Avid AML
Complying with sanctions screening is an important step for businesses and organisations to take to prevent money laundering and terrorist financing activities. In Malaysia, sanctions screening is a requirement for compliance with anti-money laundering (AML) and countering the financing of terrorism (CFT) regulations set by Bank Negara Malaysia, the Central Bank of Malaysia, and the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLATFPUAA).
Sanctions Screening Programs are the first step in complying with sanctions laws in Malaysia. This program should include a set of policies, procedures, and controls that are designed to detect and prevent transactions that involve sanctioned individuals or entities. This program should be reviewed and updated regularly to ensure that it is effective and in compliance with the latest regulations.
Implementing an effective sanctions screening program involves identifying and assessing the risks of transactions with individuals or entities that are subject to sanctions, and putting in place appropriate controls to prevent or detect such transactions. This can include using automated screening software that screens customer details against lists of sanctioned individuals and entities, as well as manual reviews of transactions that raise red flags.
The Central Bank of Malaysia, the Securities Commission of Malaysia, and other regulatory bodies have issued guidelines and regulations for compliance with international sanctions and AML/CFT measures.
Bank Negara Policy Document on Anti-Money Laundering states:
“Insurance companies can use screening tools and databases to automate the screening process and reduce the risk of human error. These tools can cross-check customer data against lists of sanctioned individuals or entities, and generate alerts when a match is found.”
It is important for insurance organisations in Malaysia to conduct effective sanctions screening in order to comply with regulatory requirements and protect Malaysia's financial integrity.
The Anti-Money Laundering and Anti-Terrorism Financing Act 2001 (AMLATFA) requires insurance organisations to put in place adequate systems and controls to prevent money laundering and terrorist financing, which includes sanctions screening.
Section 27.4.1 Reporting institutions are required to conduct sanctions screening on existing, potential or new customers against the Domestic List and UNSCR List. Where applicable, screening shall be conducted as part of the CDD process and on-going due diligence.
Section 27.4.2 Reporting institutions are required to screen its entire customer database (including dormant accounts), without delay, for any positive name match against the: (a) Domestic List, upon publication in the Gazette; and (b) UNSCR List, upon publication of the UNSC or its relevant Sanctions Committee’s designation in the UN website.
Section 27.4.3 Reporting institutions in the insurance and takaful sector, shall conduct sanctions screening upon establishing business relationships, during in-force period of the policy and before any payout.
When conducting the sanctions screening process, reporting institutions may perform name searches based on a set of possible permutations for each specified entity to prevent unintended omissions.
This is a feature built into Avid AML Sanctions Screening to protect against manipulation or avoidance.
Bank Negara Policy Document states:
“Reporting institutions are required to keep updated with the relevant UNSCR relating to combating the financing of terrorism, which includes:
(a) UNSCR 1267(1999), 1373(2001), 1988(2011), 1989(2011) and 2253(2015) which require sanctions against individuals and entities belonging or related to Taliban, ISIL (Da’esh) and Al-Qaida; and
(b) new UNSCR published by the UNSC or its relevant Sanctions Committee as published in the United Nations (UN) website. Anti-Money Laundering, Countering Financing of Terrorism and Targeted Financial Sanctions for Financial Institutions (AML/CFT and TFS for FIs) 108 of 185 Issued on: 31 December 2019 BNM/RH/PD 030 -3 27.3 Maintenance of Sanctions List UNSCR List S
27.3.1 Reporting institutions are required to maintain a sanctions database on the UNSCR List.
S 27.3.2 Reporting institutions must ensure that the information contained in the sanctions database is updated and effected without delay upon the publication of the UNSC or its relevant Sanctions Committee’s designation in the UN website.
G 27.3.3 Reporting institutions may refer to the Consolidated UNSCR List published in the following UN website: https://www.un.org
S 27.3.4 The UNSCR List shall remain in the sanctions database until the delisting of the specified entities by the relevant Sanctions Committee is published in the UN website.
Domestic List S 27.3.5 Reporting institutions are required to keep updated with the Domestic List as and when published in the Gazette.
S 27.3.6 Reporting institutions are required to maintain a sanctions database on the Domestic List.
S 27.3.7 Reporting institutions must ensure that the information contained in the sanctions database is updated and effected without delay upon publication in the Gazette.
G 27.3.8 Reporting institutions may refer to the Domestic List published in the following website: http://www.federalgazette.agc.gov.my
S 27.3.9 The Domestic List shall remain in the sanctions database until the delisting of the specified entities is published in the Gazette. Other requirements
S 27.3.10 Reporting institutions must ensure that the information contained in the sanctions database is comprehensive and easily accessible by its employees at the head office, branch, subsidiary and where relevant, to the outsourced service providers or agents.
G 27.3.11 Reporting institutions may monitor and consolidate other countries’ unilateral sanctions lists in their sanctions database. Anti-Money Laundering, Countering Financing of Terrorism and Targeted Financial Sanctions for Financial Institutions (AML/CFT and TFS for FIs) 109 of 185 Issued on: 31 December 2019 BNM/RH/PD 030 -3
G 27.3.12 Reporting institutions may also consider electronic subscription services in ensuring prompt updates to the sanctions database.
Avid AML provides sanctions screening technology to screen against the United Nations (UN), the United States Office of Foreign Assets Control (OFAC), and domestic lists issued from the Ministry of Home Affairs, the Anti-Corruption Commission, and the Investor Alerts list from the Securities Commission Malaysia.
Firms can also include their own internal watch-lists to screen against.
It is important for insurance firms to conduct regular internal audits to ensure that the sanctions screening program is effective and in compliance with the regulations. This can be done by an internal auditor or by an external auditor. The audit should include a review of the sanctions screening program, the transactions, and the customers.
Failure to comply with these regulations can result in severe penalties, including fines and imprisonment and leave vulnerable communities at risk. By screening transactions and customers against sanctions lists, businesses can help to identify and prevent illicit financial activities that could be used to fund terrorist organisations or other criminal activities
Malaysian insurance firms are required to screen for sanctions as part of their compliance with anti-money laundering (AML) and countering the financing of terrorism (CFT) regulations. By engaging in transactions with sanctioned entities, insurance firms risk being involved in illegal activities and facing severe penalties, including fines and even imprisonment. Insurance firms that fail to screen for sanctions also risk damaging their reputation and losing business.
Customers, partners and staff may avoid working with firms if they suspect that the Insurance firm is not taking adequate measures to comply with laws and regulations. By screening for sanctions, Insurance companies can ensure that they are not inadvertently involved in illicit activities and maintain the trust and confidence of their customers and the public.
Financial Loss and reputational damage can impact the health and wealth of the firm and its shareholders. Insurance firms may be held liable for any financial losses incurred as a result of their involvement in money laundering or terrorist financing activities. By implementing a robust sanctions screening program, Insurance firms can reduce the risk of financial loss and protect their assets.
Non-compliance with sanctions screening can be brutal and the ramifications are vast. These include financial penalties, reputational damage, criminal liability, potential sanctions, loss of business opportunities and of course legal risk.
Financial penalties: Insurance institutions that fail to comply with sanctions screening regulations can face significant financial penalties. These can include fines, penalties, and restitution costs, which can have a significant impact on the bottom line of the organisation.
Legal Consequences: Non-compliance with sanctions screening requirements can also result in legal consequences, including civil and criminal penalties. Insurance companies may be subject to lawsuits from affected parties, which can result in costly settlements or judgments.
Loss of Licence: Regulatory authorities may also revoke or suspend the licence of insurance companies that fail to comply with sanctions screening requirements. This can have a significant impact on the ability of the insurance company to operate and can result in a loss of market share and revenue.
Reputational damage: Organisations that fail to comply with sanctions screening regulations can also suffer reputational damage, which can lead to lost customers, damage to the organisation’s brand, and a loss of trust among stakeholders.
Criminal liability: In some cases, failure to comply with sanctions screening regulations can also result in criminal liability, which can lead to fines, penalties, and even imprisonment.
Potential sanctions: Non-compliance with sanctions screening may lead to the imposition of sanctions from international organisations, and this can lead to a range of economic, financial and diplomatic penalties.
Loss of business opportunities: Organisations may also lose business opportunities and contracts as a result of being non-compliant with sanctions screening regulations.
Difficulty in complying with regulations of other countries: Non-compliance with sanctions screening can also make it difficult for an organisation to operate in other countries and comply with their regulations.
Legal Risks: an organisation not complying with sanctions screening may also face legal risks and complex legal proceedings if they were found doing business with a sanctioned entity.
It is important to note that non-compliance with sanctions screening regulations can also have a broader societal impact, as it can contribute to the proliferation of illicit activities, including money laundering, terrorist financing, and the funding of illegal organisations. It is important for organisations to maintain compliance with sanctions screening regulations.
Bank Negara Policy Document on Anti-Money Laundering, Countering Financing of Terrorism and Targeted Financial Sanctions for Financial Institutions (AML/CFT and TFS for FIs) provides examples of transactions that could trigger suspicion.
These are provided in the following section.
1. A customer is evasive or unwilling to provide full details or information for purposes of verification of identity.
2. For a corporate or trust customer, instances where there is difficulty and delay in verifying its incorporation.
3. A customer with no discernible reason for using the insurer’s service, e.g. customers with distant addresses who could find the same service nearer to their home base, or customers whose requirements are not in the normal pattern of or inconsistent with the insurer’s business and could be more easily serviced elsewhere.
4. Customer terminates insurance policies or takaful certificates without concern for the product’s investment performance.
5. Customer purchases insurance products using a single, large premium payment, particularly when payment is made through unusual methods such as cash or other bearer negotiable instruments.
6. Customer purchases a product that appears outside the customer’s normal range of financial wealth or estate planning needs.
7. Customer borrows against the cash surrender value of permanent life insurance policies, particularly when payments are asked to be made to apparently unrelated third parties.
8. Purchase of policies which allow for the transfer of beneficial ownership interests without the knowledge and consent of the insurance issuer. This would include second hand endowment and bearer insurance policies.
9. A customer is known to purchase several insurance products and uses the proceeds from an early policy surrender to purchase other financial assets.
10. Payment is made to unrelated third parties. Anti-Money Laundering, Countering Financing of Terrorism and Targeted Financial Sanctions for Financial Institutions (AML/CFT and TFS for FIs) 148 of 185 Issued on: 31 December 2019 BNM/RH/PD 030 -3
1. Proposals from an intermediary which is not in accordance with the normal business introduced.
2. Proposals that are not in accordance with an insured’s normal requirements, the markets in which the insured or intermediary is active and the business which the insured operates.
3. Early cancellation of policies with return of insurance premium or surrender of policy with losses for no discernible purpose or in circumstances which appear unusual.
4. A number of policies entered into by the same insurer or intermediary for small amounts and then cancelled at the same time.
5. Any transaction in which the nature, size or frequency appears unusual, e.g. early termination or cancellation, especially where cash had been tendered and/or the refund cheque is to a third party or a sudden purchase of a lump sum contract from an existing customer whose current contracts are small and with regular payments only.
6. Assignment of policies to apparently unrelated third parties.
7. Transactions not in accordance with normal practice in the market to which they relate, e.g. with reference to the size or class of business.
8. Other transactions linked to the transaction in question could be designed to disguise money and divert it into other forms or other destinations or beneficiaries.
9. Customers purchasing a high number of insurance policies for self and family members which is not consistent with earning capacity or profile.
1. A number of policies with low insurance premiums taken out by the same insured person, each purchased for cash and then cancelled with return of insurance premium to a third party.
2. Large or unusual payment of insurance premiums or transaction settlement by cash.
3. Overpayment of insurance premiums with a request to refund the excess to a third party or different country.
4. Payment by way of third party cheque or money transfers where there is a variation between the account holder, the signatory and the prospective insured. Anti-Money Laundering, Countering Financing of Terrorism and Targeted Financial Sanctions for Financial Institutions (AML/CFT and TFS for FIs) 149 of 185 Issued on: 31 December 2019 BNM/RH/PD 030 -3
5. A customer uses multiple bearer negotiable instruments (e.g. bank draft, traveller’s cheque, cashier’s cheques and money orders) from different banks and money services businesses to make payments for insurance policy or takaful certificate or annuity payments.
6. Abnormal settlement instructions, including payment to apparently unconnected parties or to countries in which the insured is not known to operate.
1. Claims which, while appearing legitimate, occurred with abnormal regularity.
2. Regular small claims within insurance premium limit.
3. Treaty reinsurances with high incidence of small claims.
4. Regular reinsurance claims paid overseas to third parties.
5. Recent change of ownership or assignment of policies just prior to a loss.
6. Payment of claims to a third party without any apparent connection to the insurance policy/takaful certificate owner.
7. Abnormal loss ratio for the nature and class of risk bound under a binding authority.