Robust Anti-Money Laundering and CounterTerrorism Financing Framework, but More To Be Done Before Full FATF Membership

MEMBER FIRM OF BAKER & MCKENZIE INTERNATIONAL Financial Services and Regulation Kuala Lumpur Client Alert December 2015 Robust Anti-Money Laundering and CounterTerrorism Financing Framework, but More To Be Done Before Full FATF Membership Since the first Asia Pacific Group ("APG") mutual evaluation assessment on Malaysia in 2007, significant progress has been made to address areas of non-compliance and partial-compliance with the FATF 40 Recommendations. Parliament has enacted amendments to the Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (“AMLATFA”), and Bank Negara Malaysia ("BNM") and the Securities Commission ("SC") have issued specific guidelines for the various reporting institutions. This led the APG in its second mutual evaluation assessment on Malaysia to, amongst others, conclude that Malaysia has a robust legal AML/CFT framework with generally welldeveloped and implemented policies. APG Second Mutual Evaluation Report Malaysia has, since the last evaluation, updated almost all the technical elements of the preventive regime for money laundering and terrorist financing which, as a result, demonstrates high degree of consistency with the Financial Action Task Force ("FATF") Standards. Malaysia’s robust policy framework for anti-money laundering and counter financing of terrorism also reflects the well-functioning coordination structures between the regulators and the reporting institutions. BNM was lauded by the evaluators as being effective and well-resourced in carrying out its supervisory functions over the majority of reporting institutions, which carry the bulk of the money laundering and terrorist financing risk. The SC also received praise for having adopted a sound approach vis-à-vis AML/CFT. Improvements in supervision are required The APG evaluators have also urged the regulators to develop and pursue enforcement action. Although sanctions have been deployed by the regulators for violations of AML/CFT, a deepening of the enforcement action across the entirety of the reporting institutions is necessary to improve compliance. Investigations by, amongst others, BNM and SC have increased and it is anticipated that the regulators will increase their commitment to prosecuting AML/CFT offences. Reporting institutions should therefore review their AML/CFT policies and equally step up their internal review processes to ensure their organisation are in good stead to withstand the increased scrutiny by the regulators upon any AML/CFT audit. Beneficial ownership remains a concern The APG Second Mutual Evaluation Report maintained Malaysia's "partially compliant" status with respect to its effectiveness in identifying beneficial owners. While law enforcement and regulatory agencies have powers to obtain information on beneficial ownership, the timeliness and adequacy of such information is hampered by the current legislative framework - there is no legal requirement on companies or the authorities to maintain or record this information. This deficiency will be addressed through the revisions to the Companies Act 1965 (“CA”). The Companies Bill was tabled for the first reading at the lower house of the Malaysian Parliament on 19 October 2015 and if adopted, it will enhance the standards relating to the transparency of legal persons. For example, the Bill enables a company to require its members to disclose whether the shares which are registered in the name of that member are held by him as beneficial owner or as trustee and in event of the latter, to provide the company with particulars sufficient to identify the beneficial owner and the nature of his interest in the shares. Conclusion In order to strengthen its AML/CFT framework, and gain full admission to FATF, Malaysia needs to take a number of actions - intensify efforts to combat terrorist financing and foreign sourced threats through further amendments to the laws and regulations and tightening the supervision on reporting institutions, increase its focus on obtaining convictions for AML/CFT violations, ramp up its effectiveness in identifying beneficial owners and enhance the customer due diligence requirements on a risk-sensitive basis. Reporting institutions should therefore take immediate steps to ensure that their internal policies on AML/CFT are in line with the current regulatory standards, ensure that the policies are implemented and stay abreast with the regulatory developments that will be implemented by the supervisory authorities. www.wongpartners.com For further information please contact: Brian Chia +603 2298 7999 [email protected] Sue Wan Wong +603 2298 7884 [email protected] Level 21, The Gardens South Tower, Mid Valley City, Lingkaran Syed Putra, 59200 Kuala Lumpur ©2015 Wong & Partners. All rights reserved. Wong & Partners is a member firm of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an "office" means an office of any such law firm.