The Effectiveness of Money-Laundering Regulations: Evidence from Money-Services-Business Industry in Malaysia

Abstract

The International Monetary Fund defines money laundering as the process of assets being spawned by criminal activities to hide or make obscure any connections established between the funds and their illegal origins. Nowadays, money laundering has already been labelled as a global crime where global strategies and policies should be developed to curb money laundering. Thus, global courts should be formed to put into trial all money-laundering cases and make sound decisions in reference to punishments and penalties. The aim of this study is to gauge the effectiveness of anti-money laundering (AML) regulations in the Money Services Business (MSB) industry in Malaysia. There are three (3) predictors that have been expected to influence money-laundering activities, namely customers’ record-keeping, suspicious transaction reporting, and employee training. The respondents have been selected from MSB officers across Malaysia by using simple random sampling. The questionnaires were distributed to all 344 MSB through the Money Service Association. The compliance officers have been selected as the primary participants in the study since their roles and responsibilities within the MSB correlates with the three constructs identified in the study. The total of 150 (43.6%) questionnaires returned and have been used for analysis. The sample was then analysed using the descriptive and multiple regression analysis. The results revealed that all hypotheses are supported, which indicates that customer record keeping, suspicious transaction reporting, and employees training have a significant impact on combating money laundering. This study proposes that money-laundering activities could be controlled by focusing on customer record keeping, suspicious transaction reporting, and employee training. The findings provide evident on how The Anti-Money Laundering and Anti-Terrorism Financing Act 2001 (AMLATFA) has filled an imperative gap in fight towards combating money laundering in Malaysia. The similar studies could be conducted in other settings with different rules and regulations towards money laundering.

The Covid-19 impact on financial crime and regulatory compliance in Malaysia

“…Looking at the perspective of the AML compliance programme, even without the Covid-19 pandemic, financial institutions have already faced challenges in detecting money laundering activities (Yaacob and Harun, 2019), the condition might be worsening if we take into account the effect of the pandemic. A report from Deloitte (2020) on AML Preparedness Survey Report 2020 has enlightened the issues surrounding AML compliance amongst financial institutions in South Asia.…”

The Effectiveness of Anti Money Laundering Regulations of Malaysian Commercial Banks

“…Based on the findings, customer record keeping appeared to have an impact in the effectiveness of AML regulations in Malaysian commercial banks. In the context of Malaysian banking institution, customer record keeping is the important process to ensure the bank's customer are easily retrievable and it would lower money laundering activities in banking institutions (Yaacob & Harun, 2019). This result indicates that customer record keeping does influence in the effectiveness of AML regulations to reduce and combat money laundering activities in Malaysian commercial banks.…”

“…The result is consistent with the previous studies conducted by Bolton & Hand (2002); Tang & Ai (2010) where it showed the relationship between employee training and anti-money laundering regulations. A recent study has been supported by Yaacob & Harun (2019), and it shows that there is a significant relationship between employee training and anti-money laundering regulations. In addition, the result showed the correlation between the construct employee training and money laundering.…”

“…It gives the result that customer record-keeping regulations have exhibited a weak impact on money laundering in the banking system of Pakistan. A recent study by Yaacob & Harun (2019) shows that customer record keeping has a significant relationship with money laundering. The outcome indicates that if customer record-keeping systems are improved, the effectiveness of the regulation of money laundering will minimise money laundering activities in Malaysia.…”

“…This study has been supported by the previous research from Tang & Ai (2010) and Shehu (2010), where the result showed a significant relationship between suspicious transaction reporting and money laundering regulations. Yaacob & Harun (2019) showed that suspicious transaction reporting has a significant relationship with money laundering. The result shows that when suspicious transaction records are improved, the effectiveness of money laundering laws in Malaysia with regard to money services business (MSB) will increase, thereby decreasing money laundering activities or related crimes.…”