A means of tax evasion

THE government must investigate without fear or favour the Malaysians cited in the Pandora Papers to find out if any wrongdoing and corruption were involved. The aim of the investigation should be to clear the name of the persons involved.

The government should make it mandatory for all members of Parliament (MPs) and state assemblies (Adun) to declare both their onshore and offshore assets.

This will enable the authorities to detect any new asset or property owned by politicians, especially those who hold high positions in their parties.

One way to prevent corruption and money-laundering activities using offshore accounts is to introduce a central registry for beneficial ownership of companies registered in Malaysia and those keeping funds in Labuan.

A beneficial owner of a company is the person who truly owns, enjoys and controls the company even though the title to some property or security is in another name.

On another note, the Inland Revenue Board of Malaysia should study the Pandora Papers to see if the filings of taxpayers are consistent with the information that is automatically exchanged and received through the Common Reporting Standards (CRS) by participating countries.

The objective of CRS, developed by the Organisation for Economic Co-operation and Development in 2014, is to help the international community fight tax evasion.

The Pandora Papers is the result of a large-scale investigative project by the International Consortium of Investigative Journalists (ICIJ) located in Washington, DC.

ICIJ, which worked with journalists from 91 media organisations in 117 countries for the uncovering of the papers, leaked over 6.4 million documents, about three million images, more than one million emails and almost half-a-million spreadsheets reportedly incriminating hundreds of global wealthy elites, high-level officials, oligarchs and billionaires who used shell companies to move their wealth into secret offshore accounts.

Offshore financial centres (OFCs) are estimated to hold up to US$36 trillion in cash, gold, and securities, not including tangible assets such as real estate, art, and jewels.

A few years ago, the Boston Consulting Group revealed that Singapore held around one-eighth of the global stock of total offshore wealth.

Meanwhile, the International Monetary Fund (IMF) reported that over 95% of all commercial banks in Singapore are affiliates of foreign banks. This is testament to Singapore’s extreme dependence on foreign and offshore money.

Offshore service providers are located in the Cayman Islands, Switzerland, Hong Kong, the Bahamas, Luxembourg, Ireland, Singapore, Panama, Trinidad and Tobago and the Seychelles, to name a few.

The discussion of offshore centres can be bogged down in technicalities, but the best definition comes from British author, journalist and investigator Nicholas Shaxson, who described the situation as: “You take your money elsewhere, to another country, in order to escape the rules and laws of the society in which you operate.”

Using offshore service providers outside the country is not illegal provided it is done for legitimate reasons. However, the practice is commonly used to dodge taxes, and the main issue is how the clients acquired their large sums of money and other forms of wealth.

According to the United Nations Office on Drugs and Crime, “the real issue, therefore, is not to issue blanket condemnations or make efforts to eliminate bank secrecy and offshore financial services, but to ensure that the legitimate uses of these facilities remain available while making it much more difficult to use them directly for criminal activities or for laundering the proceeds of drug trafficking and other such forms of organised crime.”



Association of Certified Fraud Examiners Malaysia Chapter

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