The impact of reporting suspicious transactions regime on banks: Malaysian experience

Purpose Reporting suspicious transactions under anti‐money laundering (AML) laws creates a major dilemma for banks. On the one hand, failure to report suspicious transactions is an offence under the laws. On the other hand, if they report the transaction, they may breach their duty of confidentiality to their customer or could be liable for tipping off the suspected customer. More importantly, it can also undermine customers' trust. The purpose of this paper is to look into these issues and analyse them against the background of the Malaysian AML laws. Design/methodology/approach This paper mainly relies on statutes as its primary sources of information. As such, the relevant Malaysian AML that affect the reporting obligations will be identified and analyzed. It will be necessary to examine not just the provisions of the Malaysian Anti‐Money Laundering and Anti‐Terrorism Financing Act, but also its regulations and guidelines which affect banks in detail, as this is the most important legislation for the purpose of this paper. Findings It is apparent that the reporting suspicious transactions regime has had a significant impact on the operations of banks in Malaysia. While the regime is based on sound principles, the effectiveness of the regime is still unknown. As such, only time will tell whether the banks will be able to cope sufficiently with the increased AML obligations. Obviously, it is critical at this stage, to establish effective coordination between legislators, regulators and the banking industry, in order to minimize problems faced by the banks and thereby to ensure effective implementation of the regime. Originality/value This paper provides an examination of the impact of the reporting suspicious transactions regime on Malaysian banks. It is hoped that the study would provide some insight into this particular area for academics, banks, their legal advisers, practitioners and policy makers, not only in Malaysia but also elsewhere. In view of the international nature of money laundering and banking, there will be significant interest in how the AML laws affect banks operating in Malaysia.