Opening Address by Datuk Ahmad Hizzad Baharuddin Director General, Labuan FSA at Combating Financial Fraud Conference: The Perfect Storm
Combating Financial Fraud Conference: The Perfect Storm
11 August 2016
Dorsett Grand Labuan

Assalamualaikum w.b.t and a very good morning.
Ms Shireen Kandiah, AICB,
Chairman of Labuan associations
Esteemed speakers and ladies and gentlemen
It is my great pleasure and honour to welcome all of you today to the “Combating Financial Fraud Conference – The Perfect Storm”. The Conference, hosted here in Labuan IBFC, underscores Labuan FSA’s continuing efforts to combat money laundering and terrorism financing and the importance of the role played by the financial services industry in supporting regulators, government and law enforcement to mitigate the confluence of risks and vulnerabilities associated with such a storm.
First and foremost, allow me to thank the main sponsors for this event and the Asian Institute of Chartered Bankers for organising this Conference and inviting me to officiate the opening this morning. I would also like to thank the Association of Labuan Trust Companies, Association of Labuan Banks, Labuan International Insurance Association and Labuan Investment Banks Group for coordinating the participation from your members. My greatest appreciation also goes to the speakers for your willingness to share knowledge and expertise in this conference, some have come from far like our good friend, Mr Richard Chalmers. Thank you. I am pleased to note that today we have close to 150 participants representing banks, insurance and takaful as well as trust companies and various Malaysia’s Law Enforcement Agencies attending this Conference.

Crimes and money laundering's socio-economic impact to one country is immeasurable. Serious crimes such as drug trafficking, corruption, tax evasion weaken the economy, and many could have gone unravelled due to collusion and sheer magnitude of the problem in terms of value and numbers, causing fatigue to the law enforcement agencies. However, not taking sufficient enforcement measures on the crimes and its proceeds will perpetuate more crimes, as the benefits from the proceeds would incentivize perpetration of larger crimes, draining manpower resources and productivity level. The tornado like storm resulting from these circumstances would inevitably results in a downward spiraling of reputational damage and loss of income to one's nation.
Against this backdrop, the Government of Malaysia and Labuan IBFC had consciously drive the fight against money laundering and terrorism financing, as early as 20 years ago. Malaysia had become member of the Asia Pacific Group on Money Laundering (APG) since the year 2000 and Malaysia had co-chaired with Australia the APG from 2000 to 2002. The National Coordination Committee (NCC) comprising all relevant Government law enforcement agencies was set up in 2000. The Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act, AMLATFA was enacted in 2001, giving broader powers for law enforcement agencies. The Labuan IBFC took the lead to be assessed by the peer group of APG in 2001 when Labuan IBFC was concluded as having a low risk for money laundering. In 2014, Malaysia including Labuan IBFC was among the first few countries to be assessed using the new Financial Action Task Force (FATF) methodology of expected 11 outcomes and meeting 44 technical compliance, through the Mutual Evaluation Exercise conducted by the APG, that has led Malaysia to implement a very comprehensive national action plan enabling the country to be admitted as a FATF member in February 2016. Before that, in September 2015, the FATF has adopted and published the Malaysia Mutual Evaluation Report of Malaysia. These developments and progressive efforts are testimonies to our commitment to combat money laundering and terrorism financing, shoulder to shoulder with the international communities.
Certainly from this perspective, Labuan IBFC cannot afford to be or perceive to be the weak link in the chain of international and national efforts to combat money laundering and terrorism financing. Compliance with the Financial Action Task Force AML/CFT Standards in combating money laundering and terrorism financing is utmost in our mind. This demand, as a key measure of the robustness of the country's AML/CFT regime means that Labuan businesses, including financial institutions, would conduct greater scrutiny, thus incurring higher costs of doing business, and delays would be expected. While the efficiency loss may not be tenable, financial institutions exists on the basic tenets of public confidence and integrity, and such loss is the price to pay to sustain public confidence. Misadventure into facilitating illegal activities can cause the banks, for instance, to face penalties, besides higher liquidity risks as such funds derived from illegal activities tend to be less stable, affecting the institution's ability to perform its important economic intermediation function.
For an AML/CFT measures to be effective, we need to understand the complex world of money laundering and terrorism financing, it's modus operandi, risks and vulnerabilities. Understanding of the risks will facilitate our efforts in channeling our resources and priority towards areas that would pose the greatest risks to the institutions. And the need to work together is paramount. In the NCC, there are representations from 16 government agencies and ministries with 7 sub-committees or working groups, working together to prevent and detect the abuse. A list of 63 action plans has been identified, committing the agencies to a comprehensive set of efforts and initiatives. Nonetheless, a symbiotic working partnership between all the law enforcement authorities, regulators, supervisors and the private sector is vital in moving this forward. A hallmark of a sound AML/CFT regime would be the cooperation and collaboration embedded around a robust technological platform for information sharing, with effective implementable steps and measures collectively geared towards achieving the outcome of eliminating money laundering and criminal activities. In according the importance of this objective in Labuan IBFC, I wish to inform that the Labuan FSA has established dedicated and specialized AML units to increase awareness and compliance of AML/CFT requirements and to intensify the monitoring of reporting institutions through on-site and off-site inspections.
In this setting, compliance with AML/CFT law and regulations in the financial institutions would be given greater focus, which would require high commitment from all level of staff, particularly the front-liners. Non-compliances can be fatal. At the international level, we have witnessed banks been penalised for failure to comply with AML/CFT laws and regulations. Certainly, to maintain the image and reputation of Labuan IBFC, Labuan FSA would not hesitate to impose penalties and punishment for failing to comply with any AML/CFT laws and legislations. The recent amendment to the AMLATFA that came into force on 1 September 2014 had increased the penalty amount. For instance, maximum penalties under general offence that normally applies for non-compliances with requirements under Part IV of the AMLATFA (that is on reporting obligations by the reporting institutions) have been increased from RM250,000 to RM1 million.
With that light caution, I wish to end my speech, by recapping the following three key points:
  • Firstly, Crimes and money laundering, as in a perfect storm, could create circumstances of adverse significance to our financial system, rendering our economy and society largely ineffective, periodically. Thus, understanding the risks and vulnerabilities is key in ensuring that our measures are robust enough to protect the financial institutions and the integrity of our financial system; 
  • Second, the authorities have long been serious in combating AML/CFT related offences with coordinated efforts through the NCC, and enactment of Acts and guidelines aimed to curb these abuses. Non-compliances will be viewed very seriously and strong regulatory and supervisory actions are to be expected; 
  • Thirdly, Cooperation and collaboration between financial and related institutions and Law Enforcement Agencies are vital for an effective AML/CFT regime, as legal, regulatory and operational frameworks alone are not sufficient without effective and collective execution in its overall implementation. Results would need to be measured based on the outcome and impact. 
On that note, I believe your presence today is a precursor towards establishing direct formal and informal contacts with one another, creating a network of similar minded people to share their experiences and attempts of AML/CFT nature, for the collective benefits of the Labuan IBFC, and the nation. I urge all of you to capitalise on this gathering of experienced speakers, law enforcement agencies and practitioners to know one another better, and form a strong alliance in our defense against the threat of AML/CFT perpetrators. We certainly do not want the AML/CFT issues to become a perfect storm.
I wish all of you a successful and productive Conference ahead.
Thank you 
Ahmad Hizzad Baharuddin
Director General of Labuan FSA
Copyright © Labuan FSA 
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