By Tommy Wong

Introduction

The Anti-Money Laundering, Anti-Terrorism and Proceeds of Unlawful Activities Act 2001 (“the Act”) came into force on 15.1.2001 with the aim of preventing and combating money laundering, terrorism financing and the use of illegal proceeds. Under the Act, banking institutions, various businesses and professional organizations are categorized as reporting institutions and such reporting institutions have reporting obligations to adhere to. The reporting obligations are provided for under the Act as well as other sectoral guidelines and/or regulations provided by the Central Bank of Malaysia, in order to assist in the prevention of and combat against money laundering, terrorism financing and the use of illegal proceeds.

Money Laundering

Money laundering is where cash proceeds originating from an unlawful activity are received and converted for the purpose of disguising the illegal gains as cash proceeds deriving from a legitimate activity and/or business. The act of money laundering is conducted to conceal the original source of the unlawful cash proceeds.

Pursuant to Section 4(1) of the Act[1], money laundering is defined as follows:

  1. Engaging, directly or indirectly, in a transaction involving proceeds of an unlawful activity or instrumentalities of an offence;
  2. Acquiring, receiving, possessing, disguising, transferring, converting, exchanging, carrying, disposing or using proceeds of an unlawful activity or instrumentalities of an offence;
  3. Removing from or bringing into Malaysia proceeds of an unlawful activity or instrumentalities of an offence; or
  4. Concealing, disguising or impeding the establishment of the true nature, origin, location, movement, disposition, title of, rights with respect to, or ownership of, proceeds of an unlawful activity or instrumentalities of an offence.

The money laundering process typically consists of the following three (3) stages[2]:

  1. Placement: The physical placement of cash proceeds derived from illegal activities;
  2. Layering: The separation of cash proceeds derived from unlawful activities from their source through transactions that will disguise and/or conceal the audit trail of such cash proceeds; and
  3. Integration: The conversion of cash proceeds derived from illegal activities into legitimate funds.

One method where a person is able to launder illegal cash proceeds is by way of gambling at the casino. Illegal cash proceeds can be used to purchase gambling chips at the casino and the gambling chips are then used for gambling activities. Thereafter, the person is able to cash out the total gambling chips in hand for cash. In this instance, the person is able to claim that the cash is derived from gambling winnings from the casino.

Terrorism Financing

Terrorism financing is where a person provides financial support and/or any other form of support to fund terrorists or terrorist organizations for the purpose of assisting and/or benefitting such terrorists or terrorist organizations to carry out acts of terrorism.

Terrorism financing can be conducted through the estabishment of front companies and businesses for the purpose of using such front companies and businesses to channel terrorist funds and to procure weapons and explosives.

Under Section 3 of the Act[3], the act of terrorism financing refers to any of the offences as set out in the following sections of the Penal Code:

  1. Section 130N: where a person, directly or indirectly, provides, collects or makes available any property intending, knowing or having reasonable grounds to believe that such property will be used, in whole or in part, to commit a terrorist act[4].
  2. Section 130O: where a person, directly or indirectly, provides or makes available financial services or facilities, intending that the services or facilities be used, in whole or in part, for the purpose of either committing or facilitating the commission of a terrorist act or benefiting a person who is committing or facilitating the commission of a terrorist act, or that the services or facilities will be used by or will benefit any terrorist, terrorist entity or terrorist group[5].
  3. Section 130P: where a person knowingly enters into an arrangement that facilitates the acquisition, retention or control by or on behalf of another person of terrorist property by way of concealment, removal out of jurisdiction, transfer to a nominee or in any other way[6].
  4. Section 130Q: where a person knowingly, directly or indirectly, acquires or possesses any terrorist property, entering into or facilitating any transaction in respect of terrorist property, converting, concealing or disguising terrorist property, or providing any financial or other services in respect of any property to or for the benefit of any terrorist, terrorist entity or terrorist group[7].

The offence of terrorism financing does not take into consideration the sources, legitimate or illegitimate, of the funds provided to fund the terrorist or terrorist organizations.

Proceeds of an Unlawful Activity

Under Section 3 of the Act, the term “proceeds of an unlawful activity” is defined as “any property derived or obtained, whether directly or indirectly, by any person as a result of any unlawful activity”.[8] The term “unlawful activity” is further defined as any activity which constitutes any serious offence or foreign serious offence, regardless of whether such activity, in whole or in part, takes place within or outside Malaysia.[9]

Under the Act, serious offences are compiled from various statutes and provisions, and are listed in the Second Schedule of the Act. The serious offences include, but are not limited to, the following[10]:

  1. Offence of money laundering under the Act;
  2. False or misleading statements under the Capital Markets and Services Act 2007;
  3. Making incorrect declarations and falsifying documents under the Customs Act 1967;
  4. Export and import of and trafficking in dangerous drugs under the Dangerous Drugs Act 1952;
  5. Wilful evasion under the Income Tax Act 1967;
  6. Carrying on business as a moneylender without licence under the Moneylenders Act 1951; and
  7. Providing services for terrorist purposes under the Penal Code.

Reporting Institutions

In view of the above, reporting institutions under the Act are required by law to undertake and/or establish internal counter-measures for the purposes of preventing their institutions from being taken advantage of and used as a conduit for money laundering and terrorism financing activities. Reporting institutions also play a role in  combatting money laundering and terrorism financing activities should any person and/or entity attempts to take advantage of and use their institutions for such activities.

The reporting institutions under different sectors as set out under the Act[11] are as follows:

 

SectorReporting Institution
1.Banking(a)     Commercial and Islamic banks

(b)     International Islamic banks

(c)      Investment banks

(d)     Labuan conventional and Islamic banks

(e)     Labuan conventional and Islamic investment banks

2.Insurance(a)     Life insurance companies

(b)     Family Takaful companies

(c)      Insurance broking companies

(d)     International Islamic Takaful operators

(e)     Labuan insurer and reinsurer

(f)      Labuan Takaful and Labuan re-Takaful

(g)     Takaful broking companies

3.Money Services Business(a)     Money changers;

(b)     Remittance service providers;

(c)      Wholesale money changing operators;

4.Electronic Money(a)     Credit token business (Electronic Money) (Labuan)

(b)     Electronic money issuers

5.Capital Market(a)     Derivatives brokers

(b)     Fund management companies

(c)      Labuan fund managers

(d)     Labuan listing sponsors

(e)     Labuan trading agents

(f)      Stock broking companies

(g)     Unit trust management companies

6.Development Financial Institutions(a)     Agrobank

(b)     Bank Kerjasama Rakyat Malaysia Berhad

(c)      Bank Pembangunan Malaysia Berhad

(d)     Bank Perusahaan Kecil & Sederhana Malaysia Berhad (SME Bank)

(e)     Bank Simpanan Nasional

(f)      Export-Import Bank of Malaysia (EXIM Bank)

7.Other financial institutions(a)     Borneo Housing Mortgage Finance Berhad

(b)     Leasing and factoring business

(c)      Lembaga Tabung Haji

(d)     Malaysia Building Society Berhad

(e)     Money lenders

(f)      Non-bank affiliated charge and credit card issuers

(g)     Pos Malaysia Berhad (for postal financial services)

(h)     Sabah Credit Corporation

8.Designated non-financial businesses and professions(a)     Accountants

(b)     Casinos

(c)      Company secretaries

(d)     Dealers in precious metals and precious stones

(e)     Labuan trust companies

(f)      Lawyers

(g)     Licensed gaming outlets

(h)     Notaries public

(i)       Pawnbrokers

(j)       Public trust company (Amanah Raya Berhad)

(k)      Registered estate agents

(l)       Trust Companies

 

 Reporting Obligations

Reporting institutions have a duty to adhere to the reporting obligations imposed on them under the Act and the guidelines provided by the Central Bank of Malaysia for each respective sector. General reporting obligations are found under Part IV of the Act, while detailed and specific reporting obligations for each sector are provided in the sectoral guidelines and/or regulations issued by the Central Bank of Malaysia for the respective sectors.

General reporting obligations under Part IV of the Act[12] include, but are not limited to, the following:

  1. Conducting customer due diligence;
  2. Keeping a record of any transaction involving the domestic currency or any foreign currency exceeding an amount specified by the competent authority, i.e. the Central Bank of Malaysia (“Competent Authority”);
  3. Promptly reporting to the Competent Authority in the event there is a suspicious transaction, which are essentially unusual and/or illegal transactions;
  4. Promptly reporting to the Competent Authority in the event there is a cash transaction exceeding RM25,000.00 (or any other amount advised) involving physical currency and bearer negotiable instruments but excluding bank drafts, cheques, electronic transfers or fixed deposits;
  5. Retain any account, record, business correspondence and document relating to an account, business relationship transaction or activity with a customer for a period of at least six years from the date the account is closed or the business relationship, transaction or activity is completed or terminated; and
  6. Implement an internal policy, programme and procedure, such as an internal “red flag” criteria to prevent and detect any offence listed under .

Red Flag Criteria

Reporting institutions are provided with an effective method to detect suspicious transactions, more commonly known as the “internal red flag criteria”, under the Standard Guidelines on on Anti-Money Laundering and Counter Financing of Terrorism[13] (“Standard Guidelines”) issued by the Central Bank of Malaysia.

Pursuant to Clause 7.3.1 of the Standard Guidelines[14], reporting institutions are advised to establish an internal “red flag” criteria to detect suspicious activities. In the event a transaction triggers a “red flag”, which would in turn raise suspicions of the reporting institution, the reporting institution should conduct enhanced customer due diligence on the relevant client and/or transaction. The said client and/or transaction should then be subjected to ongoing monitoring. In such event, the reporting institution must consider submitting a suspicious transaction report to the Competent Authority.

Punishment for Failure to Adhere to Reporting Obligations by a Reporting Institution

The reporting obligations under the Act and the respective sectoral guidelines and/or regulations assist reporting institutions in the detection and prevention of and combat against suspicious transactions by actively monitoring the activities of their clients. It is emphasized that reporting institutions must adhere to the reporting obligations. Failure to do so constitutes an offence under Section 22 of the Act[15], to which the maximum penalty is a fine not exceeding Ringgit Malaysia One Million (RM1,000,000.00) or an imprisonment for a term not exceeding three (3) years or both. In addition, in the event there is a continuing offence by the reporting institution, the reporting institution shall be liable to a fine not exceeding Ringgit Malaysia Three Thousand (RM3,000.00) for each day or any part thereof during which the offence continues to be committed.

Conclusion

More often than not, businesses and professional organisations tend to overlook money laundering and terrorism financing schemes that may take place via their institutions and accounts, which may result in illegal proceeds being disguised as proceeds derived from a legitimate source. In addition, many businesses and professional organisations are not aware that they fall within the ambit of the Act and are imposed with reporting obligations.

With the Act having come into force, it is no longer “money in, money out”. Businesses and professional organisations recognized as reporting institutions have obligations to adhere to and any failure to implement proper internal measures and reporting suspicious transactions would effectively land them in hot water. All businesses and professions should be aware of any reporting obligations that may be imposed on them under the Act to stay above any money laundering and terrorism financing schemes, and to implement an internal counter-measure to detect, prevent and combat such schemes.

 

By Tommy Wong

 


[1] Section 4(1) of the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001

[2] Bank Negara Malaysia, “Money Laundering & Terrorism Financing” <http://amlcft.bnm.gov.my/AMLCFT01.html>

[3] Section 3 of the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001

[4] Sections 130N of the Penal Code

[5] Sections 130O of the Penal Code

[6] Sections 130P of the Penal Code

[7] Sections 130Q of the Penal Code

[8] Ibid 3

[9] Ibid 3

[10] Second Schedule of the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001

[11] First Schedule of the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001

[12] Part IV of the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001

[13] Standard Guidelines on Anti-Money Laundering and Counter Financing of Terrorism

[14] Clause 7.3.1 of the Standard Guidelines on Anti-Money Laundering and Counter Financing of Terrorism

[15] Section 22 of the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001

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