KUALA LUMPUR: Malaysia has strengthened its defences against illicit finance since 2015, notably by enhancing its legal framework and supervisory oversight of the financial and non-financial sectors.
The global financial crime watchdog, the Financial Action Task Force (FATF), reveals in its findings from a 16-month assessment of Malaysia’s defences against illicit finance that the country has undertaken initiatives to update and deepen its understanding of the risks of illegal finance and to strengthen domestic cooperation and coordination mechanisms.
In FATF’s recent mutual evaluation of Malaysia’s anti-money laundering, counter-terrorism financing and counter-proliferation financing (AML/CFT/CPF) framework, the country was upgraded to the highest category of “Regular Follow-Up” – a distinction achieved by only 11 other countries in the previous evaluation round.
This recognition by the international body reflects Malaysia’s comprehensive and coordinated approach to combating money laundering, terrorism financing and proliferation financing, reinforcing global confidence in Malaysia as a safe and transparent investment destination.
Further, the recognition supports stronger economic growth, enhances long-term prosperity, facilitates investment inflows, reduces the cost of doing business, and reflects the success of the whole-of-nation effort to strengthen Malaysia’s financial integrity framework.
However, the report noted that Malaysia faces significant challenges in translating money laundering investigations into prosecutions and convictions.
FATF president Elisa de Anda Madrazo said Malaysia was one of the first countries to be assessed in the new round of evaluations.
“Malaysian authorities were highly committed to the process and have shown notable progress in strengthening its AML/CFT regime, resulting in stronger supervisory frameworks for financial institutions, robust risk understanding and effective coordination among agencies.
“Malaysia has strengthened its legal framework and implemented substantial reforms, positioning it to tackle major cases like 1Malaysia Development Bhd (1MDB) that threaten public confidence.
De Anda said Malaysia must sustain and build on these reforms, strengthen international cooperation, improve its sanctions framework and work at pace to demonstrate a sustained increase in money laundering prosecutions and convictions over the next three years.
“By implementing the FATF’s standards and recommendations, countries not only safeguard the integrity of their financial system, but make people and communities safer by stemming the flows of illicit finance that sustain harmful crimes such as human trafficking, drug trafficking, corruption and organised crime,” she said.
The FATF and the Asia Pacific Group on Money Laundering (APG) carried out a joint review of Malaysia’s systems for preventing money laundering, financing of terrorism and financing of weapons
The assessment reviewed the effectiveness of these measures and Malaysia’s compliance with international FATF standards, based on an on-site visit by an international team of assessors in February 2025.
The mutual evaluation report is based on a rigorous, in-depth assessment conducted over 16 months. During this time, the assessment team held more than 70 meetings with relevant public authorities.
Also, it engaged 45 private sector entities, including financial institutions, virtual asset service providers, designated non-financial businesses and professions, and non-profit organisations.
Malaysia faces money laundering risks due to several factors, including corruption and fraud, an informal economy, rapid growth in digital finance and its strategic position as a transit hub for smuggling, human trafficking, organised crime, and piracy.
The country is also exposed to terrorist financing risks due to its proximity to terrorist groups in neighbouring jurisdictions.
The mutual evaluation found that Malaysia has a solid understanding of these risks through regular assessments but needs to further strengthen its knowledge of cross-border crime, third-party money laundering, and trade-based money laundering.
The assessment team examined the handling of major criminal cases, such as the 1MDB investigation, which exposed the misappropriation of billions from a sovereign wealth fund by high-profile individuals.
The report noted that Malaysia implemented significant reforms following the case, including amendments to laws, the introduction of new national anti-corruption policies and strategies, stronger supervision and preventive measures, legislation on mutual legal assistance and public finance transparency, and the establishment of the National Anti-Financial Crime Centre to strengthen enforcement coordination.
Further, it notes that during the review period, efforts to trace complex cross-border financial flows led to the recovery of about €8 billion, mostly linked to 1MDB-related assets.
Moving on, the assessment found that Malaysia redirected resources from other money laundering investigations to focus on the major 1MDB and related cases.
While this prioritisation was necessary to handle the complex investigation and restore public confidence, it limited law enforcement’s capacity to pursue other money laundering cases.
The FATF report noted that between 2019 and February 2025, Malaysia secured 62 convictions involving individuals and five legal entities for money laundering and seven individuals for terrorist financing.
Although terrorist financing convictions have increased since the last mutual evaluation, the overall conviction rate remains low relative to the country’s risk profile.
The assessment said Malaysia has a strong understanding of the risks associated with the misuse of corporate structures and has applied risk-based safeguards. It said that Malaysian authorities use multiple channels to obtain accurate, up-to-date beneficial ownership information.
However, to ensure timely access to critical information for criminal investigations, improvements are necessary.
Touching on the private sector, the report said Malaysia has a strong supervisory framework for financial institutions, virtual asset service providers and designated non-financial businesses and professions such as lawyers, real estate agents and accountants.
It said risk awareness and controls are generally more advanced among larger institutions, while smaller firms tend to have weaker risk understanding and mitigation measures.
Although effectiveness in the financial sector is substantial, the FATF report said significant improvements are still needed to strengthen preventive measures in non-financial sectors.
APG co-chair Mitsutoshi Kajikawa said, “As a strong voice for anti-money laundering and counterfinancing of terrorism in the Asia-Pacific region, the APG welcomes the publication of the Malaysian mutual evaluation report.
“This is the APG’s first mutual evaluation report for the global new round, and I can see much of our region’s risk and context reflected in the report. It recognises not only the scale of our challenge, but also the successes we can be assured of achieving with the continuous improvement mindset exemplified by Malaysian authorities.
“We look forward to working with Malaysia t share the insights it gained regarding its strengths with regional partners, build on the findings, and implement the report’s astute recommendations,“ he said.
Following the assessment, Malaysia was given a three-year roadmap outlining key recommended actions.
These include strengthening international cooperation, improving its sanctions framework, and demonstrating sustained increases in money laundering prosecutions and convictions.
Malaysia will report its progress to the FATF and the APG.
