This article first appeared in Forum, The Edge Malaysia Weekly on September 26, 2022 - October 2, 2022

Since the introduction of the Anti-­Money Laundering, Anti-­Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA), the government has taken a phased approach in imposing anti-money laundering reporting obligations on various intermediaries and entities in the country. In the last article (“Reporting money laundering: 5 things to know about the rules”, The Edge, Issue 1439, Sept 19), we talked about the importance of accountability of AML compliance from key staff within reporting institutions (RIs), right up to the responsibility of the board to oversee the establishment of anti-money laundering and counter terrorism financing (AML/CFT) policies. We also looked at the risk-based approach to enable optimum use of an RI’s resources. 

In this concluding part of the two-part article, we will delve into the importance of collecting customer data and conducting due diligence on an RI’s customer to identify any money laundering red flags, as well as the importance of the anti-money laundering enforcement in the financial ecosystem. 

The fulcrum on which AMLA compliance rests is the need to keep oneself well informed. The “know your customer” (KYC) process of conducting due diligence on a customer is critical in ensuring that an RI is not used to facilitate money laundering. To fulfil these requirements of knowing one’s customer at the outset of a business relationship, and continuing to be aware of red flags during the course of the relationship (ongoing customer due diligence), an RI’s approach has to be data-driven. 

Whether the client is an individual or a corporate entity, it is critical for an RI to obtain sufficient information about the client, the identity of beneficial ownership in the case of companies or other legal entities, the nature of business involved and whether they are politically exposed persons (PEPs). This can be done either through manual or automated approaches. Public registers provide important information about companies, such as shareholding, directorships, business conducted and financial information. The internet provides a wealth of information to independently verify information, and Google searches can yield useful information about potential or existing clients. 

Staying updated about countries, individuals and organisations that fall within the Financial Action Task Force’s (FATF) “call to action” list and United Nations Security Council sanctions lists as well as the Ministry of Home Affairs and the Ministry of International Trade and Industry’s Strategic Trade Office would keep RIs well informed if a particular client has been tagged for involvement in AML, terrorism financing (TF) or proliferation financing (PF). Data ana­lytic tools provided by third-party service providers enable the pooling and aggregation of information from various sources which can assist RIs in making connections between clients and PEPs, providing data on beneficial ownership or other useful information. 

The AMLA provides for both criminal enforcement for money laundering as well as civil forfeiture proceedings. Enforcement agencies are also given power under the act to freeze and seize property suspected to be the subject matter of money laundering or TF, subject to the prerequisites set out in the law. In several recent high-profile cases, the prosecution has preferred money laundering charges in the same trial as the predicate offences, such as the SRC trial involving former prime minister, Datuk Seri Najib Razak, who was charged with a single count of abuse of power under the MACC Act 2009 as well as three counts of criminal breach of trust under the Penal Code and three counts of money laundering under s.4(1) of the AMLA. 

The case resulted in a conviction on all seven charges with a sentence of 12 years’ imprisonment and a fine of 

RM210 million for the offence under s.23(1) of the MACC Act, and 10 years’ imprisonment on each of the three CBT charges and each of the three money laundering charges under AMLA, with the court ordering the custodial sentences to run concurrently. The decision was affirmed by the Court of Appeal and most recently by the Federal Court. 

Unlike criminal charges for money laundering, civil forfeiture proceedings are directed at the property which is the subject matter of money laundering. The principle in civil forfeiture cases is that there must be sufficient evidence before the court that the property is the subject matter or was used in the commission of an offence of money laundering or terrorism financing or are proceeds from a serious offence. 

In addition, if the person holding such property demonstrates that he/she is a purchaser in good faith for valuable consideration in respect of the monies, the forfeiture order cannot be made with respect to such property. The recent Court of Appeal decision in Badan Perhubungan Umno Negeri Pahang v Public Prosecutor and other appeals [2022] MLJ 572 demonstrates the application of this principle. 

The action taken by the US authorities for money laundering as a result of the flow of funds into the US, following several of the 1Malaysia Development Bhd (1MDB) bond issuances, has resulted in the conviction of Roger Ng, the former head of Goldman Sachs in Malaysia, and heavy penalties on Goldman Sachs as a firm. Ng faces as many as 30 years in prison. When announcing the filing of civil forfeiture actions associated with 1MDB in 2016, the US Attorney-General at the time, Loretta E Lynch stated, “Today’s case is the largest single action ever brought by the department’s Kleptocracy Asset Recovery Initiative, which was established by Attorney-General [Eric] Holder in 2010 to forfeit the proceeds of foreign official corruption and, where possible, to use the recovered assets to benefit the people harmed. This case, and the Kleptocracy Initiative as a whole, should serve as a sign of our firm commitment to fighting international corruption. It should send a signal that the Department of Justice is determined to prevent the American financial system from being used as a conduit for corruption.” 

The message is clear — global markets are inextricably linked, and a weak compliance culture will prove fertile ground for fraud. We simply cannot ring-fence our markets from being abused by bad actors and it is imperative that the risks surrounding money laundering and terrorism financing are appreciated and addressed. 

We are at the crossroads of several simultaneous shifts — geopolitics, the increasing disintermediation within the financial industry, the use of technology in financial markets, and the ease of access within global markets. All of these changes provide increased opportunities for money laundering and TF to occur, resulting in increased vigilance among regulatory authorities and strong enforcement action where markets are abused. 

Compliance with AML obligations is often seen as an impediment to smooth business transactions, a vexation to clients or simply a cost of doing business. Yet, as we can see from the discussion above, it is becoming apparent that AML compliance is a business need that cannot be overlooked.

Shanti Geoffrey co-heads Christopher & Lee Ong’s White Collar Crime & Investigations Practice Group, with extensive experience in the field of capital market regulation and enforcement of financial crime

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