FATF: Malaysia strengthens defences, prosecution gap remains

On 11 December 2025, the Financial Action Task Force (FATF) and the Asia/Pacific Group on Money Laundering (APG) published the mutual evaluation of Malaysia, assessing the effectiveness of Malaysia’s measures to counter money laundering, terrorist financing, and proliferation financing (AML/CFT/CPF) and its compliance with the FATF Recommendations. The assessment reflects Malaysia’s framework at the time of the on-site visit in February 2025.

A central conclusion is that Malaysia has significantly strengthened its defences since 2015, particularly through enhancements to its legal framework and supervisory approaches. At the same time, the evaluation identifies a persistent performance gap: Malaysia faces significant challenges in converting money-laundering investigations into prosecutions and convictions.

The report outlines a diverse risk landscape. Malaysia’s money-laundering risks are linked to corruption and fraud, including scams and investment fraud, alongside an informal economy, the rapid growth of digital finance, and Malaysia’s strategic location as a transit hub for smuggling (including drugs, wildlife, weapons, and migrants), human trafficking, organised crime, and piracy. It also notes exposure to terrorist financing risks due to geographic proximity to terrorist groups in neighbouring jurisdictions. 

On effectiveness, the evaluation finds Malaysia has a sound understanding of its risks through regular risk assessments, but needs to deepen its understanding in some areas—specifically cross-border crimes and third-party and trade-based money laundering. It also reports robust domestic coordination at policy and operational levels. 

International cooperation is described as improved, including a strengthened legal framework and a new case management system, but the report signals that mutual legal assistance is not yet fully effective and remains underutilised in most investigations and prosecutions—particularly for serious crimes such as fraud, drug trafficking, smuggling, and organised crime. 

In preventive measures, Malaysia is assessed as having a robust supervision framework for financial institutions, virtual asset service providers (VASPs), and DNFBPs, while noting that smaller institutions and DNFBPs show less developed risk awareness and mitigation; major improvements are required for preventive effectiveness across DNFBP sectors. 

Finally, Malaysia has received a roadmap of Key Recommended Actions to complete within three years, including strengthening international cooperation, improving the sanctions framework, and demonstrating a sustained increase in money-laundering prosecutions and convictions, with progress to be reported back to FATF and APG.

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