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AML/CFT Awareness
Preserving the Integrity of the Financial System:
Prevention of Money Laundering &
Terrorism Financing
Role of Company Secretaries as
Effective Gatekeepers
AML/CFT Awareness2
Learning Objectives
Understanding on the ML/TF risks faced by company secretaries
Company Secretaries’ obligations as a Reporting Institution within Malaysia’s
AML/CFT Framework
Awareness and compliance to the AML/CFT requirements
AML/CFT Awareness3
Presentation Outline
Overview of ML/TF & the AML/CFT system
ML/TF Vulnerabilities of Company Secretaries
Recent AML/CFT Developments
AML/CFT Requirements on Company Secretaries
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
5
Why Criminals Launder Their Money?
To remove or distance themselves from the criminal activity generating the illicit proceeds, thus making it more difficult to identify & prosecute key perpetrators
To distance proceeds gained from conduct of criminal activity to prevent confiscation if the perpetrators is
caught
To enjoy the benefits of the illicit proceeds without bringing undue attention to themselves
To reinvest the profits in future criminal activity or in legitimate businesses
AML/CFT Awareness6
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 Awareness7
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 Awareness8
Presentation Outline
Overview of ML/TF & the AML/CFT system
ML/TF Vulnerabilities of Company Secretaries
Recent AML/CFT Developments
AML/CFT Requirements on Company Secretaries
Compliance to AML/CFT Requirements
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
9
AML/CFT Awareness10
Type of services Specific ML/TF risks
Formation agents• Forming company for criminal use• Forming company for laundering of illegal
proceeds (layering, integration)
Arrangement services(arrange for CS, director, partner)
• Concealing the identity of the criminals• Appearance of legitimacy & respectability• Conducting business transactions on behalf of
criminals
Providing registered/businessaddress, accommodation
• Concealing the location of criminals• Use of CS’s address for criminal activities (e.g.
fraud)
Trustee services
• Concealing the identity of the criminals• “Gatekeepers” when dealing with FIs• Executing trust arrangement for criminal
purposes
Nominee services• Concealing the identity of the criminals• Conducting transactions on behalf of criminals
Specific ML/TF risks in Company Secretarial Services
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.
11
AML/CFT Awareness12
Presentation Outline
Overview of ML/TF & the AML/CFT system
ML/TF Vulnerabilities of Company Secretaries
Recent AML/CFT Developments
AML/CFT Requirements on Company Secretaries
Compliance to AML/CFT Requirements
AML/CFT Awareness13
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 Awareness14
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 Awareness15
Presentation Outline
Overview of ML/TF & the AML/CFT system
ML/TF Vulnerabilities of Company Secretaries
Recent AML/CFT Developments
AML/CFT Requirements on Company Secretaries
Compliance to AML/CFT Requirements
AML/CFT Awareness16
Relevant AML/CFT Law, Rules & Regulations – Company Secretaries 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
Gazetted Activities Example of Services
1. Act as a formation agent of legal entities • Arranging for the establishment/incorporation of new
company/partnership
• Arranging for the sale of “off the shelf” company
2. Act as (or arrange for another person to act as):
i. a director of a company,
ii. a secretary of a company,
iii. a partner of a partnership, or
iv. a similar position in relation to other legal
entities;
• Arranging for natural persons to serve as directors or key
responsible persons within a company/partnership
3. Provide for a company, a partnership, or any other
legal entities or arrangement;
i. a registered office,
ii. business address or accommodation, or
iii. correspondence or administrative address
• Providing a registered company address or official
correspondence facilities
• Provide secretarial and administrative support to clients
and/or physical office space
4. Act as (or arrange for another person to act as) a
trustee of an express trust
• Providing trustee services, e.g. executing / managing the
trust, preparation of trust deed
5. Act as (or arrange for another person to act as) a
nominee shareholder for another person.
• Arranging for natural persons to represent the ultimate
beneficial owner of a company
AML/CFT Awareness17
Key AML/CFT Reporting Obligations from Sector 5 Policy Document
1. Understand ML/TF Risks & Risk Profiling of Clients
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 Awareness18
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 - 35
AML/CFT Awareness19
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 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
S36
S37
S38
Practical Guide on Key AML/CFT Requirements (2)
AML/CFT Awareness20
Presentation Outline
Overview of ML/TF & the AML/CFT system
ML/TF Vulnerabilities of Company Secretaries
Recent AML/CFT Developments
AML/CFT Requirements on Company Secretaries
Compliance to AML/CFT Requirements
AML/CFT Awareness
Fostering greater collaboration with CCM and Professional Bodies to enhance Co Secretaries’ compliance with AML/CFT requirements
Develop and maintain Co. Secretaries’ Database to
identify and monitor sectoral ML/TF risks
Launch of Self-Assessment Questionnaire in to assess
professions level of awareness and compliance to
AML/CFT requirements
More effective involvement of CCM & professional bodies in
increasing professions’ awareness on role in curbing
ML/TF activities
21
AML/CFT Awareness22
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 Awareness
Thank You
Link to AML/CFT Microsite in BNM Website:
http://amlcft.bnm.gov.my
23
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 S18
AML/CFT Awareness25
• Principle : ML/TF risks faced by one institution differ from another institution.• The intensity and extensiveness of risk management functions shall be proportionate to the nature,
scale and complexity of the reporting institution’s activities and ML/TF risk profile.
RISK ASSESSMENTRISK CONTROL AND
MITIGATION
Risk Factors to consider
Example of risk sub-factor
Customer • Composition & type of clients• % of high risk clients served (see slide 26)
Geographical • Physical location of firm & branches e.g. border town, high crime rates etc.
Business • Size of firm - e.g. based on no. of branches, client size, revenue etc.
• Payment method – cash?
Products & Services Offered
• Serve as nominee for companies owned by PEPs or high-networth individuals etc.
DeliveryChannels
• Face-to-Face (FTF)• Online services i.e. non-FTF
Example of controls:
minimum requirements or more stringent?
Intensity of CDD process
Frequency of monitoring
Overall policies & procedures
Level of monitoring by senior management
Frequency and intensity of audit
1 2
Overall ML/TF risk assessment for the institution
AML/CFT Awareness26
Example of template to support client risk profiling based on CDD info collected
To freeze account if existing client,
to reject if at point of on-boarding a
new client.
Back to S18
1. Customer risk (example) resident or non-resident Individual or company structure of company PEP or not? Domestic or foreign? types of occupation / nature of
business
3. Risk associated with Transaction / Delivery Channel (example) Mode of payment – cash, e-payment face-to-face or non face-to-face cross-border transaction occasional or one-off
No. NameType of Client
(individual/Com)
Occupation /
Nature of
Business
ID /
NationalityAddress
Type of
Services
No. of Services
Given
Amount Charged
(Fees /
Disbursement)
Mode of
payment
Communication
channel
ML/TF risk
rating
Check
Against
UNSCR List
(Y/N)
1
2
2. Geographical risk (example) Location / origin of customer High risk area/jurisdiction?
• Principle : ML/TF risks posed by customer differ from one to another
• Examples of CDD info (from existing client database) that can be used as risk profiling factors:
Resulting risk rating based on consideration of
risk factors
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?
Foreign PEPs
Customers from black listed jurisdictions
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 information
Clients assessed as higher risk (from risk
profiling)
Customer Due Diligence (CDD): Enhanced CDD
Customers from grey listed jurisdictions
assessed as higher risk
What to do ?
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 S18
AML/CFT Awareness
General 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
33
AML/CFT Awareness34
Type of services Specific indicators
Formation agents
• Unclear purpose for the formation of the company• Suspicious behaviour by the clients e.g. unwilling to provide CDD info• Unjustified nature and pattern of transaction/request – e.g. to hold /receive funds which
is not consistent with their profile.
Arrangement services• Doubtful reason for the arrangement • Excessive influence or involvement by unrelated third parties
Providing address/ accommodation
• Doubtful reason for the usage of CS’s address/premise• Excessive receipt of “unofficial”, suspicious mails• Frequent presence of suspicious individuals at CS’s premise• Conduct of unrelated or suspicious business activities at CS’s premise
Trustee services
• Complex/unusual trust arrangements• Numerous changes of trustee• Unusual involvement of unrelated 3rd parties• Questionable relationship among the parties involved• Unjustified source of fund
Nominee services
• Doubtful reason for the nomination• Extensive influence or involvement of unrelated third parties• Unjustified/suspicious instruction from the ultimate owner – e.g. to approve loans from
the company to specified person frequently and/or for sums which are large
Specific red-flags or indicators of ML/TF for company secretarial services
AML/CFT Awareness35
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 Policies & Procedures 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 (i) initial assessment by staff upon formation of doubt before raising STR to
CO, and (ii) assessment by CO before submitting STR to FIED, BNM.
Method for recording of CO’s assessment and decision not to submit STR received from
staff and secure filing of these documents for at least 6 years.
Back to S18
AML/CFT Awareness36
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 S19The STR form is available in Sector 5 Policy Document
AML/CFT Awareness37
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)
• The list is available at AML/CFT Microsite
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 S19
AML/CFT Awareness38
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 S19