revenue Board (IRB) and Malaysian Anti-Corruption Commission (MACC) should pull their socks up.

Ferdtan: Will Zeti receive another award? Perhaps this time it will be for the highest illicit outflow of funds under her watch.