COMMENT | Illicit financial flows from Malaysia have been growing rapidly for over a decade. By encouraging Malaysian corporations to invest abroad, ‘legitimate outflows’ have also been growing rapidly with financial liberalisation.

It is generally presumed that illicit financial flows are related to tax evasion and corruption. Many international financial centres are involved in intense competition to attract customers by offering lower tax rates and banking secrecy. This has, in turn, forced many governments to lower direct taxes, not only on income, but especially on wealth.

With the official ambition for Malaysia to become another global financial centre in the face of premature deindustrialisation, the authorities have been promoting financial liberalisation, exposing the country to greater macro-financial risk.

Such financial flows are largely handled by financial service providers, accounting firms, law offices, and companies with transnational activities, often involving investments in real estate and other assets abroad worth billions. Besides governments enabling facilities and regulations, such firms and shell companies have been helping to accelerate these trends...