LETTERS: An American think tank, the Global Financial Integrity (GFI) released its eighth report on illicit financial flows in January 2019.
It ranked Malaysia among countries with significant outflow of illicit money, alongside Brazil, Vietnam and South Africa.
Flow of illicit funds are illegal movements of money or capital from one country to another, usually associated with money laundering and financing of terrorism.
Such conduct is facilitated by manipulation of corporate vehicles (CVs), including legal persons (eg. companies) or legal arrangements (eg. trusts), that are used to hide the identity of natural persons (eg. individuals) who ultimately owns, controls or benefits from the actions undertaken.
Many would have watched The Laundromat (2019) on Netflix, depicting events when leaked documents from a Panama-based law firm was exposed.
Coined the "Panama Papers" by investigative journalists, it implicated high-ranking public officials, celebrities and business moguls across the globe.
It showed how the law firm in Panama, Mossack Fonseca, had set up shell companies for its clients to hide their identity and disguise the sources of funds before channelling back to them in the form of various legitimate assets.
Concern was also echoed by the Financial Action Task Force, which is an intergovernmental organisation founded in 1989 by the G7 to develop policies to combat money laundering.
The task force has released its "Best Practices on Beneficial Owners of Legal Persons" in October 2019, where it proposed measures which should be undertaken by reporting institutions (RIs) to identify, verify and keep up-to-date information of beneficial owners of CVs (BO-CV).
BO refers to a natural person who ultimately owns, controls or benefits from a company or trust fund and the income it generates, without being on the record as the owner.
This could be those who put nominees or proxies on record, or have indirect ownerships via layers of corporate entities to disguise the ultimate beneficiary.
Rocked by financial scandals involving senior officials, high-ranking officers and business owners using such CVs here, Malaysian authorities have began working towards greater transparency and enforcement in this area.
We need greater transparency in BO-CVs to deter misuse and manipulation of any sort. We need to have a clear definition of who are the BOs, and how we can encourage timely disclosure, identification, verification and continuous updates on the information recorded.
The Companies Commission of Malaysia has issued the Guidelines for the Reporting Framework for BO of Legal Persons pursuant to Section 20C of the Companies Commission of Malaysia Act 2001.
The enforcement of this guidelines scheduled late last year had been postponed due to the pandemic and delays in passing an amendment bill to be enacted upon the Companies Act 2016.
The rationale of enforcing the guidelines is to impose the duty on the directors, partners and company secretaries to reveal and self-declare beneficial ownership of a corporate entity, failing which actions would be taken.
This will, in turn, reflect in the formation of a BO registry, which would be accessible to law enforcement agencies and the authorities.
This was followed by the issuance of Guidelines on BO by Bank Negara Malaysia in September, which instructs all RIs (under the Anti-Money Laundering Act) to identify a natural person who is a BO of the customer, obtain information of the said ownership, verify the information gathered, conduct customer risk profiling, and perform further regulatory obligations based on the risk category of the BO, before onboarding a customer and during the course of business relationship as and when the need arises.
Together, we can unmask the corrupt and criminals before the illegal gains become untraceable due to the nature and structure of CVs.
The first steps are already in motion. It is up to all stakeholders to ensure consistency and continuance.
RAYMON RAM
Certified Fraud Examiner (CFE), Petaling Jaya, Selangor
The views expressed in this article are the author's own and do not necessarily reflect those of the New Straits Times