mutual evaluation report malaysia 2007

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    ASIA/PACIFIC GROUP ON MONEY LAUNDERING

    APG MUTUAL EVALUATION REPORT ON

    Malaysia

    Against the FATF 40 Recommendations (2003) and 9 Special Recommendations

    As Adopted by the APG Plenary 25 July 2007

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    PREFACE - INFORMATION AND METHODOLOGY USED FOR THE EVALUATION OF MALAYSIA

    The evaluation of the anti-money laundering (AML) and combating the financing of terrorism (CFT) regime of Malaysia was based on the Forty Recommendations 2003 and the Nine Special Recommendations on Terrorist Financing 2001 of the Financial Action Task Force (FATF), and was prepared using the AML/CFT Methodology 2004. The evaluation was based on the laws, regulations and other materials supplied by Malaysia, and information obtained by the Evaluation Team during its on-site visit to Malaysia from 29 January to 9 February 2007, and subsequently. During the on-site the Evaluation Team met with officials and representatives of all relevant Malaysian government agencies and the private sector. A list of the bodies met is set out in Annex 3 to the mutual evaluation report.

    The evaluation was conducted by a team of assessors composed of APG experts in criminal law, law enforcement and regulatory issues. The Evaluation Team consisted of:

    Legal Expert Ms Elizabeth Ryan, Senior Assistant Director, Commonwealth Director of Public Prosecutions, Australia

    Financial/Regulatory Experts

    Mr Richard Chalmers, Adviser, International Strategy & Policy Coordination, Financial Services Authority, United Kingdom and Mr Peter Dench, Adviser, Financial System Oversight, Financial Stability Department, Reserve Bank of New Zealand

    Law Enforcement Expert

    Mr Muhammad Yusfidli Adhyaksana, Prosecutor, Attorney Generals Office, Indonesia

    APG Secretariat representative

    Mr David Shannon, Executive Officer

    The experts reviewed the institutional framework, the relevant AML/CFT laws, regulations, guidelines and other requirements, and the regulatory and other systems in place to deter money laundering (ML) and the financing of terrorism (FT) through financial institutions and Designated Non-Financial Businesses and Professions (DNFBPs), as well as examining the capacity, the implementation and the effectiveness of all these systems.

    This report provides a summary of the AML/CFT measures in place in Malaysia as at the date of the on-site visit or immediately thereafter. It describes and analyses those measures, sets out Malaysias levels of compliance with the FATF 40+9 Recommendations (see Table 1), and provides recommendations on how certain aspects of the system could be strengthened (see Table 2).

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    Table of Contents Executive Summary 5 1 General 15

    1.1. GENERAL INFORMATION ON MALAYSIA 15 1.2. GENERAL SITUATION OF MONEY LAUNDERING AND FINANCING OF TERRORISM 20 1.3. OVERVIEW OF THE FINANCIAL SECTOR AND DNFBP 21 1.4. OVERVIEW OF COMMERCIAL LAWS AND MECHANISMS GOVERNING LEGAL PERSONS AND ARRANGEMENTS 30 1.5. OVERVIEW OF STRATEGY TO PREVENT MONEY LAUNDERING AND TERRORIST FINANCING 32

    2 LEGAL SYSTEM AND RELATED INSTITUTIONAL MEASURES 44 2.1 CRIMINALISATION OF MONEY LAUNDERING (R.1 & 2) 44 2.2 CRIMINALISATION OF TERRORIST FINANCING (SRII) 50 2.3 CONFISCATION, FREEZING AND SEIZING OF PROCEEDS OF CRIME (R.3) 56 2.4 FREEZING OF FUNDS USED FOR TERRORIST FINANCING (SR.III) 62 2.5 THE FINANCIAL INTELLIGENCE UNIT AND ITS FUNCTIONS (R.26) 67 2.6 LAW ENFORCEMENT, PROSECUTION AND OTHER COMPETENT AUTHORITIES THE FRAMEWORK FOR THE INVESTIGATION AND PROSECUTION OF OFFENCES, AND FOR CONFISCATION AND FREEZING (R.27 & 28) 73 2.7 CROSS BORDER DECLARATION OR DISCLOSURE (SR.IX) 84

    3 PREVENTIVE MEASURES - FINANCIAL INSTITUTIONS 89 3.1 RISK OF MONEY LAUNDERING OR TERRORIST FINANCING 93 3.2 CUSTOMER DUE DILIGENCE, INCLUDING ENHANCED OR REDUCED MEASURES (R.5 TO 8) 93 3.3 THIRD PARTIES AND INTRODUCED BUSINESS (R.9) 105 3.4 FINANCIAL INSTITUTION SECRECY OR CONFIDENTIALITY (R.4) 107 3.5 RECORD KEEPING AND WIRE TRANSFER RULES (R.10 & SR.VII) 108 3.6 MONITORING OF TRANSACTIONS AND RELATIONSHIPS (R.11 & 21) 112 3.7 SUSPICIOUS TRANSACTION REPORTS AND OTHER REPORTING (R.13-14, 19, 25 & SR.IV) 114 3.8 INTERNAL CONTROLS, COMPLIANCE, AUDIT AND FOREIGN BRANCHES (R.15 & 22) 121 3.9 SHELL BANKS (R.18) 125 3.10 THE SUPERVISORY AND OVERSIGHT SYSTEM - COMPETENT AUTHORITIES AND SROs ROLE, FUNCTIONS, DUTIES AND POWERS (INCLUDING SANCTIONS) (R.23, 29, 17 & 25) 127 3.11 MONEY OR VALUE TRANSFER SERVICES (SR.VI) 148

    4 PREVENTIVE MEASURES DESIGNATED NON-FINANCIAL BUSINESSES AND PROFESSIONS 152

    4.1 CUSTOMER DUE DILIGENCE AND RECORD-KEEPING (R.12) 152 4.2 SUSPICIOUS TRANSACTION REPORTING (R.16) 159 4.3 REGULATION, SUPERVISION AND MONITORING (R.24-25) 161

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    4.4 OTHER NON-FINANCIAL BUSINESSES AND PROFESSIONS - MODERN SECURE TRANSACTION TECHNIQUES (R.20) 166

    5 LEGAL PERSONS AND ARRANGEMENTS & NON-PROFIT ORGANISATIONS 170

    5.1 LEGAL PERSONS ACCESS TO BENEFICIAL OWNERSHIP AND CONTROL INFORMATION (R.33) 170 5.2 LEGAL ARRANGEMENTS ACCESS TO BENEFICIAL OWNERSHIP AND CONTROL INFORMATION (R.34) 177 5.3 NON-PROFIT ORGANISATIONS (SR.VIII) 180

    6 NATIONAL AND INTERNATIONAL CO-OPERATION 189 6.1 NATIONAL CO-OPERATION AND COORDINATION (R.31) 189 6.2 THE CONVENTIONS AND UN SPECIAL RESOLUTIONS (R.35 & SR.I) 192 6.3 MUTUAL LEGAL ASSISTANCE (R.36-38, SR.V) 194 6.4 EXTRADITION (R.37, 39, SR.V) 201 6.5 OTHER FORMS OF INTERNATIONAL CO-OPERATION (R.40 & SR.V) 204

    7 OTHER ISSUES 211 7.1 RESOURCES AND STATISTICS 211 7.2 OTHER RELEVANT AML/CFT MEASURES OR ISSUES 212 7.3 7.3 GENERAL FRAMEWORK FOR AML/CFT SYSTEM (SEE ALSO SECTION 1.1) 213

    8 TABLES 214 9 ANNEXES 229

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    EXECUTIVE SUMMARY

    1. This report provides a summary of the AML/CFT measures in place in Malaysia as at the date of the on-site visit in February 2007 or immediately thereafter. It describes and analyses those measures, and provides recommendations on how certain aspects of the system could be strengthened. It also sets out Malaysias levels of compliance with the FATF 40+9 Recommendations.

    Background Information 2. Malaysia is a federation of 13 states and three federal territories and is a

    constitutional monarchy with a common law system of law. 3. Malaysias coordinated strategy to implement an effective AML/CFT system is a part

    of Malaysias efforts to pursue the National Vision Policy (2001-2010) to attain developed nation status by 2020. One of the five key thrusts of the National Mission is to strengthen the institutional and implementation capacity which addresses corruption, good governance, business ethics, AML/CFT etc. Malaysia has sought to build a shared culture of AML/CFT compliance amongst government and private sector stakeholders.

    4. A range of significant money laundering and terrorist financing risks in Malaysia are

    being addressed through the implementation of the Anti-Money Laundering and Anti-Terrorist Financing Act 2001 (AMLA) and other AML/CFT measures. Malaysia has long porous land and sea borders and its open economy and strategic geographic position influence the money laundering and terrorist financing situation in Malaysia.

    5. Drug trafficking is noted by the authorities as the main source of illegal proceeds in

    Malaysia. Authorities highlight illegal proceeds from corruption as a significant money laundering risk in addition to a range of predicate offences that generate significant proceeds of crime including fraud, criminal breach of trust, illegal gambling, credit card fraud, counterfeiting, robbery, forgery, human trafficking, extortion and smuggling.

    6. Money laundering techniques identified in Malaysia include placing criminal proceeds

    into the banking system, using nominees or family members, setting up of front companies, purchasing of insurance products, purchasing real property (in particular vehicles and real estate), purchasing high value goods, investment in capital markets, use of gatekeepers and the use of money changers.

    7. Malaysian authorities have highlighted risks from terrorist groups and terrorist

    financing. A number of terrorist organisations have been active on Malaysian territory, and authorities have taken concerted action against Jemaah Islamiah and its members and have identified and frozen terrorist assets held in the Malaysian financial system. Terrorist financing in Malaysia is predominantly carried out using cash and relies on networks of trusted members of terrorist organizations. To date, no charges for offences relating to terrorism financing have been laid.

    8. Malaysia has a significant informal remittance sector.

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    9. Malaysias anti-money laundering legislation, the Anti-Money Laundering and Anti-Terrorism Financing Act 2001 (AMLA) is federal legislation that has application throughout the States and Federal Territories, including Labuan. Bank Negara Malaysia (BNM) is the competent authority for implementation of the AMLA, and, therefore, has powers to introduce measures that affect both domestic and offshore institutions.

    10. Malaysia takes a staged approach to implementing the AML/CFT regime across

    various sectors, business and professions, initially with suspicious transaction reporting (STR) obligations and then with customer due diligence (CDD), internal controls and record keeping obligations. The staged approach to AMLA implementation is guided by vulnerability of particular industries.

    11. A wide range of financial institutions and financial markets exist in Malaysia. 12. Malaysias offshore sector, the Labuan International Offshore Financial Centre

    (IOFC) includes offshore banking, investment banking, insurance and in

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