AML/CFT Awareness1
Preserving the Integrity of the Financial System:
Prevention of Money Laundering &
Terrorism Financing
Role of Accountants as Effective Gatekeepers
AML/CFT Awareness2
Learning Objectives
Understand role of DNFBPs in prevention of money laundering (ML), terrorism financing
(TF) and proliferation financing (PF)
Awareness on ML/TF risks and application of risk-based approach
Implementation of AML/CFT reporting obligations as effective deterrence
AML/CFT Awareness3
Presentation Outline
Malaysia’s AML/CFT Regime
ML/TF Vulnerabilities & Recent Developments
AML/CFT Requirements
AML/CFT Awareness4
“A process of converting cash
or property derived from criminal activities to give it a legitimate appearance. It is the process of cleaning and disguising the criminal origin
of ‘dirty’ money”
“Process of
financing terrorist
activity either
through legitimate
or illegitimate
sources.”
Critical for a country to have an effective AML/CFT regime…
1. Reduces rewards associated with crime and hence, overall crime rates;
2. Increases government revenue, reduces leakages within the economy;
3. Preserves the integrity and reputation of the market place; and
4. Creates conducive environment for businesses and investors to flourish.
Money Laundering (ML) & Terrorism Financing (TF) defined
AML/CFT Awareness5
All countries are required to comply with the FATF international standards
UN Conventions and Resolutions
Financial Action Task Force (FATF), Headquartered in Paris [Malaysia is a ‘Member’]
All countries are members of a FRSB (except Iran and DPRK)
Principles under the Resolutions have been embedded into the FATF standards
The Vienna Convention
The Palermo Convention Security Council Resolution 1267 and its Successors
Security Council Resolution 1373
International Convention for the Suppression of the Financing of Terrorism
Issues & ensures compliance by jurisdictions to FATF 40 Recommendations (2012) & Methodology (2013)
APG -Malaysia is a ‘Member’ MENAFATF GIABA CFATF MONEYVAL GAFISUD EAG
Principles under the Resolutions have been embedded into the FATF standards
Implementation by FATF-Styled Regional Bodies (FSRBs)
Principles under these Resolutions have been embedded into the FATF standards
AML/CFT Awareness6
Since AMLA was effected in 2001, Malaysia has established a
comprehensive AML/CFT framework for prevention of ML/TF activities
FATF
Standards
• BNM the competent authority for AMLA
• Criminalisation of ML/TF i.e. 362
offences from 44 legislations
• Freezing, seizure & forfeiture of
properties
• Identify & respond to emerging
risks through National Risk
Assessment process
• Adequate investigation &
enforcement powers
• Fully-functional FIU in BNM
• AML/CFT Units set-up in key law
enforcement agencies (LEAs)
• Structured training programs for
financial investigators
• National Coordination
Committee for integrated
approach across 16
Ministries/Agencies
• MoUs and Strategic
Partnerships with Foreign FIUs
& Counterparts
• Strong networks with
International/regional bodies FATF, APG, Egmont Group
Responsibilities of Reporting
Institutions (RIs)
More than 43,000 RIs
Implement effective AML/CFT
compliance programme to detect
and deter ML/TF
Submit CTRs and STRs to
FIED, BNM
AML/CFT Awareness7
Presentation Outline
Malaysia’s AML/CFT Regime
ML/TF Vulnerabilities & Recent Developments
AML/CFT Requirements
AML/CFT Awareness
Reporting institutions (RIs) are the first line of defence
Criminals and
Criminal Activities
Financial Institutions
Law enforcement
Agencies (LEAs)
Non-bank FIs
DNFBPs
• Formation of complex company structures
• Placement of proceeds from unlawful activities
Supervisory authorities
BNM, SC, LFSA
Financial Intelligence Unit
FIED, BNMSubmit Cash Threshold & Suspicious Transaction
Reports
Collect, analyse,
disseminate financial
intelligence
Feedback on effectiveness of financial intelligence
Identify illicit activities and investigate crimes
Monitor & enforceAML/CTF
requirements
AML/CFT PREVENTIVE MEASURES• ML/TF Risk Assessment & Client Risk Profiling• CDD and Enhanced CDD on Clients• Record Keeping • On-going Monitoring of Clients’ Transactions• Promptly Detect & Report Suspicious Transactions
Supervisory authorities
BNM in collab. with licensing bodies & SROs
1
2 3
45
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AML/CFT Awareness
Example: ML Case involving an Accountant
Timothy Clifford, a methamphetamine manufacturer and dealer in the Waikato region, New
Zealand, used an accountant to receive cash from his drug dealings and convert it into various
purchases of farm land over a number of years
Brief facts of case:
1. Mr Clifford used two of his farm employees to collect and take cash from drug sales to the accountant’s
office;
2. The accountant had 12 accounts held at different banks in which he would deposit the cash. The
accounts were maintained for his accountancy practice, a gift shop he and his wife owned, his personal
accounts and a company account he was nominee director and shareholder of on behalf of Clifford;
3. The accountant went to different branches across the Waikato region and banked the cash into the
various accounts. Among the excuses that he gave about the source of cash were:
o Cash takings from client who owned a bar; and
o Cash takings from a stall he operated at a market.
4. The deposited cash would then be electronically transferred to his accountancy practice to be held on
behalf of Clifford;
5. With his accumulated wealth, Clifford purchased farm land in the name of his family trust. The trustee of
his trust was a corporate trustee company that the accountant was the director and shareholder of. This
trust management enabled Clifford to hide the fact that he owned the farm land. It was estimated that,
over 10 years, Clifford had accumulated $4.8 million from his drug offending.
Investigation Outcome:
• Clifford was sentenced to 12 years prison and his farm land was forfeited by the investigation authority;
• Whilst it was clear the accountant had engaged in money laundering, he was used as a witness against
Clifford in exchange for immunity from prosecution.
Source: APG Typologies Report 2014
AML/CFT Awareness10
Likelihood
POSSIBLE LIKELY VERY LIKELY
Exte
nt
of
Vu
lnera
bil
ity HIGH
MEDIUM
LOW
• Casino
• Gaming Companies
• Jewellers (DPMS)
• Accountants
• Offshore Trust
• Company Secretaries
• Real Estate
• Trust Companies • Lawyers
• Pawn Brokers
• Notaries
LP – onshore /
offshore
NPOs
National ML/TF Risk Assessment 2013 by the National Coordination Committee for ML
Sectoral Risk Assessment for DNFBPs and Other Non-Bank FIs
AML/CFT Awareness11
Key Findings from Mutual Evaluation Exercise 2014
• On-site visit by APG & FATF Assessors from 13/11 to 25/11/2014;
• Assessment made based on Technical Compliance and Effectiveness of Malaysia’s AML/CFT regime in line with FATF Recommendations & Methodology;
• Outcome – Malaysia has achieved high levels of technical compliance. But, significant improvements needed in: a. Implementation of AML/CFT preventive measures on risk-basis
by all RIs, especially DNFBP sector, b. Effectiveness of international cooperation for cross-border crime
prevention and investigations, c. Conduct of parallel investigations and prosecution of ML/TF
• Key Findings on DNFBPs (apart from casino): o All DNFBPs’ have low level of understanding on key ML/TF risks
and AML/CFT obligationso AML/CFT internal controls of DNFBPs are weak or inadequate, not
implemented on risk-sensitive basis
• Key Recommendation: Malaysia to strengthen oversight of DNFBPs, enhance outreach/guidance and enforcement on non-compliance, to improve implementation of effective preventive measures by DNFBPs
AML/CFT Awareness12
Presentation Outline
Malaysia’s AML/CFT Regime
ML/TF Vulnerabilities & Recent Developments
AML/CFT Requirements
AML/CFT Awareness13
Prevailing Laws and Guidelines in Malaysia:
Anti-Money Laundering, Anti-Terrorism Financing
and Proceeds of Unlawful Activities Act 2001 (Act
613) – AMLA
Anti-Money Laundering & Anti-Terrorism
Financing (Reporting Obligations) Order 2007
AML/CFT – Designated Non-Financial Businesses
and Professions (DNFBPs) & Other Non-Financial
Sectors (Sector 5) Guidelines - Revised & reissued
on 1 Nov 2013
Relevant AML/CFT Law, Regulations & Guidelines - Accountants
As specified in First Schedule of AMLA and
Sector 5 Guidelines, AML/CFT reporting
requirements extend to “Activities carried out
by a member as defined in the Accountants Act
1967 [Act 94]”
FATF’s expectations on implementation of
AML/CFT preventive measures by
reporting institutions (RIs):
Immediate Outcome 4 from FATF Methodology
2013
FIs & DNFBPs adequately apply AML/CFT preventive
measures commensurate with their risks, and report
suspicious transactions
• Understand the nature and level of ML/TF risks;
• Develop and apply AML/CFT policies, internal
controls and programmes to adequately mitigate
identified risks;
• Apply appropriate CDD measures to identify and
verify customers and BOs and conduct ongoing
monitoring;
• Adequately detect and report suspicious
transactions; and
• Comply with other AML/CFT requirements.
AML/CFT Awareness14
Key AML/CFT Reporting Obligations from Sector 5 Policy Document
1. Risk Assessment and Client Risk
Profiling
2. CDD, ECDD & Other Requirements
3. AML/CFT Compliance Programme
4. Suspicious Transaction Report
(STR)
5. Combating Financing of
Terrorism
6. Consequences of Non-Compliance
AML/CFT Awareness15
Practical Guide on Key AML/CFT Requirements
No. What’s required Paragraph Reference in
Sector 5 Guidelines
1. Appoint a Compliance officer • 22
• 23
2. Develop and implement internal programme, policies,
procedures and controls to guard against and detect any
offence under AMLA, including
• 22
a. Policies and procedures (P&P) on overall ML/TF risk
assessment, client risk profiling, managing and
mitigating risk identified, periodic update of risk
assessment, and documentation of risk assessment and
findings
• 12
b. P&P on customer due diligence (CDD), enhanced due
diligence (EDD) and on-going due diligence (ODD)
• 13
c. Establish internal criteria (‘red flags’) to detect
suspicious transactions; and establish a reporting
system for assessment and submission of suspicious
transaction reports (STR) in a secure manner
• 23
S19
S20 -21
S22 - 27
S28 - 29
AML/CFT Awareness16
No. What’s required Paragraph Reference in
Sector 5 Guidelines
3. When in ‘doubt’, submit STR • 23
4. Check new and existing client database against the UNSCR
Consolidated List and gazette orders issued by MOHA on
domestic list of sanctioned individuals and entities
• 25
5. Conduct AML/CFT awareness and training programmes
for employees
• 22
6. Put in place adequate management information system (MIS)
to complement CDD process
• 20
7. Keep all CDD information and records for at least 6 years • 21
8. Keeping ML/TF risk assessment up-to-date through
periodic review, and having appropriate mechanisms to
provide risk assessment information to the supervisory
authority, when required
• 12
S30
S31
S32
Practical Guide on Key AML/CFT Requirements (2)
AML/CFT Awareness17
Consequences of Non-Compliance
1. Enforcement action can be taken against a reporting institution and/or on
individual directors, officers and employees for serious non-compliance with
AML/CFT requirements;
2. Penalties upon breach include:
• General Offence (section 86) – Fine not exceeding RM1.0 million e.g. for
failure to conduct CDD and failure to adopt, develop and implement
AML/CFT compliance programme;
• Retention of Records – Fine not exceeding RM3.0 million or
imprisonment for a term not exceeding five (5) years or both
• Opening Account in False Name – Fine not exceeding RM3.0 million or
imprisonment for a term not exceeding five (5) year or both
AML/CFT Awareness
Thank YouPlease visit BNM’s AML/CFT Microsite
for more information.
http://amlcft.bnm.gov.my
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AML/CFT Awareness19
Roles and Responsibilities of Compliance Officer
WHO
High expectation on role and duty of AML/CFT Compliance Officer
RI’s compliance with AML/CFT requirements
Proper implementation of AML/CFT Procedures
Appropriate AML/CFT procedures and effective implementation
Communication channel between RIs/ staff/ department is secured and kept confidential
AML/CFT Compliance Programme awareness to all staff.
Internally generated STR are evaluated before submission to FIED
Identification of ML/TF risks associated with new products and services
DUTY – to ensure:
For individual RIs who operate within a group (e.g.: partnership):
responsible for own obligation under AMLA;
may appoint particular person (with management responsibilities) within such group to perform the role of compliance officer
1. Individual with management
responsibilities
2. Fit and proper
3. Necessary knowledge and
expertise
Back to S15
AML/CFT Awareness20
Customer risk Geography
Products, services,
transactions/ delivery channels
Other information
1 2 3
• Resident or non-resident
• Company or individual
• Company structure
• PEPs
Business location
Country of origin
Country on sanctions list
Etc.
Cash-based
Non face-to-face
Simple/ complex transactions
Etc.
4
• Suggesting higher risk, if any
RISK ASSESSMENT
RISK PROFILING
RISK CONTROL AND MITIGATION
AML/CFT Awareness21
Risk profile customer based on CDD info collected- Examples of CDD info that can be used as risk profiling factors
i. Customer risk
ii. Geographical risk
iii. Risk associated with Transaction / Delivery Channel
Document Client’s risk
profile
To freeze account if existing client,
to reject if at point of on-boarding a
new client.
Back to S15
AML/CFT Awareness22
Customer Due Diligence (CDD)
1. Three elements:
Identification VerificationOn-Going Due
Diligence
i ii iii
• Identify• Sight ID document
• Make a copy of ID document
• Review and update profile
• Transaction monitoring for consistency with known profile
AML/CFT Awareness23
Meeting AML/CFT Requirements - CDD– In practice, a quick guide
i ii iii
3. When is CDD required (Identification)?
Establishing business relations, where
applicable
If there is suspicion of ML/TF
Doubts on veracity & adequacy of previously
obtained CDD information
2. Info to obtain when conducting CDD
AML/CFT Awareness24
Identify and verify customer
Identify and take reasonable measures to verify beneficial owner (BO)
(a) Name, legal form and proof of existence(b) Powers that regulate and bind customers(c) Address of registered office
(a) Identity of the natural person who ultimately has a controlling ownership interest in a legal person
i. Identification of directors/shareholders with equity interest of 25% or more;ii. Proper authorisation for persons authorised to represent the company (letter of authority/
directors’ resolution); andiii. NRIC / Passport to identify the authorised person(s)
(b) If there is a doubt on the controlling interest - the identity of the natural person exercising control through other means
(c) Where there is no natural person identified- the identity of the natural person who holds the senior management position
Identification & verification of the BOs up to the level of natural persons who have control
Customer Due Diligence (CDD): On Legal Persons
AML/CFT Awareness25
When is Enhanced CDD Required?
Conditions
Requirements
Foreign PEPs
Customers from high risk jurisdictions (black
and grey list)
Domestic PEPs assessed as higher risk
1. Obtain CDD information
3. Inquire on source of wealth
and/or funds
4. Obtain approval from Senior Management
2. Obtain additional
informationClients assessed as
higher risk
Customer Due Diligence (CDD): Enhanced CDD
AML/CFT Awareness26
…are individuals who are or have been entrusted with prominent public
functions by their respective governments or organisations
Heads of State or of government, senior politicians, senior
government, judicial or military officials, senior executives
of state owned corporations, important political party officials
FOREIGN DOMESTICINTERNATIONAL ORGANISATION
Members of senior
management , i.e. directors,
deputy directors and members
of the board or equivalent functions.
Customer Due Diligence (CDD): On PEPs
PEPs do not include middle ranking or junior level individuals
AML/CFT Awareness27
Potential Customers Do not open the account or commence business relationship or
perform transaction
Existing Customer Terminate the business relationship
• Also, consider submitting a STR. Remember to document your rationale for submitting or
not submitting the STR
1. If the customer does not want to cooperate or refuses to provide information -What should a RI do?
2. If a RI finds a potential client to be suspicious, but believes that insistence oncompleting the CDD would tip-off the customer – What should a RI do?
• Proceed with the transaction, then immediately submit a STR to FIED, BNM
Failure to Satisfactorily Complete CDD
Back to S15
AML/CFT Awareness
Firm / RIs to establish red-flags or indicators of ML/TF
Transaction Risk:
1. Unusual or unnecessarily complicated business structures or transaction
paths
2. Use of large amount of cash
3. Unusual source of funding
4. Speed of transaction (without reasonable explanation)
5. Unexplained changes in instructions or business entities
6. Transactions where there are doubts about the validity of the documents
submitted
Customer Risk:
1. Transaction inconsistent with the individual’s known occupation or income
2. Unusual involvement of third parties / intermediaries
3. Use of legal entities that hide the identity of ultimate beneficial owner
4. Instruction outside normal geographical area, area of expertise, or client
market
5. Involvement of higher risk clients such as individuals from high risk
jurisdictions, foreign PEPs or domestic PEPs assessed as high risk etc.
6. Formation of shell companies and/or with unclear business purpose
7. Avoiding personal contact without good reason
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AML/CFT Awareness29
Suspicious Transaction Report: Reporting Mechanism
Internal reporting mechanism:
• RI to have in place policies on
duration taken by Compliance
Officer to review internal STR and
circumstances the timeframe can be
exceeded
TIPPING OFF:
• If RI has formed a suspicion of ML/TF but
believes that performing CDD process would
tip-off the customer, RI is permitted not to
pursue CDD, to proceed with the transaction
and immediately file a STR
Back to S15
Establish clear P&P to guide all staff, which should include:
Guidance on the type of client behavior or transactions that could be considered as
suspicious i.e. internal criteria/red-flags
What to do when doubt arises e.g. types of further scrutiny to conduct, consider
submitting STR if suspicion remains
Who to submit STR to within the firm and where to get STR forms i.e. sample/template
Method for submitting STRs - by staff to CO, by CO to FIED,BNM - to preserve
confidentiality
Timeframe for initial assessment by staff upon formation of doubt before raising STR to
CO, assessment by CO before submitting STR to FIED, BNM
Method for recording of assessment and decision not to submit STR received from staff
and secure filing of these documents for at least 6 years.
AML/CFT Awareness30
Suspicious Transaction Report: Info Required – When in doubt, submit STR
Useful
information for
investigation
by LEAs
• Name of Subject
• Identification No.
• Address• Contact No.• Employment details i.e. occupation,
name of employer
Details of Subject Reported
• Mode of transaction• Transaction Amount• Transaction Date
Transaction Details
• Reasons given by the reporting institutions on why they feel the conduct of account is suspicious
Description of Suspicious Transaction
Back to S16
AML/CFT Awareness31
Combating Financing of Terrorism
Updated and maintain list
Check on names Freeze/ Reject Report
1 2 3
• List under Section 66B (Domestic) and Section 66C (UNSC) (Part VIA)
• Other List (Optional)
on new customers, beneficial owners and beneficiary
existing customers
potential customers
take measures to ascertain identity –not ‘false positive’
freeze/ block fund for existing customers
reject transactions for new/ potential customers
4
• to FIED (including attempted transactions)
• inform relevant supervisory authority
Obligations under Part VIA of the AMLA applicable to any person
Back to S16
AML/CFT Awareness32
AML/CFT Training
• Tailored to staff level & nature of works;
• Frequency – correlate with level of risk
Record-keeping
• All records relating to transactions, CDD etcmust be properly maintained, for at least 6 years from the point of termination of the business relationship with the client
Management Information System
• Not necessarily automated
• To commensurate with nature, scale and complexity of operations
Other Requirements
Back to S16