Legal compliance with the anti-money laundering and anti-terrorism financing for money services business in Malaysia

Abstract

Money laundering and terrorism financing (ML/TF) are heinous crimes that cause damage to financial stability and reputation of financial institutions. Thus, effective compliance with the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) can mitigate the adverse effects of ML/TF activities. In this respect, the money services business (MSB) sector must comply with the AML/CFT requirements as its nature deals with cash and one-off transactions, leading to its vulnerability to ML/TF risks. International organisations such as the United Nations (UN) and the Financial Action Task Force (FATF) have urged all countries to ensure the MSB sector under their jurisdiction complies with the AML/CFT requirements. In Malaysia, the MSB must comply with the AML/CFT requirements in accordance with the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (Act 631) (AMLATFPUAA), as well as Policy Documents issued by Bank Negara Malaysia (BNM). Nevertheless, the National Risk Assessment 2020 states that the MSB has continuously become one of the high-risk sectors abused for AML/CFT offences. Although the BNM has taken several legal enforcements, the MSB still faced issues related to AML/CFT non-compliance. Therefore, this study employed doctrinal legal research to analyse AML/CFT international countermeasures and national legal frameworks. This study also compares with the United Kingdom (UK) for benchmarking purposes. The cut-off date for legal analysis is July 2022 by analysing the primary and secondary legal frameworks of AML/CFT requirements. Additionally, semi-structured interviews were conducted with 15 respondents to identify the issues and challenges in AML/CFT compliance. The respondents for this study are the AML/CFT trainers and the money-changing and remittance licensees. The findings in this study identified several loopholes of law and a lack of technical and infrastructure facilities leading to AML/CFT non-compliance in the MSB sector. The findings accentuate the need for legal reformation to ensure AML/CFT compliance in the MSB sector. Hence, this study proposes amending the legal provisions under the AMLATFPUAA and Policy Documents. This study also provides recommendations to enhance the effectiveness of AML/CFT by providing a de-risking solution, robust legal enforcement and enhancement of public-private partnership (PPP). Finally, this study contributes to the existing literature in ensuring AML/CFT compliance for the MSB sector in Malaysia. This study also provides legal reformation to further enhance the AML/CFT requirements in line with international standards and best practices. Also, this study can assist the policymakers in resolving issues and challenges of AML/CFT non-compliance in the MSB sector. This study can benefit AML/CFT compliance for the MSB sector in Malaysia, thus enhance the country’s position of full compliance with the AML/CFT preventive measures.