Encik Adnan Zaylani Mohamad Zahid, Assistant Governor, Bank Negara Malaysia,
Distinguished speakers and panellists,
Members of the Malaysian Bar,
Ladies and gentlemen,
It is my great pleasure to welcome all of you today to the "Conference on Building Anti–Money Laundering & Counter–Financing of Terrorism ("AML/CFT") Compliance Effectiveness: Risks and Challenges" jointly organised by Bar Council Malaysia and Bank Negara Malaysia. This Conference is one of the ways in which the Bar Council is working together with Bank Negara to improve understanding of and compliance with AML/CFT provisions by the legal profession.
At its core, money laundering is the act of disguising the financial earnings gained from a crime and legitimizing its proceeds. Myth has it that the term "money laundering" originated from the infamous American gangster, Alfonse "Al" Capone, who in the 1920's and early 1930's funnelled his illicit earnings through laundromats which were cash–only businesses, thus making it easy to mix the illicit with the legitimate earnings. Hence the phrase, "cleaning dirty money".
Today, the core nature of money laundering remains. However, its methodology and techniques have changed vastly––becoming more ambitious, sophisticated and involving transnational means. As observed by the United Nations Office on Drugs and Crime, the UNODC:1
"Newly emerging and more complex money laundering techniques, involving the use of the international trade system, cash couriers, alternative remittance systems, new payment methods, and complex corporate structures, are increasingly used by criminals to exploit vulnerabilities in national anti–money laundering capabilities."
Statistics by the UNODC also indicate that money laundering is worth trillions of dollars annually while less than one percent of global illicit financial flows are seized and frozen.2
I must emphasise that money laundering has corrosive effects to multiple aspects of society––economic development, financial and political stability as well as social well–being. To this end, I welcome and applaud Bank Negara's ongoing efforts to combat money laundering and the financing of terrorism, including the establishment of a comprehensive AML/CFT framework –– which we will be learning more about in today's conference.
Before handing the mic over to Encik Adnan Zaylani, Assistant Governor of Bank Negara, for the keynote address, allow me to say a few words on the role of legal professionals in the fight against money laundering and the financing of terrorism.
By way of background, the Financial Action Task Force, ("FATF"), an inter–governmental organisation that sets national and international policies for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system, had developed a series of "Recommendations" which are recognised as the global standard for anti–money laundering and countering the financing of terrorism, commonly abbreviated as AML/CFT. Malaysia has been a member of the FATF since February 2016.3 In Malaysia, the AML/CFT regime is encapsulated in what is now the Anti–Money Laundering, Anti–Terrorism Financing and Proceeds of Unlawful Activities Act 2001, the "AMLATFPUAA".
First issued in 1990, the FATF Recommendations have been revised several times and it was in the 2003 Revisions that the AML/CFT measures were extended to designated non–financial businesses and professions –– this included independent legal professionals. In September 2004, the scope of reporting institutions under our AMLATFPUAA was extended to include advocates and solicitors.4
The FATF 2003 Revisions were particularly controversial amongst the legal community and internationally, there is extensive literature and litigation in relation to the obligation imposed on lawyers to, for example, report suspicious transactions, and the impact of these obligations on lawyers' fiduciary duties, including in relation to client confidentiality and legal professional privilege.
For lawyers, there is an inherent tension and conflict between these competing obligations and such waters are not the easiest to navigate.
Nevertheless, it is undeniable that there are certain vulnerabilities which lawyers are exposed to when it comes to money laundering and terrorism financing schemes. The FATF observes that criminals seek out the involvement of lawyers for several reasons:
* A lawyer is required to complete certain transactions, which in that instance, unknown to the lawyer, involves the proceeds of crime; or* To access specialised legal skills and services that could assist in their schemes.
The use of lawyers also provides a veneer of respectability and legitimacy to the client's otherwise illegal activity as well as access to the lawyer's client account. Several key money laundering or terrorism–financing methods that require the services of a lawyer include:
* the use of client accounts;* purchase of real property;* creation of trusts and companies; and* setting up and managing charities.
These vulnerabilities or high risk areas that lawyers are exposed to bring to the forefront the critical role we play as "watchdogs" in highlighting and raising the alarm in relation to such potential schemes. It is our duty to cultivate a culture of awareness, vigilance and caution in order to effectively assess situations which may give rise to concerns of money laundering and terrorism financing and to meet our obligations under Malaysia's AML/CFT regime. I use the term "watchdogs" as opposed to "bloodhounds" because it is NOT the role of the legal profession to police its clients and to sniff out criminal activity wherever it occurs.
This is where the tension arises. As highlighted earlier, it is also paramount that any impact of the AML/CFT regime to the legal community be weighed with a lawyer's professional obligations. Legal professional privilege is a "fundamental condition on which the administration of justice as a whole rests" and must be given its due accord under any AML/CFT regime. To this end, we hope for further engagement with the authorities in order to effectively bridge any such gaps and to provide, as far as possible, clarity on the operation of the AML/CFT regime when it comes to issues particular to the legal profession such as, client confidentiality and privilege. Guidelines could be drawn up, including in relation to the exercise of supervisory powers by Bank Negara in carrying out onsite inspections of lawyers' offices. A review of the system of AML/CFT compliance could and should be preferred over a highly intrusive and forced disclosure of the substance of a transaction and the exposure of parties involved.
Distinguished guests, ladies and gentlemen,
With that, I do hope that all attendees will make full use of today's sessions. The sessions today will expand on these issues including the role of legal professionals in the Malaysian AML/CFT ecosystem, the vulnerabilities of legal professionals and types of products and services that are susceptible to money laundering and terrorism–financing activities, and improving the ability of a firm in devising appropriate AML/CFT compliance programmes. The issue of confidentiality and legal professional privilege will also be covered.
We thank Bank Negara once again for their cooperation and assistance in making this conference a reality. We look forward to a strong and mutually beneficial relationship between our two parties, as we strive towards the same common goal of combating money laundering and the financing of terrorism, as well as strengthening the compliance culture within the legal community.
1 UNODC, Factsheet.
4 Anti–Money Laundering (Amendment of First Schedule) Order 2004 (P.U.(A) 338/2004).
5 FATF Report (June 2013), Money Laundering and Terrorist Financing Vulnerabilities of Legal Professionals.