Panama Papers add to Malaysia’s transparency deficit

By Vanitha Nadaraj

The Panama papers has put additional pressure on Malaysia. The government is already grappling with transparency issues, in the form of a global-scale financial scandal involving the troubled state investment fund 1Malaysia Development Berhad (1MDB).

In February, Transparency International said Malaysia was moving rapidly towards autocracy, and it is largely due to 1MDB with claims that it is linked to Prime Minister Najib Razak.

His name also cropped up in the Panama papers, where his son was listed. His son quickly issued a statement saying he was no longer with the two companies in that list. A son of former prime minister Mahathir Mohamad, Najib’s strongest critic, is also in the Panama list, along with two state-owned companies, one of which was Petronas.

The whole episode has raised questions as to why offshore accounts were used for public funds, giving rise to suspicion that there are more cases of hidden corruption. Naturally, there were demands for questions in public fora that were pushing the government to address the transparency deficit.

But what started a flurry of angry remarks was when a former finance minister, referred to as the Father of Malaysia’s Economy, said it was okay to use tax havens to evade taxes. His comment came at a time when electronic tax returns are due by the end of the month.

Tax evasion is okay?

Malaysia’s longest-serving member of parliament, Tengku Razaleigh Hamzah, created a stir when he said, “It’s not only politicians, but anyone who feels he needs to keep money in places that can save them from paying tax, why not?” Several other prominent politicians in Malaysia echoed this sentiment.

Ironically, the government has been strict about curbing tax avoidance and thousands of offenders have ben stopped from leaving the country. Malaysia’s biometric passports will alert the Immigration officers at exit points if the holder is a tax evader, thanks to blacklist updates from the Inland Revenue Board. Even if the sum owed is as low as RM200 (US$51).

Statements by government politicians like Tengku Razaleigh show that tax evasion is tolerated when the super-rich are involved. This smacks of class discrimination and a total disrespect for the law. One would have expected more from someone like Tengku Razaleigh. The man who helped set up Petronas and the government-linked investment companies that helped build the country’s economy.

If at all, the Malaysia should be working together with Canada. Prime Minister Justin Trudeau is spearheading a movement to bring more accountability in public governance. He wants the international community to work towards making global finance more transparent. Otherwise, rich investors will simply “hop” around to favourable jurisdictions where they can avoid paying tax, Trudeau was reported to have said.

But Malaysia is in an awkward situation. The country has its own tax haven – Labuan, ranked 12 in a list of 82 tax havens around the world that include jurisdictions like Luxembourg, the Cayman Islands and Jersey.

Labuan would have to go if Malaysia wants to get tough on tax evasion, but it is does not then there is the issue of transparency deficit which the public wants addressed.

Parliament report on 1MDB released

The Panama papers were not the only transparency issue that was headlined. On 7 April, the much-delayed report on 1MDB by the Public Accounts Committee was released in Parliament, which put the blame squarely on 1MDB’s former CEO Shahrol Halmi.

The report says Shahrol, who left the company in 2013, should take responsibility for the weaknesses at 1MDB, and that the authorities needed to investigate him and others in management, but did not mention names. Najib heads the advisory board of 1MDB, set up in 2009 to build infrastructure.

The investigation by this committee began in May 2015, but work stalled two months later when its chairman had to step down, after he was made deputy home minister.

There is still the Auditor-General’s report that was supposed to be tabled together with the PAC report, but was not due to declassification reasons. The Auditor-General, in an interim report last year, said he found nothing suspicious.

In October, Bank Negara Malaysia, the country’s central bank, recommended the prosecution of 1MDB, but the Attorney-General rejected the call. In January, he cleared Najib of any corruption or criminal offences.

Far from over for 1MDB

These are just the domestic probes. The layered international investigations are still ongoing, and those are the ones the public is keeping its eye on.

Authorities in the US, Hong Kong and Switzerland have all opened investigations into the 1MDB scandal, suspecting corruption, misappropriation of public funds, money laundering and bribery.

Recently prosecutors in Luxembourg declared they were also investigating 1MDB, after finding “concrete clues” of embezzlement from companies owned by 1MDB through accounts in Singapore, Switzerland and Luxembourg.

The Monetary Authority of Singapore, Singapore’s central bank, said it is conducting a “thorough review of various transactions as well as fund flows” through its banking system.

The Panama papers caused Malaysia to sink into deeper into the abyss of opaqueness. There needs to be urgency on the part of the government to address the issue of transparency deficit and governance for business and trade to thrive.