Digitalisation intensifies financial risk

PETALING JAYA: The acceleration of digitalisation has intensified the risks of money laundering, terrorism financing and proliferation financing in the financial industry.

Bank Negara deputy governor Marzunisham Omar (pic) said the rapid change in technology sometimes results in anti-money laundering, combating the financing of terrorism and countering proliferation financing (AML/CFT/CPF) measures undertaken by authorities to be reactive.

He said the the rapid changes of money laundering, terrorism financing, and proliferation financing methods and risks are driven by technology.

“For example, we see this in the virtual asset sector given its rapid development and widespread innovations.

“After more than a year of Covid-19, the past few months have seen the ease of the pandemic and the lifting of restrictions by most countries.

“Despite the challenging environment, it is encouraging to note that the authorities remain vigilant in the fight against money laundering, terrorism financing and proliferation financing.

“Indeed, we are facing new and increasing challenges following the increasing sophistication of financial tools and products,” he said at the 23rd Asia/Pacific Group on Money Laundering Typologies Workshop yesterday.

For perspective, proliferation financing is defined by the Financial Action Task Force (FATF) as the provision of funds or financial services used for the manufacture, acquisition, development, export, brokering, transport, transfer, stockpiling or use of nuclear, chemical or biological weapons and their means of delivery and related materials, including both technologies and dual-use goods used for non-legitimate purposes.

Marzunisham pointed out that knowledge-sharing platforms are useful to enhance knowledge on the latest changes and trends in the financial industry space.

“It is also crucial to continuously adopt new approaches and tools such as data analytics and artificial intelligence to elevate our surveillance and enforcement capability in keeping up with the increasingly complex and innovative financial instruments.

“Remaining reactive and defensive would limit our opportunity to proactively shape the orderly development of the financial landscape while managing any potential money laundering, terrorism financing, and proliferation financing risks that accompany it,” he added.

He said compared to money laundering and terrorism financing, proliferation financing is usually considered a relatively new area and less understood.

“To date, only a few countries have conducted their proliferation financing risk assessments, for example Cayman Islands, Gibraltar, Latvia, Portugal and the United States, as well as the recent assessments by Malaysia and the United Kingdom in 2021,” he said.

In addition, Marzunisham noted there has been greater scrutiny by both the domestic stakeholders and global community on AML/CFT/CPF measures and implementation.

He said revelations of high-profile information such as Panama Papers, Financial Crimes Enforcement Network leaks and more recently, the Pandora Papers, have attracted great interest within the domestic and international communities on the AML/CFT/CPF regime.

“This has led to higher expectations for authorities to take prompt action against activities involving cross-border flow of illicit funds as well as the broader money laundering, terrorism financing, and proliferation financing threats.

“While efforts by the FATF to enhance and provide greater clarity on related standards, including on transparency of beneficial ownership is underway, authorities and gatekeepers are also expected to ensure that blind spots are effectively addressed.

“More often than not, the information regarding these illicit activities resides with multiple parties across the public and private sectors.

“Hence, any suspicion will only surface if we are able to link and integrate that information.

“In this pursuit, greater collaboration among the law enforcement agencies (LEAs), as well as between LEAs and the private sector is essential for us to efficiently and effectively connect and assess all relevant information, which will no doubt further strengthen our efforts to fight money laundering, terrorism financing, and proliferation financing threats,” he said.

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