How does M'sia top China in illicit money outflow?

comments         Published     Updated

On Dec 18, 2012, it was reported that RM200 billion was siphoned out of Malaysia. It was also reported that bulk of this money was from corruption, drug and human trafficking, thefts, kickbacks, the financing of terrorists, and so on.

The Global Financial Integrity's lead economist, Dev Kar, offered to help Malaysia curb this infamous feat after Malaysia beat China in the illicit outflow of money.

In response to the money outflow report, Prime Minister Najib Abdul Razak said the Bank Negara Malaysia (BNM) would respond to the report accordingly. But till now we are yet to see a sensible response from BNM.

On May 30 this year, Penang Chief Minister Lim Guan Eng quoted the New York Times as revealing that Malaysia is part of an RM18.3 billion money laundering operation wherein money is siphoned out of the country through illegal remittance service providers (IRSP).

To date, BNM had dished out some 39 licences to non-bank remittance service providers (RSP) and e-money players to facilitate the remittance of money to foreign countries.

These RSPs have about 4,000 outlets, well spread throughout the peninsular and East Malaysia and we call these licensed providers "Channel A". BNM also has, on other hand, issued some 800 licences to money changers who have about 1,000 outlets in Malaysia.

In July 2011, BNM introduced the Money Services Business (MSB) Act. Under this Act, any licensee can provide money changing and remittance services. With this, the money changing and remittance service providers have been merged as "money services business providers".

Rise of the illegal operators

Then we have the IRSPs, who are mainly comprised licensed money changers (those not having formal agreement to remit from RSPs), illegal money changers and illegal syndicates and we call this group "Channel B".

It is estimated that there are about 2,000 such operators in the country who are riding high and mighty. These operators suddenly mushroomed, and tripled, in the last two years.

From our observation, there two categories of senders here. The first are the rogues who indulge in corrupt practices, drug trafficking, human trafficking and politicians.

The second category is made up of foreign workers who send their hard-earned money back home.

Traditionally, most of the foreign workers send their money through money changers and small-time hawala or hundi. (The hundi are mainly used by Indian, Nepalese and Bangladeshi workers.)

In 2000/01, when BNM licensed the first batch of RSPs, most foreign workers were coaxed by their employers to send money via the RSPs, namely IME and Merchantrade. The aggressive marketing approach by the RSPs has tremendously increased the number of foreign remittances through Channel A.

In 2009, BNM started going after the legal operators for very stringent requirements on "Know Your Customer" (KYC). This comes with a compulsory registration process for all senders and one has to divulge the following information:

  1. Sender's Name and Passport Number/ IC number;
  2. Income source/employer's name and amount;
  3. Recepient's name, passport number, and relationship; and
  4. Purpose of sending the money.
Other condition were also imposed:

  1. A restriction on the number of remittances one can do in a month;
  2. A maximum amount of remittance per sender per month; and
  3. No one can send money abroad on behalf of another person, etc.
Statistics show that the average quantum per remittance by these foreign workers is about RM800 to RM1200 and this is done once in two months. This means that they do not come under the threat of money laundering per say, since the amount is small; they are genuine senders of hard earned money and are subject to the KYC requirements.

Moreover, these foreigners are mostly uneducated and feel intimidated by such screening processes. Hence, all these bonafide senders flocked to Channel B illegal operators, since they provide hassle-free services, to make the remittances.

This ridiculous KYC imposed by BNM opened the opportunities for the Channel B operators in a big way. If one remits through Channel B, no questions are asked, there is no limit on the funds transmitted, which is why most foreigners and businessmen patronised these outlets.

In this context, BNM has been barking at the wrong tree, that is, the RSPs. In this scenario, the legal operators are subject to very stringent requirements while the illegal operators are free to operate without fear.

When there are thousands of illegal operators in town, this makes it very convenient for illicit money too to be channelled outwards instantaneously.

Lack of or no enforcement by BNM?

The irony about the whole thing is that BNM is in the know, but nothing has been done despite numerous complaints being made by RSPs and alike. There have been times when RSPs brought up the Channel B operations with BNM officers, but they were said to have been "brushed off".

Hence, knowing the power of BNM, the RSPs dare not push too hard, for they fear being victimised, even for the slightest misendeavour.

The licences of the RSPs are renewable yearly, after periodical audits, and the RSPs therefore live in fear as even very junior staff of BNM can make it difficult for their licences to be renewed. Many bankers will also share this view about how high-handed BNM staff can be.

BNM has a unit called Special Investigation Unit (SIU). Many complaints have been made with the SIU, with photographs of Channel B outlets and receipts of remittances submitted as well, but to date not even one has been prosecuted, if we go by BNM's annual reports.

It sounds weird that BNM has not managed to prosecute even one IRSP, despite it being accused of not been successful in eliminating the remittance of illegally acquired money through these IRSPs.

If this matter is left unchecked, the people may get the view that BNM officers are under the payroll of IRSPs as well. This would be disastrous, for it would make another prestigious agency to lose the trust of Malaysians, let alone the foreign investors, and would suffer the same fate as, for example, the police force, Election Commission, the judiciary and the Malaysian Anti-Corruption Commission.

When one questions them over the phone via their BNM telelink, they keep saying that prosecution is difficult. If this is the case, who is to be blamed for not prescribing proper legislation to facilitate prosecution?

BNM officers are known for attending international forums and seminars. So what have they learnt from these so far? Just attend and go on holiday and shopping as well? They should look at Singapore as a model. It is not rocket science to curb IRSPs.

It is about time that an independent commission is set up to oversee BNM's functions so as to prevent the outflow of illicit money and the rise of major financial scandals. This must be done as a proactive measure, rather than to wait for a disaster to occur and then start scrambling for a solution.

Time has come for change, especially with Malaysia making headlines globally for the wrong reasons. This also raises questions to the relevance of all the accolades accorded to BNM in general, and to its governor Dr Zeti Akhtar Aziz in particular.

news and views that matter

Sign In