Money Laundering in Malaysia – Emerging Challenges and Legal Frameworks

As of 2025, Malaysia is significantly intensifying its battle against money laundering and terrorist financing. For this, the nation is making big changes to its regulations and how it will implement them on the financial institutions.

However, the grim reality of past challenges still casts a shadow. Notably, one of the famous 1MDB scandals is still making waves, serving as a stark reminder of the evolving nature of financial crimes.

Effective Strategies by the Malaysian Government

Thinking of the whole scenario as a major test, Malaysia is stepping ahead for review by the globally approved organization for legislation guidance, i.e, Financial Action Task Force (FATF). The review, initiated in 2024, aimed to determine whether Malaysia is implementing effective strategies to combat illicit assets. The major reason behind this review is that Malaysia wants to show the world it is proactively strengthening its AML systems, which go beyond basic compliance to build trust, attract investment and protect its global reputation.

Bank Negara Malaysia launched a National Coordination Committee & Roadmap to enhance the investigation, enforcement, capacity, and coordination. Their initiatives are under FATF mutual evaluation with technical compliance submitted in June 2024, effectiveness in September 2024, and the onsite visit in February 2025. The final mutual report is due October 2025.

These effective initiatives also include Malaysia’s 2024 changes to its Anti-Money Laundering Act 2001, also known as AMLA 2001. This extended AML CFT scope includes proliferation financing and targeted financial sanctions. Under the 2025 amendment, “Failure to freeze or report designated specific entities may lead to legal action or criminal responsibility.”

To enhance the transparency in ownership structures of legal companies, these initiatives also include Malaysia’s changes to its beneficial ownership (BO) reporting requirements in 2024 and regulation of access to beneficial ownership information in 2025.

Who leads the charge against financial crime in Malaysia? It’s Bank Negara Malaysia (BNM), the country’s central bank. A 2024 report indicates that BNM has reinforced its efforts by taking serious action against the non-compliant financial institutions. They initiated a national plan for 2024-2026 aimed at preventing financial crimes and motivating the monetary organizations to be more vigilant in terms of complying with evolving regulations.

Money Laundering in Malaysia – A Quick Overview

Malaysia is under constant pressure from an evolving threat, where approximately RM54 billion has been lost to scams. This reveals a fundamental flaw in the country’s financial system.

The constant growth of the Malaysian payment sector has made the financial industry more vulnerable to criminals. According to media reports, approximately 208,000 “mule accounts” exist in Malaysia, with alot linked to university students who are unknowingly exploited. This highlights the advanced criminal strategies and the lack of public awareness. Scammers are increasing their use of social engineering techniques and cross-border loopholes. Therefore, FIs that want to sustain themselves within Malaysia must detect suspicious activities in real-time. They must analyse the behavioral patterns and adapt to new scam patterns.

Fighting financial crime actually demands a collaborative approach, and Malaysia is trying its best to perform it by joining the regulators, financial institutions, and technology providers.

Bank Negara Malaysia (BNM) AML/CFT Regulations

Bank Negara Malaysia is the leader of the nation’s battle against financial crimes. It leads the National Coordination Committee (NCC), performing risk assessment to spot threats. BNM regularly updates its AML CFT policies, integrating global standards.

The crucial policies involved within BNM are:

• Risk-based approaches
• Suspicious Activity Reporting
• Customer Due Diligence

BNM actively strengthens these rules, issuing hefty penalties and securing convictions to combat financial crime.

AML Act 2001: The Legal Framework

Malaysia’s legal framework, “AML ACT 2001”, is the foundation of its fight against financial crime. It explains the illicit actions and their results. According to the law, the reporting institutes are banking sectors, real estate agents, and lawyers. This law was made to combat financial crime and protect Malaysia’s financial system stability.

Modern Trends and Rising Risks

Malaysia is improving its ways to spot suspicious financial activities. Financial institutions submitted approximately 317,435 suspicious transaction reports (STRs) in 2023, up from 242,914 STRs recorded the previous year. This growth illustrates that FIs have more awareness regarding the flagging and reporting of suspicious activity.

• Scam as a Pressing Concern

Scam is always the biggest problem, making up to 23% of overall suspicious transactions in 2023. This has been a concerning fact since 2013. A major factor in this surge is the rise of “mule accounts,” essential in obscuring the origins and movement of illicit funds.

The National Fraud Portal (NFP) was launched in 2024 to enhance the National Scam Response Centre (NSRC). This integrated platform has effectively changed the results by creating a 75% enhancement in detecting suspicious activities and a 65% rise in detecting mule accounts.

• Emerging Cybercrime Risks in Malaysia’s Cryptocurrency Market

Malaysia’s digital assets and cryptocurrency, though relatively new, are evolving with time. The two primary concerns arising from this growth are:

• Rise of ransomware payments.
• Increased usage of digital payments by terrorists for financing.

The emergence of cryptocurrency and the exciting prospects for the development of the financial market it offers come with diverse challenges that businesses must be completely aware of. Especially from the advanced cyber-enabled scams such as account takeovers, phishing attacks, digital investment fraud, business email compromise, and ransomware attacks.

Key Money Laundering Typologies

Malaysia faces diverse money laundering threats, driven by the following illegal activities:

• Abuse of Cash-intensive Businesses
• Money Mules
• Trade-Based Money Laundering (TBML)
• Real-estate Laundering
• Cryptocurrency laundering
• Smurfing and Structuring

High-Risk Business Areas

One of the major high-risk sectors is the abuse of legal entities such as companies and trusts for illegal activities. To fight this issue, Malaysia has introduced the Companies (Amendment) Act 2024, which establishes a necessary beneficial ownership reporting framework. This Act has made it easier for the Malaysian FIs to trace the criminals who are trying their best to hide behind complex ownership structures.

Another high-risk sector is real estate, where criminals often exploit loopholes such as making the ownership anonymous to launder money through property transactions.

Challenges in Combating Malaysian Financial Crime and Their Solution

The struggle to prevent money laundering in Malaysia has come up with diverse challenges. Some of the essential ones are:

• Addressing De-risking by Foreign Correspondent Banks

Foreign correspondent banks mostly reduce ties with Malaysian institutions over money laundering and terrorist financing concerns that eventually restrict Malaysia’s access to global finance.

• Fighting Evolving Scamming Strategies in Malaysia

Just when businesses think that they have taken precautionary measures, scammers invent something new to trick them. Therefore, it is necessary to stay updated with the evolving criminal tactics.

• Addressing Poor Anti-Money Laundering Controls for AML Malaysia

The lack of AML compliance programs is the major reason behind ineffective investigations and prosecutions relevant to money laundering in FIs. Therefore, having an effective AML system is a must-have.

• Enhancing AML Malaysia with Data Integration and Predictive Analytics

When businesses are not prepared before the arrival of a threat, it becomes difficult for them to survive. Therefore, to be quick in spotting financial crime, businesses need to implement the negative news coverage, which prepares them in advance for the detection of crimes, especially those involving high-risk clients.

• Achieving Compliance Across Malaysia’s Dual Regulatory Systems

The dual regulatory system, where one is Malaysia’s regular financial system and the other is the Labuan International Business and Financial Centre (IBFC), operates with distinct regulatory frameworks. Both of them have their own regulations, creating an environment where differences in AML compliance approaches can leave loopholes. This fragmentation makes it difficult to ensure consistent compliance across the board, necessitating that the regulations need to be harmonised to resolve the issue.

Empower AML Compliance in Malaysia with AML Watcher

With the surge in Suspicious Transaction Reports (STRs), new digital threats on the horizon, Malaysia’s fight against financial crime is becoming more intense. The AMLA 2001 amendments and BNM’s strengthened regulations demand effective compliance.

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• Extensive Data Coverage and Proprietary Database covering 235+ countries along with 80+ languages

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