KUALA LUMPUR, May 2 ― Malaysia lost up to about US$431 billion (RM1.8 trillion) in illegal flow of money between 2005 and 2014, a Global Financial Integrity (GFI) report estimated.
The report by the research and advisory organisation based in Washington DC released yesterday said illicit financial outflows from Malaysia were estimated at between 8 per cent and 12 per cent of the total trade of about US$3.6 trillion in that period, which translated to between about US$287 billion and US$431 billion.
“The order of magnitude of these estimates, much more so than their exactitude, warrants serious attention in both the developing countries and the wealthier world,” said GFI president Raymond Baker in a statement on the release of the study titled “Illicit Financial Flows to and from Developing Countries: 2005-2014”.
“Years of experience with businesses and governments in the developing world have taught us that the decision to bring illicit flows into a particular developing country often marks only the first phase of a strategy to subsequently move funds out of the country. Together, illicit inflows and outflows sap the crucial financial resources needed to reach the Sustainable Development Goals,” he added, referring to the United Nations’ goals to end poverty and to protect the planet.
According to the GFI report, illicit financial inflows into Malaysia were estimated at between 8 and 13 per cent of the US$3.6 trillion total trade from 2005 to 2014, which translated to between about US$287 billion and US$466 billion.
In 2014, the last year which comprehensive data was available, illicit financial outflows from Malaysia were estimated at between 6 and 10 per cent of total trade of about US$443.2 billion, or between about US$26.6 billion and US$44.3 billion.
Illicit financial inflows were estimated at between 7 and 13 per cent of total trade that year, or between about US$31 billion and US$57.6 billion.
According to the study on illegal financial flows from developing and emerging economies, an average of 87 per cent of illicit financial outflows over the 2005-2014 period were due to the fraudulent misinvoicing of trade.
“Total illicit financial flows (outflows plus inflows) grew at an average rate of between 8.5 percent and 10.1 per cent a year over the ten-year period.
“In 2014, outflows are estimated to have ranged between $620 billion and $970 billion, while inflows ranged between $1.4 trillion and $2.5 trillion,” said the GFI report.
GFI recommended that governments establish public registries of verified beneficial ownership information on all legal entities and said all banks should know the true beneficial owners of any account.
“Policymakers should require multinational companies to publicly disclose their revenues, profits, losses, sales, taxes paid, subsidiaries, and staff levels on a country-by-country basis,” it said.
To curtail trade misinvoicing, GFI suggested that customs agencies use the highest level of scrutiny for trade transactions involving a tax haven.
“Governments should significantly boost their customs enforcement by equipping and training officers to better detect intentional misinvoicing of trade transactions, particularly through access to real-time world market pricing information at a detailed commodity level,” said GFI.