Financial Crime World

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Beneficial Ownership Transparency Crucial in Combating Money Laundering and Terror Financing

In the ongoing battle against money laundering and terrorist financing, identifying beneficial owners has become a critical component of companies’ due diligence processes. The Central Bank of Malaysia (Bank Negara Malaysia) has emphasized the importance of this measure, requiring businesses to exercise reasonable measures to identify ultimate beneficial owners.

Identifying Beneficial Owners

To achieve this, companies must have internal standard operating procedures in place for the identification of ultimate beneficial owners during the onboarding process of legal entities. This involves understanding the ownership and control structure of customers and relying on supporting documents such as:

  • Constitutions
  • Directors’ resolutions
  • Minutes of meetings
  • Charters
  • Trust deeds
  • Partnership agreements
  • Joint venture agreements

Obtaining Beneficial Owner Information

Companies are required to obtain nine data points on beneficial owners, including:

  • Name
  • Identity card number/passport number
  • Residential and mailing address
  • Date of birth
  • Nationality
  • Occupation type
  • Name of employer or nature of self-employment/nature of business
  • Contact number
  • Purpose of transaction

Sanction Screening a Must

Businesses must also conduct sanctions screening on existing, potential, or new customers against the United Nations Security Council resolution list and domestic list. This involves screening:

  • Names of customers (including legal persons such as companies, bodies corporate, foundations, partnerships, associations, and other similar entities)
  • Beneficial owners (including directors and shareholders, including nominees)

Upon confirmation of sanctioned entities or related parties, businesses are required to:

  • Reject potential customers
  • Block transactions where applicable
  • Report suspicious transaction reports to the Central Bank of Malaysia (BNM)

Training and Capacity Building Essential

Non-financial businesses and professions must involve themselves in training employees, especially those in key positions, to recognize and address potential money laundering risks. This includes being aware of:

  • Red flags
  • Suspicious transactions and behavior

Technology and Innovation Key

To enhance anti-money laundering and countering the financing of terrorism measures, companies should leverage technological solutions such as:

  • Advanced analytics
  • Artificial intelligence
  • Other innovative tools to detect and prevent financial crimes more effectively

Continuous Monitoring and Evaluation Crucial

Companies must establish a system for continuous monitoring and evaluation of their measures. Regular assessments of policies and procedures are necessary to ensure effectiveness and address emerging risks promptly.

Enforcement Actions Highlight Importance of Compliance

Recent enforcement actions by the Central Bank of Malaysia serve as a reminder of the importance of compliance with anti-money laundering and countering the financing of terrorism regulations. Fines totaling over RM1.5 million have been imposed on companies that failed to conduct sanctions screening, identify and verify beneficial owners, and flag high-risk customers.

Conclusion

Beneficial ownership transparency is crucial in combating money laundering and terrorist financing. Companies must take a proactive and comprehensive approach to strengthen their frameworks and ensure compliance with regulations.

Author Bio

Muhamad Nazri Shaidon is the Head of AML Advisory and Training at various Law Enforcement Agencies in Malaysia and a Certified Financial Investigator (AML/CFT).