The phenomenon of combating money laundering has increased in importance to Malaysia’s government and financial institutions. Ever since there has been an upsurge of financial crimes coupled with the increasing need to set up and enforce a good standard of legal measures to counter money laundering and financing of terrorism. In this article, we will discuss and describe in detail, the legal and regulatory framework of AML in Malaysia, critical components, specific regulations, risks, and trends involved.
AML known as the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 is the key legislation governing the anti-money laundering in Malaysia. AMLA prescribes the legal requirements for reporting institutions and the consequences of failure to adhere to them as a response to increasing incidents of fraud related to money. Subsequently, the Act found itself modified severally to add muscle to the provisions of the law given Malaysia’s intention to conform to set standards by other bodies like the Financial Action Task Force (FATF).
Malaysia has an extensive set of AML legal provisions as well as other laws and regulations aimed at fighting the problem of money laundering effectively. Many of these rules require customers’ due diligence, reporting of suspicious transactions, records retention, and compliance, provided as per the risk of AML/CFT. The major source of legal legislation is the Anti-Money Laundering, Anti-Terrorism Financing & Proceeds of Unlawful Activities Act 2001 (AMLATFPUAA).
Key regulatory bodies involved in overseeing AML compliance include:
Categorized as a new revived economy of South East Asia Malaysia is a diverse economy with its operations spread mostly over manufacturing, service, and agriculture industries. Malaysia being well-located and having business-friendly policies receives a large stock of FDI. However, this economic success has been accompanied by several factors that if exploited can lead to money laundering and terrorist financing such as the use of cash, cross-border flow, criminal organization, and corruption.
Malaysia has laid a solid framework for implementing steps to prevent money laundering and terrorist financing under the AMLA. Other framework components strive to identify, discourage, and penalize illicit financial transactions to assure compliance by financial institutions and other reporting entities. The key parts of Malaysia’s AML framework include:
AMLA requires institutions to file SARs on suspicious operations with the BNM FIU. Non-filing of suspicious transactions that may lead to money laundering attracts legal implications, and therefore SARs play an essential role in preventing and ensuring early identification of the same.
AMLA also outlines the various money laundering activities, and as a result, the persons or companies found guilty face penal consequences that entail fines and may be imprisoned for not less than fifteen years. These penalties discourage such illicit financial flows and strengthen Malaysia’s promise towards AML compliance.
Law enforcement agencies are allowed to order the provisions, seizure, and forfeiture of property related to money laundering thus denting the financial base of the criminals. It allows for immediate action against which unlawful business is conducted.
AMLA mandates that all financial institutions establish an effective AML Compliance Program consisting of written policies and procedures, periodic evaluations, and employee education and testing. Such measures must be compatible with the institution’s risk appetite and AML requirements.
It is believed that Customer Due Diligence (CDD) is crucial for identifying customers and assessing risks, hence reducing the chance of illegal transactions. By applying the knowledge and understanding approach, financial institutions will need to obtain certain information of customers to counteract money laundering.
To individuals that currently fall under the high-risk category such as PEPs or customers originating from face high-risk regions, EDD is mandatory. This includes getting more information, and approval from senior stakeholders, which offers more risk assessment in the related moments.
The Malaysian legal framework to counter money laundering and terrorist financing starts from the legislation known as the Anti-Money Laundering, Anti-Terrorism Financing, and Proceeds of Unlawful Activities Act 2001 or simply AMLA. The Act defines the major responsibilities of businesses and financial institutions to protect the country’s financial system from further malice.
Several money laundering risks exist in Malaysia given its geographical location, strong financial sector, and open borders. Key risks include:
Malaysia has also exhibited considerable progress in maintaining progress in anti-money laundering by adopting new regulations and being more proactive. The Financial Technology Regulatory Sandbox Framework has been developed to incorporate fintech into the more extensive AML system and make certain these firms adhere to the rules as they diversify. Also, future enhancements will prescribe minimum requirements for money-changing services while conducting onboarding for new consumers through digital channels, stressing the Malaysian Government’s concern with the increasingly popular digital financial sector.
The new AML regulations that took effect since the year 2020 also provide more stringent requirements for the various financial institutions and DNFBPs. These new rules have produced new reporting and due diligence obligations for enterprises placing higher cognizance of compliance with AML/CFT regulation. The regulation changes are supported by the Bank Negara Malaysia or BNM as the nation’s central Bank is always been updating new standards and guidelines. These changes show Malaysia’s willingness to deal with factors that relate to money laundering while at the same time embracing new technology that is adopted in financial industries.
KYC Hub provides unique solutions that are specifically targeted to Malaysia’s AML scenario. Our system uses artificial intelligence to help financial institutions meet their AML obligations efficiently. By automating client due diligence processes and improving transaction monitoring, KYC Hub assists enterprises in mitigating the risks of money laundering.
Also Check:
For start-up companies still in their early stages, compliance can be one of the...
Read More
