Malaysia ranks fourth in the list of the top 25 countries with the highest measured cumulative illicit financial outflows from 2002 to 2011, according to Global Financial Integrity. Over the last decade, some RM1.2 trillion flowed out of the country. Where is all that money being parked?
1. China: US$1.08tn
2. Russia: US$880.96bn
3. Mexico: US$461.86bn
4. Malaysia: US$370.38bn
5. India: US$343.93bn
6. Saudi Arabia: US$266.43bn
7. Brazil: US$192.69bn
8. Indonesia: US$181.83bn
9. Iraq: US$78.79bn1
10. Nigeria: US$142.27bn
11. Thailand: US$140.88bn
12. United Arab Emirates: US$114.64bn2
13. South Africa: US$100.73bn
14. Philippines: US$88.87bn
15. Costa Rica: US$80.65bn
16. Belarus: US$75.09bn
17. Qatar: US$62.82bn2
18. Poland: US$49.39bn
19. Serbia: US$49.37bn
20. Chile: US$45.20bn
21. Paraguay: US$40.12bn
22. Venezuela: US$38.97bn
23. Brunei: US$38.37bn2
24. Panama: US$38.09bn
25. Turkey: US$37.28bn
Global Financial Integrity measures illicit outflows as follows:
Illicit financial flows are cross-border transfers of funds that are illegally earned, transferred, or utilized. These kinds of illegal transactions range from corrupt public officials transferring kickbacks offshore, to tax evasion by commercial entities, to the laundered proceeds of transnational crime.
Illicit Financial Flows from Developing Countries 2002-2011 does not measure all illicit financial flows. It uses two primary methodologies to estimate two different methods for illegally transferring funds across borders.
The first, Hot Money Narrow (HMN), looks at money that has disappeared from the balance of payments. GFI infers that is likely to represent kickbacks, bribery, and other forms of unrecorded wire transactions. Countries that are rich in natural resources, like oil, tend to have higher HMN numbers relative to others. HMN accounts for about 20.3% of illicit financial flows estimated in this report.
The second, Gross Excluding Reversals (GER), looks at trade misinvoicing, a common method used by commercial entities for the cross-border movement of illegal money. Exporters and importers manipulate trade invoices to over-represent or under-represent the value of the goods they are shipping. Often, this will involve re-invoicing the goods through a secrecy jurisdiction. The result is that a certain sum of money disappears on one side of the border—either from the importer or exporter. We detect this by comparing what a country says it is exporting, and what the rest of the world says it imports from that country, and vice versa.
Certain types of trade misinvoicing are used for different purposes. Drug cartels and terrorist networks have been known to use it to launder money. Importers and exporters use it to evade customs duties. Other tax evaders, criminals and corrupt public officials in developing countries use it to hide wealth or ill-gotten gains. GFI’s methodology is unable to distinguish between the different sources of trade mispricing.
Incidentally, the US is the second easiest country in which to open a money laundering firm, according to a Guardian report.
The US Department of Justice acknowledged last year that anonymous shell companies are the number one tool used by criminals to launder their illicit funds. Remarkably, researchers at Brigham Young University, the University of Texas, and Griffith University found that the US was the second easiest place in the world after Kenya to open one of these phantom firms. These disguised corporate entities have been used to funnel weapons to terrorists and drug lords, they’ve been used to plunder corrupt funds from some of the poorest countries in the world, and they’ve been used to defraud Medicare—the national health insurer for elderly Americans—of billions of dollars.
The answer to this problem is making it mandatory for all companies formed in the US to disclose the true, human “beneficial owners” of the company in a central public registry that can be searched by law enforcement, investors, and due diligence officers.
Is the MACC investigating these ridiculously high illicit outflows?