Introduction

Because the introduction of the Anti-Cash Laundering, Anti-Terrorism Financing and Proceeds of Illegal Actions Act 2001 (“AMLATFPUAA“), the Authorities has taken a phased strategy in imposing anti-money laundering (“AML“) reporting obligations on numerous intermediaries and entities within the nation. While the preliminary section of implementation was centered on monetary establishments and capital market intermediaries, over time, numerous different entities have been made reporting establishments (“RIs“) underneath the AMLATFPUAA. The big range of RIs now embrace monetary establishments, stockbroking corporations, fund managers, and recognised market operators corresponding to peer-to-peer platforms and cryptocurrency exchanges. Professionals corresponding to attorneys, accountants and firm secretaries and numerous different entities together with belief corporations, sellers in valuable metals or valuable stones, moneylenders, casinos, and actual property brokers have been topic to AML 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 shoppers, finishing up ongoing buyer due diligence in the course of the course of the connection, reporting suspicious transactions and correct recordkeeping. These necessities are presently set out in Financial institution Negara Malaysia’s (“BNM“) 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 the Securities Fee’s (“SC“) 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 in addition terrorism financing (“TF“) and proliferation financing (“PF“) which is the financing of weapons of mass destruction.

Wading by AML guidelines can seem like cumbersome and overwhelming at occasions. This, nevertheless, needn’t be the case. This Replace seeks to level out 5 key factors that RIs must take heed of.

Tone on the high – the board is finally accountable

A generally held false impression amongst some RIs is that AML compliance is an operational matter and because of this, it’s usually consigned to the administration with none significant oversight by the Board of Administrators (“Board”). Whereas intermediaries within the monetary markets corresponding to banks and broking corporations have been RIs for a number of years, entities who’ve just lately been gazetted might not admire the extent of the Board’s function. Nonetheless, BNM’s coverage paperwork make it clear that the Board has to keep up accountability and oversight for establishing anti cash laundering and counter terrorism financing (“AML/CFT”) insurance policies.

In granular phrases, what this implies is that the Board mustn’t solely approve AML insurance policies however ought to assess the implementation of those insurance policies. The Board must also outline the strains 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 essential as a result of it ensures that AML points and issues are often 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 staff take compliance points critically is one which have to be fastened on the very best governing physique in an organization or agency.

AML compliance is not only the Compliance Officer’s job

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

• Senior administration, who’re accountable for the implementation and administration of AML/CFT compliance programmes. Which means that they’re liable for formulating the required insurance policies, designing the mechanisms to watch 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 also be liable for making certain that AML coaching is carried out and a Compliance Officer is appointed. Worker coaching is especially essential so staff are conscious of spot crimson 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 inside standards for the detection and reporting of suspicious transactions and acts as the purpose particular person with BNM’s Monetary Intelligence and Enforcement Division for this goal.
• The interior AML auditor is required to hold out an impartial audit to check the RI’s compliance with the legislation, related tips and inside AML/CFT insurance policies, and to submit a report back to the Board outlining corrective measures the place vital. At this level, BNM has not set out the frequency of the audit and that is left to the RI to determine based mostly 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 sure that the important thing workers concerned in AML compliance are nicely outfitted to discharge their features successfully.

A risk-based strategy permits an optimum use of an RI’s assets

Whereas BNM’s coverage paperwork present particular necessities by way of the obligations of RIs, it additionally eschews a “one dimension suits all” strategy. Consistent with world requirements set by the Monetary Motion Taskforce[1]  (“FATF“), RIs are as a substitute required to use a risk-based strategy in coping with cash laundering and terrorism financing threats. That is extraordinarily useful as a result of what this implies in apply is that RIs can design their AML processes across the nature of dangers that they face in conducting their enterprise.

How then ought to companies implement a risk-based strategy in coping with AML compliance? One useful gizmo is for the RI to hold out an AML institutional threat evaluation throughout the organisation. Danger assessments are sometimes carried out inside an organisation to establish enterprise dangers that an organization faces in its day-to-day operations and to make sure that applicable processes to handle these dangers are in place. This device might be equally used within the context of AML compliance. Questions that one ought to pose in conducting an efficient AML threat evaluation are – what are probably the most urgent AML dangers that come up in the middle of my enterprise and the way can these dangers be mitigated?

Generally recognized dangers as set out in BNM’s coverage paperwork are shopper threat, geographical threat, and transaction dangers. Examples of shopper dangers are non-resident shoppers, shoppers with money intensive companies, shoppers whose possession construction is excessively advanced or individuals from areas identified for prime charges of crimes corresponding to drug manufacturing or human trafficking. One other threat is geographical threat, 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 underneath elevated monitoring would wish particular consideration. It will be important that RIs constantly replace themselves on these lists given the necessity for enhanced due diligence the place shoppers or transactions contain these jurisdictions. Equally, product and transaction dangers are gaining traction in mild of the frenetic tempo of improvement in monetary merchandise corresponding to cryptocurrencies and different digital belongings. In actual fact, knowledge has proven that complete 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 to US$ 14 billion value of illicit funds[2]. Amid this surge of curiosity in cryptocurrencies and different digital belongings, regulators have known as for elevated warning on this sphere. The FATF has additionally issued a selected coverage doc detailing the dangers and sorts of controls that companies ought to take into account when coping with new asset courses corresponding to digital forex[3].

That stated, having a high-risk score doesn’t mechanically imply that the RI mustn’t conduct enterprise with a selected shopper. As a substitute, what it does imply is that particular controls have to be in place to handle these dangers. If the related controls are utilized, and the residual threat is low, which means the danger evaluation train which has been undertaken gives a foundation for continuing with the enterprise relationship.

Information, not money … is king

The fulcrum on which AML compliance rests is the necessity to maintain oneself nicely knowledgeable. The KYC technique of conducting due diligence on a buyer is essential in making certain that an RI is just not used to facilitate cash laundering. In an effort to fulfil these necessities of figuring out one’s buyer on the outset of a enterprise relationship and persevering with to pay attention to crimson flags in the course of the course of the connection (ongoing buyer due diligence), an RI’s strategy needs to be knowledge pushed. Whether or not the shopper is a person or a company entity, it’s essential for an RI to acquire adequate details about the shopper, the identification of useful possession within the case of corporations or different authorized entities, the character of enterprise concerned and whether or not they’re politically uncovered individuals (“PEPs“). This may be finished both by guide or automated approaches. Public registers present vital details about corporations corresponding to shareholding, directorships, enterprise carried out and monetary info. The web gives a wealth of knowledge to independently confirm info, and Google searches can yield helpful details about potential or present shoppers. Staying up to date about international locations, people and organisations which fall inside FATF’s “name to motion” listing and the United Nations Safety Council’s sanction lists in addition to the Ministry of House Affairs and the Ministry of Worldwide Commerce and Business’s Strategic Commerce Workplace would maintain RIs nicely knowledgeable if a selected shopper has been tagged for involvement in AML, TF or PF. Information analytic instruments offered by third social gathering service suppliers allow the pooling and aggregation of knowledge from numerous sources which might help RIs in making connections between shoppers and PEPs, offering knowledge on useful possession or different helpful info.

AML enforcement is a crucial a part of the monetary eco system

The AMLATFPUAA gives for each legal enforcement for cash laundering in addition to civil forfeiture proceedings. Enforcement companies are additionally given energy underneath the AMLATFPUAA to freeze and seize property that are suspected to be the subject material of cash laundering or terrorism financing, topic to the pre-requisites set out within the legislation. In a number of latest high-profile circumstances, the prosecution has most popular cash laundering costs in the identical trial because the predicate offences, such because the SRC Worldwide Sdn Bhd (SRC) trial involving former Prime Minister, Dato’ Sri Najib Tun Razak, who was charged with a single depend of abuse of energy underneath the Malaysian Anti-Corruption Fee Act 2009 (“MACC Act“) in addition to three counts of legal breach of belief (“CBT“) underneath the Penal Code and three counts of cash laundering underneath part 4(1) of the AMLATFPUAA. The case resulted in a conviction on all seven costs with a sentence of 12 years’ imprisonment and a superb of MYR 210 million for the offence underneath part 23(1) of the MACC Act, and ten years’ imprisonment on every of the three CBT costs and every of the three cash laundering costs underneath the AMLATFPUAA; with the courtroom ordering the custodial sentences to run concurrently^[4]. The choice was affirmed by the Court docket of Enchantment^[5] and most just lately by the Federal Court docket.

Not like legal costs for cash laundering, civil forfeiture proceedings are directed on the property which is the subject material of cash laundering. The precept in civil forfeiture circumstances is that there have to be adequate proof earlier than the courtroom that the property is the subject material or was used within the fee of an offence of cash laundering or terrorism financing or are proceeds from a severe offence. As well as, if the particular person holding such property demonstrates that she or he is a purchaser in good religion for invaluable consideration in respect of the property, the forfeiture order can’t be made with respect to such property. The latest Court docket of Enchantment resolution in Badan Perhubungan Umno Negeri Pahang v Public Prosecutor and different appeals [2022] 2 MLJ 572 demonstrates the applying of this precept.

The motion taken by the US (“US“) authorities for cash laundering because of the circulate of funds into the US following a number of of the 1Malaysia Growth Berhad (“1MDB“) bond issuances has resulted within the conviction of Roger Ng, the previous head of Goldman Sachs in Malaysia, and heavy penalties on Goldman Sachs as a agency. Roger Ng faces as many as 30 years in jail^[6]. When saying the submitting of civil forfeiture actions related to 1MDB  in 2016,  the US Lawyer Normal on the time, Loretta E. Lynch said “[T]oday’s case is the biggest single motion ever introduced by the division’s Kleptocracy Asset Restoration Initiative, which was established by Lawyer Normal [Eric] Holder in 2010 to forfeit the proceeds of overseas official corruption and, the place potential, to make use of the recovered belongings to profit the folks harmed. This case, and the Kleptocracy Initiative as an entire, ought to function an indication of our agency dedication to preventing worldwide corruption. It ought to ship a sign that the Division of Justice is decided to stop the American monetary system from getting used as a conduit for corruption”[7]. The message is evident – world markets are inextricably linked, and a weak compliance tradition will show fertile floor for fraud. We merely can not ringfence our markets from being abused by dangerous actors and it’s crucial that the dangers surrounding cash laundering or terrorism financing are appreciated and addressed.

Conclusion

We’re on the crossroads of a number of simultaneous shifts – geopolitics, the growing disintermediation throughout the monetary trade, using know-how in monetary markets, and the convenience of entry inside world markets. All of those adjustments present elevated alternatives for cash laundering and terrorism financing to happen, leading to elevated vigilance amongst regulatory authorities and powerful enforcement motion the place markets are abused. Compliance with AML obligations is usually seen as an obstacle to clean enterprise transactions, a vexation to shoppers or just a value of doing enterprise. But, as we are able to see from the dialogue above, it’s changing into obvious that AML compliance is a enterprise want that can not be missed.

Do you have to require additional info on Anti-Cash Laundering compliance, please be at liberty to achieve out to our workforce at your comfort, by the Christopher & Lee Ong companions listed hereunder.

You may also discover this opinion piece within the Edge Malaysia in two components printed on 25 September 2022 and 30 September 2022.