FATF/APG assessment report of the anti-money laundering and counter-terrorist financing (AML/CFT) measures in Malaysia

1. 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

2. 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.
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3. Anti-money laundering and counter-terrorist financing measures in Malaysia – Mutual Evaluation Report – April 2015
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.17-Sep-15 3

4. Anti-money laundering and counter-terrorist financing measures in Malaysia – Mutual Evaluation Report – April 2015
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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5. Anti-money laundering and counter-terrorist financing measures in Malaysia – Mutual Evaluation Report – April 2015
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.
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6. Anti-money laundering and counter-terrorist financing measures in Malaysia – Mutual Evaluation Report – April 2015
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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7. Anti-money laundering and counter-terrorist financing measures in Malaysia – Mutual Evaluation Report – April 2015
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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8. Anti-money laundering and counter-terrorist financing measures in Malaysia – Mutual Evaluation Report – April 2015
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

9. Anti-money laundering and counter-terrorist financing measures in Malaysia – Mutual Evaluation Report – April 2015 9
Immediate outcome of an effective system to combat money
laundering (ML) and terrorist financing (TF)
Extent to
which
Malaysia has
achieved this
objective
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
Ratings – Effectiveness (2/3)

10. Anti-money laundering and counter-terrorist financing measures in Malaysia – Mutual Evaluation Report – April 2015 10
Immediate outcome of an effective system to combat money
laundering (ML) and terrorist financing (TF)
Extent to
which
Malaysia has
achieved this
objective
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
Ratings – Effectiveness (3/3)

11. Anti-money laundering and counter-terrorist financing measures in Malaysia – Mutual Evaluation Report – April 2015
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11
Ratings – Effectiveness
0
4
7
0
High
Substantial
Moderate
Low

12. 17-Sep-15
12
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

13. 17-Sep-15
13
Ratings – technical compliance
(2/5)
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

14. 17-Sep-15
14
Ratings – technical compliance
(3/5)
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

15. 17-Sep-15
15
Ratings – technical compliance
(4/5)
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

16. 17-Sep-15
16
Ratings – technical compliance
(5/5)
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

17. Anti-money laundering and counter-terrorist financing measures in Malaysia – Mutual Evaluation Report – April 2015
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Ratings – technical compliance
16
21
3 0
Compliant
Largely compliant
Partially compliant
Non-compliant

18. Anti-money laundering and counter-terrorist financing measures in Malaysia – Mutual Evaluation Report – April 2015
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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19. Anti-money laundering and counter-terrorist financing measures in Malaysia – Mutual Evaluation Report – April 2015
Priority Actions for Malaysia to
strengthen its AML/CFT System
 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.17-Sep-15 19

20. Anti-money laundering and counter-terrorist financing measures in Malaysia – Mutual Evaluation Report – April 2015
Priority Actions for Malaysia to
strengthen its AML/CFT System
 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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21. Anti-money laundering and counter-terrorist financing measures in Malaysia – Mutual Evaluation Report – April 2015
Priority Actions for Malaysia to
strengthen its AML/CFT System
 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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