Introduction

In recent years, there has been a rising interest to use developing countries for money laundering purpose. Developing regions like Southeast Asia are targeted. Most developing countries have characteristics that money launderers find attractive. This is because current legal and institutional frameworks on anti-money laundering are designed mostly by developed countries to address their needs. Therefore, loopholes exist when they are applied to developing countries. Unless the economic, social and political environments of these countries are appreciated, these loopholes will continue to be exploited by money launderers.

Before proceeding, it is necessary to define ‘money laundering’. The definition of money laundering seems universal or uniform as national legislations worldwide have usually adopted or modified the model proposed by international standard setters like Financial Action Task Force (FATF). However, in the context of Southeast Asia, loopholes exist even when it come to the technical definition.

The Financial Action Task Force (FATF) of the Organization for Economic Cooperation and Development (OECD) defines money laundering as

“[…] the processing of criminal proceeds to disguise their illegal origin”.

The UN described money laundering as:

“[…] activities linked with the conversion or transfer of property, or the concealment of the disguise of the true nature of property, knowing that this property is derived from drug trafficking.”

The Joint Money Laundering Steering Group defined money laundering as the "process whereby criminals attempt to hide and disguise the true origin and ownership of the proceeds of their criminal activities".[1]

The anti-money laundering legislations in Southeast Asia are generally in pari materia. The definition of money laundering in Malaysian Anti Money Laundering and Anti-Terrorism Act 2001 is as follow:

Section 3

“money laundering” means the act of a person who—

(a) engages, directly or indirectly, in a transaction that involves proceeds of any unlawful activity;

(b) acquires, receives, possesses, disguises, transfers, converts, exchanges, carries, disposes, uses, removes from or brings into Malaysia proceeds of any unlawful activity; or

(c)  conceals, disguises or impedes the establishment of the true nature, origin, location, movement, disposition, title of, rights with respect to, or ownership of, proceeds of any unlawful activity,

where—

(aa)as may be inferred from objective factual circumstance, the person knows or has reason to believe, that the property is proceeds from any unlawful activity; or

(bb) in respect of the conduct of a natural person, the person without reasonable excuse fails to take reasonable steps to ascertain whether or not the property is proceeds from any unlawful activity;

The first technical problem is with the definition of ‘unlawful activities’. Interviews with police officers involved in the prevention of white-collar crimes revealed that there existed a few grey areas when it comes to ‘unlawful activities’. These grey areas cover situations in which the legality or illegality of the disputed activity is not clear under the country’s national legislation. The most disturbing of these activities are unregulated political donation and ‘legalized money-laundering activities’.

In a developed country like the USA, the law on political donations is strict. If someone decides to contribute to a political candidate or party, that someone must know the limits placed by the Federal Campaign Finance law. Representatives of the candidate’s campaign committee must be aware of these laws and must inform the candidate of them. Failure to observe these laws on political donation can be a serious criminal offence. However, in most Southeast Asia countries, proper laws to regulate political donation are either lacking or non-existent.

In more serious case, a vague definition on bribery and corruption is exploited. For example, a money launderer needs to get permission from a minister for one of his companies. The money launderer uses his illicit money to purchase two expensive cars for the minister’s son. The minister then gives the requested permission. While this is a clear-cut case of corruption in developed countries, in many Southeast Asia countries, this is still a grey area due to lack of legislation regulating gifts and political donations to politicians and their family members.

In addition, lack of enforcement of anti money-laundering legislations is also a widespread problem. Having proper legislation is one matter, enforcing it is another.

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[1] Nicholas Ryder, ‘The financial services authority and money laundering” A game of cat and mouse’ (2008) Cambridge Law Journal, Vol. 67 (3), 635