ECONOMISTS believed that the size of the underground economy affect to some degree the gross domestic product (GDP) while criminologists recognise that there are clear links between underground economy and organised crime.
The underground economy, or shadow economy or black economy, is often associated with criminal activities including smuggling of weapons, tobacco, drugs, prostitution, gambling, illegal online gaming, counterfeiting passports and human trafficking. The underground economy has considerable significant impact on a country’s economy.
In 2015, former home minister Datuk Seri Hishammuddin Hussein said the shadow economy in Malaysia has grown to RM10 billion, requiring the government to initiate tougher measures to protect national security.
In 2016, former deputy finance minister Datuk Chua Tee Yong, meanwhile, stated that the underground economy made up 20 to 30 per cent of Malaysia’s gross domestic product (GDP) based on the World Bank while the police Commercial Crime Department reported that “organised crime and financial crime together cost Malaysia between RM15 billion and RM25 billion per annum”.
Liz Fisher in her CPD (continuing professional development) technical article dated Sept 2017 entitled, “Time to shrink the shadow economy”, the shadow economy amounted to 22 per cent of the world GDP; for Malaysia it is 22.9 per cent, Indonesia 16.49 per cent, Brazil 34.75 per cent and Singapore 12.88 per cent in 2017.
According to the Global Financial Integrity (GFI), Malaysia lost up to US$33.7b (RM138.61bil), in illicit outflow from 2006-2015, and is among the countries with the greatest outflow of illicit money in the world, ranking alongside Brazil, Vietnam, and South Africa.
With the influx of sex workers from neighbouring countries, prostitution in Malaysia has become notorious as a commercialised sex “industry” despite ongoing efforts to crack down on human trafficking and sex tourism by the authorities. Based on unofficial estimates, there are about 150,000 prostitutes in Malaysia, with approximately 10,000 to 20,000 of them in Klang Valley alone.
Royal Malaysian Customs director-general, Datuk Seri Subromaniam Tholasy revealed that in 2018, the underground economy was worth between RM5 billion and RM7 billion yearly. The Customs department has of late seized contraband cigarettes with RM1 billion worth of taxes as the authority intensified actions to curb the rise of illicit tobacco products and the government incurs billions in lost revenue. These activities have been reported to be the largest illegal lucrative business in the world.
Besides tobacco, gun smuggling, drugs and kidnapping for ransom are also considered as a lucrative business and such money is used to finance even more transnational crimes such as trafficking in women, children and expansion of the terrorism and dangerous activities.
Last October, the police launched a major operation aimed at eradicating gambling dens and online gaming which saw 12,449 raids and 22,300 people arrested nationwide since January. They also seized and froze accounts amounting to RM4.76 million, and seized a total of 26,275 gambling machines, simulators and electronic tablets.
Corruption is the main root cause of these illegal activities. The Malaysian Anti-Corruption Commission (MACC) had also arrested dozens of enforcement personnel, including police, for allegedly accepting bribes from gambling and massage centres associated with vice activities.
Money is the prime reason for engaging in almost any type of criminal activity including the underground economy. One of the ways of turning this dirty money into legitimate money is through money laundering. The illegal money is “smartly cleaned” to make it appear “clean” and not to have been derived from illegal activities.
The more serious contention is the allegation that heavyweight politicians are involved in underground economy. They are able to be the main financiers and can be very influential in the political arena.
The primary concern of law enforcement agencies with money laundering is that the proceeds would be used to fund more criminal acts.
The government must take serious measures to stop the underground economy from flourishing. There must be coordination amongst the police and other law enforcement agencies to continuously disrupt organised crime, cut off their main source of funds and seize and freeze their assets.
The judges who preside over these types of cases must mete out severe sentences. More dangerous is the threat to national security.
Let us educate everyone that they can be part of the solution to the problem. It is a tough battle, but we must not stop fighting the underground economy or we will suffer the consequences.
The writer is President of the Malaysian Association of Certified Fraud Examiners