Overview of the law
The primary legislation governing money laundering and terrorism financing in Malaysia is the Anti-Money Laundering and Anti-Terrorism Financing Act 2001 (“AMLATFA”). To counter the financing of terrorism, Sections 66C and 66D of the AMLATFA empower the Minister of Home Affairs (“Minister“) to make orders for the implementation of measures to give effect to resolutions adopted by the United Nations Security Council (“UNSC“; the Charter of the United Nations (“Charter“) confers on the UNSC primary responsibility for the maintenance of international peace and security. Pursuant to Article 41 of the Charter, the UNSC may decide on measures not involving the use of armed forces to be employed to give effect to its decisions, and may call upon the Members of the UN (including Malaysia) to apply such measures), and to obtain information on possession or control of terrorist property. Sections 66C and 66D had been invoked by the Minister through the passing of the Anti-Money Laundering and Anti-Terrorism Financing (Security Council Resolutions) (Al-Qaida and Taliban) Order 2011 (“Principal Order“) to give effect to the sanction measures (namely the freezing of assets) imposed by the UNSC against the Al-Qaida, Usama bin Laden and Taliban. The Principal Order incorporated the Al-Qaida Sanctions List established pursuant to Resolution 1267 (1999) of the UNSC, whilst the Amendment Order extends the sanctions list to include the Taliban Sanctions List made pursuant to Resolution 1988 (2011) of the UNSC. Both lists are accessible on the UN’s website here and here.
Requirements under the Orders
(a) No dealings with Specified Entities allowed
The Orders, read together with Section 66B(3) of the AMLATFA, provide that no person shall knowingly and directly or indirectly, among others:
- provide or collect any property with the intention or in the knowledge that the property is to be used by any entity specified under both the Al-Qaida Sanctions List and the Taliban Sanctions List (“Specified Entity“);
- deal in any property of a Specified Entity (including funds derived from such property) or provide any financial or other related service in respect of the property;
- make available any property or any financial or other related service for the benefit of a Specified Entity; and
- do anything that causes, assists or promotes, or is intended to cause, assist or promote, any of the above.
(b) Strict liability from making funds available to Specified Entities The Principal Order stipulates that it is an offence for any person who, except with the authority of the Minister, makes any funds available to or for the benefit of a Specified Entity or any other person acting on its behalf which may, upon conviction, attract liability to a fine not exceeding RM 1 million and/or or to imprisonment for a term not exceeding 1 year. (c) Positive disclosure of information It is a mandatory obligation under Section 66B(3)(d) the AMLATFA for immediate disclosure to be made to the Inspector General of Police of information relating to the commission of any offences under Section 66B. (d) Freezing of assets, etc. All reporting institutions (“Reporting institutions” as defined under the First Schedule to the AMLATFA include, among others, financial institutions, legal firms and accounting firms) are required to:
- freeze without delay, the funds of any Specified Entity, as well as the funds (“Funds” include financial assets, economic benefits and economic resources of any kind, deposits with financial institutions, securities, interest, dividends, etc., as well as documents evidencing an interest in funds or financial resources) derived from the property or undertaking, owned or controlled directly or indirectly by such Specified Entity; and
- determine if they are in possession or control of any property owned or controlled by or on behalf of any Specified Entity and report the result of such determination to the respective regulatory authorities at six-monthly intervals.
The frozen property or undertaking can be released once the Specified Entity is delisted from the Sanctions Lists. Kindly note that all reporting institutions are also subject to the requirements set out under applicable guidelines issued by the respective regulators (e.g., Bank Negara Malaysia and Securities Commission).
In the light of the higher penalty threshold of up to RM 3 million and/or imprisonment for a term not exceeding five years for violation of Section 66B(3) effective from 1 September 2014, it will be prudent for all persons to review both Sanctions Lists regularly, in order to ensure compliance with the requirements under law. Further, companies are advised to conduct due diligence on their counter- parties including customers and suppliers. Careful consideration should be given to the background of the party (including its origin/location and occupation/nature of business). In this regard, we would also highlight that any person who is a director, controller, officer or partner or concerned with the management of affairs may be made liable for any offence committed by a body corporate under the AMLATFA. Companies should, therefore, endeavor to put in place proper internal compliance programmes applicable to employees at all levels. Such programmes should include, but not be limited to:
- screenings for employees and third parties, including, but not limited to, customers and suppliers;
- targeted trainings for employees;
- written compliance policies that employee and third parties must read and sign, acknowledging that they have read and understood, before commencing employment (or in the case of third parties engagement with the company);
- written policies regarding due diligence steps to be taken in hiring and working with third parties that employees must read and sign, acknowledging that they have read and understood, before commencing employment.