Trade mis-pricing, not crime or graft, is to be blamed for most of the estimated RM174 billion siphoned out illegally in 2011, government anti-corruption czar Senator Datuk Paul Low told The Malaysian Insider.
Repeating Putrajaya's analysis on the illicit outflows, he said Malaysians should not be alarmed at Malaysia being the fourth largest exporter of illegal capital as that came with being a country that does active trade with the world.
"We are a major trading nation with high levels of foreign direct investment and a hub for many multi-national corporations. So the sums cannot be equal where the inflow and outflow of money is concerned," the Minister in the Prime Minister's Department told The Malaysian Insider.
He was commenting on a report by anti-graft research and advocacy group Global Financial Integrity (GFI), which revealed that close to RM174 billion was illegally siphoned out of Malaysia in 2011, which ranked fourth after Russia, China and India.
Low estimated that 80% of the illicit outflow could be pegged to trade mis-pricing, while only 20% was "hot money" going out of the country via money transfers by foreign workers, underworld criminal activities and graft.
Putrajaya had made similar assessments after the annual GFI report was issued last year.
"Of the 20% hot money, only 3% is due to graft, the rest is due to illegal money transfers by foreign workers and organised crime including drug, human and wildlife trafficking.
"We have 2.5 million foreign workers, they send money through money changers, who just call up their counterparts in the other countries and inform them to pass the money to the families concerned.
"The money does not actually pass through the normal channels, and this is captured under illicit outflow," he explained.
On money changers, the former Transparency International Malaysia president also said: "Since 2012, Bank Negara has tightened the conditions for money changers and also reduced the number of money changers from 840 to 500 nationwide."
Low added that criminal activities could only be dealt with law enforcement, adding that border controls and patrols needed to be intensified using scanners and closed-circuit television cameras to check if money is being smuggled out.
"The Customs Department need to use high technology equipment, such as radio frequency to track what is really in the containers in the import and export business," he said.
According to the minister, the task force to curb illicit capital outflow, set up by the government in 2010, has been successful, where it managed to rake in RM40 billion in revenue for the government from the recovery of duties and taxes from companies that under-declared their trade figures in 2011 and 2012.
He said that the task force expected to recover RM10 billion this year.
Low explained that trade mis-pricing included many common practices in global trading, including false and under-declaration of goods, using a third country as an export base and also transfer pricing.
"Let's say a manufacturer exports RM200 million of goods, but records it as RM50 million, so that is RM150 million in illicit flow, and loss of income in customs duties," he explained.
He added that another trade mis-pricing example was when goods are exported via a third country, where the goods may have come from China, but the country of origin is stated as Malaysia.
He said there was also false declaration of the volume of trade happening in free trade zones.
As for transfer pricing, multi-national companies operating in Malaysia would shift their profits to a "tax haven" where they have to pay low or no tax.
"All these trade practices that happen in any open economy, including China, India and Russia, are accounted for as illicit outflow, so being listed high in the ranking comes with being a heavy trading nation," he stressed.
According to Low, the implementation of the goods and services tax (GST) would also help to curb trade mis-pricing, as businesses would need to keep proper accounting records at all stages of production under the new GST system.
"So it will not be easy for them to under declare or not declare their trade at all," he offered, adding that curbing illicit outflow was a work-in-progress for the country. - December 13, 2013.