A Guide to Anti-Money Laundering for Crypto Firms
A top executive at Malaysia’s central bank has warned that increasingly sophisticated financial tools and products are creating new and growing challenges for the country’s anti-money laundering, combatting the financing of terrorism and proliferation financing (AML/CFT/PF) measures.
Bank Negara Malaysia Deputy Governor Marzunisham Omar told delegates at the 23rd Asia/Pacific Group on Money Laundering (APG) Typologies Workshop: “As the shift towards digitalization, especially in the financial industry, accelerates, the emerging risks presented are intensifying.
“Remaining reactive and defensive would limit our opportunity to proactively shape the orderly development of the financial landscape while managing any potential ML/TF/PF risks that accompany it.”
He added that it was crucial to adopt new approaches and tools such as data analytics and artificial intelligence to elevate surveillance and enforcement capabilities.
The Asia/Pacific Group on Money Laundering (APG)’s yearly typologies report cites cryptocurrency laundering as an emerging risk to evading sanctions and raising revenue in the region, highlighting ransomware campaigns as a prevalent means of obtaining virtual currency.
Compliance teams should also monitor the emerging risks surrounding deepfake technologies, which use a digital mask, overlaid on someone’s face, to look and sound like the person they are purporting to be. In October 2021, criminals used a combination of a deepfaked voice and spoofed emails to steal $35m from a large UAE-based bank.
Regulations in Malaysia
The fintech industry in Malaysia – which has the third-largest economy in Southeast Asia – has grown in prominence in recent years and regulators have had to adapt to safeguard their financial systems against emerging AML/CFT threats.
Marzunisham told the workshop that there should be greater scrutiny by both domestic stakeholders and the global community around AML/CFT measures and their implementation, as well as a more proactive approach. High-profile leaks such as the recent Pandora Papers, Panama Papers, and FinCEN files have increased public scrutiny of AML/CFT concerns, with authorities facing high expectations over their ability to take prompt action against illicit cross-border funds, he said.
“While efforts by the Financial Action Task Force (FATF) to enhance and provide greater clarity on related standards, including on transparency of beneficial ownership, are underway, authorities and gatekeepers are also expected to ensure that blind spots are effectively addressed,” he told delegates.
He added that public-private partnership (PPP) is gaining momentum and is fast becoming a key success factor for effective information sharing. In Malaysia, PPP is carried out through the Financial Intelligence Network (MyFINet), which involves collaboration and information sharing between LEAs such as BNM, Royal Malaysia Police, and Malaysian Anti-Corruption Commission, and financial institutions in the private sector.
Other countries in the region to have adopted a PPP approach include Hong Kong’s Fraud and Money Laundering Intelligence Taskforce (FMLIT), the Fintel Alliance in Australia, and Singapore’s Anti-Money Laundering and Countering the Financing of Terrorism Industry Partnership (ACIP). Singapore has also introduced an information-sharing platform for banks to fight money laundering.
Marzunisham also raised the issue of proliferation finance (PF), “usually considered a relatively new area and less understood, ” and defined by FATF as the provision of funds or financial services used for the manufacture, acquisition, development, export, brokering, transport, transfer, stockpiling or use of nuclear, chemical or biological weapons.
He said that to date, few countries have conducted their Proliferation Financing Risk Assessment (PFRA), with recent assessments by Malaysia and the UK adding to those conducted by the Cayman Islands, Gibraltar, Latvia, Portugal, and the United States.
With technological innovation driving a convergence of risk between PF, AML, and sanctions, this is a topic that compliance staff should be paying close attention to. While not all technology will be relevant in all geographies currently, firms should be proactive about mitigating emerging risks.
Marzunisham concluded his speech with a call to better understand the risk of AML/CFT/CPF measures in order to mitigate unintended consequences including financial exclusion and de-risking. This problem was highlighted in a recent FATF report exploring the unintended consequences generated by the application and enforcement of its standards.
Read more about how the first half of 2021 has been a time of significant changes in the world of financial crime with our Mid-Year Review.
Originally published December 2, 2021, updated May 5, 2022
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