Malaysia's measures to counter money laundering, terrorist financing and proliferation financing

Publication details

Language

English

Country

Malaysia

Mutual Evaluation Report of Malaysia - 2025

Mutual Evaluation of Malaysia 2025

Filename
mer-malaysia-2025.pdf
Size
6 MB
Format
application/pdf
Download

11 December 2025 – The Financial Action Task Force (FATF) and Asia/Pacific Group on Money Laundering (APG) mutual evaluation of Malaysia assessed the effectiveness of the country’s anti-money laundering, countering terrorist financing and proliferation financing (AML/CFT/CPF) measures, and their level of compliance with the FATF Recommendations, at the time of an on-site visit in February 2025.

The assessment found that Malaysia has significantly strengthened its defences against illicit finance since 2015, notably by enhancing its legal framework and supervisory approaches. However, Malaysia faces significant challenges in translating money laundering investigations into prosecutions and convictions.

Key findings from the report are set out below.

Risks (IO. 1)

  • Malaysia’s money laundering risks stem from a range of factors, including corruption and fraud (including scams and investment fraud), the presence of an informal economy, rapid growth of digital finance, and the country’s strategic location as a transit hub for smuggling (drug, wildlife, weapons and migrants), human trafficking, organised crime and piracy.
  • The country is also exposed to terrorist financing risks due to its geographic proximity to terrorist groups in neighbouring jurisdictions.
  • The evaluation found that Malaysia has a sound understanding of its risks, with regular risk assessments, but needs to enrich its understanding in certain areas, including cross-border crimes, as well as third-party and trade-based money laundering.

Resources and coordination (IO.1)

  • Malaysia has demonstrated robust domestic coordination and cooperation at both the policy and operational levels.

International cooperation (IO.2)

  • Since its last mutual evaluation, Malaysia has also strengthened its legal framework for international cooperation with a new case management system. However, more progress is needed to make mutual legal assistance fully effective in supporting investigations and prosecutions, especially for serious crimes like fraud, drug trafficking, smuggling and organised crime.
  • While the country has increased its use of mutual legal assistance, it remains underutilised in most investigations and prosecutions.

Supervision and preventive measures (IO.3/IO.4)

  • Malaysia has a robust framework in place for supervision and preventive measures for financial institutions (FIs), virtual asset service providers (VASPs) and designated non-financial businesses and professions (DNFBPs).
  • Smaller FIs and DNFBPs have less developed risk awareness and mitigation measures.
  • While Malaysia has achieved a substantial level of effectiveness in the financial sector, major improvements are required to improve the effectiveness of preventative measures in other designated sectors (DNFBPs).

Transparency and beneficial ownership (IO.5)

  • The country has a strong understanding of the risks associated with the misuse of corporate structures and has implemented risk-based measures to mitigate such misuse.
  • A multi-pronged approach is used to obtain accurate and up-to-date beneficial ownership information in a timely manner.
  • However, further improvements are needed to fully meet the needs of law enforcement authorities.

Financial intelligence (IO.6)

  • Malaysia has undertaken various initiatives to expand data access and improve the efficiency of financial intelligence production since its 2015 evaluation, including an update of the Financial Intelligence System, a dedicated platform for accessing financial intelligence by facilitating communication between the FIU, authorities, and reporting institutions.

Money laundering investigations and prosecutions and asset recovery (IO.7/IO.8)

  • The investigation into 1Malaysia Development Berhad (1MDB) and its subsidiaries, involving almost billions of misappropriated funds, exposed structural issues and led to significant reforms in the country.
  • The case demonstrated Malaysia’s ability to handle complicated high-profile cases, but also affected law enforcement agencies’ capacity to pursue other money laundering cases.
  • During the period under review, Malaysia recovered approximately €8 billion, the majority of which pertained to 1MDB-related assets. The remaining amount largely corresponded to tax recovery efforts by Malaysia on the proceeds of crime.

Terrorist financing and proliferation financing (IO.9/IO.10/IO.11)

  • Malaysia has a reasonably sound understanding of its terrorist financing risks and has centralised terrorist financing investigatory responsibilities since its 2015 mutual evaluation within the Special Branch of the Royal Malaysia Police, which has had a positive impact on Malaysia’s effectiveness in combating terrorist financing.
  • Since 2019, Malaysia has convicted seven individuals of terrorist financing, with prison sentences ranging from 1.5 to 6 years, a notable improvement compared to the 2015 assessment, which reported no terrorist financing prosecutions or convictions. However, concerns remain regarding the dissuasiveness of the sanctions imposed.
  • Malaysia now implements both terrorist financing and proliferation financing targeted financial sanctions obligations promptly, based on a sound legal framework and supervisory guidelines. However, DNFBPs generally focus more on identifying positive matches of listed individuals and pay less attention to detecting and freezing assets held by those acting on behalf of, or at the direction of, designated persons and entities. 

Further action

Following the assessment, Malaysia has received a roadmap of Key Recommended Actions that it must complete within three years, such as strengthening international cooperation, improving its sanction framework and demonstrating a sustained increase in money laundering prosecutions and convictions.

Malaysia will report back to the FATF and APG on its progress.

Ratings

Effectiveness

Ratings that reflect the extent to which a country's measures are effective. The assessment is conducted on the basis of 11 immediate outcomes, which represent key goals that an effective AML/CFT system should achieve.

Ratings that reflect the extent to which a country's measures are effective. The assessment is conducted on the basis of 11 immediate outcomes, which represent key goals that an effective AML/CFT system should achieve.

Malaysia Mutual Evaluation 2025

IO1
SE
IO2
ME
IO3
SE
IO4
ME
IO5
ME
IO6
SE
IO7
ME
IO8
ME
IO9
SE
IO10
SE
IO11
SE

HE = high level of effectiveness   |   SE = substantial level of effectiveness    |   ME = moderate level of effectiveness   |   LE = low level of effectiveness

Technical Compliance

Ratings which reflect the extent to which a country has implemented the technical requirements of the FATF Recommendations.

Malaysia Mutual Evaluation 2025

R.1 - Assessing risk & applying risk-based approach
C
R.2 - National cooperation and coordination
C
R.3 - Money laundering offence
C
R.4 - Confiscation and provisional measures
LC
R.5 - Terrorist financing offence
C
R.6 - Targeted financial sanctions related to terrorism & terrorist financing
C
R.7 - Targeted financial sanctions related to proliferation
C
R.8 - Non-profit organisations
LC
R.9 - Financial institution secrecy laws
LC
R.10 - Customer due diligence
C
R.11 - Record keeping
LC
R.12 - Politically exposed persons
C
R.13 - Correspondent banking
C
R.14 - Money or value transfer services
C
R.15 - New technologies
LC
R.16 - Wire transfers
C
R.17 - Reliance on third parties
LC
R.18 - Internal controls and foreign branches and subsidiaries
C
R.19 - Higher-risk countries
C
R.20 - Reporting of suspicious transactions
C
R.21 - Tipping-off and confidentiality
C
R.22 - DNFBPs: Customer due diligence
LC
R.23 - DNFBPs: Other measures
C
R.24 - Transparency and beneficial ownership of legal persons
LC
R.25 - Transparency and beneficial ownership of legal arrangements
C
R.26 - Regulation and supervision of financial institutions
LC
R.27 - Powers of supervisors
C
R.28 - Regulation and supervision of DNFBPs
LC
R.29 - Financial intelligence units
C
R.30 - Responsibilities of law enforcement and investigative authorities
C
R.31 - Powers of law enforcement and investigative authorities
C
R.32 - Cash couriers
C
R.33 - Statistics
C
R.34 - Guidance and feedback
C
R.35- Sanctions
LC
R.36 - International instruments
LC
R.37 - Mutual legal assistance
LC
R.38 - Mutual legal assistance: freezing and confiscation
LC
R.39 - Extradition
LC
R.40 - Other forms of international cooperation
LC

C = compliant   |   LC = largely compliant     |   PC = partially compliant   |   NC = non-compliant   |   NA = not applicable

Related materials

The FATF Recommendations

The FATF Recommendations are the basis on which all countries should meet the shared objective of tackling money laundering, terrorist financing and the financing of proliferation. The FATF calls upon all countries to effectively implement these measures in their national systems.
Read more

Mutual Evaluations

The FATF conducts peer reviews of each member on an ongoing basis to assess levels of implementation of the FATF Recommendations, providing an in-depth description and analysis of each country’s system for preventing criminal abuse of the financial system
Read more
ESAAMLG Logo

The 2022 and 2013 Methodologies for Assessing Technical Compliance with the FATF Recommendations and the Effectiveness of AML/CFT/CPF Systems

These documents are guides intended for use by assessors who are tasked with conducting a mutual evaluation. They provide a structured framework of analysis that ensures a level of consistency and high quality of the mutual evaluation reports produced. Latest update: December 2025
Read more