ANTI-MONEYLAUNDERINGANDANTI-TERRORISM FINANCING ACT (AMLA)

In recent years, money laundering has become a growing problem in a number of jurisdictions particularly in many emerging financial services sectors. Whilst initially viewed within the context of traditional financial crimes, the fight against money laundering has now broadened to include terrorist financing subsequent to the events of Sept 11, 2001. In response to mounting concerns over money laundering, the Financial Action Task Force (FATF) was established in 1989 by G-7. It is a global money laundering watchdog organization and has developed recommendations setting out the framework and measures that should be taken by governments around the world to combat money laundering and more recently, terrorist financing. Anti-Money Laundering Measures in Malaysia As part of its international obligations and commitments, Malaysia enacted its Anti-Money Laundering Act (AMLA) in 2001, which came into force on 15th Jan 2002. The AMLA complies with nearly all of the FATF Forty recommendations and amendments have been enacted to the AMLA pursuant to the Anti-Money Laundering (Amendment) Act 2003, which extends its application to cover offence of terrorist financing. AMLA covers the offence of money laundering, involves financial intelligence and creates mechanisms for reporting, investigating and recovering proceeds of unlawful activities, introduces the power for the freezing, seizure and forfeiture of the assets/proceeds of those engaged in money laundering and terrorism. The AMLA also consolidates the requirements on reporting institutions to report knowledge or suspicion of money laundering activities. Banks typically should appoint a compliance-officer, to monitor and supervise all obligations required under AMLA, including liaising with BNM and the FIU (Financial Intelligence Unit). Under AMLA, activities are monitored whereby any transactions above RM50,000 have to be reported to BNM. BNM has issued guidelines under BNM/GP9 on money laundering and Know Your Customer policy with reference to AMLA 2001. What is Money Laundering? Money laundering is a process of changing the identity of illegally obtained money into a legitimate source. The key stage for the detection of money laundering operations is where cash first enters the banking system in the form of cash deposits or exchange for value items. Failure to prevent the laundering of proceeds of crime permits criminals to benefit form their illegal activities and actions, and thus making crime a more attractive

proposition. Stages of Money Laundering (P, L, I) : There is no one method of laundering money. Methods can range from the purchase and resale of property such as cars, jewellery or houses, t passing money through a complex web of legitimate businesses and shell companies. Over the years, the methods of money laundering hve become increasingly complex and ingenious as criminals attempt to stay one stepahead of legislative reforms. Notwithstanding the variety of methods, the money laundering process is typically accomplished in three (3) stages: i) The Placement Stage This is the physical disposal of the initial proceeds derived from illegal activity in such a way that financial institutions (FI) and government authorities are not able to detect such as the smuggling of currency in bulk, mixing illicit proceeds with legitimate funds, depositing cash in small amounts and subdividing financial and commercial transactions. Other placement techniques include the structuring of cash payments through legitimate banks which may involves deposits or money transfers or purchase of money orders, cashiers or travellers cheques r other monetary instruments. ii) The Layering Stage This is a process of separating illicit proceeds from their source by creating complex layers of financial transactions designed to disguise the audit trail and provide anonymity, by moving these funds from one bank to another in order to conceal the source of ownership. Common layering techniques include multiple transfers of money, multiple transactions, payment of fake invoices, purchase or sale of same goods. Such transactions are usually channeled through shell companies or companies with nominee shareholders and/or nominee directors. iii) The Integration Stage The final stage provides apparent legitimacy to illegally derived wealth. If the layering process has succeeded, integration schemes reinsert the successfully laundered proceeds back into an economy in such a way that such proceeds, along with cross-border, legitimate appearing transactions such as purchase of bonds, shares and other investments, and thus turning the criminally derived wealth into legitimate funds. These three basic steps may occur as separate and distinct phases. They may occur independently, simultaneously or more commonly, they may overlap. How these basic steps are used depends on the available laundering mechanisms and the requirements of the criminal

organisations.

How to prevents money laundering within financial system? KYC Policy BNM as with other central banks have adopted the Basel Committee on Banking Regulations and Supervisory Practices Know Your Customer Policy to help prevent money laundering within the financial system. FI must have a reasonable belief of the true identity of their customers. The policy set out a number of principles that involve : i) Customer Identification it is required under Section 16(2) of AMLA which require an institution to verify, by reliable means, the identity, legal capacity, occupation or business purpose of any person when establishing or conducting business relations, particularly when opening new accounts or passbooks, ranting a safe deposit box, performing any cash transaction exceeding such amount as the competent authority may specify. Formal identification evidence for all customers should be obtained and recorded. It is recommended that the evidence be one or more of the following, preferably containing either a photograph or signature identity card, passport, birth certificate, drivers license and constituent documents, or any other official or private document such as identification by employer, banks statement. Other separate documents might be useful to confirm the permanent address such as recent utility bill. For companies or firms, need to establish the identity of the entity itself, its business activity and where appropriate the identities of owners, principal directors/partners or the sole trader by obtaining a copy of the certificate of incorporation, evidence of companys registered address and list of shareholders/directors. Records of the identification evidence must be maintained in accordance with the requirements of the AMLA. ii) Compliance with legislation and law enforcement agencies the Institution must comply with all laws, co-operate with enforcement authorities without breaching customer confidentiality. The institution need to promote close co-operation with monetary and lawenforcement authorities by creating a single point in the organization to report and liaise on all suspicious activity. Record keeping and system, the bank must maintain proper record keeping, system and test for compliance. iii) Staff Awareness and Training Section 19(2) of AMLA requires

institutions to implement internal programmes which includes: - Set-up of policy, procedures and control to combat money laundering including; a statement of policies, communication between management and staff, relating to money laundering which incorporates current legislation, and maybe reviewed on an on-going basis. - To provide the necessary education and training for staff/employees on the provisions of the AMLA, the main money laundering offences, its implications, preventive measures, handling suspicious transactions, the reporting obligations and disclosure with central bank (BNM), various risk involved, examples of suspicious transactions, actions to be taken and Know your customer policy. An independent audit function is required to check departmental compliance with such policies, procedures and controls relating to money laundering and other illegal activities. With regards to moving funds internationally by TT as may be typically required involving any illegal activities, this is typically conducted via SWIFT, and post 9/11 some intelligence services have now developed programmes that can trace the transactional history of movements of funds involving any individual/institution using SWIFT services.