mutual evaluation report of malaysia

Anti-money laundering and counter-terrorist financing measures in Malaysia – Mutual Evaluation Report – April 2015 1

Anti-money laundering and counter-terrorist financing (AML/CFT) measures in Malaysia Fourth Round Mutual Evaluation

Key findings, ratings and priority actions September 2015 www.fatf-gafi.org/publications/mutualevaluations/documents/mer-malaysia-2015.html

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Anti-money laundering and counter-terrorist financing measures in Malaysia – Mutual Evaluation Report – April 2015

Key findings

Malaysia has a robust AML/CFT policy framework, reflecting strong political commitment, and well-functioning coordination structures and significant AML/CFT resources.

Malaysia has largely up-to-date AML/CFT statutory instruments, generally well-developed policies, institutional arrangements and implementation mechanisms.

Malaysia has a sound understanding of its risks and has integrated the outcomes of its two national risk assessments into its policies and priorities. However, it needs to improve its TF risk assessment, and strengthen the processes to disseminate risk findings.

2


Key findings

The FIU produces high-quality intelligence to a range of law enforcement agencies, but it needs to improve the usage of this financial intelligence to target investigations for at least all of the high-risk crime types.

Malaysia’s frameworks for ML investigations and prosecutions are sound but have produced minimal outcomes. Malaysia is not effectively targeting high-risk offences or foreign sourced threats.

Malaysia has excellent results in confiscation to combat tax fraud and good smuggling, but low confiscation levels in other high-risk areas and in international matters. The cross-border declaration regime is producing minimal results, reducing effectiveness.

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Key findings

To date, Malaysia has not prosecuted any TF cases, although it has undertaken TF investigations. Malaysia takes a security intelligence approach to terrorism prevention, rather than criminal justice action against the financiers.

Malaysia’s legal and institutional framework to implement targeted financial sanctions against terrorism is compliant and is being implemented with notable successes.

Malaysia has a targeted approach to educate and oversee non-profit organisations that are at risk to prevent their abuse for terrorist financing.

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Key findings

The legal framework for targeted financial sanctions against proliferation of weapons of mass destruction contains a significant legal gap in the delay of transposing UN designations into domestic law, which undermines effectiveness. Despite this, freezing results have occurred, supervision is taking place and vigilance measures are in place.

Malaysia’s legal framework for supervision is sound and regulators apply a risk-based approach to supervision. Supervisors have adequate resources, tools and well-trained staff. However, supervision of Malaysia’s large DNFBP population needs more resources. 17-Sep-15 5


Key findings

The regulatory framework for preventative measures is highly compliant, however many sectors are taking longer to transition from a rules-based to risk-based approach.

Malaysia’s is still developing its controls on legal persons and arrangements to ensure that the ‘corporate veil’ cannot undermine AML/CFT preventative measures and investigations, but there are some notable strengths, such as the public availability of Malaysia’s legal persons ownership registers and the requirement for trustees to declare their trustee status to banks.

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Key findings

Malaysia’s has aligned its international cooperation to its risk profile to some extent, but needs to increase its focus on the risks it faces from transnational crime. Malaysia receives far more mutual legal assistance requests and law enforcement agency cooperation requests than it makes, which may be a product of Malaysia’s lack of focus on foreign threats.

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Ratings – Effectiveness (1/3)

8

Immediate outcome of an effective system to combat money laundering (ML) and terrorist financing (TF)

Extent to which Malaysia has achieved this objective

1. ML and TF risks are understood and, where appropriate, actions co-ordinated domestically to combat ML and TF

Substantial

2. International co-operation delivers appropriate information, financial intelligence, and evidence, and facilitates action against criminals and their assets

Moderate

3. Supervisors appropriately supervise, monitor and regulate financial institutions and designated non-financial businesses and professions (DNFBPs) for compliance with AML/CFT requirements commensurate with their risks.

Substantial

4. Financial institutions and DNFBPs adequately apply AML/CFT preventive measures commensurate with their risks, and report suspicious transactions.

Moderate




5. Legal persons and arrangements are prevented from misuse for money laundering or terrorist financing, and information on their beneficial ownership is available to competent authorities without impediments

Moderate

6. Financial intelligence and all other relevant information are appropriately used by competent authorities for money laundering and terrorist financing investigations.

Substantial

7. Money laundering offences and activities are investigated and offenders are prosecuted and subject to effective, proportionate and dissuasive sanctions

Moderate

8. Proceeds and instrumentalities of crime are confiscated. Moderate





9. Terrorist financing offences and activities are investigated and persons who finance terrorism are prosecuted and subject to effective, proportionate and dissuasive sanctions.

Moderate

10. Terrorists, terrorist organisations and terrorist financiers are prevented from raising, moving and using funds, and from abusing the non-profit sector.

Substantial

11. Persons and entities involved in the proliferation of weapons of mass destruction are prevented from raising, moving and using funds, consistent with the relevant United Nations Security Council Resolutions.

Moderate


Anti-money laundering and counter-terrorist financing measures in Malaysia – Mutual Evaluation Report – April 2015 17-Sep-15 11

Ratings – Effectiveness

0

4

7

0

HighSubstantialModerateLow

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Ratings – technical compliance (1/5)

AML/CFT POLICIES AND COORDINATION 1. Assessing risks & applying a risk-based approach Largely compliant

2. National cooperation and coordination Compliant

MONEY LAUNDERING AND CONFISCATION

3. Money laundering offence Largely compliant

4. Confiscation and provisional measures Largely compliant

TERRORIST FINANCING AND FINANCING OF PROLIFERATION

5. Terrorist financing offence Largely compliant

6. Targeted financial sanctions related to terrorism & terrorist financing Compliant

7. Targeted financial sanctions related to proliferation Partially compliant

8.Non-profit organisations Largely compliant

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PREVENTIVE MEASURES 9. Financial institution secrecy laws Largely compliant

Customer due diligence and record keeping

10. Customer due diligence Compliant

11. Record keeping Largely compliant

Additional measures for specific customers and activities

12. Politically exposed persons Largely compliant

13. Correspondent banking Largely compliant

14. Money or value transfer services Compliant

15. New technologies Compliant

16. Wire transfers Compliant

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PREVENTIVE MEASURES (continued) Reliance, Controls and Financial Groups

17. Reliance on third parties Largely compliant

18. Internal controls and foreign branches and subsidiaries Compliant

19. Higher-risk countries Compliant

Reporting of suspicious transactions

20. Reporting of suspicious transactions Compliant

21. Tipping-off and confidentiality Compliant

Designated non-financial Businesses and Professions (DNFBPs)

22. DNFBPs: Customer due diligence Largely compliant

23. DNFBPs: Other measures Largely compliant

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TRANSPARENCY AND BENEFICIAL OWNERSHIP OF LEGAL PERSONS AND ARRANGEMENTS 24. Transparency and beneficial ownership of legal persons Partially compliant

25. Transparency and beneficial ownership of legal arrangements Partially compliant

POWERS AND RESPONSIBILITIES OF COMPETENT AUTHORITIES AND OTHER INSTITUTIONAL MEASURES

Regulation and Supervision

26. Regulation and supervision of financial institutions Compliant

27. Powers of supervisors Compliant

28. Regulation and supervision of DNFBPs Largely compliant

Operational and Law Enforcement

29. Financial intelligence units Compliant

30. Responsibilities of law enforcement and investigative authorities Compliant

31. Powers of law enforcement and investigative authorities Compliant

32. Cash couriers Largely compliant

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TRANSPARENCY AND BENEFICIAL OWNERSHIP OF LEGAL PERSONS AND ARRANGEMENTS (continued)

General Requirements

33. Statistics Compliant

34. Guidance and feedback Largely compliant

Sanctions

35. Sanctions Largely compliant

INTERNATIONAL COOPERATION

36. International instruments Largely compliant

37. Mutual legal assistance Largely compliant

38. Mutual legal assistance: freezing and confiscation Largely compliant

39. Extradition Largely compliant

40. Other forms of international cooperation Largely compliant

Anti-money laundering and counter-terrorist financing measures in Malaysia – Mutual Evaluation Report – April 2015 17-Sep-15 17

Ratings – technical compliance

16

21

3 0

CompliantLargely compliantPartially compliantNon-compliant


Priority Actions for Malaysia to strengthen its AML/CFT System

Conduct further assessment of risk to include more detailed consideration of – foreign sourced threats – terrorist financing – institution vulnerabilities – interconnectedness of organised crime and other

categories of crime. Enhance the distribution of the risk assessment

findings to raise reporting institutions’ awareness of ML/TF risks

Place greater focus on obtaining ML convictions and confiscation, in particular relating to high-risk offences and foreign sourced threats and profit taking levels of crime.

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Ensure the effective implementation of the cross-border cash reporting regime and use the outputs to support AML/CFT outcomes in relation to ML and TF investigations, asset tracing and international cooperation.

Strengthen and broaden law enforcement agencies’ use of financial intelligence, in particular in relation to TF, narcotics and other crime types beyond fraud. International cooperation will be an essential part of this.

Enhance criminal justice approaches to combat TF and seek to prosecute TF in parallel with terrorism offences and preventive actions. Further enhance outreach to the NPO sector to raise awareness of TF risks and mitigation strategies.

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Deepen implementation of targeted financial sanctions against terrorism.

Amend the legal framework for targeted financial sanctions against weapons of mass destruction to ensure the UN designations apply without delay. Strengthen the implementation of the framework.

Target outreach and supervision by supervisors and self-regulatory organisations to expedite the transition to a comprehensive risk-based approach, with a particular emphasis on risk-based customer due diligence. Enhance the resources dedicated to the supervision of DNFBPs to ensure adequate risk-based coverage of the large DNFBP population.

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Issue enhanced guidance on risk, including identification and mitigation of risks relevant to each sector and regulators expectations of reporting institutions’ practice with identified high-risk areas and TF.

Reflecting policy decisions taken by Malaysia, follow through with the planned amendments to the legal framework to require legal persons to keep and register beneficial ownership information and extend similar obligations to trustees.

Strengthen international cooperation to more closely align with Malaysia’s risk profile, focusing in particular on requesting formal legal cooperation to address the risks from transnational crime.

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