The following article is the first of a series of 10 articles on cross border transactions and remittances. These articles will explore the rules and regulations that monitor these transactions, the requirements Malaysian individuals or companies must fulfill when undertaking such payments via banks. They will also look into how sufficient the existing systems are in ensuring transparency in cross border remittances and the role banks and financial institutions play in the traceabillity of the funds, and their obligations to their clients in the event of returned remittances.
Today’s article looks at regulatory gaps in banking transparency for corporate remittances.
An anti-money laundering and counter-financing of terrorism(AML/CFT) expert said the Bank Negara Malaysia’s (BNM) rules for corporate remittances under AMLA, mandates all reporting institutions, including banks, to enforce stringent Know Your Customer (KYC) and Customer Due Diligence (CDD) measures.
Muhamad Nazri Shaidon, who has served nearly a decade at BNM, pointed out that though KYC is a universal requirement, its depth and applications differ.
“Effective KYC is not a checkbox exercise, hence, banks must actively challenge customer information to ensure accuracy and alignment with declared business activities. Section 16 of AMLA 2001 places a clear obligation on bankers to conduct proper due diligence.
“See, for corporate remittances the core AMLA compliance requirements must be observed including Corporate Identity Verification, using authoritative documents such as those from the Companies Commission of Malaysia (SSM), board resolutions, and related records,”he said.
Muhamad Nazri, a financial crime investigator also stressed that banks are required to screen corporate clients and associated individuals against sanctions and blacklist data.
For customers classified as high risk, standard due diligence measures are not sufficient. In these cases, financial institutions are required to apply Enhanced Due Diligence (EDD) to strengthen their risk mitigation efforts.
A customer is typically deemed high risk when their profile or transactional behaviour indicates a greater potential for involvement in money laundering (ML), terrorism financing (TF), or other illicit activities. Several risk indicators may trigger this classification, including being a Politically Exposed Person (PEP), having a complex or opaque ownership structure, involvement in high-risk industries such as gambling, arms trade, or offshore financial services, as well as connections to jurisdictions with weak AML/CFT controls or those under international sanctions.
Additionally, customers linked to negative news or adverse media reports may also fall into this category. In such cases, EDD becomes a crucial process to ensure that the institution thoroughly understands the customer’s background, source of wealth and funds, and ongoing risk profile.
“Banks are also required to clearly establish the nature and intended purpose of the business relationship, ensuring that all transaction activities are consistent with the customer’s established risk profile. In addition, banks must accurately identify the beneficial owner, defined as any individual who owns or controls 25% or more of the entity, whether directly or indirectly.
“Should there be any indication of suspicious behaviour, irregularities in transactions, or inconsistencies in customer profiling, institutions are obligated to promptly file a Suspicious Transaction Report (STR) with Bank Negara Malaysia (BNM) in accordance with regulatory requirements,” he explained.
He furher said that, the rules are there but the banks do not all implement them the same way, stemming from each bank’s risk appetite, internal policies and compliance culture.
He said, these variations typically stem from each bank’s risk appetite, internal policies, and compliance culture.
He also concluded that effective compliance was not about ticking boxes but about fostering a culture of vigilance, supported by strong systems, well-trained personnel, and a genuine commitment to financial integrity.
Few banks and reporting Institutions were recently fined by BNM because of non-compliance, he added.
On May 28, BNM has imposed an administrative monetary penalty on four banks, namely Bank Pembangunan Malaysia Bhd (BPMB), HSBC Bank Malaysia Bhd, HSBC Amanah Malaysia Bhd and Maybank Islamic Bhd for various breaches of financial regulations.
The penalty was issued for non-compliance with the Financial Services Act 2013, the Islamic Financial Services Act 2013, and requirements pertaining to the Anti-Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing, and Targeted Financial Sanctions for Financial Institutions.
–WE