For the reason that introduction of the ­Anti-Cash Laundering, Anti-Terrorism Financing and Proceeds of Illegal Actions Act 2001 (AMLA), the federal government has taken a phased method in imposing anti-money-laundering reporting obligations on numerous intermediaries and entities within the nation. 

Whereas the preliminary part of implementation was targeted on monetary establishments and capital market intermediaries, through the years, numerous different entities have been made reporting establishments (RIs) below the act. 

The big selection of RIs now consists of monetary establishments, stockbroking firms, fund managers and recognised market operators similar to peer-to-peer platforms and cryptocurrency exchanges. Professionals similar to attorneys, accountants and firm secretaries, in addition to numerous different entities, together with belief firms, sellers in valuable metals or valuable stones, moneylenders, casinos and actual property brokers, have been topic to AMLA reporting necessities for a number of years. 

The obligations imposed upon such reporting entities revolve round conducting “Know Your Buyer” (KYC) checks when onboarding new purchasers, finishing up ongoing buyer due diligence in the course of the course of the connection, reporting suspicious transactions and correct file conserving. 

These necessities are presently set out in Financial institution Negara Malaysia’s coverage paperwork on Anti-Cash Laundering, Countering Financing of Terrorism and Focused Monetary Sanctions for Monetary Establishments, and Designated Non-Monetary Companies and Non-Financial institution Monetary Establishments, and Safety Fee Malaysia’s Pointers on Prevention of Cash Laundering and Terrorism Financing for Reporting Establishments within the Capital Market. 

RIs are required to stick to those guidelines not solely to counter cash laundering but additionally terrorism financing and proliferation financing, which is the financing of weapons of mass destruction. Wading via AMLA guidelines can seem cumbersome and overwhelming at instances. However this needn’t be the case. 

This text seeks to level out 5 key factors that RIs have to take heed of. 

Tone on the prime — the board is finally accountable 

A generally held false impression amongst some RIs is that AMLA compliance is an operational matter and, consequently, it’s usually consigned to administration with none significant oversight by the board. Whereas intermediaries within the monetary markets similar to banks and broking companies have been RIs for a number of years, entities which have just lately been gazetted could not respect the extent of the board’s position. 

Financial institution Negara’s coverage paperwork make it clear that the board has to keep up accountability and oversight for establishing anti-money laundering and counter terrorism financing (AML/CFT) insurance policies. 

In granular phrases, what this implies is that the board shouldn’t solely approve AML insurance policies however ought to assess the implementation of those insurance policies. The board also needs to outline the traces of authority and duty for implementing AML/CFT measures, and this needs to be adopted by common reporting by senior administration and the audit committee to the board. 

This suggestions loop is crucial as a result of it ensures that AML points and considerations are usually cascaded as much as the board. Simply because the duty for good company governance begins with the board of an organization, the underlying proposition is that nurturing an surroundings the place workers take compliance points severely is one which should be fastened on the very best governing physique in an organization or agency. 

AMLA compliance is not only the compliance officer’s job 

Simply because the position of the board is clearly outlined, it’s crucial to make sure that every of the transferring components inside an RI’s operations are affixed with clear roles and obligations. This includes the next: 

• Senior administration, who’re accountable for the implementation and administration of AML/CFT compliance programmes. Because of this they’re liable for formulating the mandatory insurance policies, designing the mechanisms to observe suspicious transactions and reporting to the board periodically on the AML dangers confronted and the interior controls in place to handle these dangers. Senior administration can be liable for guaranteeing that AMLA coaching is performed and a compliance officer is appointed. Worker coaching is especially crucial so workers are conscious of spot purple flags and know the place to show to within the occasion that they’re confronted with a suspicious transaction. 

• The compliance officer acts because the reference level throughout the agency on all AML/CFT issues. She or he has to keep up inner standards for the detection and reporting of suspicious transactions and acts as the purpose individual with Financial institution Negara’s Monetary Intelligence and Enforcement Division for this goal. 

• The interior AMLA auditor is required to hold out an unbiased audit to check the RI’s compliance with the legislation, related pointers and inner AML/CFT insurance policies, and to submit a report back to the board outlining corrective measures the place essential. 

At this level, Financial institution Negara has not set out the frequency of the audit — that is left to the RI to determine primarily based on its organisational wants. On condition that this can be a quickly evolving sector, it will be significant that RIs maintain abreast of developments on this house and be certain that the important thing employees concerned in AMLA compliance are well-equipped to discharge their capabilities successfully. 

A risk-based method permits an optimum use of a RI’s sources 

Whereas Financial institution Negara’s coverage paperwork present particular necessities by way of RIs’ obligations, it additionally eschews a “one-size-fits-all” method. In step with international requirements set by the Monetary Motion Taskforce (FATF), RIs are required to use a risk-based method in coping with cash laundering and terrorism financing threats. That is extremely useful as a result of what this implies in apply is that RIs can design their AML processes across the nature of dangers they face in conducting their enterprise. 

The FATF, which Malaysia is a member of, is an unbiased inter-governmental physique that develops and promotes insurance policies to guard the worldwide monetary system towards cash laundering, terrorism financing and financing of proliferation of weapons of mass destruction (www.fatf-gafi.org). 

How then ought to companies implement a risk-based method in coping with anti-money laundering compliance? 

One useful gizmo is for the RI to hold out an AML institutional danger evaluation throughout the organisation. Danger assessments are sometimes performed inside an organisation to determine enterprise dangers that an organization faces in its day-to-day operations and to make sure that acceptable processes to handle these dangers are in place. This instrument could be equally used within the context of AMLA compliance. 

Questions that one ought to pose in conducting an efficient AML danger evaluation needs to be on what are probably the most urgent AML dangers that come up in the midst of my enterprise, and the way these dangers could be mitigated. 

Generally recognized dangers as set out in Financial institution Negara’s coverage paperwork are consumer danger, geographical danger and transaction dangers. Examples of consumer dangers are non-resident purchasers, purchasers with cash-intensive companies, purchasers whose possession constructions are excessively complicated or individuals from places identified for prime charges of crimes similar to drug manufacturing or human trafficking. 

One other danger is geographical danger, which refers back to the location of the enterprise or the origin of shoppers. On this respect, the listing of nations set out within the FATF web site categorised as requiring a “name for motion” and people below elevated monitoring would want particular consideration. It is vital that RIs persistently replace themselves on these lists given the necessity for enhanced due diligence the place purchasers or transactions contain these jurisdictions. 

Equally, product and transaction dangers are gaining traction in mild of the frenetic tempo of growth in monetary merchandise similar to cryptocurrency and different digital property. Actually, information has proven that whole transaction quantity in cryptocurrencies worldwide has grown to US$15.8 trillion in 2021, up 567% since 2020. Of this, the rise in illicit transaction quantity was 79%, translating into US$14 billion value of illicit funds. 

Amid this surge of curiosity in cryptocurrency and different digital property, regulators have referred to as for elevated warning on this sphere. The FATF has additionally issued a particular coverage doc detailing the dangers and varieties of controls that companies ought to take into account when coping with new asset lessons similar to digital foreign money. 

That mentioned, having a high-risk ranking doesn’t mechanically imply that the RI shouldn’t conduct enterprise with a selected consumer. What it does imply is that particular controls should be in place to handle these dangers. If, having utilized the controls, the residual danger is low, which means the danger evaluation train that has been undertaken supplies a foundation for continuing with the enterprise relationship. 

Within the subsequent article, we’ll delve into the significance of gathering buyer information and conducting due diligence on an RI’s buyer to pay attention to any money-laundering purple flags, in addition to the significance of the anti-money laundering enforcement within the monetary ecosystem. 

Shanti Geoffrey co-heads Christopher & Lee Ong’s White Collar Crime & Investigations Follow Group