Verity journal

As financial crimes become more sophisticated, non-financial sectors in Malaysia are increasingly targeted by fraudsters and corrupt actors. Real estate agents, legal professionals, accounting firms, and jewellery businesses are all vulnerable due to the high-value transactions and sensitive information they handle.

These businesses are collectively referred to as Designated Non-Financial Businesses and Professions (DNFBPs). DNFBPs play a pivotal role in Malaysia’s economic structure. However, their involvement in high-risk activities also makes them a potential channel for financial fraud and corruption. Left unchecked, such crimes can result in legal prosecution, reputational collapse, and crippling financial losses.

Understanding Financial Fraud and Corruption in DNFBPs

Financial fraud encompasses a wide range of dishonest activities designed to deceive for monetary gain. In DNFBP sectors, this can include:

• Money laundering: Concealing the origins of illegally obtained funds.
• Bribery: Offering or accepting something of value in exchange for influence or action.
• Embezzlement: Misappropriation of entrusted funds or property.
• Tax evasion: Illegally avoiding paying taxes through manipulation or deception.

Corruption, on the other hand, typically involves the abuse of power or position. Within DNFBPs, this may appear as:

• Bribes in property transactions
• Conflict of interest in legal advisory
• Fraudulent reporting or manipulation of accounts
• Issuing false valuations or certifications

Several structural and operational characteristics make these businesses susceptible:

• Real estate agents often deal in large, one-off transactions that can disguise illicit funds.
• Law firms may act as intermediaries for trusts, estates, or high-risk clients without sufficient verification.
• Accounting firms handle sensitive financial data that can be manipulated for personal or client gain.
• Jewellery businesses are known for cash-intensive operations and ease of asset transport.

When proper checks and balances are missing, these vulnerabilities can be easily exploited. 

The Legal Framework Around Financial Fraud and Corruption in Malaysia

In Malaysia, the fight against financial crime is anchored in robust laws and regulations, most notably the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA). Complementing AMLA, Counter Financing of Terrorism (CFT) regulations focus on disrupting the flow of funds to terrorist organisations and activities. Together, these legal frameworks establish Malaysia’s commitment to safeguarding its financial system.

1. AMLA and CFT Regulations

Malaysia’s Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act (AMLA) 2001 lays down strict requirements for DNFBPs. It mandates businesses to:

• Identify and verify customers (KYC)
• Conduct Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD)
• Report suspicious transactions
• Maintain records for audit and regulatory reviews

These measures are designed to detect and disrupt money laundering and other financial crimes.

2. Penalties for Non-Compliance

Failure to adhere to AML/CFT laws can result in:

• Severe fines
• Suspension or revocation of business licenses
• Public exposure, leading to brand deterioration
• Criminal charges against owners and key personnel

3. Role of Regulatory Bodies

The main enforcement and oversight bodies include:

• Bank Negara Malaysia (BNM) – Oversees AML/CFT compliance and issues related guidance.
• Malaysian Anti-Corruption Commission (MACC) – Investigates and prosecutes corruption cases

These bodies work together to ensure that DNFBPs play their part in maintaining Malaysia’s financial ecosystem integrity.

Key Strategies for DNFBPs to Combat Financial Fraud and Corruption

1. Implementing a Strong Internal Compliance Framework

To minimise fraud and corruption risks, businesses must start from within:

• Internal Controls: Develop documented policies that govern financial handling, third-party engagements, and ethical conduct.
• Segregation of Duties: Separate critical roles like payment authorisation and accounting to prevent unchecked power.
• Transparency and Accountability: Build a culture where employees are expected to act responsibly and ethically.

2. Employee Training and Awareness

Human error or ignorance can be a major enabler of fraud. Regular training should cover:

• How to identify red flags in transactions or documentation
• Procedures for escalating concerns
• Legal consequences of complicity

Additionally, whistleblower programmes should allow staff to report misconduct anonymously without fear of retaliation.

Using Background Checks to Prevent Fraud and Corruption

According to PwC’s Global Economic Crime and Fraud Survey, 43% of surveyed organisations in Malaysia reported encountering fraud or corruption. This has incurred direct losses of over USD1 million from their most serious incident. Trust remains delicate across the region, as businesses continue facing challenges related to bribery, corruption, asset misappropriation, and cybercrime, along with other forms of disruptive fraud.

An effective fraud-prevention strategy starts with knowing who you’re hiring or dealing with. Verity Intelligence provides a full suite of background checks tailored to help DNFBPs detect and avoid high-risk individuals:

1. Criminal Record Checks

Identify individuals with a prior history of:

• Financial crimes (fraud, embezzlement)
• Corruption charges
• Money laundering links

2. Financial Background Screening

Assess candidates or business partners for:

• Bankruptcies
• Court judgments
• Poor credit history (which could indicate financial distress)

3. Employment History Verification

Review previous employment to detect:

• Inconsistencies in tenure or responsibilities
• Gaps that align with possible misconduct
• References that reveal red flags

4. Education and Certification Verification

Ensure that professionals, particularly in legal and accounting fields, possess legitimate and accredited qualifications. This reduces the risk of fraud involving faked credentials or unqualified individuals making critical decisions.

Verity Intelligence helps businesses comply with AML/CFT screening obligations while safeguarding them from internal threats.

Monitoring and Auditing as Ongoing Measures

Even the most robust compliance programme needs regular evaluation. DNFBPs should:

• Schedule routine audits to review financial transactions, staff performance, and third-party dealings
• Use digital tools to flag anomalies in real-time
• Act swiftly on suspicious activities to limit damage

Audits act as both a detection and deterrent mechanism against ongoing or future fraud.

Conclusion

The risks of financial fraud and corruption in Malaysia’s DNFBP sectors are real and growing. But businesses that embrace a proactive, compliance-led approach can shield themselves from legal, financial, and reputational fallout.

From implementing strong internal controls and staff training programmes to leveraging comprehensive background screening, there are concrete steps that organisations can take today.

Verity Intelligence stands as a reliable partner in this journey, offering expert support in AML/CFT compliance and helping you build a secure, fraud-resistant business.

Protect your brand, people, and future. Get in touch with Verity Intelligence to elevate your compliance today.