Malaysia – Know Your Customer (KYC) Rules

 

 

Malaysia is a growing regional financial center and has a well-developed anti-money laundering/counter-terrorist financing (AML/CFT) framework. Malaysia‘s long porous land and sea borders and its strategic geographic position increase its vulnerability to transnational criminal activity, including money laundering and terrorist financing. Malaysia is primarily used as a transit country to transfer drugs originating from the Golden Triangle and Europe; and Iranian and Nigerian drug trafficking organizations are the main sources of illegal proceeds in Malaysia. Drug trafficking is the main source of illegal proceeds in Malaysia.

Malaysian authorities also highlight illegal proceeds from corruption as a significant money laundering risk. Other common predicate offenses generating significant proceeds in Malaysia include fraud, criminal breach of trust, illegal gambling, credit card fraud, counterfeiting, robbery, forgery, human trafficking, extortion and smuggling. Smuggling of goods subject to high tariffs is a major source of illicit funds. Customs‘ efforts to investigate invoice manipulation identified risks from trade based money laundering.

Free trade zones in Malaysia are divided into Free Industrial Zones (FIZ), where manufacturing and assembly takes place, and Free Commercial Zones (FCZ), generally for warehousing commercial stock. The FIZs are designed mainly to promote manufacturing industries producing goods mainly for export and are dominated by large international manufacturers attracted to the zones because they offer preferential tax and tariff treatment. Currently there are 17 FIZs and 17 FCZs in Malaysia. Companies wishing to operate in a FIZ or FCZ must be licensed.

Malaysia‘s offshore financial center on the island of Labuan is subject to the same AML/CFT laws as those governing onshore financial service providers. The financial institutions operating in Labuan are generally among the largest international banks and insurers. Offshore companies must be established through a trust company, which is required by law to establish true beneficial owners and submit suspicious transaction reports (STRs).

A number of terrorist organizations have been active on Malaysian territory, and authorities have taken action against Jemaah Islamiah and other terrorist networks. Terrorist financing in Malaysia is predominantly carried out using cash and relies on trusted, clandestine networks.

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KNOW-YOUR-CUSTOMER (KYC) RULES:

 

Enhanced due diligence procedures for PEPs:

 

PEP is an abbreviation for Politically Exposed Person, a term that describes a person who has been entrusted with a prominent public function, or an individual who is closely related to such a person. The terms PEP, Politically Exposed Person and Senior Foreign Political Figure are often used interchangeably

    • Foreign PEP: YES
    • Domestic PEP: YES

Malaysia – KYC covered entities

 

The following is a list of Know Your Customer entities covered by Malaysian Law:

    • Banks in the conventional, Islamic, and offshore sectors
    • Offshore listing sponsors and trading agents
    • Stock and futures brokers
    • Unit trust, investment fund, and futures fund managers
    • Money lenders and pawnbrokers
    • Money remitters
    • Charge account and credit card issuers
    • Insurance financial advisers
    • e-money issuers
    • Leasing and factoring businesses
    • Lawyers, public notaries, accountants, and company secretaries
    • Licensed casinos and gaming outlets
    • Registered estate agents
    • Trust companies, and dealers in precious metals and stones

Malaysia – Suspicious Transaction Reporting (STR) Requirements:

 

Number of STRs received and time frame: 16,643 in 2010

Number of CTRs received and time frame: Not available

The following is a list of STR covered entities covered by Malaysian Law:

    • Banks in the conventional, Islamic, and offshore sectors
    • Offshore listing sponsors and trading agents
    • Stock and futures brokers
    • Wholesale money changers
    • Unit trust, investment fund, and futures fund managers
    • Money lenders and pawnbrokers
    • Money remitters
    • Charge account and credit card issuers
    • Insurance financial advisers
    • e-money issuers
    • Leasing and factoring businesses
    • Lawyers, public notaries, accountants, and company secretaries
    • Licensed casinos and gaming outlets
    • Registered estate agents
    • Trust companies, and dealers in precious metals and stones

MONEY LAUNDERING CRIMINAL PROSECUTIONS/CONVICTIONS:

 

Prosecutions: 100 from 2004 to October, 2011
Convictions: 26 from 2004 to October, 2011

 

ENFORCEMENT AND IMPLEMENTATION ISSUES AND COMMENTS:

Reporting institutions are subject to strict customer due diligence (CDD) rules, and the Government of Malaysia (GOM) has adopted banker negligence laws that extend criminal liability to bank directors if their institution launders money or finances terrorism.

The use of informal remittances, which are not subject to AML/CFT controls, creates vulnerability for abuse by money launderers and terrorist financiers. Malaysia‘s competent authority for implementing its AML/CFT laws, Bank Negara Malaysia, should continue its efforts to encourage the use of formal remittances. Additionally, law enforcement and customs authorities should examine trade based money laundering and invoice manipulation and their relationship to underground finance and informal remittance systems. Malaysia should more aggressively identify, investigate and prosecute drug trafficking kingpins.

In the past 12 months, Malaysia initiated eight new terror finance investigations under its AML/CFT legal framework. Malaysia should take further steps to increase capacity to identify, investigate, and prosecute terrorist and proliferation financing.

Malaysia‘s Labuan Financial Services Authority (LFSA) is responsible for ensuring AML/CFT compliance on Labuan, the country‘s international offshore financial center. The Labuan Financial Services and Securities Act of 2010 gives LFSA more regulatory, investigative and enforcement authorities over offshore financial services companies licensed in Labuan and removes privacy restrictions on its access to Labuan-based account activities. In 2011, the Inland Revenue Board launched a wide-ranging investigation into money laundering and smuggling activities in Labuan.

In February 2009, LFSA issued an operating license to First East Export Bank (FEEB), a wholly owned subsidiary of Iran-based Bank Mellat, which in 2007 was designated by the United States under Executive Order (E.O.) 13382 for its proliferation finance activities. FEEB opened its Labuan operation in August 2009. The United States designated FEEB under E.O. 13382 on November 5, 2009, based on its relationship to Bank Mellat. On June 9, 2010, UNSCR 1929 listed FEEB as an entity subject to UN sanctions. The GOM ordered FEEB‘s assets frozen and prohibited Malaysian banks from transacting business with FEEB on July 14, 2010, in full compliance with UNSCR 1929. LFSA should remain vigilant to any attempts to use Labuan for proliferation and terrorism finance activities.