Money laundering is the criminal act of concealing the source of illegally acquired funds through a complicated sequence of banking transfers or business transactions. After passing through a sequence of commercial purchases and bank transfers, the previously illegally acquired money appears to be lawfully acquired. It can then be used as though it were obtained legally. Money laundering offences include tax avoidance, extortion, fraud, bribery, coercion, smuggling, modern slavery, sex trafficking, cocaine trafficking, and illegal arms trade.

            The effects of money laundering are usually severe and extensive. Money laundering can extensively affect the economy of a country. This is because as the proceeds of crime are injected into the country’s economy, crime and corruption also flourish in the country, making the real sector of the economy less efficient. In addition to its economic implications, money laundering may have significant social and political consequences if it goes unnoticed or is dealt with ineffectively. Organised crime can infiltrate financial institutions, seize control of large parts of the economy, and corrupt elected authorities and even legislatures. These criminal organisations’ economic and political power and authority can erode the social structure, collective ethical values, and, fundamentally, the democratic institutions of democracy. As a result, it is critical to resolve money laundering.

            One of the biggest challenges that anti-money laundering organisations face is the highly advancing technology that keeps developing in the financial world. This article shall delve into how money-laundering has evolved to the digital space in crypto-crime and how the Malaysian legislation has dealt with it.

Crypto-crime in Malaysia

            Malaysia is a regional and global political power. It is the third-largest economy in Southeast Asia, following Indonesia and Thailand. Therefore, it is a hub for creating business interests worldwide. Furthermore, it has heavily invested in the technology and digital sectors, making its fintech sector grow in prominence globally. One of the fastest-growing areas of fintech in Malaysia is digital asset trading using cryptocurrencies.

Cryptocurrency is a virtual currency consisting of a sequential hashing and digital signature created through encryption technology. Malaysia has approved five crypt-tokens so far. These include Ethereum, Bitcoin, Ripple, Litecoin and Bitcoin Cash. Because of its nature, cryptocurrency has proven to be an efficient payment globally. This is because, unlike the flat currency, it has a more universal nature, unregulated by the geographical boundaries of countries. However, this decentralised nature and the anonymity that cryptocurrencies offer to make it a suitable avenue for illegal transactions and activities such as weapons purchasing, terrorism financing, and drug syndicates. There is, therefore, a need for proper legal regulation to ensure crimes such as money laundering are prevented in digital asset trading.

Legal Framework on Cryptocurrency and Money Laundering in Malaysia

 In 2014, the Bank Negara Malaysia issued a statement stating that cryptocurrencies such as bitcoin would not be recognised as legal tender. However, it is important to note that cryptocurrency is not illegal in Malaysia. The Malaysian courts in 2017, in the case of Luno PTE Ltd.  & another v Robert Ong Thien Cheng (2017), held that despite cryptocurrency not being a recognised legal, financial tender by law, it fell under section 73 of the Contracts Act 1950. Cryptocurrency is therefore recognised in Malaysia as a security and a commodity. However, Bank Negara Malaysia does not regulate the operations of cryptocurrency.

Due to the growing concerns on cryptocurrencies in regard to money laundering, the Bank Negara Malaysia has, however, amended the Anti-Money Laundering and Anti-Terrorist Financing and Proceeds of Unlawful Activates Act of 2001 to include persons who provide services that encompass digital assets trading as reporting institutions under the Act through Sector 6. Sector 6 of the policy defines digital currency and ensures that appropriate safeguards against money laundering and terrorism funding risks associated with cryptocurrency use are in place, as well as to improve the openness of cryptocurrency operations in Malaysia.

 It is important to note that this move also has the net effect of encompassing digital trading as subject to other Anti-Money Laundering and Counter Financing of Terrorism legislation and policies.  For example, cryptocurrency is now also regulated by the Anti-Money Laundering, Anti-Terrorism Financing, and Proceeds of Unlawful Activities Act 2001 (AMLA). The Anti-Money Laundering, Anti-Terrorism Financing, and Proceeds of Unlawful Activities Act 2001 (AMLA) is Malaysia’s main piece of AML/CFT legislation. The act outlines the crimes of money laundering and terrorist funding and the steps that financial institutions must take to identify and deter such illegal activity. It further describes authorities’ investigative powers in investigating money laundering and terrorist finance offences.

Furthermore, the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA). The AMLA imposes reporting duties on Malaysian banks and financial institutions, which must be incorporated into internal AML/CFT services. These monitoring programs should represent the level of risk that the organisation faces and should be monitored continuously to resolve current and evolving threats. In practice, financial institutions must look for transactions in unusually large numbers or patterns, transactions with no apparent purpose, transactions that are irregular or that might involve proceeds from illegal activity, and transactions that originate or are directed to countries with high AML/CFT risk. If any suspicious activity is noted, the institutions must report such activities to the Bank Negara Malaysia.

Apart from the legislation, there is also an institutional framework that governs crypto crime in Malaysia. The Bank Negara Malaysia (BNM) is the main oversight authority in the country. It acts as the regulator and central bank. BNM is supported in its oversight of the Malaysian financial sector by the Securities Commission (SC), which serves as the stock market’s regulatory body, and the Labuan Financial Services Authority (Labuan FSA), which directly oversees the Labuan International Business Financial Centre, the island of Labuan’s special economic region.

As the world moves on to the digital space, the law needs to evolve to cover such areas. Malaysia, being a fintech hub, has ensured that it has put measures to prevent crypto crime. However, note that the cryptocurrency is not regulated by legislation or institutions such as the bank.