Fighting financial crimes and the obstacles in the way

The country's financial services sector faces several criminal challenges, and is being called to step up compliance to international standards on anti-money laundering and counter financing of terrorism (AML/CFT), concerns which the International Conference of Financial Crime and Terrorism Financing (IFCTF 2010) will be grappling with next month.

"The banking and financial services industry should invest sufficiently on their AML/CFT programme," said V Maslamani, chairman of both the Compliance Officers' Networking Group of Malaysia (CONG) and the organising committee of the IFCTF 2010, told reporters here on Thursday, June 17.

According to a 2009 fraud survey conducted by KPMG Malaysia, 89% of respondents believed that the trend of fraud — as well as financial statement fraud (78%) — would significantly rise as a result of the recent economic crisis.

"Malaysia is ranked among the top countries in Southeast Asia, but there is still a long way to go. Malaysia needs to step up to international standards of AML/CFT compliance," Maslamani said after a sponsor signing ceremony for the IFCTF 2010.

According to him, the most prevalent forms of financial crime in Malaysia involve corruption, human-trafficking and terrorism-financing. Where corruption is concerned, Transparency International's 2009 Corruption Perceptions Index (CPI) ranked Malaysia as 56th in the world.

Maslamani said the country remained a popular transit point for human-traffickers, and was prone to terrorism-financing. He warned that terrorism was not as prevalent an issue as in other countries, but that did not mean that people were not donating to terrorist groups.

"There are people who are involved with LTTE (Liberation Tigers of Tamil Eelam) funding, not because they want to support a terrorist organisation, but because they want to financially support children and wives of victims," he said.

The LTTE is a militant organisation based in Sri Lanka, and is listed to be a terrorist organisation by 32 countries.

Malaysia was also host to terrorist cells which sought to harm other countries, Maslamani added, citing Jemaah Islamiah (JI) as the most prominent example. JI was added to the United Nation's list of terrorist organisations linked to al-Qaeda or the Taliban in 2002.

Since between 70% and 80% of transactions in Southeast Asia were cash-based, this helped hide laundered proceeds, he said.

According to John Zinkin, CEO of the Securities Industry Development Corporation (SIDC), one of the joint organisers of the conference, one of the major problems of current compliance standards in Malaysia is that the compliance officers are not being paid enough.

This is in contrast to Singapore, Hong Kong and the United States, where compliance officers are well paid and increasingly sought after by employers.

"We hope that this conference will raise awareness about compliance as a career," said Zinkin.

The IFCTF 2010 aims to create awareness across the region, to initiate capacity building for reporting institutions and enforcement agencies, and to demonstrate where institutions can derive value from investing in compliance programmes.

Banking institutions tended to be unenthusiastic about AML/CFT compliance since they considered it to be an enforced cost, Zinkin said.

"People always think compliance is about cost, but it is also about value. This is, of course, in terms of reputation," he said.

Inadvertently or not, if institutions were found to be involved in money laundering and other financial crimes, their reputations may not survive the backlash, he added.

Such was the case in Switzerland, as accusations levied at Swiss banks about protecting money launderers and terrorist groups increased international pressure on them to change banking regulations. The consequence was that the Swiss banks suffered a huge blow to their market-capitalisation, said Zinkin.

This sort of international pressure and sanctions were a likely consequence for countries which did not demonstrate sufficient commitment to international standards of compliance, he said. "This would put pressure on trade."

The IFCTF 2010 will take place on July 19 and 20, and is expected to bring together about 500 practitioners from Malaysia and the wider region. The topics lined up will deal with issues such as vulnerabilities in Islamic finance and red flags for identifying money laundering and terrorism financing.

Organised by CONG and Institut Bank-Bank Malaysia (IBBM), and jointly with SIDC, the Asian Institute of Finance (AIF) and the Malaysian Insurance Institute (MII), the conference will feature local and international experts from various institutions such as Bank Negara Malaysia, the World Bank, World-Check, the US Treasury and AUSTRAC, Australia's anti-money laundering and counter-terrorism financing regulator and specialist financial intelligence unit.

For the outcome of the conference, Maslamani hopes to compile a "Red Flag" programme book which would be shared and distributed to all relevant stakeholders.

Source: The Edge Malaysia

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