RESOURCES
3. Malaysia
Current Compliance Landscape
Malaysia with its geographic position within Southeast Asia, porous land and sea borders, as well as emphasis on cash based economy is at moderate to high risk of terrorist financing activities as identified by 2012 and 2013 National Risk Assessments. This is partly due to unlicensed money changers and remittance agents which represent a point of vulnerability when it comes to terrorist financing, although Malaysia has enacted stricter regulation over the years to deal with this issue.
The FATF evaluated Malaysia AML / CFT measures in 2014 and found them to be sound, however they did advance further recommendations for combating ML. The report noted that while Malaysia has commenced a number of terrorist financing investigations, none had been prosecuted (yet it would be unwise for money changers to adopt a wait-and-see approach when it comes to safeguarding their business against terrorist financing activities). The FATF also recommended that there is room for improvement when it comes to bringing compliance in line with international standards by moving from a rule-based to a risk based approach.
Concerns about being a target for terrorist financing aside, there is great volatility in the Malaysian Ringgit (MYR) in recent times, representing both a temptation and a risk for money changers. Malaysia had formally defaulted on its debt when sovereign wealth fund 1MDB refused to make an interest payment of $50 million on its $1.75 billion debt on 26 April 2016. The MYR weakened significantly by 2.5% in just four days which reflected the global crisis of confidence in Malaysian sovereign debt.
Malaysian money changers might be tempted to stock up on the weakening MYR. After all, the MYR weakened 27% against the USD from MYR3.532 in May 2015 to MYR4.477 in September 2015 when the previous 1MDB scandal erupted. The MYR recovered after 1MDB survived the crisis.
Although money changers who stocked up on the MYR could make a profit, quasi-government regulator, the Malaysian Association of Money Services Businesses (MAMSB), which was launched on 9 January 2014, had warned Malaysian money changers against hoarding MYR previously on 22 July 2015.
Hoarding creates artificial shortages of MYR, which would hurt tourism and other sectors of the economy. MAMSB has already invited the public to submit their complaints to on their website if they are unable to get their hands on MYR. MAMSB would then investigate and take action against money changers according to its regulations. If that is insufficient, BNM can act to suspend licenses and impose other harsher measures.
Malaysia Law Highlights
1. Money Services Business Act 2011
Part II Section 6 states one of the eligibility criteria of being a money changer:
The applicant has appropriate, sound and adequate internal control mechanisms and compliance programmes to comply with the requirements of the Anti-Money Laundering and Anti-Terrorism Financing Act 2001 [Act 613] and other statutory obligations to which the applicant is or will be subject;
The Malaysian Central Bank requires their money changers to adhere to AML/CFT laws or risk losing their license.
Part II Section 4 states the penalty of money laundering:
(1) Any person who—
(a) engages in, or attempts to engage in; or
(b) abets the commission of, money laundering, commits an offence and shall on conviction be liable to a fine not exceeding five million ringgit or to imprisonment for a term not exceeding five years or to both.
(a) engages in, or attempts to engage in; or
(b) abets the commission of, money laundering, commits an offence and shall on conviction be liable to a fine not exceeding five million ringgit or to imprisonment for a term not exceeding five years or to both.
Money changers can be considered to be abetting in the commission of money laundering if they fail to screen their clients properly and assist a criminal organization.
Part IV Section 13 states the obligation to keep record:
A reporting institution shall keep a record of any transaction involving the domestic currency or any foreign currency exceeding such amount as the competent authority may specify.
Money changers are obliged to keep a record and these records must be easily retrievable for submission and inspection, thus highlighting the need for proper regulatory reporting to be in place.
Part VI Section 44 states that the penalty of being involved in terrorist financing:
Subject to section 50, where an enforcement agency, having the power to enforce the law under which a serious offence is committed, has reasonable grounds to suspect that an offence under subsection 4(1) or a terrorism financing offence has been, is being or is about to be committed by any person, it may issue an order freezing any property of that person or any terrorist property, as the case may be, wherever the property may be, or in his possession, under his control or due from any source to him.
Where an enforcement agency directs that frozen property be administered or dealt with, the person charged with the administration of the property shall not be liable for any loss or damage to the property or for the cost of proceedings taken to establish a claim to the property or to an interest in the property unless the court before which the claim is made finds that the person charged with the administration of the property has been negligent in respect of the administration of the property.
Money changers are obliged to keep a record and these records must be easily retrievable for submission and inspection, thus highlighting the need for proper regulatory reporting to be in place.
