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AMLATFA 2001: THE LAW & PRACTICE IN LABUAN

by Prof. Dr MEI PHENG LEE

Institut Bank-Bank Malaysia 2012. All rights reserved.

Labuan
financial shelter that enjoys low tax regimes and minimal government regulation administered by the Federal Government of Malaysia is an integrated International Business & Financial Centre, offering a wide range of financial products and services to customers worldwide, including: - banking and investment banking, -insurance, -trust business, -fund management, - investment holding, -company management -Islamic financing.
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Supervised and regulated by Labuan Financial Services Authority (LOFSA set up on 15 February 1996). is also an Islamic financial centre and has its own Shariah Supervisory Council to ensure Shariah compliance for its Islamic financial products.

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Why is Labuan attractive?


Freedom when using Labuan: withholding or other taxes, exchange control, confidentiality : Labuan laws protect against disclosure of information about the management, shareholders and business of Labuan offshore companies to third parties. FSA will not allow a third party to conduct a search unless the company itself gives permission. stringent measures to prevent money laundering.
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Money or other property from illegal activities


LFSSA 2010 176. (1) Any licensed entity or any person carrying on any activity under this Act shall not accept (a) any money or other property originating from a transaction, operation or other activity which is a criminal offence under the laws of Malaysia or which, had it been carried out in Malaysia, would have been such an offence; or (b) any money or other property the receipt, ownership or control of which is or would be an offence as specified in paragraph (1)(a).
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(2) Where any person, being a director, officer or agent of any such licensed entity or such person specified in ss (1) (a) has reason to believe that the licensed entity or person specified in ss (1) has property or has income accruing to it or derived by it and originating from a transaction, operation or other activity which is a criminal offence under the laws of Malaysia or which, had it been carried out in Malaysia, would have been such an offence; or (b) has received or has in its possession or control money or other property the receipt, ownership or control of which is or would be an offence as specified in para (2)(a), it shall be the duty of such person to forthwith bring the matter to the notice of the Authority. (3) Any person who without reasonable excuse fails to comply with the requirements of ss (1) or (2) commits an offence and shall, on conviction, be liable to a fine not exceeding RM1m or to imprisonment for a term not exceeding 3 years or to both. (4) All monies or property described in ss (1) and (2) shall be /102 forfeited to the Government and become its property absolutely. 6
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Overview on Money Laundering and Terrorism Financing


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What is ML?
DEFINITION - Money laundering

the process of converting money /property, which is derived from illegal activities to give it a legitimate appearance. -UPW/GP1 and LOFSAs Std Guidelines
section 3, AMLA (legal definition)
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What is money laundering? Money laundering means the act of a person who: - engages, directly / indirectly, in a transaction that involves proceeds of an unlawful activity - acquires, receives, possesses, disguises, transfers, converts, exchanges, carries, disposes, uses, removes from / brings into Msia proceeds of any unlawful activity; or - 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 activity, where: - as may be inferred from objective factual circumstance, the person knows or has reason to believe, that the property is 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 is proceeds from any unlawful activity. /102 9
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PART II MONEY LAUNDERING OFFENCES Offence of money laundering Section 4 4.(1) Any person who:

(a) engages in, or attempts to engage in; or (b) abets the laundering, commission of, money

commits an offence [5 yrs. RM5m fine] (2) not necessarily prosecuted / convicted of serious offence / foreign serious offence.
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Stages of Laundering

Money

1. Placement 2. Layering 3. Integration


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3 stages: Placement Physical disposal of proceeds derived from illegal activities; Layering Separating illicit proceeds from their sources through transactions disguising the audit trail and provide anonymity;

Integration Integrating laundered proceeds into the economy as normal funds.


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27 December 1993 BNM/GP 9 Guidelines on ML and KYC Policy. November 2006 GP 9 superceded by STANDARD GUIDELINES ON AML/CFT UPW/GP1 Guidelines on Anti-Money Laundering and Combating the Financing of Terrorism LOFSA SECTORAL GUIDELINES 1-3 AML Bill passed by Lower House on 10th May 2001 and Upper House on 6 June 2001. ENFORCED : 15 JAN. 2002 AML (Amendment) Act 2003 Dec 2003 AML and Anti-Terrorism Financing Act 2001

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Criminalising ML ML is separate offence.


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Establishment of a Competent Authority CA functions as FIU Minister of Finance appoints CA CA collects, analyses and disseminate info. on suspicious, large and unusual transactions. CA then sends report to relevant enforcement agency Reporting Institutions (1st Sch.): ~ under obligations, ~ identify and verify customers identities ~ keep records for 6 yrs. ~ currency reporting ~ opening anonymous accounts/ in false names prohibited ~ persons who report are immune from civil and criminal liability ~ no tipping off ~ secrecy provisions overridden Enforcement Agency has power to investigate ML related offence. But if concerns FIs, to consult BNM before seizure
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Forfeiture Provisions Forfeiture by Court if ML prosecution If no ML prosecution, Court may order forfeiture of frozen/seized ppty. Notice to bona fide 3rd parties having interest in ppty. to make claims in Court. Absconded persons treated as convicted and Court may decide, on balance of probabilities, to forfeit. Pecuniary order can be made in respect of benefits derived from ML offence.
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LEGAL FRAMEWORK With effect from 11 February 2010, the Labuan Financial Services and Securities Act 2010 repealed the following statutes:a) Labuan Trust Companies Act 1990 b) Offshore Banking Act 1990 c) Offshore Insurance Act 1990 d) Labuan Offshore Securities Industry Act 1998
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This new legislation seeks to enhance the competitiveness of Labuan IBFC[1] in the offering of a wider range of financial products and services[2], as well as continue to maintain the status of Labuan IBFC as a well regulated centre. The legislation also ensures that the business transactions and practices in Labuan IBFC continue to be conducted in accordance with the internationally accepted standards and best practices.
[1] The name LIBFC was introduced in January 2008 to reflect the

jurisdictions growth and burgeoning international status, and was accompanied by an aggressive rebranding and marketing exercise. [2] Conventional. The Islamic version is covered by the Labuan Islamic Financial Services and Securities Act 2010 (Act 705)
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In addition, three other new laws also came in force (since 11 February 2010) the Labuan Islamic Financial Services and Securities Act 2010, the Labuan Foundations Act 2010, and the Labuan Limited Partnerships and the Limited Liability Partnerships Act 2010.

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The Labuan Islamic Financial Services and Securities Act 2010 sets the licensing and regulatory framework for Islamic financial services and securities in Labuan and provides for the establishment of Islamic banking and Takaful business including captive Takaful business plus Labuan Islamic trusts, foundations, limited partnerships and limited liability partnerships.
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Labuan Foundations Act 2010 establishment of foundations based on the concept of contractual duties recognised in civil law countries.
Main purpose of a Labuan foundation: to manage its property and the founder and beneficiaries of a Labuan foundation may be residents or non-residents.

Labuan Limited Partnerships and Limited Liability Partnerships Act 2010 establishment and conversion of Labuan cos into Labuan limited liability partnership.
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Another four Acts were amended to transform the business scene in the jurisdiction; namely, Labuan Companies Act 1990, Labuan Business Activity Tax Act 1990, Labuan Financial Services Authority Act 1996 Labuan Trusts Act 1996
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The amended Labuan Companies Act 1990 (formerly Offshore Companies Act) allows for the incorporation and conversion of an existing Labuan company into a protected cell company (PCC) for the conduct of insurance and mutual fund businesses. The PCC remains a single legal entity but may segregate its assets into separate legally independent cells, each of which is ring-fenced from the other cells.
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To remain as a current international financial centre, the Minister of Finance is empowered under the amended Labuan Business Activity Tax Act 1990 to designate any activity carried on by any Labuan entity to be a Labuan business activity.

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Meanwhile the Labuan Financial Services Authority Act 1996 has been amended to enhance, broaden and clarify Labuan FSAs role as the central regulatory and supervisory authority for the business and financial services sectors in Labuan. For instance, the Labuan FSA now has investigative and enforcement powers similar to those under the Anti-Money Laundering and AntiTerrorism Financing Act 2001.
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The amended Labuan Trusts Act 1996 now also allows a Malaysian resident to set up and be the beneficiary of a Labuan trust.

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With this enhanced legal framework, the powers of the regulator, Labuan FSA, had been increased which should lead to better administrative efficiency. The legal framework has also effectively opened up Labuan to Malaysians as they can deal openly with and through Labuan for international finance and trading. Moreover, Labuan IBFC can now provide investors with a wider choice of financial products and targets to be more a vibrant and active international business and financial centre. Especially, Islamic investments.
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Best Practices to combat ML:

improve the collection and effective use of trade data to combat TBML - trade data and systems integration
More active oversight,

More transparency

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Malaysias anti-money laundering legislation, the AntiMoney Laundering and Anti-Terrorism Financing Act 2001 (AMLA) is federal legislation that has application throughout the States and Federal Territories, including Labuan.

BNM is the competent authority for implementation of the AMLA, and, therefore, has powers to introduce measures that affect both domestic and offshore institutions.
Labuan IBFC businesses: offshore banking, investment banking, insurance and insurance related services, investment holding, trust, funds management, leasing /102 29 and factoring.
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BNM, SC and the LFSA issued AML/CFT guidance shortly after the introduction of the AMLA. This has been supported by additional guidance provided by industry bodies. Since November 2006 updated guidance has been issued to all the institutions subject to AML/CFT regulation by the BNM, SC and LFSA. This included "Standard Guidelines" issued by BNM and applicable to all institutions in the 1st Schedule to AMLA (including offshore), and "Sectoral Guidelines" issued by relevant competent authorities.
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BNM and LFSA are impeded (?) from fully cooperating with foreign counterparts due to very specific prohibitions on the disclosure of information relating to customers of those institutions supervised by BNM and LFSA under the BAFIA and LFSAA.

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Labuan trust companies registered under the Labuan Trust Companies Act 1990

licensed by FSA
must be members of the Association of Labuan Trust Companies (ALTC). Directors and officers of a Labuan Trust Company must be professionals and undergo fit and proper tests and must sit a written exam and interview by FSA before appointment. /102 32
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Fit and proper person LFSSA 2010 4. (1) Every licensed entity shall ensure that its directors, principal officers, trust officers, are fit and proper persons: (a) integrity, competence, soundness of judgment and financial standing of the person; (b) whether adjudged a bankrupt; (c) whether convicted of a criminal offence in Malaysia/elsewhere and where the penalty imposed is imprisonment of one year or more, whether in itself or in addition to a fine; and (d) such other criteria as may be specified in guidelines issued by the Authority. (4) A person shall be under a duty to give notice in 33 writing to the Authority, /102
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Legal Arrangements Malaysia adopts a common law system whereby legal arrangement can be formed including express and discretionary trusts. There is no obligation under Malaysian law to register a trust. If the trustee is a corporate entity it must be registered with the CCM. Registration of offshore trust is optional under the Labuan Trust Act 1996 (LTA). Under s.23(1) of the LOTA, any trust validly created in accordance with or as provided under the LTA may/102 be registered with the FSA.34
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In relation to AML/CFT, the Labuan FSA is the authority responsible for the regulation and supervision of FSA regulated reporting institutions. The FSA is empowered to conduct examination on the institutions in Labuan, including AML/CFT examinations on AMLA reporting institutions.
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Malaysia has undergone 2 Mutual Evaluations: joint APG/OGBS Mutual Evaluation of the Labuan International Offshore Financial Centre in May 2001 and an APG Mutual Evaluation of Malaysia in June 2002. 2001 Labuan IOFC evaluation took into account the national laws of Malaysia, which apply in Labuan. For the APG second round of Mutual Evaluations it was decided to assess the Labuan IOFC as part of Malaysias overall Mutual Evaluation. .

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Previous Recommendations Amend regulatory laws to rationalise the secrecy provisions and to remove any perceived impediments to the access by LOFSA of information relating to the business of regulated entities, including identity of customers. To make explicit the ability of Labuan FSA to acquire information from regulated institutions on behalf of overseas regulatory authorities, and clarify that the sharing of information is not restricted in relation to customers details, subject to reciprocal confidentiality provisions to rationalise the secrecy provision and enable cooperation with other /102 regulatory agencies. 37
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RECOMMENDATIONS cont. Labuan FSA has issued various guidelines and introduced procedures into the on-site examination process undertaken by FSA to focus on institutions compliance with proper AML systems.
expanded the scope of duty for both internal and external auditors to include their assessment of the adequacy of AML systems and control.

LOFSAs Guidelines on Minimum Audit Standards for Internal Auditors of Offshore Banks was amended for internal auditors to indicate extent to which their work should address ML issues. /102 38
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RECOMMENDATIONS cont. Oblige auditors to report to FSA evidence of criminal activity that they identify in the course of their audit. Provide auditors with statutory protection against civil liability for making such reports. S. 24 AMLATFA provides protection to persons reporting. Introduce fit and proper requirements for the controllers and directors of all trust companies.Labuan Trust Companies Act 1990 - s.4 LFSSA 2010

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LABUAN, 20 July 2012 94 money laundering cases are in various stages of prosecution with more than 3,000 charges involving proceeds amounting to RM1.2 billion, said BNM Deputy Governor Datuk Zamani Abdul Ghani.

Concerted efforts by law enforcement agencies have resulted in an average annual increase of 86 per cent in anti-money laundering/counter financing terrorism cases under prosecution and forfeiture without prosecution.

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KYC Policy should incorporate:

Develop and communicate group policies relating to ML;


Setting minimum requirements and records of identification documents for opening of account;

Maintaining records of transactions;


Compliance with relevant legislation; Facilitate co-operation with the relevant law enforcement authorities, including timely disclosure of information; Audit or inspect compliance with policies, procedures and controls relating to ML; Provide training and guidance to staff in the operation of procedures and controls relating to ML; and Monitoring of compliance by subsidiaries and overseas branches with group policies and controls relating to ML. /102 41
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WHAT ARE MY OBLIGATIONS IN RESPECT OF AMLATF?

Comply with the AMLATFA 2001 Ensure that KYC procedures is completed for all customers

Develop a customer profile which is updated regularly


Conduct on-going CDD and scrutinize all transactions Be continually vigilant to ensure that the organization is not used as a vehicle to perpetrate ML and TF activities Report any STRs to AML Compliance Officer

Maintain confidentiality of a suspicious report and no


4-Dec-12

tipping-off

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NON-COMPLIANCE WITH AMLA PROVISIONS s.86 AMLA Any person who contravenes any provision of the AMLA, or regulations made under AMLA, or any specification or requirement made, or any order in writing, direction, instruction, or notice given, or any limit, term, condition or restriction imposed, in the exercise of any power conferred under or pursuant to any provision of AMLA commits an offence and shall, on conviction, if no penalty is expressly provided for the offence under the AMLA or the regulations, be liable to a fine not exceeding RM250,000.
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S.22, AMLA Officer of RI must take all reasonable steps to comply with reporting obligations under Part IV AMLA. Failure of a RI to comply will result in BNM taking the appropriate enforcement action, including obtaining a Court order against any/all of the RIs officers/employees on terms that the Court deems necessary to enforce compliance.

Notwithstanding any Court order, FIU may direct or enter into an agreement with RI to implement any action plan to ensure compliance with Part IV, AMLA. Failure of an officer to take reasonable steps to ensure compliance with Part IV, AMLA, or failure of a RI to implement any action plan as agreed to ensure compliance, will result in the officer/s being personally liable to a fine not exceeding RM100,000 / to imprisonment not >6 months or to both. /102 44
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In the case of a continuing offence, a further fine may be imposed on the RI not exceeding RM1,000 for each day during which the offence continues after conviction. S.92 AMLA further empowers BNM to compound, with the consent of the PP, any offence under the AMLA or its regulations by accepting from the person reasonably suspected of having committed the offence such amount not exceeding 50% of the amount of the maximum fine for that offence, including the daily fine, if any, in the case of a continuing offence.
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S.66E(5) AMLA
Any institution that fails or refuses to comply with or contravenes any direction or guidelines issued to it by the relevant regulatory or supervisory authority; or discloses a direction or guideline issued to it in contravention of s.66E(4), commits an offence

and shall on conviction be liable to a fine not exceeding RM100,000.


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THANK YOU

Dr Mei Pheng LEE


mlee@bond.edu.au DETTA SAMEN & CO ADVOCATES DS LAW CENTRE, Lot 564 Lorong Rubber 6, KUCHING 93400, SARAWAK Fax 082-412204 Mobile 019-8163319
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