TERRORIST FINANCE: MALAYSIA DINGED ON ILLICIT CASH COURIERS

UNCLAS SECTION 01 OF 02 KUALA LUMPUR 001609

SIPDIS

STATE PASS USTR - WEISEL AND JENSEN
STATE PASS FEDERAL RESERVE AND EXIMBANK
STATE PASS FEDERAL RESERVE SAN FRANCISCO TCURRAN
SINGAPORE PASS TO SBAKER
USDOC FOR 4430/MAC/EAP/J.BAKER
TREASURY FOR FINCEN, OASIA AND IRS
GENEVA FOR USTR

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN ETTC KTFN KCRM PREL PTER MY
SUBJECT: TERRORIST FINANCE: MALAYSIA DINGED ON ILLICIT CASH COURIERS

REF: STATE 152088


1. Summary: This cable responds to reftel requesting information on
cash couriers in Malaysia. The Financial Action Task Force Asia
Pacific Group on Money Laundering (FATF/APG) conducted a Mutual
Evaluation of Malaysia in February 2007. "Cross Border Declaration
and Disclosure" of cash was the one area deemed non-compliant with
the FATF's 40+9 Recommendations. The APG determined that, while
Royal Malaysian Customs (RMC) has the authority to enforce existing
laws on the import and export of cash and travelers' checks, in
practice no effective enforcement mechanisms are in place. The
Government of Malaysia recently established a task force to address
the issue. The U.S. is engaged and has provided several training
courses on combating money laundering since last September, two of
which were specifically for detecting and prosecuting bulk cash
smuggling operations. A third is planned for February 2008. End
summary.


Laws on the Books
--------------


2. Under the Customs Act (CA) and the Exchange Control Act (ECA)
the Royal Malaysian Customs (RMC) is empowered to seize money from:


-- a Malaysian resident carrying Ringgit and/or foreign currency
notes, including traveler's checks, if the amount exceeds the
permitted limit without approval by the central bank; and

-- a non-resident carrying foreign currency notes, including
traveler's checks, if the amount exceeds USD10,000 equivalent and
failed to declare or falsely declared it.


3. Under the CA, any person who fails to declare or falsely
declares currency above the permitted amount, can be arrested and
prosecuted, and the currency can be subject to seizure.


4. The CA stipulates a penalty of imprisonment not exceeding five
years and/or fine not exceeding RM500,000 (equivalent to approx. USD
136,240) for making incorrect declarations and falsification of
documents. Persons who are carrying out physical cross-border
transportation of currency or bearer negotiable instruments that are
related to money laundering or terrorism financing can be prosecuted
and punished under the Anti-Money Laundering Act and/or Penal Code.



Reporting Requirements
--------------


5. The Exchange Control Notice of Malaysia 2006 was issued under
the ECA, requiring resident travelers to obtain prior permission
from the central bank to import or export Malaysian Ringgit notes
exceeding RM1,000 (USD 303) and to export foreign currency notes,
including travelers' checks, exceeding the equivalent of USD
10,000. Non-resident travelers are required to declare amounts
above these same levels.

The Reality
--------------


6. However, in practice currency declarations are made to
Immigration, not Royal Malaysian Customs. Upon arrival, Immigration
returns the currency declaration card to the traveler without
recording its data, then collects the card upon departure. No
system is in place for storing or retrieving the data or for
forwarding it to RMC. The RMC may request copies of currency
declaration forms from Immigration once travelers have departed
Malaysia.


7. The RMC conducts random checks on travelers; however such checks
typically are not conducted in response to information obtained via
the currency declaration process.

Investigations
--------------


8. The RMC does have powers to investigate and review
non-declaration or false declaration of currency at the border

KUALA LUMP 00001609 002 OF 002


(including the authority to investigate whether the currency
notes/traveler's checks seized are related to money laundering or
terrorist finance) before making recommendations to the Controller
of Foreign Exchange. However, in practice this would only occur if
RMC were to detect currency by random or targeted checks, rather
than via information from currency declarations.

Prosecutions
--------------


9. Between 1998 and early 2007, RMC prosecuted 22 cases relating to
currency smuggling. Authorities indicate that the majority of such
cases resulted in convictions. Despite these very low figures over
10 years, there has been a marked increase in the last three years,
with 18 cases of currency smuggling (out of the total 22 cases)
having occurred since 2004.

Efforts to Improve
--------------


10. The U.S. offers training both bilaterally and multilaterally.
In September 2006 the U.S. and Australia offered a joint training
session to 24 Malaysians from Customs, Immigration, the police,
Attorney General's Chambers and Financial Intelligence Unit (FIU) in
detecting and prosecuting illicit cash smuggling operations. A
regional follow-up course was offered in Manila in June 2007; ten
representatives from Malaysia participated. A third course on bulk
cash smuggling is being planned for February 2008. The Department
of Justice offered a separate four-day anti-money laundering course
in May 2007. The embassy maintains close contact with the police,
the FIU, and other Malaysian regulatory and enforcement entities.


11. In response to the FATF/APG Mutual Evaluation, Malaysia
established a task force to formulate action plans to achieve full
compliance with Special Recommendation IX on cash couriers. The
task force includes representatives of Royal Malaysian Customs,
Immigration Department, Ministry of Internal Security, and the
Central Bank. A representative of the central bank's Financial
Intelligence Unit told econoff that, so far, the task force only has
had some preliminary meetings to try to determine how best to bring
Malaysia into full compliance, but that she was confident that
significant progress would be achieved within the next one year.

KEITH