MALAYSIA is a middle-income country with vast natural resources, a developed financial system, a modern infrastructure network, and a vibrant service sector, all of which used to be envied by other middle-income countries in the world.

At the same time, however, the country is confronted by daunting economic, social and institutional challenges that compromise not only the wellbeing of the majority of the population but also the country’s political stability.

Wealth and income are concentrated in the hands of a few, the middle class is thin and financially insecure, and there still are people living close to the poverty line.

Alongside the unequal distribution of resources and incomes, the country faces steady haemorrhage of wealth in the form of capital flight and other forms of illicit financial flows during the last 20 years or more.

In 2010, Washington-based financial watchdog Global Financial Integrity (GFI), which tracks capital flight, reported that the level of illicit flows from Malaysia was the highest in 10 years, totaling RM200 billion of dirty money siphoned out, putting it second only to China in global capital flight.

Fraudulent manipulation of price, quantity, or quality of goods or services on invoices allow criminals, corrupt government officials, and commercial tax evaders to shift vast amounts of money across international borders quickly, easily and nearly always undetected.

In 2018, the most recent year for which comprehensive data is available, GFI ranked Malaysia at fifth place with the total estimated at RM120 billion.

According to Transparency International, on average RM40 billion was lost to corruption annually since 2013.

Elsewhere, the Panama Papers alone revealed that over 2,000 Malaysian citizens and companies had secret accounts in Panama, presumably to hide ill-gotten gains.

By depleting domestic savings and the tax base, capital flight deprives the country of resources to undertake investments and public expenditure that are required to meet development needs.

From a policy perspective, evidence of capital flight serves as an indictment against the policy and regulatory framework, in that it demonstrates the failure both to incentivize domestic investment and to reign in illicit capital outflows.

Capital flight is also symptomatic of endemic institutional corrosion that facilitates illicit acquisition of wealth, illicit cross-border transfers of foreign exchange, and the concealment of private assets in offshore havens out of sight of the country’s authorities.

Is Bank Negara on the alert and scrutinizing financial flows in and out of the country more stringently?

If RM45 million can be taken into the country via money changers, as highlighted in the Ultra Kirana case, it is clear that the financial regulators remain in slumber. - July 14, 2022.

* FLK reads The Malaysian Insight.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.