In 2001, one of the most significant developments in Labuan was the passing of the Anti-Money Laundering & Anti-Terrorism Financing Act 2001[1] or AML/ATF Act, a piece of legislation which made it a crime to launder money and finance terrorism. The AML/ATF Act came into effect on 1^st October 2001.

The provisions of the AML/ATF Act cover the following;

1. any person natural or artificial,

2. any serious offence, foreign serious offence or unlawful activity whether committed before or after its commencement , and

3. any property whether situated in or outside of Malaysia.

In addition there are provisions governing the establishment and powers of competent authority, reporting, report keeping, customer identification and training by "reporting institutions", investigation, freezing, seizure and forfeiture of assets by enforcement agencies.

What amounts to money laundering acts?

Under the AML/ATF Act money laundering acts can be broken down into the following:

The act of any person who -

a) engages directly or indirectly in a transaction that involves proceeds of an unlawful activity;

b) acquires, receives, possesses, disguises, transfers, converts, exchanges, carries, disposes, uses, removes from or brings into Malaysia proceeds of any unlawful activity; or

c) conceals, disguises or impedes the establishment of the true nature, origin, location, movement, disposition, title of, rights with respect to, or ownership of, proceeds of an unlawful activities; where--

as may be inferred from an objective factual circumstance, the person knows or has reason to believe that the property are proceeds from any unlawful activity; or

in respect of the conduct of a natural person, the person without reasonable excuse fails to take reasonable steps to ascertain whether or not the property are proceeds from any unlawful activity.

Unlawful activity is defined as "any activity which is related, directly or indirectly to any serious offence or any foreign serious offence. Foreign serious offence means an offence certified to be an offence against a foreign state and that offence if committed in Malaysia would have been a serious offence.”

Money laundering offences

Any person who engages in, or attempts to engage in or abets the commission of money laundering shall be guilty of an offence.[2] The punishment for money laundering offences under AML/ATF Act is very severe. Conviction carries a fine not exceeding five million in Malaysian Ringgit or to imprisonment not exceeding five years. There are many other lesser degrees of offences like opening an account using a fictitious name or failure to keep records within the prescribed time limit.

Terrorism financing offences are;

a) providing or collecting property for terrorist acts,[3]

b) providing services for terrorist purposes,[4]

c) arranging for retention or control of terrorist property,[5] and

d) dealing with terrorist property[6]

AML/ATF Act imposes strict obligations on reporting institutions[7] in Labuan in combating money laundering and terrorism financing. In particular reporting institutions in Labuan are imposed with the following obligations:

1. Record keeping ,

2. Reporting,

3. Identification procedures,

4. Retention of records, and

5. compliance programme

Record-keeping

There is an obligation on the part of the reporting institution to keep records of any transaction involving either Malaysian or other currency where the transaction exceeds a certain amount to be prescribed by the Competent Authority.[8] Among the particulars to be recorded are identity and address of customer, identity of accounts, types of transaction, date, time and amount.

Reporting obligation

A reporting institution must promptly report to the Competent Authority any transaction exceeding an amount specified AND where the identity of the person involved, the transaction itself or any other circumstances concerning the transaction give rise to suspicion that the transaction involves proceeds of unlawful activity. Under the Act, reporting is to be made to the Competent Authority.

Identification procedure

Reporting institutions are prohibited from opening fictitious accounts. Not only are they required to obtain and record information about the true identity of the customers, they are also required to verify, by reliable means, the identity of the customer. This can be verified through the identity card, passport, birth certificate or any other official or private documents.

Compliance programme

A reporting institution is required to develop and implement internal programmes that can detect and forestall money laundering and terrorism financing. These programmes must also be implemented in its branches or subsidiaries outside Malaysia. The programmes must include:

1) Procedure to ensure high standard of integrity of its employees,

2) On going employee training such as "know your customer" programme,

3) Independent audit function to check compliance with programme

Effect of the implementation of the Act on Labuan institutions

Though LOFSA is committed to combating money laundering and terrorism financing, the attraction of Labuan as an offshore centre would still be the top priority. While the provisions of the AML/ATF Act are far-reaching, the attractiveness of Labuan to genuine investors should not be compromised. For example, while the AML/ATF Act overrides all secrecy provisions in the prevailing legislation, the overriding is only in so far as there is suspicion that a transaction involves proceeds from a criminal activity. This is justified as reporting of suspicious transaction is one of the fundamental requirements of the AML/ATF Act.