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This article was first published in the May 2020 China edition of Accounting and Business magazine.

What do the following have in common (other than their illegality): bomb making, smuggling of rare animals, human trafficking, movie piracy, kidnapping, unlicensed pawnbroking and provision of false information to the Malaysian Palm Oil Board?

Each of these is a financial crime according to Malaysian law, specifically the National Anti-Financial Crime Centre (NAFCC) Act, which came into force on 2 January.

The act defines financial crime as the ‘serious offences’ listed in the Second Schedule to the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001. There are about 350 such activities drawn from more than 40 pieces of legislation.

This expansive definition tells us that financial (or economic) crime, is a multifarious and major menace. Wherever we are, whether online or offline, we are all potential victims.

‘Financial crime ranges from basic theft or fraud committed by ill-intentioned individuals to large-scale operations masterminded by organised criminals with a foot on every continent,’ says Interpol on its website.

Meanwhile, Europol, the European Union’s law enforcement agency, has a succinct way of explaining why so many unlawful acts come under the banner of financial crime: their principal motive is economic gain.

The criminals’ gain is society’s loss, and it is a huge one. Economic crime in a digital age, a January 2020 report by ACCA and EY, notes that estimates of the annual global cost of financial crime vary from US$1.4 trillion to US$3.5 trillion. What is worse is that it threatens financial stability and national security around the world.

Considering this, the NAFCC surely sounds like a great addition to the machinery of government. As spelled out in the act, the centre’s role is to coordinate enforcement agencies in integrated operations; set up and maintain a centralised data system; and carry out preventative activities. There may be more responsibilities to come.

One of the initiatives mooted in last year’s National Anti-Corruption Plan 2019-2023 was the establishment of a competent centre to manage the seizure and forfeiture of assets through integrated enforcement. This idea is apparently kept alive although the act does not address it. In a speech in November 2019, former Prime Minister Tun Dr Mahathir Mohamad raised the possibility of the NAFCC taking on ‘a centralised role in managing seized and forfeited assets in the near future’.

International emblem

Even without the additional function, the centre already has a big job – and it needs to hit the ground running. A lot of people are counting on it because Malaysia, like many other countries, has a problem with money laundering and corruption, which cannot be separated from financial crime.

One example suffices: the 1Malaysia Development Berhad (1MDB) scandal. An estimated US$4.5bn was misappropriated from the government agency by officials between 2009 and 2015 – the drawn-out trial of former Prime Minister Najib Razak on charges of money-laundering and corruption continues – and this may forever be an international emblem of how appalling things can get on this front.

In January 2019, Global Financial Integrity published estimates of illicit flows of money into and out of 148 developing nations between 2006 and 2015 as a result of their trade in goods with advanced economies. The Washington, DC-based think tank used two sets of data and in both cases, Malaysia was in the top 30 in terms of dollar value of illicit outflows.

It is no surprise, then, that the introduction of the NAFCC Act has been widely lauded. The Malaysian International Chamber of Commerce and Industry hailed it as a necessary step towards better enforcement coordination against financial crime and deeper trust in the country’s governance system. Datuk Seri Akhbar Satar, president of the Malaysian Association of Certified Fraud Examiners, believes that the new law boosts efforts to make Malaysia a clean, transparent and accountable country through the reduction of illicit financial flows, corruption and money laundering.

‘It is important to have the NAFCC, especially given its goal of coordinating a multi-agency approach in combating financial crime domestically and abroad,’ he says.

There are at least 12 enforcement agencies whose tasks include curbing financial crime. Among them are the police, the Malaysian Anti-Corruption Commission, Bank Negara Malaysia, the Securities Commission, the Inland Revenue Board of Malaysia and the Royal Malaysian Customs Department. When these organisations cannot collaborate and share information well, it gives the criminals an edge.

Management consultant KM Loi points out that recent high-profile financial crime cases show that the culprits have capitalised on the fact that the agencies often operate in silos.

He argues that it is not ideal to rely on existing agencies to coordinate joint operations against financial crime because they are typically overworked and under-resourced. Furthermore, fraud and money-laundering schemes are increasingly complex, and must be countered with highly specialised skills and expertise.

‘Unless and until there is a concentrated and coordinated efforts, it is not easy to win such battles,’ says Loi, a former vice-chair of the UNCAC Coalition, a global network of civil society organisations that promotes the United Nations Convention Against Corruption.

Increased velocity

The NAFCC is also about wielding technology and data to fight financial crime. EY’s Joyce Lim, a partner and head of forensic and integrity services, says that new technologies and our digital environment have increased the velocity of the movement of money. This creates challenges in dealing with financial crime. These factors, she adds, have also accelerated financial crime and have allowed criminals to become more creative.

‘A fundamental problem of the digital revolution is that people do not understand technology or how it could implicate them or their business. Technology and the digital era have also increased the volume and variety of data,’ Lim explains. ‘There is a need to replace the trust mechanism with technology tools and data analytics to help detect and prevent financial crime.’

She welcomes the fact that the NAFCC will have a centralised data system on financial crime but cautions that the data must be protected and not abused, adding that the centre’s governance process should be transparent and its goals and powers be made clear.

Transparency is key

Civil society seems generally positive as well about the setting up of the NAFCC. The Center to Combat Corruption and Cronyism, better known as the C4 Center, says it is ‘certainly a step in the right direction’.

At the same time, the advocacy group wants the appointment of the NAFCC director general (DG) and chairman to go through a parliamentary select committee to ensure transparency. This is a key issue because these two positions are meant to be the NAFCC’s prime movers. The DG leads an executive committee that steers the day-to-day work of the centre, while the chairman is head of the centre’s advisory board. The DG is also on the board.

The executive committee’s functions include determining the NAFCC’s direction in preventing financial crime; approving and monitoring integrated operations; and making recommendations to the advisory board on matters relating to the prevention of financial crime. In addition, it is responsible for determining operational policies relating to the integrated operation and centralised data system; providing consultation on the centre’s guidelines; developing a strategic direction and plan; and ensuring the implementation of the board’s advice.

The board, meanwhile, advises the prime minister on financial crime matters, advises the NAFCC on its strategic direction and plan, deliberates and decides on the committee’s recommendations, and facilitates cooperation for the prevention of financial crime. Under the act, the head of state appoints the DG, chairman and other advisory board members on the advice of the prime minister.

Akhbar says that, in order to earn credibility, it is crucial that the NAFCC shows progress soon after it is up and running. The best possible start for the NAFCC is when it has the right people at its helm as it charts a new course in Malaysia’s war against financial crime.

Errol Oh, executive content officer, The Star.