BNM To Crack Down On Financial Institutions’ Compliance Failures

Bank Negara Malaysia (BNM) has recently identified two major offences committed by financial institutions which appear to contribute towards the proliferation of money laundering and terrorism financing activities.

These offences include the failure of financial institutions to conduct Customer Due Diligence (CDD) and sanctions screening upon client onboarding, both deemed mandatory by BNM for reporting institutions.

According to reporting by the New Straits Times, these measures were crucial for conducting risk evaluations, enabling effective Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) efforts targeting businesses or organisations.

In October of last year, Berita Harian reported that financial criminals were eluding authorities by utilising various techniques, including donating to charity organisations and using proxies and political funding to conceal wealth. These crimes tended to involve large sums of money, which were then reinvested to generate even larger profits.

Malaysian Anti Corruption Commission (MACC) chief commissioner Tan Sri Azam Baki had said that the criminals’ modus operandi were getting more advanced due to latest developments around the world.

He would also go on to add that a mastermind behind such criminal activities would likely operate a syndicate in order to reap the profits from money laundering activities using companies registered under the name of a proxy.

Federal Commercial Crime Investigation Department director Datuk Seri Ramli Mohamed Yoosuf said Bukit Aman had detected many criminal syndicates that were laundering money using the ‘layering’ system, or transaction layers.

This was done by registering a company through proper procedures, although the company was not involved in any form of trade.

Datuk Yoosuf also says that a syndicate would set up a company under the ruse of conducting a legitimate business, but according to the New Straits Times, that was not what happened.

Modus operandi

Earlier this year, Berita Harian reported that the Domestic Trade and Cost of Living Ministry had identified the three main modus operandi used by businesses involved in money laundering.

The ministry’s enforcement director-general Datuk Azman Adam had said that one such tactic involved depositing illegal funds into businesses and other individuals’ accounts, which were mixed with legitimate business earnings.

Criminals would also deposit illegal funds into other businesses or other individuals’ accounts, set up a shell company, buy assets and make investments, and pay for loans and insurance in an organised manner

BNM said the process of conducting customer due diligence (CCD) allows one to certify a client’s identity at a reporting institution. 

“It must be done on any individual conducting statutory obligation transactions such as contributions for the Employees Provident Fund and Inland Revenue Board,” BNM said.

BNM stressed the importance of a reporting institution to have employee screening procedures, training and awareness under an Anti-Money Laundering/ Countering the Financing of Terrorism (AML/CFT) programme.

“As a competent authority, BNM, under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 plays a role in preventing any involvement by reporting institutions in facilitating any criminal activity. This is done through scheduled enforcement, supervision and monitoring to ensure AML/CFT guidelines are followed,” it added.

BNM would also go on to say that violations of these laws in any manner by reporting institutions or by any entity will lead to appropriate action being taken, including corrective measures and punitive action.