MALAYSIA is losing billions of ringgit annually to economic crime involving acts that violate criminal law for financial gain. Economic crime also includes illegal business activities.
Corruption
The United Nations and World Economic Forum estimate the global cost of corruption at 5% of the world’s GDP. With a 2024 GDP of US$115 trillion (RM510 trillion), this equates to US$6 trillion per annum in global stolen funds – surpassing the annual GDP of Japan, the world’s third-largest economy.
The Malaysian Anti-Corruption Commission said between 2018 and 2023, Malaysia lost RM277 billion to corruption. This translates to about RM55 billion per year, or RM1,608 for every Malaysian.
In the latest Corruption Perception Index by Transparency International, Malaysia’s score remained unchanged at 50 out of 100, where 100 represents very clean and 0 highly corrupt. The country ranked 57th out of 180 nations in the 2024 survey.
Shadow economy
Apart from corruption, another significant contributor to economic crime in Malaysia is the shadow economy, also known (for obvious reasons) as the underground economy. It is a significant cause of tax revenue losses, with some estimates suggesting the value could be as high as 30.2% of our GDP.
It operates in a murky environment that often goes undetected, and fails to comply with laws and regulatory reporting requirements, while being linked to criminal activities.
Examples of shadow economy activities include smuggling of weapons, tobacco and drugs, prostitution, tax evasion, illegal and online gambling, passport fraud and human trafficking. However, its scope does not end there.
The shadow economy also encompasses unregistered formal sectors and unreported income from the production of legal goods and services, such as unlicensed businesses, freelancers, part-time workers and the cash economy. This extends to substantial income from informal work that is generated by those who have permanent employment.
In some cases, this informal income can be larger than their permanent income.
Money laundering
The UN Office on Drugs and Crime estimates that between 2% and 5% of global GDP, or about US$800 billion to US$2 trillion, is laundered each year.
Based on these figures, we can estimate that Malaysia’s economic cost of money laundering is about RM55 billion per year.
Money changers are the ideal conduit for money laundering activities as they deal in hard cash and can work in cohorts with their foreign counterparts.
Hawala, a popular and informal value transfer system based on the performance and honour of a huge network of money brokers, is set to become the largest illegal trade in Malaysia, overtaking narcotics and other illegal activities.
Businesses with minimal activities such as restaurants, laundromats, hair salons and car wash act as the front companies for these illegal activities.
Bukit Aman’s Commercial Crime Investigation Department said there were 41,701 commercial crime cases last year involving more than RM3 billion in losses. The overall debts arising from this case is a staggering RM48.8 billion.
Results
How is Malaysia faring in terms of tackling economic crimes and reining in corruption?
If we look at the illegal tobacco trade, Malaysia has been losing RM5 billion in tax revenue every year. The customs director-general has adopted a no-nonsense and no-forgiveness approach to fighting corruption, which has resulted in a reduction in the smuggling of illegal cigarettes.
In 2024, this firm action helped customs to collect RM65.57 billion in revenue, RM9.57 billion more than what was projected – RM56 billion.
Meanwhile, in the case of 1Malaysia Development Bhd, criminal trials are ongoing. Efforts to recover stolen assets have resulted in RM29.75 billion being returned to the government, as reported by MACC.
However, are these actions and results sufficient? Can we afford to lose so much money to illegal activities?
How is this impacting Malaysia’s economic and social development? A cursory check of the ministries’ budgets shows that RM1 billion could build four district hospitals with four-lane roads stretching from 50km to 5,000km to the villages.
Crucial action
Economic crime poses a significant barrier to Malaysia’s development and prosperity, hindering progress and eroding public trust in government and institutions.
To win the fight against economic crime, it is crucial that we step up action in the following areas:
- Putting in place laws that have strong punitive action;
- Having enforcement agencies that are well led, resourced and independent;
- A government that prioritises policies which promote transparency, accountability and good governance;
- Being firm in sanctioning offenders irrespective of their background, including those in positions of authority who collude with and abet those involved in illegal activities;
- Maintaining a strong and responsive civil service which protects and safeguards our national interest;
- Finally, we must play our role as responsible citizens to report illegal activities to the authorities.
Economic crime has been bleeding Malaysia for too long. Any further delays in firmly addressing it and plugging the leakages can have significant long-term impact on Malaysia’s economic standing and the well-being of our citizens.
Datuk Seri Dr Akhbar Satar is the president of the Malaysian Integrity and Governance Society. Comments: letters@thesundaily.com
