masterwordsmith-unplugged

This afternoon, I was out of the house from 1.45pm till 9.30pm meeting my friend, working out at the gym, attending Step Dance class and visiting a blog reader and his very warm and friendly wife which meant I missed reading news updates till about 10p.m. I was completely gobsmacked when I read THIS ARTICLE in The Malaysian Insider and another in Malaysiakini HERE.

The first thing came to my mind was the song Fly Robin Fly by The Silver Convention and I sang it loudly while reading the articles but changed the lyrics to Fly money fly... , fly money fly out of Malaysia!!!! Try it! :-) I mean try singing it... :-)

Since you all have access to TMI, I will post the one from Malaysiakini followed by another exclusive report from Malaysiakini about the same topic that was posted last December.

Malaysia is among the top 20 countries in the world when it comes to capital flight, according to the London-based Tax Justice Network.

According to a report by influential London-based daily The Guardian, Tax Justice Network's researcher James Henry estimated that US$283 billion (RM892 billion) has been transferred to tax havens from 1970 to 2010.

For comparison, the amount is three and a half times more than Malaysia's foreign debt of RM257.2 billion in 2011 and is second to Nigeria (US$306 billion or RM964 billion).

Globally, Henry's research - which involved sifting through Bank for International Settlements (BIS) and International Monetary Fund (IMF) data - concluded that at least US$21 trillion to as much as US$32 trillion were siphoned abroad to avoid tax.

Tax Justice Network's estimates of capital flight from Malaysia is far more conservative than that of Washington-based financial watchdog Global Financial Integrity (GFI).

In a report published in December last year, GFI estimated by US$47 billion (RM150 billion) were illegally siphoned out of Malaysia in 2009 alone.

For the period of 2000 and 2008, GFI estimated that there was US$291 billion (RM927 billion) in illicit outflows from Malaysia.

The Najib administration disputed GFI's figures and cited a much lower figure of RM135.3 billion for illicit capital outflow for 2000 to 2009.

Henry, a former chief economist at McKinsey Consultancy and a tax haven expert, explained that the net effect of illicit capital outflow was tax evasion.

His colleague John Christensen explained to The Guardian that this hurts public coffers and causes a large gap in income inequality.

"Inequality is much, much worse than official statistics show, but politicians are still relying on trickle-down to transfer wealth to poorer people.

"This new data shows the exact opposite has happened: for three decades extraordinary wealth has been cascading into the offshore accounts of a tiny number of super-rich."

Henry's research estimates that 10 million around the world have assets offshore, but only 92,000 people own almost half of the minimum estimate of US$21 trillion - US$9.8 trillion.

He said that if governments could figure out how to tax the offshore wealth or at least entice its owners to reinvest and pay for global problems such as climate change.

According to The Guardian, the sheer scale of the hidden assets by the super-rich suggests that standard measures of inequality - surveys of household income or wealth - are severely underestimating the true income gap.

It cited Milorad Kovacevic, chief statistician of the UN Development Programme's Human Development Report, explaining that the very wealthy and the very poor tend to be excluded from mainstream calculations of inequality.

"People that are in charge of measuring inequality based on survey data know that the both ends of the distribution are under-represented - or, even better, misrepresented," he says.

"There is rarely a household from the top one percent of earners that participates in the survey. On the other side, the poor people either don't have addresses to be selected into the sample, or when selected, they misquote their earnings - usually biasing them upwards."

EXCLUSIVE Malaysia saw a whopping RM150 billion (US$47 billion) in illicit money siphoned out of the country in 2009, making it the top four countries suffering the highest illicit capital flight.

This amount is in addition to the staggering loss of RM927 billion (US$291 billion) over a period of nine years - between 2000 and 2008 - says the latest report by Washington-based financial watchdog Global Financial Integrity (GFI).

In January, GFI sparked an uproar when its ground-breaking report, ‘Illicit Financial Flows from Developing Countries', ranked Malaysia at No 5 among the countries with massive outflow of illicit capital.

In an update to its earlier report - this time supplemented by figures from 2009 - GFI said Malaysia, which has suffered a cumulative lost of RM1,077 billion (US$338 billion) over the past decade, maintains its No 5 spot.

The rankings of the top four countries remain relatively the same - China (with a loss of US$2,500 billion) is ranked No 1, followed by Mexico (US$453 billion), Russia (US$427 billion) and Saudi Arabia (US$366 billion).

The latest GFI report, ‘Illicit Financial Flows from Developing Countries Over the Decade Ending 2009', is penned by economists Sarah Freitas and Dev Kar (right), who is a former senior economist at the International Monetary Fund.

According to the authors, the estimates are based on balance of payments, bilateral trade and external debt data reported by member countries to the IMF and the World Bank.

"Unrecorded capital leakages through the balance of payments capture illicit transfers of the proceeds of bribery, theft, kickbacks and tax evasion," says the report.

Asia accounted for almost half the global share of illicit financial outflows (45 percent), driven largely by China and Malaysia.

However, GFI found that there was a dip in illicit capital outflows in 2009, but this was attributed to the global financial crisis instead of systematic improvements in governance or economic reform in these countries.

"This is a breathtakingly large sum at a time when developing and developed countries alike are struggling to make ends meet," said GFI director Raymond Baker.

"This report should be a wake-up call to world leaders that more must be done to address these harmful outflows."

GFI pointed out that the financial flows from Malaysia have more than tripled from US$22.2 billion (RM71 billion) in 2000 to US$68.2 billion (RM218 billion) in 2008.

"This growth rate, seen in few Asian countries, may be a result of significant governance issues affecting both public and private sectors," it lamented.

Following the release of the report in January, Prime Minister Najib Razak, who is also the finance minister, pushed the ball to Bank Negara's court, saying that it would provide an explanation on the findings.

"There can be many reasons, but let Bank Negara provide more specific comments on that," Najib told journalists when quizzed about the matter.

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 nor explain the massive illicit capital flight, despite offers of help from top GFI economists.

However, Deputy International Trade and Industry Minister Mukhriz Mahathir (left) has dismissed GFI claims as "bizarre".

"We do not see the need to look into it. If you go through the report, they have made quite a few bizarre claims against several countries," Mukhriz said.

"Going by Bank Negara's figures, we know how much exactly is going out, so you can hardly consider those figures (from GFI) as factual."

Increase transparency

According to GFI, increasing transparency in the global financial system will help reduce the outflow of illicit money from developing countries.

It recommends the following measures:

• Curtail trade mispricing.
• Require country-by-country reporting of sales, profits and taxes paid by multinational corporations.
• Require confirmation of beneficial ownership in all banking and securities accounts.
• Require automatic cross-border exchange of tax information on personal and business accounts.
• Harmonise predicate offenses under anti-money laundering laws across all Financial Action Task Force cooperating countries.