Malaysian Central Bank Records a Surge in Suspicious Transaction Reports and Scams

Malaysian deputy governor Marzunisham Omar has announced that the country’s central bank received around 250,000 suspicious transaction reports (STRs) in 2022 – representing a 30 percent increase from 2021. According to Omar, 70 percent of the reports pertained to the top five crimes posing risks for money laundering and terrorist (ML/TF) in Malaysia:

• Fraud
• Corruption
• Smuggling
• Illicit drug trafficking
• Organized crimes

Malaysia’s ML/TF Landscape: The Path Ahead

Omar highlighted the particular impact of fraud and corruption, with 72,000 scam cases resulting in over RM5 billion in losses since October 2022. Corruption in Malaysia was said to have become systemic – feeding into serious offenses such as environmental crime and human trafficking, as well as the four other high-risk crimes of fraud, smuggling, drug trafficking, and organized crime. 

The deputy governor also highlighted the importance of a robust anti-money laundering and counter-terrorist financing (AML/CFT) framework, commending Malaysia’s ongoing work against financial crime. Yet, he also urged the country to continue its efforts, saying “we cannot rest on our laurels. … [W]e are dealing with a rapidly evolving landscape – and our toughest challenges lie yet ahead.” 

Omar highlighted three ongoing challenges enabling financial crime in Malaysia:

• Anonymity and speed enhanced by technological advances – Online payment systems – and especially the pseudo-anonymity afforded by virtual assets – were cited as a growing risk for terrorist financing, in line with a related Financial Action Task Force (FATF) report in June 2023. 
• The challenge of borderless crimes to jurisdictional enforcement – With digital transactions and communication, criminals can extend their networks and activities across jurisdictions. Yet regulators are bound by jurisdictional lines, which can impede investigations. For this reason, the Malaysian financial intelligence unit (FIU) coordinates with more than 160 foreign FIUs to share critical information relating to ML/TF and predicate offenses. 
• Professional enablement of criminal activity – Because accountants, lawyers, and company secretaries often act as financial intermediaries for clients, they are exposed to unique financial crime risks. For example, their services can obscure the origin of funds and ultimate beneficial owners. Company secretaries were commended for their AML/CFT compliance improvements in the last two years. Still, the sector was called on to submit more STRs than the current annual average of 11.

Omar also recommended three focus areas as Malaysia moves into its future AML/CFT work: 

• Bolstering private sector capabilities – The deputy governor cited designated non-financial businesses and professions (DNFPBs) and financial institutions as Malaysia’s front line of defense against ML/TF. For this reason, he urged the further strengthening of robust AML/CFT frameworks supported by the right resources and tools.
• Taking advantage of technology – The “sheer volume and scale of information we are dealing with” is a major challenge for Malaysia, with Omar calling especially for machine learning and big data analytics to improve analysis and detection. He cited the Malaysian FIU’s use of machine learning to prioritize risks for incoming STRs and network analysis to link criminals across databases as a primary example.
• Strengthening the supervisory, regulatory, and legal regime – The deputy governor outlined several steps the Malaysian government is taking to bolster its AML/CFT framework further. These included increasing the country’s focus on assessing and mitigating proliferation financing risks, engaging in targeted financial sanctions, and applying group AML/CFT requirements to DNFBPs. Also to be updated are the legal definition of beneficial owners and risk assessments on legal persons and arrangements – with a particular focus on beneficial ownership.

Next Steps for Firms

Firms seeking to prepare for upcoming regulatory changes under Malaysian AML/CFT supervision can do so by considering several key areas:

1. Ensure a risk-based, up-to-date AML/CFT program – Omar has called for a robust AML/CFT framework in the private sector. As the country continues to strengthen its regime in preparation for its 2024 FATF Mutual Evaluation Report (MER), new regulations will likely reflect this. Firms – including DNFBPs – should ensure their enterprise-wide risk assessments (EWRAs) are updated, focusing on their firm’s unique risks and with an eye to Malaysia’s top five risks. Following the deputy governor’s advice, they may also choose to audit their current function to assess any gaps that could impede a risk-based approach.
2. Evaluate the current technology supporting AML/CFT processes – It is clear that Malaysia is moving towards using more cutting-edge technology – including artificial intelligence – to support the increasingly heavy data requirements today’s AML/CFT risks entail. In the private sector, firms may decide to mirror this shift, evaluating whether current tools can effectively respond to their dynamic and complex risks. Even the most well-designed AML/CFT policies and the most skilled analytical teams require the proper tools to detect and mitigate risks effectively. If a firm doesn’t see an immediate overhaul of a legacy technology system as realistic, it might consider an AI overlay. Such a solution can integrate with an existing tool to help prioritize risks and identify similar clusters of behavior that might otherwise have remained unseen.