preserving the integrity of the financial system ... -...

AML/CFT Awareness

Preserving the Integrity of the Financial System:

Prevention of Money Laundering &

Terrorism Financing

Role of Company Secretaries / Lawyers as

Effective Gatekeepers

AML/CFT Awareness2

Learning Objectives

Co Secretaries / Lawyers’ roles as a Reporting Institution within Malaysia’s

AML/CFT Framework

AML/CFT requirements on Co Secretaries / Lawyers

How to comply with AML/CFT requirements

AML/CFT Awareness3

Presentation Outline

AML/CFT Requirements: International Standards and

Malaysia’s AML/CFT Regime

ML/TF Vulnerabilities of Company Secretaries / Lawyers

Recent AML/CFT Development

AML/CFT Requirements on Co Secretaries / Lawyers

Compliance to 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




ML/TF Vulnerabilities of Co Secretaries / Lawyers




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

8

AML/CFT Awareness9

Example: ML Case involving a lawyer’s trust A/C

• 2 offenders involved in importation of ecstasy laundered large amounts of cash

through a lawyer’s trust account

Brief facts of case:

1. A total of $400,000 cash was given to a lawyer who banked it into his firm’s trust a/c on

behalf of the 2 offenders;

2. The lawyer conducted no due diligence on the offenders and did not report STR;

3. It was the bank that (the lawyer’s trust a/c was maintained) submitted STR when the

lawyers deposited $100,000 on four (4) occasions;

4. The offenders had instructed the lawyer that the cash was being held on behalf of their

company registered in Gibraltar; and this alleged co was a shell company that ‘lent’ one of

the offenders the $400,000 in order to purchase a property in Auckland;

5. Another lawyer was engaged by the offender to facilitate the ‘loan’ and the purchase of the

property in offender’s name;

6. The funds for the purchase of the property therefore looked legitimate (a loan from a

company).

7. Effectively, 2 lawyers from different law firms were involved in the ML process.

Source: APG Typology Report 2015

AML/CFT Awareness

Example: ML Case involving a Company Secretary

• Syndicates use of 3rd parties to open and operate bank accounts to cloak identities

of ultimate beneficial owners, for cleansing of criminal proceeds

Brief facts of case:

1. Director of Company Secretarial Firm X (CFSX), served as a Nominee Director of 2

companies, established by CFSX as part of services provided;

2. A bank a/c was opened with the Nominee Director‘s father acting as the sole bank a/c

signatory;

3. A/C received > 120 inward remittances within 6 months from various jurisdictions and funds

were quickly remitted out to a neighbouring jurisdiction;

4. During investigation, the Director and her father denied any offence, stating that a 3rd party

had hired her to set up the 2 companies, and to open a bank a/c to receive funds from

allegedly legitimate overseas business clients. She argued that services provided by her

firm was legitimate company secretarial services;

5. The Director’s father admitted signing for all remittance transactions but denied actual

dealing with the funds;

6. Both denied knowledge of either the source or ultimate beneficiary of funds remitted out

from the bank a/c.

7. Both the director and her father were convicted of Money Laundering.

AML/CFT Awareness11








AML/CFT Awareness12

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 Awareness13

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 – Sectoral Risk Assessment

AML/CFT Awareness14

Monitoring AML/CFT

Compliance by Lawyers

• On-going on-site AML/CFT Examination by BNM; and

• AML/CFT e-Compliance Survey since 2010.

AML/CFT Awareness15








AML/CFT Awareness16

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

Applicable to ‘advocates and solicitors’ as defined in the Legal Profession Act 1976 and

person admitted as advocates pursuant to the Advocate Ordinance Sabah 1953 and

Advocate Ordinance Sarawak 1953 (collectively referred to as lawyers in Sector 5 Policy

Document), when they prepare or carry out the following activities for their clients:

Relevant AML/CFT Law, Rules & Regulations - Lawyers

No. GA Example of Services Provided by Lawyers

1 Buy and sell immovable property Prepare Sale & Purchase Agreement, Equipment Sale Agreement, Assignment of Tenancy/Lease

Agreement, and incidental services including holding of client’s money (e.g.: earnest deposit, RPGT

amount), and fixed deposit placement of funds pending payment to LHDN and completion of property

acquisition transaction

2 Manage client’s money, securities

or other property

Holding and managing client’s funds in separate account (e.g.: client / trust accounts) and use it in

accordance with client’s instructions and in relation to the provision of legal services; e.g.: appointment

of lawyer as executor/trustee for deceased’s estate

3 Manage accounts including

savings and securities accounts

Actual managing of client’s accounts (where instructed), in addition to providing legal advice to clients

on managing accounts

4 Organise contributions for the

creation, operation or

management of the companies; or

Prepare for or carry out transaction where investors contribute capital to a legal entity. Type of

services include offering of advices on establishing operations, setting up funds, initial public offerings

(IPOs); capital and/or corporate restructuring and other fund raising exercises

5 Create, operate or manage legal

entities or arrangements and buy

and sell business entities

Prepare Share Sale Agreement, acting for vendor or purchaser in S & P of company pursuant to

share sale agreement, conduct legal due diligence on target company prior to execution or completion

of transaction (if instructed), and managing actual S & P arrangement

AML/CFT Awareness17

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

Applicable to all ‘secretary of a company who is a member of a professional body

prescribed by the Minister OR licensed by the Registrar of Companies (s139 CA 1965)’,

when they, whether in person or through a firm or company, prepare or carry out the following

activities for their clients:

‒ Act as a formation agent of legal entities;

‒ Act as (or arrange for another person to act as) a director or secretary of a company, a

partner of a partnership, or a similar position in relation to other legal entities;

‒ Provide a registered office, business address or accommodation, correspondence of

administrative address for a company, a partnership, or any other legal entities or

arrangement;

‒ Act as (or arrange for another person to act as) a trustee of an express trust OR a

nominee shareholder for another person.

Relevant AML/CFT Law, Rules & Regulations – Company Secretaries

AML/CFT Awareness18

Key AML/CFT Reporting Obligations from Sector 5 Policy Document

1. Risk Profiling of Clients and

Services Provided

2. CDD and Other Requirements

3. AML/CFT Compliance Programme

4. Suspicious Transaction Report

(STR)

5. Combating Financing of

Terrorism

6. Consequences of Non-Compliance

AML/CFT Awareness19

Practical Guide on Key AML/CFT Requirements

No. What’s required Ref. as per

Sector 5 (Para)

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. 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), enhance DD and

on-going DD

• 13

c. Establish internal criteria (‘red flags’) to detect suspicious

transactions; and a reporting system for submission of

suspicious transaction report (STR)

• 23

S24

S25 -26

S27 - 32

S33 - 34

AML/CFT Awareness20

No. What’s required Ref. as per

Sector 5 (Para)

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

S35

S36

S37

Practical Guide on Key AML/CFT Requirements (2)

AML/CFT Awareness21

Consequence of Non-Compliance

1. Enforcement action can be taken against a reporting institution,

including directors, officers and employees for any 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) year 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 Awareness22








AML/CFT Awareness

Thank You

Link to AML/CFT Microsite in BNM Website:

http://amlcft.bnm.gov.my

http://amlcft.bnm.gov.my/

AML/CFT Awareness24

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 S19

AML/CFT Awareness25

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 Awareness26

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 S19

AML/CFT Awareness27

Customer Due Diligence (CDD)

1. Three elements:

Identification VerificationOn-Going Due

Diligence

i ii iii

• Identify• Sight ID document

• Take copy of ID document

• Review and update profile

• Transaction monitoring

AML/CFT Awareness28

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 Awareness29

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. Authorisation for any person to represent the company (letter of authority/ directors’

resolution); andiii. NRIC / Passport to identify the authorised person

(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 Awareness30

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 Awareness31

…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 Awareness32

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 S19

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 Political Exposed Persons

(PEP), individuals from high risk jurisdictions

6. Formation of shell companies that can then be used by money launderers

7. Avoiding personal contact without good reason

AML/CFT Awareness34

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.

Back to S19

AML/CFT Awareness35

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 S20

AML/CFT Awareness36

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 S20

AML/CFT Awareness37

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 S20

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