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The Covid-19 impact on financial Financial

crime and
crime and regulatory compliance regulatory
compliance
in Malaysia
Ainul Huda Jamil and Zuraidah Mohd Sanusi 491
Accounting Research Institute, Universiti Teknologi MARA,
Shah Alam, Malaysia
Najihah Marha Yaacob
Faculty of Accountancy, Universiti Teknologi MARA Cawangan Terengganu
Kampus Dungun, Malaysia
Yusarina Mat Isa
Faculty of Accountancy, Universiti Teknologi MARA Cawangan Selangor
Kampus Puncak Alam, Malaysia, and
Tarjo Tarjo
Department of Accounting, Universitas Trunojoyo Madura, Bangkalan, Indonesia

Abstract
Purpose – The purpose of this paper is to provide a conceptual discussion and analysis of the Covid-19
impact on financial crime and regulatory compliance. The analysis is conducted to make a comparison of the
financial crime and regulatory compliance patterns before and after the Covid-19 pandemic occurred.
Design/methodology/approach – This paper contextualises the impact of Covid-19 on financial crime and
regulatory compliance. Moreover, this paper explores different ways of conceptualising the Covid-19 impacts in terms
of financial crimes and regulatory compliance patterns based on the surveys by PricewaterhouseCoopers and Deloitte.
Findings – The Covid-19 pandemic has brought both challenges and opportunities to financial crime and
regulatory compliance. In the aspects of financial crime patterns, this study found a reduction in physical
crime whilst on the other hand increment in cybercrime. Nevertheless, this study discovered regulatory
compliance not at a satisfactory stage even before the Covid-19 pandemic, let alone during the pandemic.
Practical implications – This study implies that the financial institutions must work together to combat
the risks of financial crimes, not only amongst the institutions but also with the regulators. Digitalisation and
robust risk management need to be improved at a massive level to beat the criminals’ high fintech skills and
systems. The initiatives of fund packages from the governments to assist the companies especially the small
firms need to be fully used by the companies to improve regulatory compliance.
Originality/value – Whilst some studies discussed the impact of Covid-19 on the economy, there are still
scarce resources on the comparative analysis on the financial crime and regulatory compliance, not to mention
the before and after effect of the Covid-19 pandemic. This is the first paper to integrate the issues surrounding
the Covid-19 impact, financial crimes and regulatory compliance in Malaysia.
Keywords Money laundering, Financial crime, Fraud, Covid-19, Regulatory compliance
Paper type Conceptual paper

Journal of Financial Crime

1. Introduction Vol. 29 No. 2, 2022
pp. 491-505
Covid-19 had infected over 131 million people worldwide and killed over 2.8 million people © Emerald Publishing Limited
1359-0790
as of mid-April 2021 (WHO, 2021). Most countries are still on lockdown during this early DOI 10.1108/JFC-05-2021-0107
JFC stage of vaccination. Contagions and deaths continue to rise across the world at this time.
29,2 Even though probably in most countries, the cases increasing at a decreasing rate, yet most
governments are still intervening with people from large gatherings, going to work at the
office premises, limited access to facilities, closing the international borders and prohibits
interstate traveling. These interventions are having a substantial impact on socio-economic
activities. The objective of this study is to shed the light on the impacts of this Covid-19
492 pandemic on financial crimes and regulatory compliance. From the analysis, it is hopeful to
grasp the factors that contribute to the challenges or the opportunities to financial crime and
regulatory compliance. This eventually provides insights for future studies to explore the
Covid-19 impact factors.
United Nations Office on Drugs and Crime reported that the Covid-19 pandemic is having
a profound effect on our societies and the world’s finance and economic systems, which, in
turn, influences and shapes organised crime and illicit markets (UNODC, 2020). The
socioeconomic impact of the Covid-19 crisis is likely to be devastating and may widen
existing socioeconomic inequalities in various societies, ranging from access to food
supplies, education, health care and others (Wise, 2020; Sharma, 2020). Although the exact
economic impact of a global Covid-19 coronavirus pandemic is impossible to estimate,
analysts, believe it would have significant negative impacts on the world economy.
According to early forecasts, many major economies will lose at least 2.9% of their gross
domestic product (GDP) by 2020 if the outbreak becomes a global pandemic. The GDP
forecast has previously been cut down to a 4.5% loss. To put this statistic in perspective,
global GDP is expected to be around $87.55tn in 2019, therefore, a 4.5% drop in economic
growth equals over $3.94tn in lost economic production owing to the Covid-19 pandemic
(Szmigiera, 2021). Based on such predictions, global poverty is also likely to increase
exponentially in 2020 and the following years, whilst estimates indicated that an additional
420 million people will be living in extreme poverty in 2020 (Cantore et al., 2020).
Due to the pandemic, the new normal of all the industries around the globe has been
shifted to a virtual paradigm. People have changed the way they do things, meeting,
purchasing, working and even criminalising; they are also doing it differently. Criminals
have had to find ways to do crime virtually. Measures to contain Covid-19 are an effective
strategy to impact the criminal economy and change criminal behaviour so that profit-
driven criminals may move to other forms of illegal conduct (FATF, 2020). How true is this
statement? Do criminals take the opportunities of this pandemic or are they also suffering
from a challenge to not having the chance to do the crime? If criminals are taking advantage
of digitalisation, then anti-crime regulatory compliance will be a challenge for financial
institutions. If criminals are on the other hand suffering, then anti-crime regulatory
compliance will be in contrast.
To compensate for financial losses, criminals may try to take advantage of the current
situation, whereas citizens and companies in trouble may commit illegal activity. The timely
submission of suspicious activity reports to the Financial Intelligent and Enforcement
Department at Central Bank of Malaysia (known as “BNM”) could be delayed by remote
work and businesses must ensure that these delays are reported to reflect the impact of
Covid-19. This chaos certainly not only impacting Malaysia but all financial institutions all
around the world. The compliance officers at the financial institutions could have loosened
their risk assessment quality due to the restriction of movement order and the lack of
resources when working remotely from home. Unless the financial institutions have a strong
digital platform and system supports, as well as a business continuity plan (BCP) for those
who are working remotely, the risk assessment quality might not be impacted. Supported by
Chia and Wong (2020), the impact from the outbreak of Covid-19 could be controlled if
financial institutions have taken imperative measures not limited to effective regulatory Financial
compliance, strong cybersecurity, but most importantly their BCP and disaster recovery crime and
plans (“DRP”).
The effects of the pandemic on e-commerce and the growth of fintech digitalisation have
regulatory
accelerated rapidly. To facilitate these paradigm shifts, the KYC system was implemented in compliance
the financial sector. Interbank transactions, as per BNM’s recommendation to improve
traceability, are expected to speed up. Nevertheless, without advanced technology or
integrated artificial intelligence, criminals would benefit from the fraud they can perpetrate 493
at ease. Terrorist groups are adaptive and persisting, strengthening in adverse conditions
and surpassing their peers. It is easier for terrorist groups to adapt because of their harsh
living conditions. terrorists are going to use the Covid-19 to help recruit, radicalise and plot
attacks against us (Basit, 2020).
This study reviews the survey reports by PwC from 2014 to 2020 to briefly analyse the
pattern of financial crimes in Malaysia. Subsequently, a review on the regulatory
compliance stage in both Malaysian companies and South Asian financial institutions
reported by PwC and Deloitte, respectively, would be conducted. An analysis of the
literature is also carried out to improve the robustness of the study. The scope of this
research is broad, with a focus on conceptual analysis and summarise the statistical reports
from Big 4 organisations. As a result, no empirical analysis using any statistical method is
carried out for this paper.

2. Understanding the landscape of financial crimes during a Covid-19

pandemic
Financial crime, also known as economic crime, refers to illegal actions committed by an
individual or a group of individuals to obtain a financial or professional advantage and the
principal motive in such crime is economic gain (Europol, 2020). At the international level,
states have not agreed to provide a unified definition for economic and financial crimes
(Let ia, 2014). For instance, US Legal (2020) reveals that cybercrimes, tax evasion, robbery,
selling of controlled substances and abuses of economic aid are all examples of financial
crimes (Achim et al., 2021). Moreover, Gottschalk (2010) presented a systematic approach to
classify financial crime into main categories; labelled as corruption, fraud, theft and
manipulation; with 14 other sub-categories (includes kickbacks, bribery, extortion,
embezzlement, identity fraud, mortgage fraud, occupational fraud, money laundering,
cybercrime, bid-rigging and insider trading) under the main categories. Additionally from
the Big 4 point of view, PwC (2016) associates the concept of economic and financial crimes
with the following acts: “asset misappropriation, bribery and corruption, procurement fraud,
accounting fraud, human resources fraud, money laundering, IP infringement, tax fraud,
mortgage fraud, competition/antitrust law infringement, espionage, terrorism financing and
others”. There are significant gaps in the field of research about the impacts of the pandemic
Covid-19 on financial crimes and regulatory compliance, whereby these two contexts are one
of the main components of sustainability in the socio-economy aspects. However, if this
pandemic could be considered as the case of a natural disaster, the research that has been
done on the evolution of terrorism in post-disaster contexts is available.
Bauman et al. (2006) found that natural disasters can either counteract terrorist activities
or increase terrorism. In response to the 2004 Southeast Asian tsunami, a Free Ache
Movement and the Indonesian Government agreed to hold a ceasefire and end their conflict.
In Sri Lanka, the LTTE conflict worsened at the same time as the country’s tsunami (Avis,
2020). None of the literature exists on the impact of past events on terrorism. The Spanish
Flu pandemic (1918–1920) is indeed one of many anarchist bombings that occurred in
JFC America during World War I to protest the war. However, it is difficult to conclusively link
29,2 these bombings to the pandemic. Presumably, even if the Spanish Flu and Covid-19 can be
compared, the global political environment of the two eras is entirely different and the
post-crisis outcomes of the two predicaments may not be identical.
Interesting reviews by Basit (2020) have shown a debate amongst researchers and
practitioners on the impact of evolving world order, emerging technologies and Covid-19
494 have shown mixed results on whether they provide opportunities or challenges for
terrorists. A study has warned not to ignore the terrorist threat as it is new risks emerge
(Bloom, 2020; Pantucci, 2020; Wither, 2020). In contrast, the previous study considered the
pandemic a challenge for terrorists as they have been unable to conduct conventional
attacks and draw attention to their causes (Neumann, 2020; Rhodes, 2020). Others see the
evolving situation both as a challenge and an opportunity (Ackerman and Peterson, 2020;
Avis, 2020; United Nations Security Council Counter-Terrorism Committee Executive
Directorate, 2020). This surely reflected that regulatory compliance during this pandemic
era is even more complicated.
There is still a lot of confusion about how Covid-19 will affect citizens and how
policymakers will react to limit the pandemic’s human and economic implications. Ma et al.
(2020) recently performed an econometric study to analyse the paths of countries’ growth
rates after a health crisis. The 1968 flu (also known as the Hong Kong flu), SARS in 2003,
H1N1 in 2009, MERS in 2012, Ebola in 2014 and Zika in 2016 are amongst the emergencies
they examine. The authors agree that Covid
19 is more severe than the average crisis in the
study and that the figures are almost certainly a lower bound for Covid-19’s global impact.
GDP growth in affected countries is around 2.4% lower than in unaffected countries on
average. The slowdown in GDP growth is followed by rapid recovery, with affected countries
growing at a one-percentage-point faster pace than unaffected countries in the year after the
crisis. However, after an initial uptick in the first year, the economic recovery may stall and
GDP growth in affected countries may remain lower than in unaffected countries. Ma et al.
(2020) also find that the decrease in GDP growth in low-income countries experiencing a
health crisis is on average less serious than in advanced economies experiencing a health
crisis and that the difference between affected and unaffected low-income countries is not
statistically significant. Furthermore, they discover that fiscal policy stimulus has a
significant effect on recovery efficiency. As a result, it is worth considering whether Covid-19
would be less traumatic for developing countries than it has been for developed countries.

3. Opportunities to financial crimes are challenges to regulatory compliance

3.1 Financial crimes become more advanced
During the pandemic Covid-19, many criminals have adopted their crime methods using
advanced technology. Many illicit funds were collected by exploiting the technology. This is
supported by the increase in the cybercrime rate recently (Rahman, 2020). Due to that, if the
financial institutions are depending on manual processes, it is very difficult for them to detect
the suspicion of the customers. Unsurprisingly, many criminals are actually amongst the
highly intelligent criminals with a strong background of education and academic qualification.
The fraudsters could originate from both internal (employees) and external sources (customers,
suppliers, contractors and lawyers). As banking institutions engage in a wide range of
activities, fraud could potentially affect many parties, including the shareholders, the
depositors, the borrowers, the staff, as well as the banking institution itself (Sanusi et al., 2015).
Dejectedly nearly half of reported incidences resulting in losses of US$100m or more were
committed by insiders and a majority of the top internal perpetrator were amongst the senior
management (PwC, 2020a) stated that one tool will not address all frauds; and technology alone
will not keep the institutions protected. According to Basit (2020), terrorist groups are highly Financial
innovative and resilient, they succeed in challenging circumstances. It is easier for terrorist crime and
groups to adapt because of their harsh living conditions. Terrorists are using the Covid-19 to
recruit, radicalise and plot attacks against the USA.
regulatory
Reported by PwC (2020b), in both Malaysia and South East Asia, unsurprisingly, compliance
cybercrime is considered amongst the top four most disruptive financial crimes. Only 45%
of Malaysian respondents said they have a dedicated programme to address cybercrime.
Therefore, if the financial institutions are not coping well with their integrated technology, 495
financial crime will be occurred easily and effortlessly by the criminals. However, what is
more, important and needs emphasis from the financial institutions is not merely the
technology. Technology itself is meaningless without having a good backup in terms of
governance, expertise and monitoring. PwC (2020) stated that one tool will not address all
frauds and technology alone will not keep the institutions protected. Financial institutions
need expert resources, data management and visibility, robust controls and regular
monitoring dedicated to it. Thus, financial institutions must have robust internal control and
governance with the support of technology to fight financial crime.

3.2 Lack of technological support to work from home

Working from home has many disadvantages for the compliance team. If the financial
institutions are not coping with technology; lack of technological supports to the employee
who has to work from home, systems that are not integrated, this will lead to significant
manual processes in reconciling the data. Eventually, it will cause much poor quality or
inadequate data experienced by many financial institutions at the very early Covid-19
outbreak (Deloitte, 2020). The worst condition might be foreseen to the quality of data if the
pandemic continues to force the compliance team to work from home. With the strategic
planning of the Malaysian Government approach during the movement control order (MCO)
which allowed financial institutions as the essential services, operate in the lower capacity of
staff, it might somehow help to reduce the risks.
However, the Central Bank of Malaysia (2020) stated that financial institutions need to
have alternative controls to ensure the secure handling of customers’ and other confidential
information by call centres and treasury staff working from home and preparing multiple
alternative sites to locate a critical staff who are not able to satisfactorily perform their
functions from home. Financial institutions also need to ensure that they maintain and
regularly review their list of critical activities and staff, including pre-identified replacement
staff who should be provided with continuous practical training to ensure their readiness to
perform such activities at all times. In a certain area in the world, whereby the use of
technology is at lower capacity, Covid-19 had caused a reduction in their operation and some
even shutting down completely (FATF, 2020). These drawbacks happened in financial
institutions will provide opportunities for criminals to do their unlawful activities somehow
effortlessly.

3.3 Meeting the high regulatory expectation during the pandemic

The survey from Deloitte (2020) found about 81% of respondents in South Asia indicated
that their anti-money laundering (AML) programmes were compliant with regulatory
requirements. Yet they felt that staying compliant to increased regulatory expectations in
the future is a key challenge and listed the following top challenges; meeting increased
regulatory expectations, enforcing current AML regulations, insufficient numbers of
adequately trained staff and increased pressure to comply with multi-jurisdictional
directives. Kurum (2020) explained in his paper regarding the need of complying with
JFC regulatory enforcement is very crucial. Financial crime, which includes money laundering
29,2 and terrorism financing, is more important than ever in these times of economic uncertainty
and political instability, particularly for private financial institutions and public authorities.
Whether it is the series of money laundering scandals involving many Nordic banks or the
rise of increasingly sophisticated terrorist groups, these have never had such a major effect
on the global stage. As a result, authorities are tightening the regulatory structure by
496 requiring financial institutions to follow tougher AML and anti-terrorism financing laws.
The emergence of high technologies such as FinTech and RegTech, which aim to speed
up the execution of financial transactions and strengthen risk management for regulatory
enforcement, is also supporting the call for further regulation. Mclaughlin (2020) argued
compliance is a critical function that receives attention from both internal audit teams and
regulatory and legislative agencies. When Covid-19 changed the culture of compliance work
who usually working at the office due to sensitivity of the data, to have to work remotely
due to MCO, they need very strong support to meet the high regulatory expectation. This
might somehow cause relatively high pressure to the team, not to mention a financial burden
to the company. However, in Malaysia, with the initiatives from the BNM to ease compliance
and operational burden, BNM has extended timelines for regulatory supervisory and
statistical submissions (Central Bank of Malaysia, 2020). This might help financial
institutions to conduct their compliance jobs in better quality. Nevertheless, it is not the
regulatory requirements and expectations that are compensated. It is about giving more
time for the compliance team to do their job efficiently and accurately.

4. Challenges to financial crimes are opportunities to regulatory compliance

4.1 Criminal activities were blocked/restricted
Pandemic Covid-19 has caused restrictions on nearly most business activities. Most
businesses not limited to Malaysia, but globally, have to face movement restrictions to
control the Covid-19 outbreak. Basit (2020) outlined challenges Covid-19 brought to the
terrorist groups. He listed “no publicity”, “fewer conventional attack opportunities”, “travel
restrictions” and “the evolving terrorist landscape” as the challenges of the terrorist groups.
By focussing on the psychological impact of terrorism, terrorists gain attention and promote
their causes. Although terrorism is scarier than a pandemic. Unfortunately, even terrorists
are afraid of contracting the new coronavirus virus. IS initially advised its supporters and
sympathisers to avoid travelling to countries where Covid-19 was targeted (The Hindu,
2020). Evidently, the Covid-19 pandemic has helped to lower the incidence of physical crime
in certain countries such as Malaysia and Singapore (Lau, 2021; Mokhtar, 2020). This
challenge faced by the criminals creates opportunities for the regulatory compliance team to
reduce their task burden.
Nonetheless, interesting research by UNODC (2020) provided initial observations about
the impact of the Covid-19 pandemic on four types of crime: homicide, robbery, theft and
burglary. The research is based on ongoing data collection launched by UNODC in March
2020, trends before and after lockdown measures from 21 countries, examining the impact
between short-term and long-term perspectives. They also compare the expected crime
incidence according to criminological theories (known as “opportunity theory” and “strain
theory”). According to criminological theory, lockdown measures can cause both a decrease
and an increase in crime, especially violent and property crime, with certain categories of
crime more likely to increase and others less likely to decrease. The variety of policies and
pre-existing conditions are likely to have triggered various mechanisms that have decreased
or increased crime or have balanced opposing mechanisms with no obvious changes. The
theories forecast two distinct criminal trends because of the restrictions imposed on mobility
and social interaction, opportunity theory contends that lockdown measures can potentially Financial
reduce the likelihood of criminal offences being committed; strain theory contends that crime and
socioeconomic strains that affect a large segment of the population, particularly the most
vulnerable, have the potential to create an atmosphere of pressure that drives criminal
regulatory
behaviour UNODC (2020). The research identified mixed results in crime trends. compliance

4.2 Less task burden due to restrictions of business activities

Covid-19 had caused a huge impact on the economy. In Malaysian statistical analysis by the
497
Department of Statistics Malaysia, a huge percentage of 67.8% of companies or business
firms informed that they had no source of income during the MCO period. Whilst 12.3% of
companies or businesses earned revenue through online sales or services and only 9.8% of
on-premise sales through the physical shop (Department of Statistics Malaysia, 2020). The
despairing statistic, in looking at the perspective of risk management task burden, might
have reflected on a bit of a favourable side in terms of risk management complexity. With
the less task burden due to the reduction of business activities, the banking institutions
might shift their focus more on reporting better accuracy and quality data. The compliance
team, although having to work remotely and dealing with confidentiality, will enjoy the less
complex business transactions.
This means the pandemic might bring benefits to the risk management activities
amongst the financial institution officers. This will not impact the risk assessment quality.
Additionally, with the support from BNM in the regulatory and supervisory measures to
facilitate many assistance programmes and support lending to the economy, especially on
the extension of timelines for regulatory, supervisory and statistical submission; it is hoped
to ease the compliance and operational burden to the businesses (Central Bank of Malaysia,
2020) introduced nevertheless, we have to accept the fact that the reduction of business
activities seemed unfavourable to the future economic stability and eventually will impair
the position of the financial institutions themselves.

4.3 Increase cashless transactions – easy traceability

During the pandemic, when everyone is using the internet platform, it would boost cashless
transactions. Cashless transactions via the digital platform are supposed to be easily
traceable by financial institutions. As reported by The Edge Market by Gomes (2020), the
implementation of MCO was a game-changer, as a vast number of transactions that would
have usually taken place in person and cash terms were transferred online. Furthermore,
merchants who had been slow in using the online method had no choice but to rely on digital
platforms to drive sales.
CEO of Lazada said in August 2020 that the company saw a 200% increase in the
number of new sellers on the platform in just the first half of 2020, adding that the aversion
to physical contact fuelled the cashless trend (Gomes, 2020). Consumers that are older or less
technologically savvy of being unable to make the switch to e-wallets due to a lack of
education. “The onus of education now falls on stakeholders that want to encourage change
or cater to particular demographics that are less technologically savvy or from the B40 (low-
income) community who rely on cash in hand for their day-to-day necessities to transform
their traditional way to the cashless trends”, Darshiniy says (Gomes, 2020).
BNM has helped to promote digital payments by providing the required frameworks.
Besides, the government has begun to enable customers to use e-wallets through several
programmes this year. Due to the pandemic, this positive shift of the business trends has
provided a good opportunity for the business owners to force themselves in keeping their
pace with the recent technology. With the older or less technologically savvy, they can
JFC start getting more digital to survive in this rapid technological advancement the world has
29,2 turned in.

5. Patterns of financial crimes and regulatory compliance

5.1 Malaysian financial crimes from PwC survey reports
In early 2020, a series of US AML/combating the financing of terrorism (AML/CFT) actions
498 signed that it would be a year of rising scrutiny of AML/Compliance, surprisingly the
simultaneous Covid-19 pandemic has taken AML/CFT risks to an entirely new level (Kim,
2020). This study reviews the Malaysian Report of PwC’s Global Economic Crime and Fraud
Survey from 2014 to 2020 which has been conducted by PWC biennially for almost two
decades. The survey helped to have a better understanding of fraud, corruption and other
financial crimes. Many have foreseen that criminals may try to take advantage of the
pandemic situation and people and companies in financial distress may engage in illegal
activity to make up for their losses. Remote working can cause delays in reporting
suspicious activity to the FIU and companies must ensure that these delays are recorded to
represent the impact of Covid-19 (PWC, 2020). Alex Tan, the Risk Consulting Leader from
PWC Consulting Associates (M) Sdn Bhd concluded in their survey report that the statistics
showed that Malaysian companies are still failing to perform periodic fraud risk
assessments. The survey finding provides a pathway for the researchers to expand the
study.

5.2 Malaysian financial crimes before the Covid-19

5.2.1 PwC survey on financial crime from 2014 to 2020 (before Covid-19). According to the
survey reports from 2014 to 2020, the fraud pattern showed an increasing pattern. All the
reports published from 2014 to 2020, the surveys were conducted in the previous years.
The PwC survey report published in 2020 was according to the survey conducted from
30 August to 7 October 2019. PwC conducted the fraud survey biennially; every two years
from 2013 to 2019. The PwC fraud survey reports could be good guidelines for researchers to
analyse the patterns of financial crimes and the regulatory compliance stage by the
Malaysian companies.
Based on Table 1, fraud, bribery and corruption on average keep rising year by year. As
for cybercrime and money laundering, PWC reported a different pattern of cases. It showed
slight decreasing cases from 2014 to 2018 from 31% to 22%, respectively, but increase to
37% in 2020 (PwC, 2016; PwC, 2018; PwC, 2020a). The pattern has shown that even before
the Covid-19 pandemic, cybercrime rates have been increased. However, as for money
laundering, there were mixed patterns of rates between 2016 and 2018. PWC did not report
any findings on the money laundering rate for the 2020 survey. The missing data opens up
opportunities for future studies to explore the empirical evidence of the money laundering

Area of concern 2014 (%) 2016 (%) 2018 (%) 2020 (%)

Table 1. Fraud 30 28 41 43
PwC’s global Lost business opportunities due to bribe 23 9 11 30
Reported bribery and corruption 19 30 35 35
economic crime and Incidence of cybercrime 31 30 22 37
fraud survey – Money laundering 12 9 14 N/A
Malaysia report
(2014 to 2020) Source: PricewaterhouseCoopers
patterns before the pandemic occurred. Nevertheless, this study found valuable news by Financial
Zolkepli (2020) reported in 2019, Bukit Aman commercial crime investigation department crime and
(CCID) division had seized RM1.2bn worth of assets in connection with illegal money
laundering investigations and a total of RM59.4m of the seizures have been forfeited. That
regulatory
means Malaysia has a significant risk in money laundering cases before the pandemic, not compliance
to mention other types of financial crime.
499
5.3 Malaysian financial crimes during the Covid-19 pandemic
As the PwC fraud survey is biennial, the next report shall be in 2022. As for now, sources are
scarce of the complete and systematic survey of financial crimes during the Covid-19
pandemic. This paper reviews the latest news in Malaysia, Hamid (2020) reported a rise of
42% (4,596 cases) in cybercrime cases as of April 2020 post-Covid-19 outbreak in Malaysia.
Supported by Rahman (2020), Berita Harian further reported that cybercrime kept on rising,
with a total of 3,075 cybercrime cases from March to July 2020.
However, a contradictory pattern was identified in the physical crime. Bukit Aman
Criminal Investigation Department, Director Huzir Mohamed said the crime index dropped
by 49.1%, equivalent to 5,098 cases from March to May 2020, compared to 10,368 cases from
31 January to 17 March (Mokhtar, 2020). This demonstrated that the MCO is an effective
crime-fighting tool. Amid the virus’s terror, we do have some good news. As a result, the
effect of the Covid-19 pandemic on financial crime trends favours physical crime but not
cybercrime.
To consistently compare the money laundering patterns before the Covid-19 as discussed
in 5.2.1, this study further emphasised the news reported by Zolkepli (2020) in December
2020. The CCID division had seized RM126m worth of assets. Out of the total amount
investigated under illegal money laundering, RM25.5m worth of assets has been forfeited as
of November 2020, reduced by RM33.9m from the previous year. Thus, it concludes that
money laundering cases during the Covid-19 epidemic showed a declining pattern compared
to instances preceding the outbreak.

5.4 Patterns of regulatory compliance before the Covid-19 pandemic

PwC (2020) incorporated the compliance initiatives status in the Global Economic Crime and
Fraud Survey right before the Covid-19 outbreak. The results regarding the compliance
initiatives of the Malaysian companies towards combating financial crime are summarised
in Table 2 below.
Based on the survey, before the Covid-19 pandemic, internal audit was said to be one of
the methods used to detect fraud incidents. According to PwC (2020b), 10% of respondents
found incidents of fraud via internal audit function, up from 4% in 2018. This is promising

Compliance focus Initiatives or status (%)

Internal audit compliance Increasing budget and resources for internal audit 4
Detection of fraud method Tip-off and whistleblowing initiative 14 Table 2.
Bribery and corruption Have a dedicated programme to address bribery and corruption 49 PwC’s global
programme Do not know if they need to increase their resources to combat bribery 26
and corruption
economic crime and
Cybercrime programme Have a dedicated programme to address cybercrime 45 fraud survey 2020 –
Malaysia report
Source: PricewaterhouseCoopers (compliance)
JFC and it represents what we are seeing in the Malaysian market: businesses are growing their
29,2 investments in internal audit functions to make them more robust and successful as part of
their corporate controls. However, only 4% of the companies have increased their budget for
the internal audit functions. Nevertheless, it is disappointing to see that fraud detected
through tip-offs and whistleblowing hotlines fell significantly from 42% in 2018 to 14%
today (PwC, 2020b). This is worrying because, based on PwC’s past research,
500 whistleblowing is one of the most effective detections mechanisms to combat fraud and
corruption.
As for bribery and corruption programmes initiated by the Malaysian companies, only
49% have dedicated programmes to address bribery and corruption whilst 26% do not have
any idea to increase the efforts in bribery and corruption. Besides, another financial
crime that involves cybercrime, in terms of compliance amongst the companies, 45% of the
respondents in Malaysia have dedicated programmes to address cybercrime. Whilst the
majority of the respondents did not have any initiative inputting any initiatives in
combating cybercrime. The recent section 17 A of the MACC Act 2009 which has taken
effect starting from 1 June 2020, introducing corporate liability for corruption offenses. This
means that if any commercial organisation commits corruption to obtain or retain business,
its directors, those involved in the management of its affairs, officers or partners could be
personally liable for the same offense.

5.5 Patterns of the anti-money laundering compliance during the Covid-19 pandemic
Looking at the perspective of the AML compliance programme, even without the Covid-19
pandemic, financial institutions have already faced challenges in detecting money
laundering activities (Yaacob and Harun, 2019), the condition might be worsening if we take
into account the effect of the pandemic. A report from Deloitte (2020) on AML Preparedness
Survey Report 2020 has enlightened the issues surrounding AML compliance amongst
financial institutions in South Asia. The survey is conducted to understand the
preparedness levels of banks in South Asia to meet revised regulatory requirements and
challenges faced by them in their AML compliance programmes. The survey covers the
following areas
AML governance framework, customer due diligence, sanctions and
trade-based money laundering and transaction monitoring systems. The survey was
conducted at the early Covid-19 pandemic in March 2020. The real effect of the pandemic
might not be reflected truly in that survey; however, we see that if the survey was conducted
after a year post the pandemic, the results might be even more worrying. We should
promote more studies to see how the pandemic Covid-19 influences the compliance of the
recently implemented policy.
Deloitte (2020) stated that 62% of the banking sectors faced challenges in meeting the
regulatory requirements regarding AML compliance. This represents the worries amongst
banking sectors with regard to AML compliance in the year 2020. Another issue in
compliance that the banks were facing was about having an adequately trained staff, this is
so-called competency compliance. This issue of AML competent staff, from the survey
representing 55% of the banks. More than half of the banking sectors faced the challenge to
comply with this requirement during the early pandemic. While in terms of technological
and operational compliance, 48% and 80% of respondents are facing insufficient technology
and using manual processes in complying with AML regulations, respectively. This is quite
a significant number amongst the financial institutions whose facilities are worrying about
producing a fast and effective risk assessment towards AML compliance. The 3.08% of
financial institutions in South Asia have no confidence in their financial crime framework
compliance. This might not represent a significant percentage, but if no actions to enforce
the compliance initiatives, the number might increase. Not to mention with the effect of the Financial
Covid-19 pandemic, the statistic might be worsening. crime and
FATF (2020) also emphasised in the Covid-19 report related to money laundering and
terrorism financing, the policymakers also foreseeing corruption issues. Many countries
regulatory
require immediate financial support to respond to Covid-19. However, international financial compliance
institutions warn that emergency financial aid granted to countries could be misused by
corrupted officials, especially in countries where the rule of law is weak and transparency
and accountability procedures are lacking. Government contracts to acquire huge volumes 501
of Covid-19-related medical products, according to FATF-Style Regional Bodies (FSRB)
members, contribute to the potential for corruption and theft of public funds. If there is less
financial monitoring on government procurement and expenditure, this conduct may
become more common. According to the report, individuals could also use corruption or
unofficial methods to gain lucrative government contracts outside of conventional
procurement procedures. Misuse domestic and foreign financial aid and emergency
assistance by avoiding regular procurement procedures, leading to greater corruption and
ML risks.

6. Future implications and suggestions

Financial crime is comprising many unlawful activities. Fraud, bribery, corruption, cybercrime,
terrorism will lead to money laundering activities. All these illicit events will keep on occurring.
The issues of morale, ethics and other factors that contribute to the heightened cases of
financial crime were not in the main discussion. It needs further collaboration with the
academician, law enforcement agencies, continuous awareness amongst the people. This might
be the worth area of research to be treasured by the researchers.
This study on the other hand briefly discussed the challenges and opportunities to both
the criminals and also the regulatory compliance team brought by the Covid-19 pandemic.
The socio-economic disruption caused by Covid-19 emphasises the fragility of international
cooperation against global economic crime (Basit, 2020). With the control mechanism by all
the law enforcement agencies and international regulators, combined with the cooperation of
the private and public institutions and agencies and collaborated by the awareness of the
people in combating the financial crime, we could at least control the huge impact of this
pandemic from jeopardising the socio-economic conditions.
With the many initiatives by the Malaysian Government in coping with Covid-19, it is
believed that the socio-economic condition might be improved. For instance, the Special
Relief Facility, All Economic Sectors Facility, PENJANA Tourism Financing, Automation
and Digitalisation Facility, Agrofood Facility, Micro Enterprises Facility, which offered
RM8.1bn of fund (Central Bank of Malaysia, 2020). Not to mention other facilities such as the
Moratorium package, PRIHATIN package and many more, all the facilities provided by the
Malaysian Government should be used seamlessly by the people and companies in
difficulties. This might help to reduce the financial crime rate due to the pressures of the
Covid-19 pandemic. The main issue here is how the people and companies in trouble took
advantage and opportunities of the facilities. Therefore, this study suggests that all
companies and financial institutions will make more investments in digitalisation especially
in Malaysia, to help them combat financial crimes. They must ensure to keep updated and
grasp the opportunities of Malaysian Government funding to support the businesses
especially the SMEs to keep updated in their digital technology.
From the perspective of the compliance team at the financial institutions who are
responsible for detecting the financial crime, the awareness in risk management compliance
in combating the crime must first be emphasised. The compliance will not be effective
JFC without the collaboration from all the company stakeholders to ensure an integrated system
29,2 with the optimum technology being used by the company and also the competency and
knowledge in the risk management, as well as the strengthening of the company internal
policy must all be strategically in place to combat the financial crime especially during the
Covid-19 pandemic.

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About the authors Financial
Ainul Huda Jamil is a PhD candidate in Financial Criminology at Accounting Research Institute, crime and
Universiti Teknologi MARA (UiTM), Malaysia as a part-time student. She is a certified Head of
Compliance (AML/CFT) serving at World Currency Sdn Bhd, one of the leading companies in the regulatory
Money Service Business Industry in the East Coast Malaysia overseeing five branches of the compliance
business outlets. She is also being selected by the Central Bank of Malaysia (Bank Negara Malaysia)
to be part of the Group of Compliance (GOCO) Committee. She graduated from the University of
Adelaide, Australia with her Bachelor of Commerce (Accounting) and Honours Degree in Accounting. 505
She completed her Master’s in Accountancy from UiTM.
Prof Dr Zuraidah Mohd Sanusi is an Accounting Professor at the Faculty of Accountancy and a
senior research fellow at the Accounting Research Institute, UiTM, Malaysia. She is currently holding
a post as a Director of the Centre for Leadership, ILD UiTM. Her main research interest is social
business, auditing, forensic accounting, corporate reporting, corporate governance, management
accounting and management. She has numerous publications and presented to many local and
international seminars.
Dr Najihah Marha Yaacob is a Senior Lecturer in the Faculty of Accountancy, UiTM Cawangan
Terengganu, Malaysia. She has been teaching in UiTM for 20 years. She graduated from Universiti
Teknologi MARA (UiTM) with first-class honours in Bachelor of Accountancy and Masters in
Accounting. She completed her PhD study in the area of the audit market in 2011. Her research
interests include Corporate Governance and Audit Market, Ethics and Financial Criminology and
Financial Accounting and Financial Reporting. She has numerous refereed journal publications and
has also presented and published many research papers at both national and international
conferences. Najihah Marha Yaacob is the corresponding author and can be contacted at: najihahm@
uitm.edu.my
Yusarina Mat Isa holds a PhD in Accounting specialising in financial criminology from UiTM,
Malaysia. She graduated with MSc in Accounting and Financial Management from Lancaster
University, UK and a Bachelor of Accountancy from Universiti Tenaga Nasional, Malaysia. She
formerly worked as a Senior Executive in banking supervision with Bank Negara Malaysia from
2002 to 2007. She later joined the Faculty of Accountancy, UiTM in 2007 and is currently a Senior
Lecturer at the faculty. Her teaching portfolio at the faculty includes subjects from various fields
including external auditing, internal auditing, corporate governance and financial reporting. Her
research interests cover financial crimes, auditing, risk management, banking operations and
regulatory enforcement.
Dr Tarjo Tarjo is the Head Lecturer at the Department of Accounting – Faculty of Economics and
Business from Universitas Trunojoyo Madura, Indonesia. A member of various prominent
accounting professional memberships both at local and international organisations. His teaching
portfolio at the faculty includes forensic accounting, financial fraud, asset management, audit
investigation, financial audit, accounting theory, research method and financial accounting. He has
numerous publications and presented at many conferences surrounding accountancy fields. He has
outstanding experience in training and seminars in accounting.

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