Malaysian Money, Singaporean Links and the Panama Papers- a discussion that needs to happen.

Posted: April 22, 2016 in Abdullah bin Haji Ahmad Badawi, Bank Negara, Dr Mahathir, Malaysia, Najib Tun Razak, Panama, panama papers, Singapore
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Before concluding that the Panama papers are the Holy Grail of global corruption, certain facts must be viewed in perspective – one that the journalists involved in the expose have been careful to articulate but readers may have overlook due to the seductive conclusions big names tend to offer.

The papers are essentially records maintained by a law firm in a tax haven showing how several individuals used its services to set up entities and investment vehicles. Independently, this may not be a crime in several jurisdictions as the journalists have pointed out. But if properly investigated, they may reveal how some of those named might have used the route to evade rather than avoid taxes.

Beyond the fact that the records of one law firm are now out in the open, their disclosure, a remarkable journalistic feat by any measure, must be obvious that neither the presence nor the role of overseas tax havens are exactly a secret. They exist, as they have for a long time, and are used as much for avoidance as they are for straightforward evasion. While the Malaysian government has not been quick to announce a probe, it must view these disclosures in the backdrop of its avowed and largely unfulfilled objective of rooting out black money, especially money salted away overseas. In this context, the response of the Bank Negara Governor has been disappointing.

The ways of Malaysia’s rich and famous are increasingly becoming public knowledge. Prominent Malaysians’s, including one of the prime minister’s sons, Mohd Nazifuddin Mohd Najib, former Prime Minister Dr Mahathir’s son Mirzan Mahathir, even Kamaluddin Abdullah son of another former Prime Minister Abdullah Ahmad Badawi, owning offshore companies in Panama is just the latest of the unraveling, and adding them to the likes of Vladimir Putin, David Cameron, Xi Jinping and Nawaz Sharif among others.

Insofar as Malaysia is concerned, the onus is on tax and enforcement authorities to probe the names and information that have come into the public domain and evaluate these against declarations and filings made by the named individuals before reaching definite conclusions. This exercise must be concluded with urgent despatch, as any delay would in the event of a default deprive the exchequer of revenue. Equally, if the transactions are kosher, a delay would prolong an infamy. The suspicion here is that because of the nebulous nature of tax laws and the frequent amendments made by governments, many of these transactions will fall in the large grey space that almost by design exists between the black and white of the legal framework. In jurisdictions outside Malaysia, especially those where public persons must maintain the highest standards of probity, the revelations are bound to cause upheavals, as indeed they already have in Iceland. They are unlikely though to cause more than momentary discomfort to political figures like Russian President Vladimir Putin or Pakistan Prime Minister Nawaz Sharif, individuals who have in the past brushed aside such charges with disdain.

Panama is a small sliver of a country in Central America joining North and South America. Its immediate geographical neighbors are Costa Rica in the north and Colombia in the south. It is the narrow isthmus that separates the Pacific and Atlantic Oceans. A 77 kilometers long manmade canal capable of accommodating large ships joins the two oceans. The revenues from this were for long the nations biggest source of income since the canal opened in 1914.

Panama soon found that becoming a tax haven that assured investors of their privacy provided a more lucrative income. The proximity to the Americas, and the balmy Caribbean islands, and countries like Colombia with its huge cocaine production and export business, and Latin America’s many kleptomaniac tin pot dictators made Panama even more attractive. Till not long ago after the overthrow of Panama’s General Manuel Noriega the Canal Zone was under the protection of US troops and that too served as an incentive for Americans seeking an offshore tax haven.

Panama as a tax haven offers foreign individuals and businesses little or no tax liability in a fairly politically and economically stable environment. Tax havens also provide little or no financial information to foreign tax authorities. This in short is the reason Panama is so important to our moneyed people who have good reason to hide their real wealth.

This leaves us to ask: Why do the rich want to hide their wealth? Well, simply because they are not as wealthy as they appear to be. And if they honestly declared their true wealth they would not only be liable to pay more income tax but could also open many of them to various charges of corporate fraud and malfeasances that could earn them hefty prison terms. So the income they cannot declare gets hidden in a tax haven. The big bucks are made and salted away.

A good part of this money is round tripped back to Malaysia via nearby Singapore. Not surprisingly in 2015 the top FDI investing countries was Singapore. Singapore is the home of hundreds of corporate entities that act as a pass through for funds being held overseas for Malaysians or Malaysian entities. Singapore is little more than cutouts for monies held in other more distant tax havens like Panama, Cayman Islands, Bermuda and Lichtenstein. The smaller the country the more pliable the officials.

According to Global Financial Integrity, a Washington DC based think-tank; Malaysians were estimated to have illicitly sent out $73 billion in 2015. Where does this money go? Countries like Switzerland that offer banking secrecy usually do not pay any interest on such deposits. So money goes to corporations in tax havens from where they are invested in businesses world over. Ever wondered how many local successful businessmen managed to get so big overseas, so soon?

This is where the Panama’s of the world come in. There was a time when Panama in Malaysia was synonymous with a man’s wide-brimmed straw hat made from the leaves of the Toquilla tropical palm tree. That Panama is long forgotten. Today’s Panama is synonymous with offshore corporations and assured secrecy. The times have changed.

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