I wrote this in 2011, but today again we have the Global Financial Integrity report now stating Malaysia is the third highest in the world in terms of illicit financial outflows, and second only in Asia, and first in terms of per capita! This is a version of what was published in theSun on the 23rd December 2011.
Financial Outflows Hamper Growth
For my ‘A’ Level literature class, we studied Ayi Kwei Armah’s ‘The Beautyful Ones are Not Yet Born’, in which a nameless man struggles against a post-independent Ghana rife with corruption and rot. Humanity, it seems, rides with the tide of evil as a norm, and the few exceptional people feel like they have to swim against strong currents to maintain some semblance of honesty and goodness. And this problem spins further out of control once an individual problem becomes a systemic one.
It is hardly any different in Malaysia, where we can hardly keep track of the growing list of financial scandals, the roots of which are greed and the propensity to be corrupted. This year alone, we have had to deal with the mega cattle-rearing project, government departmental overspending as found by the Auditor-General’s report, and the resurfacing of the issue of certain submarines speculated to have been purchased for more than their worth.
These are individual issues requiring investigation, for sure, but more shocking are the recent figures released by the Global Financial Integrity (GFI) organisation in their ‘Illicit Financial Flows from Developing Countries Over the Decade Ending 2009’ report updated this month. The Washington-based GFI claimed that RM150 billion in illicit money has been siphoned out of Malaysia in 2009 alone, on top of the RM927 billion losses between 2000 and 2008.
The GFI had earlier this year reported on outflows that more than tripled in 2000 to 2008, the scale of which was “rarely seen in Asia”. With the latest country data from 2009, Malaysia now sits within the top five exporters of illicit capital. The top ten illict capital exporting countries account for 70 percent of total outflows from developing countries. Several reasons were given for this, including export under-invoicing, and unrecorded transfers using non-trade channels, amongst others. Although the figures are likely estimates at best, it is certainly cause for concern.
In January this year, the government responded with a mix of reactions, with one Minister initially flatly refusing to consider the report’s claims, and the Prime Minister and Finance Ministry later acceding that Bank Negara ought to probe these details. This investigation, however, has not yet resulted in any public statement to date.
In fact, the police responded most recently that illicit outflows are nothing new, and that they have been freezing assets of organised crime and drug rings to tackle the problem. It is true that Malaysia does have an Anti-Money Laundering Act (2001), and it has also signed and ratified the United Nations Convention Against Corruption (UNCAC), Article 14 of which requires the country to prevent money laundering. In addition, the Money Business Services Act has just recently come into force in December this year, which Bank Negara states will address the outflow of funds from the country. We do have the regulatory framework, then, which is an excellent starting point.
But let’s be clear about this: the problem is not limited to crime and drug rings alone. There are governance issues that affect both the private and public sectors. The January 2011 report also stated that “large state-owned enterprises such as Petronas could … be driving illicit flows”. This is a serious claim to make, and certainly official probes need to be urgently and immediately carried out, if only to respond and clarify matters to the Malaysian public.
Why is it so crucial that the source of such illicit capital outflows is determined? Ultimately, it is not with the intention of targeting the culprit(s) involved, but to ensure that such capital can contribute to productive efficiency within the country itself. All that lost capital could have been rechannelled and better targeted for socio-economic needs at home, or invested to stimulate greater economic growth and create jobs.
The response from the Indian government, for example, was to get four top Indian research institutions to submit proposals to study the issue of ‘black money’ generation. Likewise, Malaysia could be equally proactive in getting to the bottom of these claims. If true, it is indeed worrying, as this jeopardises the effectiveness of even current government expenditure, savings or investments.
Some of the indicators that were found to drive illicit capital from developing countries include political instability, rising income inequality, corruption and discrimination in labour markets. If these contributing factors worsen in Malaysia, much will need to be done in order to reverse the trend of capital outflow. One hopes that efforts are underway within the Malaysian central bank and the respective ministries involved. Should these massive sums continue to leave the country, this will eventually have grave implications on our national growth and development.
