Since the inception of modern banking and monetary system, money laundering has existed in the crime list of all developed and developing countries of the world. Money laundering generally involves obscuring the original source of money by transferring it through multiple media. To put it in a simpler way, money laundering is the process by which money coming from Source X is made to look as if it’s coming from Source Y.
Criminals use this method to hide the origins of illegal money and make them look legitimate. Without money laundering, these illegal sources will be traced by the law-enforcement agencies and the people associated will be penalized under criminal laws.
According to the 2013 Global Financial Integrity Report of Washington, Malaysia stands at No.5 in the world with an illicit funds outflow of USD 291 billion. Despite China being the leader in this list, Malaysia beats China and wins the top spot in money laundering per capita, recording RM 6,400 per person per year. In the world of money laundering, international reputation of Malaysia is degrading with time and has already fallen below that of Thailand or Indonesia.
Singapore Stops S$10,000 Notes Production
Singapore had been issuing S$10,000 (equivalent to $8,000) notes for a long time. Recently, the Monetary Authority of Singapore (MAS) has declared that the production of S$10,000 notes will be stopped with a view to controlling money laundering. However, the notes which are already in circulation will stay legal till further notice.
Organized criminals expert in money laundering fancy large value notes as these are lightweight and can be carried in large amounts within minimum space. The spark that led to this motion by MAS, is a government report in 2013 which warned that the two multi-billion dollar gaming resorts opened in 2010 are posing money laundering threats. With the end of S$10,000 notes production, the highest value note issued by the central bank of Singapore will be S$,1000.
At present, the largest Ringgit note in Malaysia is the RM 100 note. It was released within the fourth series of bank notes on July 16th, 2012. RM 100 is equivalent to USD 31.50 as of today.
Anti-Money Laundering Act
In order to control money laundering crimes, some rules and regulations are set by the central bank of a country and passed by the government in the form of an act. The Anti-Money Laundering and Anti-Terrorism Financing Act (Act 613) of Malaysia came into effect in 2001. It can be viewed and printed from the website of Bank Negara Malaysia.
For different levels of money laundering offences, the levels of sentences are specified in the act. The maximum fine for a person involved in money laundering activities is five million Ringgits or imprisonment for a term of five years or both.
Why Do People Launder Money?
Laundering money is a serious crime. For understanding why people launder money, at first we have to understand why people commit crimes. Crimes are of three types. These are crimes of honor, crimes of violence and economic crimes. Economic crimes are the most common ones all around the world. This crime is committed mostly for two reasons. One is to prove to peers that it’s possible to do such a crime and still get away with it. The other is that it’s practically possibly to make more money doing a crime than making money in a legal way with the same effort.
After making this black money, criminals either invest it on another criminal activity, hide it for some time or spend it instantly. While investigating crimes, one of the most tried and tested methods is to follow where this money travels. For this reason, criminals try move the money quickly before it can be traced by the investigators. If somehow this money can be put into a black hole, the investigators will lose the track forever.
Now what happens when this money is taken out of the black hole?
The criminal shows methodically that this money has come from a legitimate source. Many money launderers have been caught by law enforcement agencies simply by arising suspicion. For instance, if a hairdresser who runs a not-so-profitable salon suddenly starts driving a brand new convertible, people will definitely raise their eyebrows.
Money laundering is also committed by tax evaders, where they lie about the sources of this money in order to avoid the burden of extra tax. Sometimes the money is also hidden in different bank accounts under the names of family members or relatives. Money launderers may use the money to operate businesses out of reach of economic records. For calculating taxes, the government keeps a record of everyone’s income. So if huge amounts of money starts flooding your account with no proof of where they’re coming from, you are in big trouble!
Let’s imagine that you’re a drug dealer who makes lots of cash money. You’ve purchased a big house and an expensive car. The problem is – you’re not a taxpayer. When the IRB checks the sales records from the seller of the house or the dealer of your car, they’ll find out that you’re not reporting your income. The investigation will begin and at one point, they’ll find out about your illegal earning source. Once you get arrested for not paying taxes, they will have no more barriers to look into every single crime you’ve committed to earn that money.
Now, let’s say, you also own a carwash. You make some profit from that. But most of your profit comes from drug dealings. You make the drug money look like it has come from the carwash. That way, you deceive the IRB and they mark your money as perfectly legal. You’ve just successfully laundered illegal money and made it look absolutely legitimate!
Measures For Tackling Money Laundering In Malaysia
When the anti-money laundering act of Malaysia first came into force in 2001, its title was plainly Anti-Money Laundering Act 2001. In 2007, the act was amended and titled as Anti-Money Laundering and Anti-Terrorism Financing Act 2001 covering the offenses for terrorist financing, which is how it stands as of today. However, the implementation and application of this act still leaves some loopholes which have contributed to an increase of money laundering in Malaysia over the last decade.
The Anti-Money Laundering and Anti-Terrorism Financing Bill 2013 has proposed to make some more amendments in the act to cover these loopholes and make the anti-money laundering operation more efficient. The newly proposed title will be Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act and likely to be implemented within a few months. With the proper implementation of this new act, the authorities are hopeful of a brighter future with a lower rate of money laundering in Malaysia.
Consequences of Money Laundering
It’s not easy to quantify the consequences of mass money laundering, but there is no doubt that this crime can break down the economy of a country. Let’s check out some of the top consequences of money laundering.
1. Economic Distortions
Due to money laundering, the development of the legal sectors are hampered as products are supplied at a price lower than production cost, making it difficult for the legal activities to stay alive in the competition. The overall productivity of the economy of a country can be drastically decreased by launderers through turning productive enterprises into sterile ones. The money demand of a country will change unpredictably and the international exchange rates and cash flow will also become volatile.
2. Erosion of Financial Sector
The cash flow of laundered funds running into and out of a financial system will destabilize financial markets. Financial institutions will lose their reputation and the stakeholders will lose trust and goodwill in these institutions. Severe cases of money laundering might cause bank failures and financial collapse.
3. Reduction in Government Revenue
The tax revenue is reduced due to money laundering and the government finds it difficult to meet up the annual revenue that was meant to be generated from transactions taking place in the underground world of black economy.
4. Socioeconomic Costs
Dirty money coming from criminal acts are laundered into white money by money laundering. Criminal operations are expanding and new criminals are being financed. Money laundering also transfers the economic power from the hands of the government and citizens to the criminals initiating more corruption and crimes.
Money laundering is a serious offense and can lead to disastrous consequences. It’s a heinous crime which has the power to collapse the entire economic system of a country. Even from a personal point of view, the penalty for money laundering can destroy one’s career.
There are lots of legal ways to make money and you don’t have to use the backdoor for that. Honesty is the best policy and sticking to honest methods for making money is the best thing you can do to contribute in creating a peaceful and corruption-free Malaysia!
References:
- Malaysia-Chronicle, Malaysia Bookie Culture
- Singapore Stops S$10,000 notes production
- Wikipedia – Malaysian Ringgit
- Anti-Money Laundering and Anti-Terrorism Financing Act 2001
- Our broad and powerful anti-money laundering law deserves more scrutiny
This article is written by Koon Yew Yin.
1 Response to "Money Laundering in Malaysia"
Just to share my previous analysis on GFI raw data.
In Malay however:
“Saya telah kira data 1 trillion tersebut, ianya tidak benar. Saya dapati data daripada GFI yg selalu disebut-sebut itu, data mereka tidak consistent langsung. Contohnya, pada tahun 2009, tiada langsung korupsi menurut data mereka. Also mengapa mereka guna data selama sepuluh tahun, tetapi bukan tahun ke tahun? Jawapannya ialah kerana jika tahun ke tahun, data mereka tunggang langgang. Lagi satu, money laundering ini semuanya berlaku di negara ketiga, specifically, di Europe dll. Ianya tidak berlaku di Malaysia. Ini kerana wang tersebut dibawa keluar daripada Malaysia secara legit, laundering occur elsewhere. So yg lebih corrupt ialah mereka, bukannya kita (menurut data mereka sendirilah).”
Anyway, i have posted lengthy comments on GFI data in the internet (written in Malay however). Look for it for understanding clearly. GFI is an institution founded by Ford, funded in the USA, funny that not a single western countries in the list?
Finally, logically speaking, i also made a simple calculations that assuming money is taken out from the country illegally through illegal channels, it must be carried out at a rate of several million a minute!
“~200 billion a year is about 1 billion a day in bank transactions. Every hour, 120 million. In fact, it is about 2 million every minute. Just how is it for money to disappear at this rate, out of the country, undetected via the banking system? How many people is required to withdraw 2 million a minute, all over the country and carry them out physically? Anda cuba bawa seratus ribu dalam poket dan try keluar dari negara sambil membawanya. Lepas tu anda bayangkan bagaimana orang boleh bawa 2 juta, SETIAP minit, keluar daripada negara?
BTW mereka sebenarnya kena convert dulu RM itu ke dollar, baru boleh dibawa keluar. Penatlah money changer melayan mereka ini.
Ataupun penjahat2 ini sebenarnya membawa emas lah? Bukankah penyimpan2 emas inilah yang merosakkan ekonomi Malaysia? Kan saya sudah kata..”
Further, our GDP is only about 700B, losing this much money yearly surely will make the country poorer, but why is the country is getting richer all the time, increasing by 1 trillion only in the last few yrs?”
So be careful with some of the data. Hope this helps everyone.