After 1MDB, Malaysia steps up its AML/CFT efforts

Written by David Povey on Monday February 17, 2020

The cost of financial crime to the global economy is estimated at $1.45 trillion, according to Thompson Reuters report. Eye-watering even as an estimate, the figures are, however, no less alarming when broken down.

In the Asia-Pacific region for example, financial crime is thought to cost local economies a combined $166 billion (unsurprising, perhaps, to those who have been following the 1MDB trial). A tremendous new initiative coming out of Malaysia aims at a more joined up approach to combatting financial crime to help chip away at this sum.

Financial crime prevention

It is vital for us all to assist in fighting financial crime, whether by following company rules and procedures, or by being aware of wider legislation within jurisdictions. The risk-based approach allows for a business to determine how resources should be deployed to tackle the risks. This flexibility ensures that effort is focused on the highest risk areas for each business.

There is a risk however that it could lead to a fragmented approach within organisations, with compliance, ethics and risk management being treated as separate functions. Such a division would mean that these functions would not add up to a strategic whole.

If everyone isn’t working together and pulling in the same direction then operational gaps can emerge, and fraud can too easily be brushed under the carpet or seen as someone else’s problem. This scenario is magnified when it occurs on a country wide scale.

A new public-private partnership (PPP) initiative in Malaysia aims to bridge these divisions. Bank Negara Malaysia (BNM), Securities Commission Malaysia and a number of law enforcement agencies and financial institutions have combined so as to be more effective in detecting suspicious transactions by financial, and other reporting, institutions.

The Malaysian Financial Intelligence Network (MyFINet) was launched on 5 November 2019 at the 11^th International Conference on Financial Crime and Terrorism Financing.

Speaking at the Conference, Prime Minister Mahathir Mohamad said that law enforcement and financial institutions will adhere to Malaysia’s data protection legislation in its efforts to exterminate financial crimes.

‘A key component of PPP models throughout the world is the emphasis on personal data protection and confidentiality,’ he said, ‘benchmarked against the European Union General Data Protection Regulation (GDPR)’.

‘PPP promotes synergy in Anti-Money Laundering or Countering Financing of Terrorism measures. This is achieved through effective, timely and seamless sharing of financial intelligence from financial institutions for the purpose of crime prevention and law enforcement.

It’s more effective detection of suspicious transactions by financial institutions and other reporting institutions [which] would go a long way to eradicate financial crimes’.

Bank Negara Governor Datuk Nor Shamsiah Mohd Yonus in her speech noted that fighting financial crime requires a three-pronged approach: collaboration, reviewing reporting standards and strengthening defences.

‘These PPPs are vital as they allow the financial intelligence unit, law enforcement agencies and reporting institutions to leverage on intelligence-led collaboration and information sharing to detect financial crime and terrorism financing’, Nor Shamshiah said. ‘This will further support investigation and prosecution processes. For Malaysia, our goal is to formalise and further deepen what we have built over the years’.

Progress has been made

In 2018 Malaysia adopted the Malaysian Anti-Corruption Commission (Amendment) Act 2018 which introduced corporate liability in corruption as a legal concept, as well as the concept of ‘adequate procedures’ defence. Malaysia has also adopted ISO 37001 (Anti Bribery Management Systems).

ISO 37001 specifies requirements and provides guidance for establishing, implementing, maintaining, reviewing, and improving an anti-bribery management system.

These two implementations have brought improvements to fighting financial crime and the introduction of MyFINet is the next step in this process.

With all the parties involved now sharing data about customers in the right way, this can quickly assist an investigation and bring about a reduction in financial crime.

Malaysia has suffered with corruption over the last decade. According to a 2013 survey by Ernst & Young, Malaysia was ranked as one of the world’s most corrupt nations, and identified as a country most likely to take shortcuts to meet targets when economic times are tough.

This new initiative feels like a unique opportunity for the new government to demonstrate good governance, integrity and to clean up the culture of corrupt practices and power abuse that were prevalent in the past.

Fighting financial crime has been a clear focus of the current administration, who are backed by a population fed up with corruption. 

In Malaysia, corporate culture plays a big role in detecting economic crime. In a 2018 PwC survey, 42% of respondents viewed a strong corporate culture which encourages the use of detection methods like tip-offs and whistle-blowing hotlines, to be the most effective at rooting out crime.

In this survey, 55% of respondents reported that a decline in employee morale as the area of greatest non-financial impact – this ties in with the level of importance placed on a good culture of compliance.

Valuing and improving a culture within a company will lead to a reduction in internal crime. Bringing these different agencies together under the new MyFINet initiative will increase the synergy and further promote a positive culture of compliance across Malaysia.

Malaysia playing its part

When announcing MyFINet, PM Mohamad stressed that Malaysia must ‘continuously work in building these critical elements of trust and transparency, through open dialogues and collaboration among the relevant players, accelerate reforms and strengthen institutions, policies and legal frameworks.

This will ultimately enable Malaysia to effectively play its role in the global fight against financial crime and terrorism financing.’

This captures just how important this new initiative is, especially in light of the 1MDB scandal, which has upturned the country’s political status quo of more than half a century.

After attending the conference where the initiative was launched, ICA CEO Helen Langton was full of praise for this new approach. ‘At the ICA we are eager to champion new initiatives that support the global goal of reducing financial crime and increasing understanding and awareness of the importance of compliance. This well timed and well thought out development in Malaysia is really going to further that progress’.

Sources:

Thomson Reuters, Revealing the true cost of financial crime: Focus on Asia and the Pacific, 2018

PwC, Global Economic Crime and Fraud Survey 2018: Malaysia Report, 2018.

Ernst & Young, Asia-Pacific Fraud Survey Report Series 2013, 2013