The government has stressed that it "does not deny" that crime, corruption and tax evasion led to the outflow of RM173.84 billion from the country in 2011, as estimated by financial watchdog Global Financial Integrity in its latest report.
However, it pointed out that only a very small amount of this sum was derived from corruption.
According to Minister in the Prime Minister's Department in charge of integrity, Paul Low, the actual portion making up graft is likely to be even less than one percent of RM173.84 billion lost.
"It is not that I am in denial. GFI itself in its report said that trade misinvoicing makes up about 80 percent of illicit outflow on average, while the remainder 20 percent is hot money.
"My rough estimate is that corruption makes up about three percent of that hot money (20 percent of RM173.84 billion), which includes underground criminal activities such as drug smuggling and trafficking," Low said when contacted yesterday.
Based on Low's back-of-the-envelope calculation, this would mean that roughly RM1 billion was lost in in 2011, as a result of illicit outflow from corruption.
"But this is my rough estimate, we are not talking exact figures," he emphasised, declining to provide a specific figure.
"It also doesn't mean I am being apologetic. As I am now in the government, I can see there is an effort against it. We are dealing with corruption, this is why there is a taskforce against it.
"The taskforce doesn't just meets to drink teh tarik, although some people may like to think so. (Combating corruption) is complicated and it cannot be solved overnight," said the former Transparency International-Malaysia chief.
In its report released on Thursday, Washington-based GFI said that "trade misinvoicing comprises the major portion of illicit flows (roughly 80 percent on average)" with the rest being "hot money".
This translated into around RM139 billion of Malaysia's illicit capital outflows in 2011 due to transfer mispricing while RM34.8 billion is from crime.
Multinationals dodge taxes
Transfer mispricing is a ploy used by multinational companies to avoid paying high taxes. For example, goods produced by them in Malaysia are ‘sold' to their subsidiaries, conveniently located in a tax haven, at an artificially low price.
However, it pointed out that only a very small amount of this sum was derived from corruption.
According to Minister in the Prime Minister's Department in charge of integrity, Paul Low, the actual portion making up graft is likely to be even less than one percent of RM173.84 billion lost.
"It is not that I am in denial. GFI itself in its report said that trade misinvoicing makes up about 80 percent of illicit outflow on average, while the remainder 20 percent is hot money.
"My rough estimate is that corruption makes up about three percent of that hot money (20 percent of RM173.84 billion), which includes underground criminal activities such as drug smuggling and trafficking," Low said when contacted yesterday.Based on Low's back-of-the-envelope calculation, this would mean that roughly RM1 billion was lost in in 2011, as a result of illicit outflow from corruption.
"But this is my rough estimate, we are not talking exact figures," he emphasised, declining to provide a specific figure.
"It also doesn't mean I am being apologetic. As I am now in the government, I can see there is an effort against it. We are dealing with corruption, this is why there is a taskforce against it.
"The taskforce doesn't just meets to drink teh tarik, although some people may like to think so. (Combating corruption) is complicated and it cannot be solved overnight," said the former Transparency International-Malaysia chief.
In its report released on Thursday, Washington-based GFI said that "trade misinvoicing comprises the major portion of illicit flows (roughly 80 percent on average)" with the rest being "hot money".
This translated into around RM139 billion of Malaysia's illicit capital outflows in 2011 due to transfer mispricing while RM34.8 billion is from crime.
Multinationals dodge taxes
Transfer mispricing is a ploy used by multinational companies to avoid paying high taxes. For example, goods produced by them in Malaysia are ‘sold' to their subsidiaries, conveniently located in a tax haven, at an artificially low price.
The same goods are then resold at market price to another subsidiary in the country, after which they finally go to consumers. The result - most of the profits are recorded in the tax-free country.
Low pointed out that while GFI's new methodology takes into account trade misinvoicing to re-export hub Hong Kong, it does not do so for another such hub, Singapore, due to lack of data.
"This could also effect the figures with Malaysia as Singapore is a bigger trading partner than Hong Kong," he said.
Malaysia's trade with Singapore in 2011 was RM93.7 billion (US$29 billion), mostly through re-exports.
However, taking trade mispricing out of the equation may not change Malaysia's ranking at number four GFI's top 10 countries in the world in terms of illicit outflow as this manipulation by multinationals affects most developing countries globally.
"Yes, it does not change the ranking. The government is doing something about trade mispricing, through regulations on declaration of goods and transfer pricing," said the minister.
"We are also doing something about hot money through stricter border control and dealing with underground activities with new laws, such as the Prevention of Crime Act."
Asked if the government would engage with the GFI, Low said it did so two years ago and would not be meeting the institute again.
"They are just telling the figures without a solution. Like someone telling your temperature, and then you have to figure out whether to take penicillin or something else.
"We have to figure out the solution (to the illicit outflow problem) ourselves," he said.
Low pointed out that while GFI's new methodology takes into account trade misinvoicing to re-export hub Hong Kong, it does not do so for another such hub, Singapore, due to lack of data.
"This could also effect the figures with Malaysia as Singapore is a bigger trading partner than Hong Kong," he said.Malaysia's trade with Singapore in 2011 was RM93.7 billion (US$29 billion), mostly through re-exports.
However, taking trade mispricing out of the equation may not change Malaysia's ranking at number four GFI's top 10 countries in the world in terms of illicit outflow as this manipulation by multinationals affects most developing countries globally.
"Yes, it does not change the ranking. The government is doing something about trade mispricing, through regulations on declaration of goods and transfer pricing," said the minister.
"We are also doing something about hot money through stricter border control and dealing with underground activities with new laws, such as the Prevention of Crime Act."
Asked if the government would engage with the GFI, Low said it did so two years ago and would not be meeting the institute again.
"They are just telling the figures without a solution. Like someone telling your temperature, and then you have to figure out whether to take penicillin or something else.
"We have to figure out the solution (to the illicit outflow problem) ourselves," he said.
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