Mapping Anti-Money Laundering Regulations in Malaysia

Can you name any Malaysian leader or political personality who was imprisoned for a money laundering case?

On August 23, 2022, former Malaysian Prime Minister “Najib Razak was fined MYR 210,000,000 and sentenced to 12 years imprisonment for alleged involvement in corruption, embezzlement and money laundering crimes” using the National Wealth Department, which was set up to drive investment in Malaysia.

However, investigations revealed that the money was being diverted elsewhere. The imprisonment of a former Malaysian leader for corruption was the first of its kind.

In 2015, multiple renowned media sources reported that the then-prime minister had channeled nearly RM 2.67 billion (approximately US$700 million) into his bank account from the 1Malaysia Development Berhad-1MDB fund.

Between 2009 and 2015, approximately $4.5 billion from the 1Malaysia Development Berhad-(1MDB) fund was misused for personal gain by high-level officials and 1MDB associates, with Najib Razak serving as the chairman of its board of advisors.

In 2023, significant fines were imposed by the Kuala Lumpur High Court in connection with the 1Malaysia Development Berhad (1MDB) controversy.

Abu Dhabi’s International Petroleum Investment Co (IPIC) was fined MYR 806,401,800 on February 28, 2023, to settle a legal disagreement about the case.

This case questions the effectiveness of Malaysia’s AML compliance program within organizations in assessing the risk levels associated with high-risk clients or high-risk politically exposed persons (PEPs).

Let’s explore this article to get professional insights on what AML regulations are in Malaysia, who are the key AML regulatory bodies in Malaysia, and how institutions can stay compliant with the required regulations.

AML/CTF Compliance in Malaysia-Correcting Gaps in the Regulatory System

Malaysia, recognized as the third-largest economy in the Southeast Asian region, is an attractive hub for global investment.

This has led to growth in the fintech sector but also increased the risk of financial crimes, such as money laundering and terrorist financing.

The then lax regulatory systems made it vulnerable to domestic as well as foreign crimes such as corruption, terrorism financing, fraud, drug and human trafficking and smuggling, wildlife trafficking, as well as tax-related crimes.

Fortunately, Malaysia has put in place sound and efficient AML laws throughout the institutions.

The country has shown general advancement in enhancing the fight against the menace of money laundering and terror financing, especially based on elevated investigations and prosecutions.

As a countermeasure to prevent or mitigate ML/TF, the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA) imposes reporting obligations on reporting institutions. The act was enacted to meet the international standards set by the Financial Action Task Force (FATF).

Who are Malaysia’s Prime AML/CTF Regulatory Bodies?

The Central Bank of Malaysia (Bank Negara Malaysia), the Malaysian Anti-Corruption Commission (MACC), the Securities Commission of Malaysia, the Labuan Financial Services Authority, and the appropriate industry supervisors are the competent authorities named under section 7 of the Anti-Money Laundering, Anti-Terrorism Financing, and Proceeds of Illicit Activities Act 2001 in Malaysia.

Enforcing AMLA Agencies

It is through the coordination of several agencies that have been put in charge of enforcing the provisions of the Anti-Money Laundering, Anti-Terrorism Financing, and Proceeds of Unlawful Activities Act (AMLA).

Below are the primary enforcement bodies and their responsibilities:

1. The Malaysian Anti-Corruption Commission (MACC)

As it will be noted, the MACC is accountable for investigating as well as prosecuting cases involving money laundering and terrorism financing.

This means they work in cooperation with other agencies to neutralize unlawful sources of funds.

2. Bank Negara Malaysia (BNM)

Being the nation’s central bank, BNM currently supervises other financial institutions, and hence, sanctions them to adhere to the requirements of AMLA.

The bank describes the procedures in detail and constantly monitors the situation through audits, as well as observing the presence and activity of compliance in the sphere of the financial sector.

3. Labuan Financial Services Authority

Labuan FSA’s primary responsibilities are to grant licenses and regulate licensed entities operating within Labuan IBFC.

It also ensures that all of these businesses continue to adhere to the jurisdiction’s accepted internal and international best practices.

What Are The Rules And Directives Issued By Bank Negara Malaysia?

Bank Negara Malaysia (BNM) frequently publishes circulars and instructions to assist companies in adhering to AML/CFT laws.

These recommendations offer comprehensive instructions on how to put certain measures—like Customer Due Diligence (CDD), transaction monitoring, reporting requirements, and compliance programs—into practice.

The following are some important rules:

The Anti-Money Laundering and Counter Financing of Terrorism Policy Document (AML/CFT PDR)

Financial institutions’ responsibilities under this document include client identification, risk-based strategy, and reporting requirements.

Financial Crime Compliance Guide

The Financial Crime Compliance Guide offers more guidance on putting compliance procedures into place and successfully managing the risks associated with financial crime.

FATF’s View on Malaysia’s AML Progress

As a participant of the Financial Action Task Force and the Asia Pacific Group on Money Laundering, Malaysia is continuously reviewed through mutual evaluation exercises.

This evaluates how well the nation complies with international norms, such as those recommended by the Financial Action Task Force, including anti-money laundering, combatting the funding of terrorism, and preventing the spread of weapons of mass destruction.

In 2011, FATF assessed the quality of the Malaysian AML legislation and found some lack in the policies.

It acknowledges the country’s great progress in strengthening its AML system but suggests some key changes to be made.

These were valuing detailed customer due diligence, rising in the number of investigations related to alleged money laundering offenses, and promotion of coordinated global efforts at combating financial crimes.

An Overview of FATF Mutual Evaluation for Malaysia

Malaysia has been under further scrutiny to determine the efficacy of its AML/CFT policies with the passage of its mutual evaluation report in 2015.

According to its Mutual Evaluation Report (MER), Malaysia was first classified as partially compliant (PC) on Recommendations 7, 24, and 25.

Malaysia has made considerable efforts to address the technical compliance issues raised in the report since the evaluation.

These initiatives include strengthening their AML and CFT-related legal and regulatory framework and implementing new policies to address the issues raised by the FATF.

Malaysia’s Mutual Evaluation 2025 Updates

Malaysia is currently undergoing the 5th Mutual Evaluation for 2025.

Malaysian financial institutions and regulated organizations will start preparing for the Financial Action Task Force’s (FATF) country’s fifth mutual review, with on-site evaluations and a plenary discussion scheduled from April 2024 to December 2025.

This exercise evaluates the level of compliance and effectiveness of a country to the international standard or FATF Recommendations on AML/CFT/CPF.

Malaysia has provided the technical compliance write-up on 17 June 2024. The ME Onsite visit will occur in February 2025 where Malaysia will be hosting a group of experts from several countries.

Penalties for Non-Compliance in Malaysia

Any group failing to strictly follow the AMLA fails to meet severe consequences such as financial fines, confiscation of assets, and tarnishing of the reputation of the non-compliant parties.

These penalties seek to ensure and sustain maximum compliance with AML and CTF standards.

Through proper AML/CTF implementation and in keeping with the regulations of the Malaysian financial sphere, the country aims to minimize risks within the given financial realms and ensure great levels of security without encouraging unlawful financial activities.

Key Provisions of Malaysia’s AMLA Framework

The Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA) imposes several important duties on reporting businesses in Malaysia.

The 2017 amendments to AMLA included several pivotal measures aimed at strengthening Malaysia’s AML framework:

Record-Keeping

Financial institutions must retain transaction records for a minimum of five years. This retention period is helpful in auditing and allows for an extended trace of financial activities.

Enhanced Due Diligence (EDD)

Since some categories of clients are considered higher risks, especially PEPs, institutions need to complete enhanced due diligence.

This entails proper screening meant for identification as well as risk evaluation. The assessment of identity entails in-depth scrutiny intending to ascertain the identity status of individuals.

Beneficial Ownership Identification

Countering of anonymous accounts and entities is another regulation that financial institutions are required to recognize as the ultimate beneficial owners of an account or an entity.

Suspicious Transaction Reporting (STR)

All suspicious transactions should be immediately reported to authorities within three working days to allow law enforcement agencies to quickly undertake their tasks of investigating cases of possible unlawful conduct.

Regular Employee Training

It is recommended that staff undergo constant training so that they know AMLA guidelines and roles.

Compliance Officer Appointment

Proper compliance with AMLA regulations must be overseen by a compliance officer who is hired specifically for the purpose.

Which Industries are Bound to Follow AML/CTF Regulations?

Numerous sectors in Malaysia are subject to AML/CTF regulations, emphasizing the breadth of compliance requirements:

• Financial Intermediaries: Money transfer industry participants such as commercial and investment banks, Money Service Businesses or MSBs, NBFCs, or non-banking financial companies.
• Insurance Providers: Both the conventional insurance and Takaful (Islamic insurance) companies are included herein.
• Real Estate: Real estate agents and property service providers.
• Precious Metals and Stones Dealers: Organisation dealing in valuable assets.
• Casino and Gaming Businesses: Gambling and gaming industries and their operators.
• Legal and Accounting Professions: Lawyers and law firms, accountants and accounting firms.
• Labuan International Business and Financial Centre Entities: Companies incorporated and carrying on business in this offshore financial center.

You must be wondering now how can institutions stay compliant with all the above AML regulations. The answer is simple.

Implementing a credible screening solution with high-quality data sources that must align with The Anti-Money Laundering, Anti-Terrorism Financing, and Proceeds of Unlawful Activities Act.

Where to get that screening vendor that offers quality data?

Here it is;

AML Watcher’s Screening Databases for Malaysian Institutions

AML Watcher offers an all-inclusive screening solution that incorporates both domestic and foreign regulatory databases.

This helps Malaysian institutions adhere to national AML regulations as mandated by Bank Negara Malaysia’s (BNM) and international AML norms.

The features are intended to improve efficiency, save non-compliance costs, and expedite compliance procedures for Malaysian institutions to comply with Anti-Money Laundering (AML) regulations.

AML Watcher can help Malaysian institutions in the following ways:

Detailed Sanction Screening

Get access to unified, current sanctions data from more than 250 international sanction regimes in more than 80 languages.

This makes it possible for Malaysian organizations to check people and organizations against a variety of sanctions lists, guaranteeing adherence to global and local laws.

Separate Watchlist Screening

AML Watcher provides a comprehensive dataset of Special Interest Persons (SIPs) and Special Interest Entities (SIEs) having criminal exposure in addition to sanctions.

Its access to 3500+ watchlists helps organizations recognize and reduce the risks connected to people and organizations engaged in illegal activity.

Local Regulatory Lists

AML Watcher aligns data for screening with key Malaysian regulatory lists, such as:

• Bank Negara Malaysia’s (BNM) sanctions lists
• Minister of Home Affairs Domestic List
• Malaysian High-Risk Jurisdiction Lists

This helps institutions comply with Malaysian AML laws, including the Financial Services Act 2013 and the Money Services Business Act 2011, by integrating these local lists, which ensures that they may check transactions and screen customers against the most recent information.

International Regulatory Lists

AML Watcher also offers access to international regulatory lists, such as:

• UN Security Council Sanctions List
• OFAC (Office of Foreign Assets Control) List
• FATF (Financial Action Task Force) High-Risk Jurisdictions

Malaysian institutions may ensure adherence to FATF guidelines and worldwide AML requirements by screening against high-risk jurisdictions, international sanctions, and other crucial global regulatory lists with its global coverage.

PEP Screening Covering Risk Levels 1-4

AML Watcher’s PEP screening, which classifies PEP risk levels 1-4 from high-risk international leaders to local officials like mayors, helps Malaysian institutions to keep check on each potential high-risk person and proactively stop money laundering.

This thorough categorization ensures enhanced due diligence (EDD) at all levels, offering a more profound understanding of possible PEP risks.

Real-Time Screening

AML Watcher’s databases enable real-time screening of transactions, clients, and entities, ensuring that every transaction is promptly compared to both local and international lists.

This helps Malaysian institutions recognize suspicious transactions and reduce risks related to money laundering and terrorism financing by avoiding transactions with high-risk individuals or entities.

Adverse Media Screening

AML Watcher‘s advanced Adverse Media Screening helps Malaysian institutions identify possible client threats by searching more than 50K+ local and international news sources.

It searches the media for unfavorable stories about fraud, corruption, or unlawful activity involving customers or organizations.

Custom risk scoring

Institutions may generate personalized risk profiles with AML Watcher according to client transactions, industry, and region.

The solution offers targeted risk management for adherence to Malaysian and international AML rules by regularly updating risk scores based on fresh data.

Detailed due diligence

AML Watcher supports CDD and EDD by thoroughly screening clients for sanctions, PEPs, and negative media.

It helps institutions meet the regulatory obligations for continuous monitoring and due diligence, by detecting high-risk persons and businesses.

Regular AML Updates

AML Watcher makes sure that both local and foreign lists are updated regularly, ensuring that Malaysian institutions stay updated with the most recent regulatory modifications.

This continuous data integration assures that organizations continue to adhere to changing AML regulations.