Activist urges closer scrutiny of lawyers, accountants over offshore funds

 Transparency International Malaysia says insufficient regulation enables income and assets to be kept offshore and excluded from tax declarations.

TI-M’s Raymon Ram (left) and C4’s Pushpan Murugiah say any LHDN amnesty linked to voluntary declarations must include a firm deadline, and be followed by firm action.

PETALING JAYA:

 An anti-graft group has called for closer scrutiny of professional intermediaries to close oversight gaps that allow offshore income and assets to remain hidden from tax authorities.

Transparency International Malaysia (TI-M) said intermediaries like lawyers, accountants, company secretaries and trust or corporate service providers often play a key role in facilitating offshore outflows — although they do not move funds themselves.

TI-M president Raymon Ram said Bank Negara Malaysia’s National Risk Assessment (NRA) 2023 identified these intermediaries as being vulnerable to misuse as professional enablers, especially in the “movement or layering of illicit funds”.

He said this can involve using their professional services to set up foreign companies or trusts, provide nominee directors or shareholders, or assist with opening offshore bank accounts.

“When these services are not properly regulated, they enable income and assets to be kept offshore and excluded from tax declarations,” he told FMT.

Raymon said the Financial Action Task Force and Asia/Pacific Group on Money Laundering (FATF-APG) found that while supervisory frameworks exist, the oversight involved is likely to be inconsistent and ineffective compared to what exists in the banking sector.

He added that enforcement was also an issue, with oversight inconsistently applied to these services. “The NRA 2023 similarly highlights control gaps rather than legal gaps, pointing to weaknesses in how existing requirements are applied in practice.”

Raymon added that these intermediaries can face punitive action if they knowingly and willfully aid their clients in storing undisclosed offshore income and assets.

He said that under anti-money laundering laws, lawyers, accountants and other intermediaries are classified as reporting institutions and are therefore required to conduct customer due diligence, identify beneficial owners, and flag suspicious transactions.

“Those who knowingly assist clients, ignore clear red flags or fail to report suspected tax evasion or illicit funds may face criminal liability, regulatory penalties and disciplinary action by their professional bodies.”

He pointed out that the FATF-APG also found that, when compared to banks, these intermediaries tend to lodge a significantly lower number of suspicious transaction reports when assessing money-laundering risks.

This was significant since the NRA 2023 classifies these services as “higher-risk sectors”, he said.

“The low volume of reports, combined with continued reliance on manual reporting processes, indicates under-reporting and delayed detection. FATF therefore recommended intensified efforts to improve awareness, understanding and compliance with reporting obligations among these intermediaries.”

However, he said these professionals should not be penalised solely because a client holds an undisclosed offshore account. “Liability arises from failure to comply with anti-money laundering obligations, not from the client’s offence alone.”

The activist was commenting after the Inland Revenue Board (LHDN) identified 14,858 Malaysian tax residents, collectively holding more than RM10 billion in undisclosed offshore financial accounts, who have yet to file tax returns.

Significant offshore accounts were located in Luxembourg, Hong Kong, Guernsey, the Cayman Islands, the Bahamas and Bermuda, the authority said.

LHDN advised those involved to come forward voluntarily and make the necessary declarations to avoid legal action under the Income Tax Act 1967.

The Malaysian Anti-Corruption Commission also revealed that dignitaries, politicians, and white collar criminals have been stashing illicit funds in several countries, particularly West Asian nations.

Amnesty must be time-bound, followed by firm action

Center to Combat Corruption and Cronyism (C4) CEO Pushpan Murugiah and Raymon said any amnesty linked to voluntary declarations must include a firm deadline, followed by firm action.

Pushpan said this was to ensure the voluntary compliance measure retains its credibility and to avoid incentivising continued concealment of offshore funds.

“Without these two key steps, the voluntary disclosure risks becoming an administrative exercise rather than a genuine compliance tool,” said Pushpan.

Raymon agreed, pointing out that this was not LHDN’s first time urging taxpayers to review and declare previously unreported income to avoid penalties or legal action.

While this approach can be effective, he said a failure to prosecute would make it less of a deterrent, undermining public confidence.

“They work best when accompanied by credible and visible enforcement, rather than repeated extensions or weak follow-through.”

Pushpan added that the potential offences would likely go beyond mere late disclosures or administrative non-compliance, and may include tax evasion, false declarations and using offshore structures to conceal beneficial ownership. - FMT