The Asia/Pacific Group (APG) on Money Laundering conducted a mutual evaluation of Malaysia's Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) regime against the Financial Action Task Force (FATF) 40+9 recommendations and special recommendations. The APG published its findings in a 2007 report, in which it concludes that Malaysia is compliant with 9 recommendations and special recommendations; largely compliant with 24; partially compliant with 15; and non-compliant with 1. The report notes that the overall AML/CFT framework in Malaysia is well-developed and achieves a relatively high degree of compliance with most of the FATF's recommendations and special recommendations. Nevertheless, there are some areas where Malaysia's AML/CFT regime could be enhanced. For example, the reporting of terrorism financing-related suspicious transaction reports is not explicitly required by Malaysian law. Furthermore, although the Anti-Money Laundering and Anti-Terrorism Financing Act of 2001 covers all designated non-financial businesses and professions (DNFBPs), there is little evidence that the implementing regulations are in force yet, since, for example, many of the suspicious transaction reports obligations for DNFBPs were only introduced between 2005-2007 (i.e. insurance, financial advisors, e-money issuers and leasing companies were only included in 2007). Money laundering is criminalized pursuant to the Anti-Money Laundering and Anti-Terrorism Financing (AMLA) Act of 2001, which the APG report deemed consistent with international standards. According to the 2008 U.S. Department of State report, in March 2007, Malaysia made amendments to several of its laws relating to AML/CFT, which included the AMLA Act of 2001. These amendments, according to the DoS report, among other things, impose penalties for terrorist acts, allow for the forfeiture of terrorist-related assets, and allow for the prosecution of individuals who have provided material support for terrorists.
General Overview
According to the Asia/Pacific Group (APG) on Money Laundering 2007 mutual evaluation of Malaysia's Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) against the Financial Action Task Force (FATF) 40+9 recommendations and special recommendations, Malaysia is compliant with 9 recommendations and special recommendations; largely compliant with 24; partially compliant with 15 and; non-compliant with 1. The report notes that the overall AML/CFT framework in Malaysia is well-developed and achieves a relatively high degree of compliance with most of the FATF's 40+9 recommendations and special recommendations.
The APG mutual evaluation notes that money laundering is criminalized pursuant to the Anti-Money Laundering and Anti-Terrorism Financing (AMLA) Act of 2001, which the APG report deemed consistent with international standards. According to the 2008 U.S. Department of State (DoS) report, in March 2007, Malaysia made amendments to several of its laws relating to AML/CFT, which included the AMLA Act of 2001. These amendments, according to the DoS report, among other things, impose penalties for terrorist acts, allow for the forfeiture of terrorist-related assets, and allow for the prosecution of individuals who have provided material support for terrorists.
The APG report states that Malaysia has a comprehensive regime for freezing and seizing the proceeds of crime, including corruption, money laundering and narcotics. The legal provisions for the tracing and confiscation of property are found in the laws and Acts dealing with specific predicate offenses. For example, the "[AMLA] and laws relating to narcotics and corruption comprehensively provide for provisional measures and the confiscation of property which is the proceeds and instrument of their respective predicate offenses" (APG 2007, p. 7). As part of the amendments to the AMLA, the Malaysian Penal Code, the Criminal Procedure Code, the Subordinate Courts Act and the Courts of Judicature Act in March 2007, Malaysia introduced several new measures for the freezing of terrorist-related property, including a requirement that provides for the full implementation of the United Nations (UN) Security Council Resolution (UNSCR) 1267 and UN SR 1373, both of which call for the freezing of terrorist assets. According to the U.S. DoS report, under the AMLA Act (including the 2007 amendments), any person or group that engages in, attempts to engage in, or abets the commission of money laundering or financing of terrorism is subject to criminal sanction. As a result, both reporting institutions and individuals are required to adopt internal compliance programs to guard against any offense.
Created in 2002 and located within the central bank, Bank Negara Malaysia (BNM), the Malaysian financial intelligence unit (FIU) is the Unit Perisikan Kewangan (UPW), whose primary mission is to receive, analyze and disseminate all suspicious transaction reports (STRs) submitted by regulated entities to the appropriate enforcement agencies. While the UPW does not report STRs statistics, the 2008 U.S. DoS report notes that "UPW officials indicate that they receive regular reports from the AMLA reporting institutions." According to the same report, Malaysia made its first money laundering arrest in 2004. As of October 2007, the Attorney General's Chambers had prosecuted 29 money laundering cases, involving a total of 829 charges with a cumulative total of RM 273.6 million (U.S. $83.7 million). Out of the 29 cases, there were three convictions.
Regarding national cooperation, the 2007 mutual evaluation states that Malaysia's National Coordination Committee to Counter Money Laundering (NCC) provides "an excellent structure to bring together policy and implementing ministries and agencies to ensure that Malaysia implements an effective national AML/CFT system in keeping with the international standards" (p. 13). According to the 2008 U.S. DoS report, Malaysia is a party to the 1988 UN Drug Convention and the UN Convention against Transnational Organized Crime (Palermo Convention). Malaysia has signed but has yet to ratify the UN Convention against Corruption. In May 2007, Malaysia became a party to the UN International Convention for the Suppression of the Financing of Terrorism. Nevertheless, the APG report observes that, while Malaysia is a party to the Palermo Convention, it has yet to achieve full implementation due to inadequate penalties for the money laundering offense, amongst other weaknesses.
The Principles
1. Legal Systems and Related Institutional Measures
The 2007 APG mutual evaluation finds Malaysia partially compliant with Recommendation (R) 1 regarding the money laundering offense and largely compliant with R 2 on its mental element and corporate liability. Money laundering is criminalized pursuant to the Anti-Money Laundering Act of 2001 (AMLA), which the APG report deemed "in keeping with international standards" (p. 6). However, in March 2007, as reported by the 2008 U.S. DoS report, Malaysia amended the AMLA and renamed it the Anti-Money Laundering and Anti-Terrorism Financing Act (AMLATF). The DoS report notes that the amendments, among other things, impose penalties for terrorist acts, allow for the forfeiture of terrorist-related assets, and allow for the prosecution of individuals who have provided material support for terrorists. The amendments also extended to the Malaysian Penal Code, the Criminal Procedure Code, the Subordinate Courts Act and the Courts of Judicature Act. According to the 2008 U.S. DoS report, Malaysia made its first money laundering arrest in 2004. As of October 2007, the Attorney General's Chambers had prosecuted 29 money laundering cases, involving a total of 829 charges with a cumulative total of RM 273.6 million (U.S. $83.7 million). Out of the 29 cases, there were three convictions. The APG report cited as the primary weakness in Malaysia's money laundering offense the "incomplete coverage of serious offenses" (p. 214).
Malaysia is largely compliant with Special Recommendation (SR) II on the criminalization of terrorist financing as noted in the 2007 APG report. The report states that "Malaysia's terrorist financing offenses are comprehensive, albeit they only came into force in March 2007 through amendments to the Penal Code. The offenses are able to capture a comprehensive range of financing activities, and to apply to a broad range of terrorist intentions and activities" (p. 6). According to the 2008 U.S. DoS report, the 2007 amendments impose penalties for terrorist acts, permit the forfeiture of terrorist-related assets, mandate the prosecution of individuals who have provided material support for terrorists, expand the use of wiretaps and other surveillance of terrorist suspects, and permit video testimony in terrorist cases. Prior to March 2007, the criminalization of terrorist financing was derived from Section 125A of the Penal Code and Section 59 of the Internal Security Act 1960 (ISA), which only covered a narrow range of terrorist financing activities. The APG report expresses the widely held fear that investigation of terrorist financing activity which occurred prior to March 2007 would still have to follow these incomprehensive provisions. Also, according to the U.S. DoS report, while Malaysia's terrorist financing offenses are comprehensive, there have been no investigations, convictions or prosecutions under the new AMLATF regime.
Concerning confiscation, freezing and seizing of proceeds of crime (R 3), the APG mutual evaluation rates Malaysia as largely compliant, noting that Malaysia has a comprehensive regime for freezing and seizing the proceeds of crime, including corruption, money laundering and narcotics. The legal provisions for the tracing and confiscation of property are found in the laws and Acts dealing with specific predicate offenses. For example, the "[AMLA] and laws relating to narcotics and corruption comprehensively provide for provisional measures and the confiscation of property which is the proceeds and instrument of their respective predicate offenses" (APG 2007, p. 7). Also, the Criminal Procedures Code allows economic crimes to be used as predicate offenses for the confiscation and freezing of proceeds of crime. According to the U.S. DoS report, since 2003, the central bank, Bank Negara Malaysia (BNM) has issued 43 circulars and nine accounts have been frozen amounting to approximately U.S. $76,400.
With regards to SR III relating to the freezing of terrorist financing-related assets, the APG mutual evaluation rates Malaysia as largely complaint. As part of the amendments made to the AMLA, the Malaysian Penal Code, the Criminal Procedure Code, the Subordinate Courts Act and the Courts of Judicature Act, Malaysia introduced several new laws for the freezing of terrorist-related property, including a law that provides for the full implementation of the UN Security Council Resolution (UNSCR) 1267 and UN SR 1373, both of which call for the freezing of terrorist assets. The Ministry of International Security is primarily responsible for identifying and freezing the assets of terrorists and terrorist organizations listed on the UN 1267 sanctions list and. When a new entrant is added to the list, the Malaysian financial intelligence unit (FIU) must issue prompt freeze notices to all licensed financial institutions, both onshore and offshore.
In terms of the financial intelligence unit (FIU) and its functions, the APG report rates Malaysia as compliant on R 26; partially compliant on R 30 about resources, integrity and training; and largely compliant with R 32 on statistics keeping. The evaluation attributes the incomplete R 30 assessment to insufficient resources devoted to on-site examinations of non-bank financial institutions. Also, since no terrorist financing investigations have been recorded, the APG report states there is a need to increase the skills, training and resources to better investigate terrorist financing. Created in 2002 by the and located within the BNM, the Malaysian financial intelligence unit (FIU) is the UPW, whose primary mission is to receive, analyze and disseminate all suspicious transaction reports (STRs) submitted by regulated entities to the appropriate enforcement agencies. While the UPW does not report STRs statistics, the 2008 U.S. DoS report notes that "UPW officials indicate that they receive regular reports from the AMLA reporting institutions." According to the same report, Malaysia made its first money laundering arrest in 2004. As of October 2007, the Attorney General's Chambers had prosecuted 29 money laundering cases, involving a total of 829 charges with a cumulative total of RM 273.6 million (U.S. $83.7 million). Out of the 29 cases, there were three convictions.
The APG mutual evaluation observes that Malaysia is largely compliant with R 27 on law enforcement authorities and compliant with R 28 on the powers of competent authorities. According to the APG report, Malaysia has created specific investigation agencies to handle money laundering and terrorist financing within the Royal Malaysia Police (RMP), Anti-corruption Agency (ACA) and Securities Commission (SC). Malaysia has also equipped nearly all law enforcement agencies, such as the Royal Malaysian Customs (RMC) and the Immigration Department, with AML/CFT investigation units.
The 2007 APG report finds Malaysia largely compliant with R 5 relating to customer due diligence (CDD) and partially compliant on R 6 concerning politically exposed persons. On correspondent banking (R 7), Malaysia was rated largely compliant and compliant on new technologies and non face-to-face business (R 8). The 2007 APG report states that the CDD regime in Malaysia "shows a high degree of technical compliance with FATF standards" (p. 8). According to the U.S. DoS report, Malaysia has adopted customer due diligence laws that "make individual bankers responsible if their institutions launder money or finance terrorists." The report also notes that under the AMLA Act (that includes the 2007 amendments), any person or group that engages in, attempts to engage in, or abets the commission of money laundering or financing of terrorism is subject to criminal sanction. As a result, both reporting institutions and individuals are required to adopt internal compliance programs to guard against any offense. The APG report attributes the R 6 rating on politically exposed persons (PEPs) to the lack of specific obligations placed on the securities sector when dealing with clients who may be PEPs.
The APG mutual evaluation rates Malaysia compliant with R 10 on record keeping, and largely compliant with SR VII on wire transfer rules. According to the APG report, "legal provisions governing general record-keeping requirements within Malaysia comply with the FATF standards and implementation appears to be effective" (p. 9). On SR VII, the APG report notes that obligation on wire transfer rules are stipulated in law and laid down in FATF standards. However, since the wire transfer rules are relatively new, the current level of compliance has not yet been established.
The APG mutual evaluation notes that Malaysia is partially compliant with R 13 relating to suspicious transaction reporting and largely compliant with R 14 about protection and no tipping-off. With regards to R 13, while noting that the quality of STRs has improved over time for most sectors, the evaluation cites two key weaknesses, namely: (1) there is no explicit obligation in Malaysian law to report transactions suspected of being linked to terrorist financing, other than when the financing is the proceed of an unlawful activity and; (2) the low level of reporting by money changers and offshore financial institutions. On R 19 regarding other forms of reporting, the mutual evaluation rates Malaysia as compliant, and as largely compliant with R 25 on guidelines and feedback, noting that guidance has not been updated consistent with current AML/CFT requirements. The evaluation also rates Malaysia as partially compliant with SR IV relating to suspicious transactions reporting linked with terrorism. This assessment was due to weaknesses already cited for R 13, primarily the lack of an explicit obligation in Malaysian law to report transactions suspected of being linked to terrorist financing.
The 2007 APG mutual evaluation finds Malaysia largely compliant with R 15 relating to internal controls, compliance and audit. According to the evaluation, financial institutions in Malaysia "consistently apply AML/CFT procedures and controls across all branches, foreign branches and/or subsidiaries" (p. 9). For example, each branch and subsidiary is required to appoint a designated compliance officer, who reports in turn to the group or head office compliance officer. However, the APG report also observes that the requirement to create compliance programs only began to be applied in early 2007 to some categories of financial institutions (i.e. money lenders), and these obligations have yet to be extended to a few other minor categories of non-bank financial institutions. On R 22 addressing foreign branches and subsidiaries, Malaysia is rated as compliant. Malaysia was adjudged compliant with R 18 pertaining to shell banks. According to the 2007 APG report, Malaysia is largely compliant with R 17 regarding sanctions and largely compliant with R 23 relating to regulation, supervision and monitoring. Similarly, on R 29 about supervisors, Malaysia was rated largely compliant.
3. Preventive Measures - Designated non-Financial Business and Professions
The 2007 APG report finds Malaysia partially compliant with R 12 on customer due diligence and record keeping obligations for Designated non-Financial Business and Professions (DNFBPs). According to the evaluation, CDD obligations and record-keeping requirements are applicable to non-financial businesses and professions, and these obligations are applicable in all circumstances to non-financial businesses like lawyers, notaries public, accountants and real estate agents. However, the APG report notes that, due to the fairly recent introduction of the CDD requirements, there is very little evidence of their effective implementation. For example, CDD obligations were only introduced between 2005-2007 for non-financial businesses like domestic trust companies and real estate agents and thus there is little evidence of the effective implementation of these new mandates. Also, the evaluation notes that CDD requirements have yet to be extended to dealers in precious metals and stones.
On R 16 about STRs related to DNFBPs, the 2007 mutual evaluation rates Malaysia as partially compliant. Similarly, concerning R 24 about DNFBPs' regulation, supervision and monitoring Malaysia gets a partially compliant rating. According to the evaluation, the suspicious transaction reporting obligations are applicable to non-financial businesses and professions by virtue of the AMLA Act, and these obligations are applicable in all circumstances to non-financial businesses like lawyers, money lenders, pawnbrokers, notaries public, accountants and real estate agents. The AMLA Act mandates strict "know your customer" rules for Malaysia's financial institutions, which are required by law to record every transaction and report all STRs to the UPW regardless of size. Also, reporting institutions must maintain records for at least six years. However, since many of the STR obligations were only introduced between 2005-2007 (i.e. insurance, financial advisors, e-money issuers and leasing companies were only included in 2007), the APG report states there is little evidence of the effective implementation of these new mandates. The evaluation also notes that STR requirements have yet to be extended to dealers in precious metals and stones. Finally, there is no explicit obligation in Malaysian law to report suspicious of terrorist financing. Primarily, the evaluation attributed this R 24 rating to: (1) the UPW's limited staff resources, which prevents the body from adequately monitoring AML/CFT legislation adoption by DNFBPs; (2) weaknesses in the effectiveness of compliance monitoring and the absence of on-site examinations and; (3) the absence of AML/CFT requirements for dealers in precious metals and stones prevents them from being effectively regulated, supervised and monitored.
4. Legal Person and Arrangements & Non-Profit Organizations
The 2007 APG mutual evaluation reports that Malaysia is partially compliant with R 33 relating to legal persons and access to beneficial ownership and control information. According to the evaluation, "Malaysia has a national system of recording and making available information on companies, which must be updated in a timely fashion" (p. 12). Also, under the AMLA Act, company service providers, external company secretaries, trust companies, fund managers, accountants and lawyers are required to obtain, verify and retain records of the beneficial ownership and control of legal persons on whose behalf they act. However, in justifying the low rating, the evaluation points out that, while the Companies Commission of Malaysia (SSM) maintains a publicly available central registry of information about companies, it is not required by law to include information about beneficial ownership. The evaluation also notes that the timeliness and adequacy of information made available to law enforcement and regulatory agencies is hampered by the SSM and company registers not being required to maintain information about beneficial ownership.
The 2007 APG mutual evaluation assessed Malaysia as being partially compliant with R 34 concerning legal arrangements and beneficial owners. According to the report, while competent authorities can access information on the beneficial ownership of arrangements like trusts, "the availability of such information is limited by the fact that only trusts administered by trustee companies and trust company service providers are obliged to maintain such information" (p. 217).
On SRVIII relating to non-profit organizations (NPOs), the mutual evaluation rates Malaysia partially compliant. According to the 2008 U.S. DoS report, Malaysia has rules regulating charities and other NPOs. The Registrar of Societies, with input from the Inland Revenue Board (IRB) and the SSM, is primarily responsible for supervising and monitoring NPOs. Notably, the Registrar operates the central registration of NPOs, through which information is available regarding the purposes and objectives of registered NPOs and also the identity of their senior officers and board members. The Registrar requires every registered NPO to submit its annual returns and its financial statements, and if activities deemed suspicious are found, the Registrar has the authority to revoke the NPOs registration or file an STR. Nevertheless, the APG report observes that Malaysia is lacking an ongoing strategy to identify and mitigate AML/CFT risks within the NPO sector. Furthermore, the evaluation states NPO sector authorities are limited in their outreach to the NPO sector regarding the potential misuse of NPO funds for terrorist purposes. Finally, the report laments the inadequate mechanisms in place to facilitate information exchange amongst Malaysian NPO sector regulators and with foreign counterparts.
The 2007 APG report finds Malaysia largely compliant with R 31 on national cooperation, and largely compliant with R 32 on statistics. Regarding national cooperation, the 2007 evaluation states Malaysia's National Coordination Committee to Counter Money Laundering (NCC) provides "an excellent structure to bring together policy and implementing ministries and agencies to ensure that Malaysia implements an effective national AML/CFT system in keeping with the international standards" (p. 13). However, the APG report also notes the paucity of inter-agency coordination regarding the implementation of cross-border currency reporting systems.
The mutual evaluation rates Malaysia largely compliant with R 35 regarding the ratification of international conventions, and largely compliant with SR I on implementing UN instruments. According to the 2008 U.S. DoS report, Malaysia is party to the 1988 UN Drug Convention and the UN Convention against Transnational Organized Crime (Palermo Convention). Malaysia has signed but has yet to ratify the UN Convention against Corruption. In May 2007, Malaysia became a party to the UN International Convention for the Suppression of the Financing of Terrorism. Nevertheless, the APG report observes that, while Malaysia is a party to the Palermo Convention, it has yet to achieve full implementation due to inadequate penalties for the money laundering offense amongst other weaknesses.
According to the 2007 APG report, Malaysia is largely compliant with R 36 concerning Mutual Legal Assistance (MLA) and largely compliant with R 38 pertaining to MLA on confiscation and freezing. The report states that Malaysia provides mutual assistance in a cooperative and effective manner. Furthermore, the evaluation states that Malaysian laws and procedures governing MLAs are comprehensive and applicable to all serious offenses. For example, the Mutual Assistance in Criminal Matters Act 2002 (MACMA) provides for a wide range of legal assistance. In addition, "the obligations of mutual legal assistance apply to terrorist financing and terrorist offenses in the same manner as they do to other serious offenses" (APG 2007, p. 13). However, Malaysia's MLA regime has some deficiencies, most notably the lack of provisions for the effective sharing of confiscated assets.
The mutual evaluation rates Malaysia largely compliant with R 37 on dual criminality, even though the report also notes that the requirement for dual criminality regarding all types of MLA are restrictive due to the fact that Malaysia takes a flexible approach to the principles of dual criminality. With regards to SR V on international cooperation, the mutual evaluation rates Malaysia as largely compliant, adding that all elements missing in R 38, R 39 and R 40 are also missing for SR V. The evaluation also adjudged Malaysia to be largely compliant on R 39 relating to extraditions, adding that "Malaysia legislative scheme for extradition broadly meets all essential criteria, although efficiency of their implementation is hampered by complex procedures" (p. 217).
Asia/Pacific Group (APG) on Money Laundering, "APG Mutual Evaluation Report on Malaysia Against the Financial Action Task Force (FATF) 40 Recommendations (2003) and 9 Special Recommendations," Sydney, Australia: FATF/AGF, July, 2007. Available from the Asia/Pacific Group (APG) on Money Laundering website. Accessed on June 25, 2008. (APG 2007)
U.S. Department of State, Bureau for International Narcotics and Law Enforcement Affairs, "International Narcotics Control Strategy Report 2008," March 2008. Available from U.S. Department of State website. Accessed on June 25, 2008. (U.S. DoS 2008)
Asia/Pacific Group on Money Laundering, "Annual Report 1 July 2001 - 30 June 2002," December 2002. Available from APGML website. Accessed on October 3, 2006. (APGML 2002)
International Monetary Fund, "IMF Executive Board Concludes 2004 Article IV Consultation with Malaysia," Public Information Notice (PIN) No. 05/33, Washington, D.C.: IMF, March 14, 2005. Available from IMF website. Accessed on October 3, 2006. (IMF 2005)
International Monetary Fund, "Labuan, Malaysia: Assessment of the Supervision and Regulation of the Financial Sector--Review of Financial Sector Regulation and Supervision," Country Report No. 04/391, Washington, D.C.: IMF, December 2004. Available from IMF website. Accessed on July 2, 2008 (IMF 2004)
Malaysia