The viability of enforcement mechanisms under money laundering and anti-terrorism offences in Malaysia

Author:Guru Dhillon
Position:Faculty of Law, Multimedia University, Melaka, Malaysia
SUMMARY

Purpose – The purpose of this paper is to give a better insight to the legal society, practitioners and legislators of the working mechanisms of money laundering activities, as well as the functionalities of the Anti-Money Laundering and Anti-terrorism Financing Act 2003 (AMLATFA) in Malaysia, in curbing money laundering and terrorism funding activities. At the same time, the paper provides an overview on... (see full summary)

 
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Introduction

The shockwave of the terrorist attacks on 11 September 2001 has entirely merged the two distinct processes – money laundering and terrorist financing ( Munshani, 2008 ). The FATF at the time of the incident with massive support from 130 states and international organizations formulated a system of voluntary regulatory structures which includes amongst others, the obligations to report any suspicious financial activities and transformed such obligations into a mandatory procedure1. The efforts could then be seen in the October 2001 issue of “Anti-Money Laundering of Nine Special Recommendations on Terrorist Finance”2.

The changes that have changed the entire system of the international world have concurrently caused the changes to the Malaysian legislation. In July 2001, the government gazetted the Anti Money Laundering Act (AMLA)3 as it was then referred to. The Government of Malaysia did not just stop there but continued making amendments4 as an effort to curb with the uprising money laundering by terrorist cell groups. Subsequently this Act was then amended with special Recommendations on Terrorist Financing and the Act is now commonly referred to the Anti-Money Laundering and Anti Terrorism Financing Act 2001.

Money laundering has been criminalised by the AMLATFA. The provisions in this Act also bridged the boundaries set by the bank secrecy5 provisions that previously have impeded many criminal investigations involving clients of financial institution. Such changes have been absolutely necessary in order to ensure that money launderers be brought to justice by effective enforcement carried out with the co-operation of the banking and financial institutions in reporting any forms of suspicious activities to the Bank Negara.

In general, the AMLATFA contains the offences involving money laundering which include amongst others the procedures of investigations, the mandatory obligation of reporting and recording of evidence as well as the forfeiture of properties and assets of the suspected individuals corporate bodies. The AMLATFA provides the power to freeze and seize any property when there is existence of a reasonable ground to suspect any gains or any involvement in the money laundering activities6.

Money laundering

This paper will first focus in the discussion involving money laundering activities as this will provide the milieu understanding of how money laundering is associated with financing of terrorism ( Morais, 2002 ). In this context, money laundering activities are considered as the most adequate and probably most exploited form of activity in the role for financing terrorism. It was once being viewed that money laundering and terrorism funding were two different legal, financial and political issues but since late 2001 then has evolved into a merged system in our current modern society7.

Definition of money laundering

According to the FATF8, money laundering could be best defined as “The processing of the proceeds of crime so as to disguise their illegal origin”. Money laundering is also found to have its own definition in the 1988 Vienna Convention which states as any form of activities that involve conversion or transfer of property at the state of mind of knowing or aware of such property is derived illegal activities as stated in the sub-paragraph (a)9 of the said document also stated for the same convention that money laundering involves any individuals or bodies participating in the act of concealing the origin of any property or asset.

Generally, organised crime groups, drug syndicates as well as corrupted politicians are involved in the activities of money laundering. It is due to the need to transfer large sum of money which are “dirty” or illegal to another place to avoid detection, and transformation of such monies into clean funds is being carried out.

Why launder money

The next question arises: why would they do so? The answer to it is simple. The money that was transformed was initially from illegally illicit means monies would be prime for the law enforcing to first, detect and reveal of illegal activities and second, to the court when charging these individuals of the illegal dealings. Other reasons to be used with evidence bolstering money laundering activities are to protect such assets and funds from seizure and forfeiture by the law enforcement authorities as well as avoiding large the payments.

It is worthy to have an awareness that national and international legislations in curbing money laundering are not simply to put a halt to money laundering. The true nature of these legislations are to end illegal activities associated with money laundering which includes amongst others fraud, illegal prostitution as well as narcotic drug trafficking.

Money laundering is the livelihood of the criminal activities because of the effectiveness of the act to have concealed the criminals and their activities which provide them with a safe haven to have use and invest the “ill-gotten” money to expand their empire and dominance of crimes globally. Without a doubt, money laundering is a peril and if it is left legislated and enforced against, paralyse the financial system of a country as well as being detriment to the national and international security globally and hence, it would indeed very important to have established counter measures which are flexible to curb with the ever-evolving money laundering activities and arm the law enforcement authorities with effective tools to detect these illegal illicit activities and proceed to whereas prosecution of the said crime well in theory anyway.

Understanding the different stages of money laundering

In common practise, there will be three distinct stages of money laundering:

  • Placement. This is the first stage of money laundering when the criminal physically disposes or deposits the illegal gains normally in the form of cash into local financial institutions10 such as investing in unit trusts, fixed deposit as well as banking accounts. The usual practise of the money launderers is that they will separate these illicit gains into smaller fragments or portions before the money is being deposited into a bank account in order to prevent the “red flag” or trigger detection by the financial enforcement. The cash proceeds normally will be deposited into the off-shore institutions such as in Labuan as well as Isle of Man, or will be used it to purchase things or products normally tagged as high price. The items placement stage is considered as the most important focus of money laundering detection for two reasons. First, it is considered as the weak link in the money laundering process ( Sandhu, 2000 ). Second, the placement stage is when the proceeds are the most proximate to the so-called perpetrator and therefore, it would be the most effective and successful in identifying and tracking down the “perpetrator” at this stage ( Sahamid, 2008 ).
  • Layering. The second stage is layering after the funds have entered the financial system. There will be a series of transactions involving conversion, movement or transfer being carried out at this stage.This stage is to ensure that the link between the original source of fund (normally illegal) will be concealed and disguised by forming complicated layers of transactions which is well-designed to prevent any traces in terms of “audit trails” ( Security Commission of Malaysia, 2004 ). These funds will normally be transferred among various accounts of different name holders domestically as well as globally which increase the complexity and difficulty of detecting them.
  • Each transaction could be undergoing dilution in amount or in another words being reduced into smaller proportions in order to destroy the audit trail. Activities such as trading in the financial markets or through investment could accomplish such objectives of the perpetrator. The difficulty and complexity are multi-folded when these funds are transferred across transnational borders especially to countries with low-compliance and weak enforcement of money laundering laws, or countries with heavily adhered banking secrecy provisions. The other limitation arises when these countries involved in the transactions of money laundering do not comply to the international conventions and FATF recommendation have do not co-operate to share information which disallowing authorities the link to the audit trail is of have many launderers will be halt right there.

  • Integration. It is the final part of money laundering where the illegal funding is then transformed into a legalised fund without leaving a trace to the illegal source of the said income. These illegal funding will make its path to legitimate or legal organisations by investing in legalised areas of the economy. For instance, this money could be invested into real estate as well as purchase of jewellery and business investment. Hence, the process of converting “dirty money” to “clean and legitimate fund” is completed.
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