Malaysia

Malaysia

Malaysia, a middle-income country, has transformed itself since the 1970s from mere producer of raw materials into an emerging multi-sector economy. Malaysia aims to achieve high-income status by 2020 and to move farther up the value-added production chain by attracting investments in Islamic finance, high technology industries, biotechnology, and services. Exports - particularly of electronics, oil and gas, palm oil and rubber - remain a significant driver of the economy. As an oil and gas exporter, Malaysia has profited from higher world energy prices.

The oil and gas sector supplied about 35% of government revenue in 2011. Bank Negera Malaysia (central bank) maintains healthy foreign exchange reserves, and a well-developed regulatory regime has limited Malaysia's exposure to riskier financial instruments and the global financial crisis. Nevertheless, Malaysia could be vulnerable to a fall in commodity prices or a general slowdown in global economic activity because exports are a major component of GDP.

As a growing regional financial center, Malaysia has a well- developed anti-money laundering/counter-terrorist financing  (AML/CFT) framework. Malaysia’s long porous land and sea  borders and its strategic geographic position increase its  vulnerability to transnational criminal activity, including money  laundering and terrorist financing. Malaysia is primarily used as a transit country to transfer drugs originating from the Golden  Triangle and Europe; and Iranian and Nigerian drug trafficking  organizations are the main sources of illegal proceeds in  Malaysia. Drug trafficking is the main source of illegal proceeds in Malaysia.

Malaysia is not a regional center for money laundering. However, its formal and informal financial sectors are susceptible to abuse by drug traffickers, financiers of terrorism, and criminal elements. Malaysia’s relatively lax customs inspection at ports of entry and free trade zones, its uneven enforcement of intellectual property rights (evidenced by rampant sale of pirated goods like DVD and Blue-rays), and its offshore financial services center serve to increase its vulnerability.

Malaysian authorities also highlight illegal proceeds from corruption as a significant money laundering risk. Other common predicate offenses generating significant proceeds in Malaysia include fraud, criminal breach of trust, illegal gambling, credit card fraud, counterfeiting, robbery, forgery, human trafficking, extortion and smuggling. Smuggling of goods subject to high tariffs is a major source of illicit funds. Customs’ efforts to investigate invoice manipulation identified risks from trade based money laundering.[1]

In 2010 alone, the Bank Negara Malaysia Deputy Governor Datuk Zamani Abdul Ghani revealed that 94 money-laundering cases are in various stages of prosecution with more than 3,000 charges involving proceeds amounting to RM1.2 billion.[2]

In conformity with prevailing global aspirations, and in order to fortify steps against terrorists and other illegal money laundering activities, the Malaysian Government introduced the Anti-Money Laundering Act, 2001 (AMLA). The Central Bank of Malaysia, Bank Negara Malaysia (BNM) has been appointed by the competent authority for the purpose of combating money laundering activities under the above act which came into effect on 15 January 2002.

The AMLA, effective from January 2002, criminalized money laundering and lifted bank secrecy provisions for criminal investigations involving more than 150 predicate offenses.[3] Malaysia’s Islamic finance sector, accounting for approximately 11 percent of total deposits, is subject to the same strict supervision to combat financial crime as the commercial banks. A combination of legacy exchange controls imposed after the 1997-98 Asian financial crisis and robust regulation and supervision by the Central Bank makes the Islamic financial sector as unattractive to financial criminals as is the conventional financial sector.

Malaysia’s offshore banking center on the island of Labuan, is more exposed to money laundering and the financing of terrorism than the rest of the formal financial sector in Malaysia. However, its regulation of the offshore banking sector has improved over the past few years.

Malaysia’s offshore financial center on the island of Labuan is  subject to the same AML/CFT laws as those governing onshore  financial service providers. The financial institutions operating in Labuan are generally among the largest international banks and insurers. Offshore companies must be established through a trust company, which is required by law to establish true beneficial owners and submit suspicious transaction reports (STRs).

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[1] The US-based financial watchdog Global Financial Integrity (GFI), in its 2010 report, ranked Malaysia second place out of the 150 developing countries surveyed, recording a loss of US$64.38 billion (RM196.84 billion) worth of illicit monies in 2010 alone. Topping the list was China, which recorded some RM1.3 trillion in losses in 2010.In March, 2011, Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz said the Money Business Services Act would be tabled to enable the central bank to address the outflow of funds from the country. The Act came into force on December 1 2011.

[2] ‘Almost 100 money laundering cases bring prosecuted’ The Malaysian Insider (Kuala Lumpur: 19 July 2010)

[3] The law also created a financial intelligence unit (FIU) located in the Central Bank, Bank Negara Malaysia (BNM).The FIU is tasked with receiving and analyzing information, and sharing financial intelligence with the appropriate enforcement agencies for further investigations. The Malaysian FIU works with more than twelve other agencies to identify and investigate suspicious transactions. The Royal Malaysian Police, the Malaysian Anti Corruption Commission and the Royal Customs Malaysia have also established dedicated anti money laundering/counter financing terrorism units to give focus to money laundering and terrorism financing investigations.