In the ever-evolving landscape of Anti-Money Laundering (AML), Counter Financing of Terrorism (CFT), Countering Proliferation Financing (CPF) and Targeted Financial Sanctions (TFS), staying updated on the latest compliance regulations and remaining vigilant to risks is crucial for Reporting Institutions in Malaysia.
With the increasing concerns over the proliferation of nuclear, biological, and chemical weapons, the Ministry of Investment, Trade, and Industry has released the Directive on Targeted Financial Sanctions Relating to Proliferation Financing (TFS-PF). This directive introduces new requirements for countering proliferation financing compliance programme, conducting proliferation financing risk assessments, and implementing mitigating measures for financial institutions and designated non-financial businesses and professions (DNFBPs)*. These requirements have come into effect from 7 June 2024.
This article outlines the key requirements and good practices for designated non-financial businesses and professions (DNFBPs) in the updated TFS-PF, providing necessary guidance for taking appropriate actions, for DNFBPs to enhance their compliance efforts and effectively mitigate proliferation financing risks, and fulfilling their obligations under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA) set by the Bank Negara Malaysia (BNM).
*The Designated Non-Financial Businesses and Profession (DNFBP) sectors that fall under Reporting Institutions (RIs) include:
| Company secretaries |
| Accountants |
| Trust companies |
| Advocates and solicitors |
| Dealers in precious metals or precious stones |
| Registered estate agents |
| Moneylenders |
| Pawnbrokers |
| Common gaming houses, Licensees of Pool Betting, Totalizator agencies and Racing clubs |
| Notaries public |
What is Proliferation Financing (PF)?
According to The Financial Action Task Force (FATF), the definition of Proliferation financing can be referred to the act of providing funds or financial services which are used, in whole or in part, for the manufacture, acquisition, possession, development, export, trans-shipment, brokering, transport, transfer, stockpiling or use of nuclear, chemical or biological weapons and their means of delivery and related materials (including both technologies and dual use goods used for non-legitimate purposes), in contravention of national laws or, where applicable, international obligations.
For a more comprehensive understanding of proliferation financing, please refer to FATF’s report on Combating Proliferation Financing.
Regulatory Requirements for DNFBPs under Targeted Financial Sanctions Relating to Proliferation Financing (TFS-PF):
1. Maintenance of Sanctions List
DNFBP reporting institutions have a responsibility to remain updated with the list of countries and individuals designated under the relevant United Nations Security Council Resolutions (UNSCRs). It is essential to promptly implement updates to sanctions databases upon the publication of new designations by the relevant UNSC Sanctions Committees.
In addition to UNSCR lists, reporting institutions should also monitor and consolidate unilateral sanctions lists of other countries within their databases. This comprehensive approach ensures a thorough understanding of global sanctions regimes and facilitates compliance efforts.
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2. Screening of Customers and Their Related Parties
Reporting institutions are obligated to conduct sanctions screening as part of the customer due diligence process before establishing any business relationship or proceeding with any transaction. This screening applies to both existing and potential customers to identify any matches with the latest designated countries or persons.
In cases where a positive name match is identified, reporting institutions must take reasonable and appropriate measures to verify the identity of the customer and their related parties against the designated person. Additionally, an analysis of their past transactions should be conducted to identify any suspicious activities or connections. Related parties may include individuals acting on behalf of or under the control of designated entities, those providing support for proliferation-sensitive activities, or entities assisting in evading sanctions.
3. Freezing Transactions and Reporting for Designated Persons
Upon confirmation of a customer’s identity as a designated person, reporting institutions have a regulatory obligation to conduct a risk assessment and immediately halt any business transactions. This includes actions such as freezing funds, financial assets, and economic resources or blocking the transaction.
Reporting institutions are also mandated to promptly report the identified designated person to Bank Negara Malaysia (BNM), the supervisory authority for DNFBPs, and submit a Suspicious Transaction Report (STR) to the Financial Intelligence and Enforcement Department (FIED) at BNM.
4. Proliferation Financing Risk Assessment
Reporting institutions need to ensure effective risk assessments and mitigation measures are in place, either being covered by the existing money laundering and terrorism financing (ML/TF) framework or included as additional or new methodology, to identify, assess and address proliferation financing (PF) risks according to the nature, size and complexity of their business.
Reporting institutions must ensure the implementation of effective risk assessments and mitigation measures to identify, assess, and address proliferation financing (PF) risks in accordance with the nature, size, and complexity of their business. These measures should be integrated into the existing anti-money laundering and counter financing of terrorism (AML/CTF) framework or incorporated as additional or new methodologies.
In relation to proliferation financing (PF) risk assessments, the following processes are necessary:
- Maintaining proper documentation of PF risk assessments and findings.
- Conducting periodic reviews to keep the assessments up-to-date.
- Establishing appropriate mechanisms for providing PF risk assessment information to the supervisory authority.
5. Implementation of Counter Proliferation Financing (CPF) Compliance Programme
Reporting institutions are required to establish a robust Counter Proliferation Financing (CPF) compliance programme, which can be integrated into their existing Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) compliance programme.
The CPF compliance programme should include:
- Development and implementation of comprehensive policies, procedures, and controls to ensure adherence to the latest regulatory requirements and the evolving AML/CFT/CPF and TFS landscape.
- Appointment of a Compliance Officer responsible for overseeing and coordinating CPF matters, ensuring consistent application and monitoring of compliance measures across the organization.
- Regular training sessions on CPF practices and measures to enhance employees’ capabilities in detecting and addressing proliferation financing activities.
- Regular independent audits of CPF compliance measures to assess the effectiveness of existing controls and identify areas for improvement or enhancement, strengthening the institution’s resilience against proliferation financing risks.
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Conclusion: Countering Proliferation Financing for DNFBPs in Malaysia
In essence, the guidelines outlined in the Targeted Financial Sanctions Relating to Proliferation Financing (TFS-PF) document not only sets forth regulatory obligations but also underscores the shared responsibility of reporting institutions in combating proliferation financing and maintaining the integrity of the financial system.
Through proactive engagement, continuous vigilance, and adherence to compliance measures, professional firms in Malaysia can effectively mitigate proliferation financing risks, safeguard their business, uphold the principles of financial integrity and regulatory compliance, and contribute to creating a conducive business environment free from illicit proliferation activities.
To read the full document of the Directive on Targeted Financial Sanctions Relating to Proliferation Financing (TFS-PF), please click here.
