Anti-Money Laundering Amendments Should Tighten Monitoring of Politically Exposed Persons

 As we are stepping into the brand new year of 2014, the people of Malaysia have witnessed series of anti-corruption and money laundering operation conducted by the Malaysian Anti-Corruption Commission (MACC).

On December 26, 2013, the MACC confirmed that a senior police officer with the title ‘Datuk’ had his statement regarding a RM6 million money-laundering case taken. Shockingly, the senior police officer was merely one amongst some 60 policemen that went under investigation as they were suspected for collecting bribes from operators of illegal business in the capital city.[1] Next, on January 7, 2014, two diplomats attached to the Malaysian Embassy to the United States in Washington are being investigated under the Anti Money Laundering and Anti-Terrorism Financing Act 2001 for making fraudulent claims more than two years ago. They are accused of making false travel and logistic claims amounting to US$126,000 (RM378,000) for their expenses at the APEC Summit in Hawaii in 2011.[2]

Think-tank Political Studies for Change (KPRU) welcomes MACC’s seriousness and earnestness in tackling corruption, particularly through the channel of money-laundering. Nonetheless, KPRU notes that the determination of MACC would most likely be less fruitful one as it is not yet given prosecutorial powers.

Highlight of Anti-Money Laundering Amendments

In this regard, attention should be placed on the existing law in dealing with financial crimes with economic effects like money laundering. In Malaysia, Anti-Money Laundering and Anti-Terrorism Financing Act 2001 has been enforced since January 15, 2002 to curb any money laundering activities through provision of money laundering offences, measures to prevent money laundering and terrorism financing offences, as well as asset forfeiture. [3]

On 4 December 2013, Anti-Money Laundering and Anti-Terrorism Financing (Amendment) Bill 2013 was brought to Parliament for the first reading. The bill is believed to be debated in the coming Parliament session in March. Prior to this, the Bank Negara Malaysia (BNM) has proposed to amend the Act in order to further strengthening the financial system in Malaysia. [4]

At the 5th International Conference on Financial Crime and Terrorism Financing (IFCTF 2013) ON October 23, 2013, Assistant Governor of BNM, Abu Hassan Alshari Yahaya said that BNM has issued revised policies on anti-money laundering in September 2013. According to him, the integral component of the revised anti-money laundering policies is the introduction of an obligation for reporting institutions to adopt a risk-based approaching in identifying, assessing, and understanding the money laundering and terrorism financing risks of respective reporting institutions. Proper assessment and understanding of the risks is said to be enabling reporting institutions to tailor an appropriate risk controls and establish proper policies and procedures to mitigate the risks.  Moreover, the revised policies also focused on refining Customer Due Diligence (CDD) requirements to reflect the varied risk levels. The revised policies also aimed to address implementation issues faced by both the reporting institutions and the supervisors as well as to incorporate Financial Action Task Force (FATF) requirements under the revised standards.[5]

In fact, there is replacement of section 14’s “Report by reporting institutions” and section 16’s “Customer due diligence” in the Bill brought to Parliament, which respectively imposes on a reporting institution an obligation to promptly report to the competent authority any suspicious transaction, and a reporting institution is not allowed to open or maintain any suspicious accounts. Overall, it imposes more stringent enforcement and heavier penalties such as extended sentence of imprisonment against whoever involved in illicit activities, in particular money laundering and terrorist activities.

Keep an eye on Politically Exposed Persons (PEP)

Notwithstanding, KPRU finds that the Anti-Money Laundering Act has somehow overlooked certain groups of people which are deemed to be “higher risk individual”, especially “politically exposed persons” (PEP) like a prime minister and his family members, a chief minister/menteri besar and his family members, a minister and his family members and so on. Above all, by the virtue of their position and they influence that they may hold, a politically exposed persons generally presents a higher risk for potential involvement in bribery and corruption, which are intertwined with money laundering in the Malaysian context.

According to the Anti-Money Laundering Examination Manual of United States’ Bank Secrecy Act, being one of the reporting institutions, bank should take all reasonable steps to ensure that they do not knowingly or unwittingly assist in hiding or moving the proceeds of corruption by senior foreign political figures, their families, and their associates.[6] Heavy fines would be imposed on those reporting institutions for conducting business with politically exposed person without following adequate and enhanced due diligence processes. As an example, Riggs Bank – a Washington, D.C. based commercial bank – was fined US$25 milion in 2004 for failing to report suspicious transactions in Washington held by the government of Equatorial Guinea and by Saudi Arabian diplomats. In addition, Riggs Bank was also investigated as a recent US Senate report has revealed that Riggs executives attempted to help former Chilean dictator, Augusto Pinochet disguise his assets from federal prosecutors when Pinochet’s accounts were ordered frozen by court orders as he was under house arrest in London after being indicted in Spain in 1998 on charges of crimes against humanity. Pinochet’s accounts at Riggs Bank were forced to be closed due to pressure from the Office of the Comptroller of the Currency (OCC) in 2002.[7]

In fact, the BNM Standard Guidelines on the Anti-Money Laundering Act (paragraph 5.10) does provide for enhanced due diligence measures for higher risk customers. As a minimum, the enhanced due diligence process involves obtaining more detailed information from the customer through publicly available information, particularly regarding the purpose of transaction and source of funds, and also to obtain approval from the senior management before establishing the business relationship with the customers. Apart from politically exposed persons, the other higher risk customers also comprised of high net worth individuals, non-resident customers, customers from locations known for their high rates of crime, as well as customers from countries or jurisdictions with inadequate anti-money laundering laws and regulations. [8]

Despite of the existing guidelines, Malaysian have yet to see enhanced enforcement on this particular issue. What remains common is that: reporting institutions such as banks and other financial institutions, as well as non-financial businesses and professions consisted of lawyers, accountants, company secretaries and licensed casino are still remained vulnerable to money laundering activities and continued to be exploited to conceal the source of ill-gotten funds, especially the illegitimate wealth of those bigwig like politically exposed person. Crucially, when great power and authority have been bestowed to those ministers in terms of law enforcement, is it possible that the Anti-Money Laundering Act can be enforced justly without fear or favour by taking actions on politically exposed person?

In conclusion, given the amendment of the Anti-Money Laundering Act has imposed obligation to report on reporting institution and provided customer due diligence, the guidelines by BNM on anti-money laundering and anti-terrorism financing should be taken into serious consideration and to be fully applied and utilized in combating related illegal activities. Law enforcement agencies should really work hand in hand with MACC, essentially by keeping a close eye on bigwig like politically exposed person, as a mean to weed out graft effectively.

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