Restricted Activity Financing

Restricted Activity Financing: A Lesser-Known Part of AMLA

Malaysia’s anti-money laundering law now expressly targets the financing of weapons of mass destruction. The offence is serious, the mental element is wide, and the risk extends well beyond banks to traders, shippers and professional advisers.

Introduction

Most discussion of Malaysia’s anti-money laundering law focuses on dirty money and, to a lesser extent, terrorism financing. Far less attention is paid to a third area that the law now covers expressly: the financing of what the Act calls restricted activity, meaning activities connected with the proliferation of weapons of mass destruction.

The change is visible even in the name of the law. With effect from 1 March 2026, when the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities (Amendment) Act 2025 came into operation, the principal Act was renamed the Anti-Money Laundering, Anti-Terrorism Financing, Anti-Restricted Activity Financing and Proceeds of Unlawful Activities Act 2001 (Act 613). It is still commonly referred to as AMLA. A saving provision ensures that references in other laws and documents to the old title are read as references to the new one, so existing contracts, guidelines and court papers remain valid.

This article explains what restricted activity financing means, the offence in section 66H, how the rest of AMLA has been extended to cover it, the powers of regulators under sections 66I and 66J, and what businesses and professionals should be doing about it. There is not yet any reported Malaysian case law on these provisions, so the discussion is based on the statutory text and the commentary on it.

What is restricted activity financing?

AMLA does not define restricted activity itself. It borrows the meaning from section 2 of the Strategic Trade Act 2010, which is Malaysia’s law controlling the export, transshipment and brokering of sensitive goods and technology. In broad terms, restricted activity concerns activities connected with weapons of mass destruction. Readers who need the precise scope should refer to the Strategic Trade Act itself.

Two further definitions complete the picture. A proliferator is any person who commits or attempts to commit a restricted activity, participates in or facilitates one, or is designated as a prohibited end-user under section 8(2) of the Strategic Trade Act 2010. Proliferator property covers four kinds of property:

First, the proceeds of a restricted activity.

Second, property that has been, is being or is likely to be used by a proliferator to commit a restricted activity.

Third, property owned or controlled by or on behalf of a proliferator to commit a restricted activity, including funds derived or generated from it.

Fourth, property collected to support a proliferator or to fund a restricted activity.

Two points stand out. The second limb extends to property that is merely likely to be used for a restricted activity, which allows action before any harm is done. And the fourth limb catches property collected for the purpose, even if it has not yet been handed over.

Why it is different from money laundering

Money laundering law asks where the money came from. Restricted activity financing law, like terrorism financing law, asks where the money, goods or services are going and who will benefit. The funds involved may be entirely lawful at source. A genuine trading company paying for a genuine shipment can still be financing a restricted activity if the goods are destined for a weapons programme or the buyer is a front for a proliferator.

This makes detection harder. Proliferation networks tend to operate through ordinary-looking trade: front companies, intermediaries in several countries, transshipment through third ports, vague descriptions of goods and payments routed through unrelated parties. The warning signs are often in shipping documents, invoices and ownership records rather than in the payment itself. That is why the law places so much emphasis on institutions understanding their customers’ business and the goods involved.

The offence: section 66H

Section 66H makes it an offence for any person, directly or indirectly, to provide or make available financial services or property in either of two situations. The first is where the person intends, knows or has reasonable grounds to believe that the services or property will be used, in whole or in part, to commit or facilitate a restricted activity, or to benefit a person committing or facilitating one. The second is where the person knows or has reasonable grounds to believe that the services or property will, in whole or in part, be used by or benefit a proliferator.

A wide net

Several features of the drafting make the offence very broad.

Directly or indirectly. The offence reaches payments made through intermediaries, layered transactions, trade-based settlement and third-party payments.

Provides or makes available. It is not limited to transferring money. Opening an account, granting a credit line, issuing a guarantee, holding assets in custody or offering an escrow arrangement may all be enough, even if no funds actually move.

Financial services or property. Property is defined widely in AMLA, and the commentary suggests that digital assets, trade finance instruments and similar forms of value should be treated as within scope.

In whole or in part. There is no minimum amount. Partial funding, or funding for a mixed purpose that includes a restricted activity, can be enough.

Any person. The offence applies to individuals and companies alike, and to anyone in the chain, including intermediaries and professional facilitators.

The mental element

The most important feature is the phrase reasonable grounds to believe. The prosecution need not prove that the accused actually knew the purpose of the funds. It is enough that there were reasonable grounds to believe that they would be used for a restricted activity or would benefit a proliferator. This is an objective test. A person who ignores obvious warning signs, such as a match on a sanctions list, an unexplained end user, unusual shipping routes or a buyer whose business does not fit the goods, may be found to have had reasonable grounds even if he says he did not know.

The Act does not provide a specific statutory defence of due diligence. In practice, however, evidence that a person or institution carried out proper, risk-based checks, asked the right questions and resolved or escalated any concerns may be the best way to show that there were no reasonable grounds to believe the funds would be misused. Equally, the absence of such records, or evidence of deliberately looking the other way, may support the opposite inference.

The penalty

A person convicted under section 66H faces imprisonment of up to 15 years and a mandatory fine of not less than five times the value of the proliferator property involved at the time of the offence, or RM5 million, whichever is higher. This places it among the most serious financial offences in Malaysian law, alongside money laundering itself.

The commentary identifies several questions that the courts have yet to decide, including how the value used to calculate the fine should be measured for volatile assets or foreign currency, whether partial use should be valued on a proportionate basis, and how closely the financing must be connected to the restricted activity. These will only be resolved as cases come before the courts.

How the rest of AMLA now applies

Restricted activity financing is not confined to Part VIB. The amendments have woven it into the main machinery of the Act, so that the same tools used against money laundering and terrorism financing are available against proliferation financing. The main links are summarised below.

How the general provisions of AMLA extend to restricted activity financing

For reporting institutions, the most immediate consequence is the reporting duty. A suspicious transaction report must now be made not only where there is reason to suspect criminal proceeds or terrorism links, but also where there is reason to suspect a link with a restricted activity, a proliferator or a person who finances restricted activity. The threshold is the same low one of reason to suspect.

Binding directions from regulators: section 66I

Where it is necessary to discharge Malaysia’s obligations under a decision of the United Nations Security Council to prevent restricted activity financing, Bank Negara Malaysia as the competent authority, or the relevant regulatory or supervisory authority, may issue directions, instructions, guidelines, circulars, standards, notices, specifications or requirements, or impose conditions. These instruments are binding despite any other duty under any law or contract, and a person who complies with them is not to be treated as being in breach of that other duty.

There is one important difference from the equivalent provision on terrorism financing in Part VIA. Under section 66I, directions may be addressed not only to institutions but also to their directors, officers and employees, and those individuals must comply personally. An institution, director, officer or employee who fails or refuses to comply with, or contravenes, such a direction commits an offence punishable by a fine of up to RM1 million. This is ten times the maximum fine for the corresponding terrorism financing offence, and it signals that individual compliance staff and senior managers carry personal responsibility.

The commentary notes a practical difficulty where more than one regulator issues instruments that overlap or appear to conflict. Its suggested approach is to seek written clarification immediately, to follow the more restrictive measure until the position is clarified, and to record how the decision was reached.

Supervisory examinations: section 66J

Regulators may examine institutions regularly to check that they comply with Part VIB. An authorised examiner may look at records and reports, examine the systems used to keep them, ask questions, and take notes or copies of any business transaction or activity. The examiner may also question current and former directors, officers and agents, current and former customers and others who dealt with the institution, and anyone believed to know the relevant facts, including the institution’s auditor and its advocate and solicitor.

Anyone examined must provide documents or information within the time specified, or attend at the examiner’s office when called. Failing to do so is an offence punishable by a fine of up to RM3 million, imprisonment of up to five years, or both, with a further fine of up to RM3,000 for each day the offence continues.

Examinations are likely to focus on whether an institution’s controls actually work, not merely whether its policies look good on paper. Examiners may review customer files, trade documents, shipping routes, descriptions of goods, end-user declarations, ownership records, screening results, monitoring alerts and the notes that record how concerns were escalated and resolved.

Targeted financial sanctions

Alongside the criminal offence, Malaysia applies targeted financial sanctions against persons and entities designated by the Security Council in connection with proliferation, and those named in orders of the Minister of Home Affairs. Bank Negara Malaysia’s policy document for financial institutions on anti-money laundering, countering financing of terrorism, countering proliferation financing and targeted financial sanctions, issued in February 2024, sets out what is expected.

As soon as a designated person or entity is identified, any money, assets or economic resources that it owns or controls must be frozen straight away. Institutions must also ensure that nothing is made available to them or for their benefit, directly or indirectly. They must continuously screen customers, beneficial owners and transactions against the current United Nations lists and domestic designations, notify Bank Negara Malaysia at once of any confirmed name match using the prescribed templates, keep proper records, and make periodic reports. Their policies, procedures and risk assessments must be designed to prevent any breach or evasion of these sanctions.

Who should be paying attention?

Although banks are the most obvious target, the risk of proliferation financing is concentrated in particular sectors. Businesses and professionals in the following areas should consider whether their controls are adequate.

Banks and trade finance providers, especially those handling letters of credit, documentary collections and payments for goods shipped through several jurisdictions.

Shipping, logistics and freight forwarding companies, which may see unusual routing, transshipment or vague cargo descriptions before anyone else does.

Manufacturers and traders of dual-use goods, meaning goods and technology that have both civilian and military uses, such as certain electronics, machinery, chemicals and materials.

Company secretaries and corporate service providers, who may be asked to set up or manage companies with opaque ownership or unexplained business purposes.

Lawyers and accountants, who may be asked to structure transactions, hold funds or act as intermediaries, and who may be questioned by examiners under section 66J.

Digital asset and payment platforms, which can be used to move value across borders quickly and with less visibility.

Warning signs

The commentary lists several warning signs that may point to restricted activity financing. None of them is conclusive on its own, but a combination should prompt further inquiry and, where the concern cannot be resolved, escalation, refusal and reporting.

Trade that does not make sense, such as goods that do not fit the customer’s stated business, or unusual trade patterns.

High-risk destinations or routes, including transshipment through third countries or unusual shipping arrangements.

Opaque ownership, such as shell companies, nominees or ownership chains that cannot be verified.

Dual-use goods concerns, including vague descriptions of goods or reluctance to provide end-user information.

Unexplained intermediaries, such as payments made or received by parties with no apparent role in the transaction.

Sanctions exposure, including names or addresses that are close to those on sanctions lists.

Transitional points

The Amendment Act contains a saving provision. Investigations and proceedings for offences committed before 1 March 2026 continue as if the Act had not been amended, and liabilities and penalties incurred before that date remain enforceable. Orders, regulations, directions, guidelines and notices made under the Act before that date are treated as made under the amended Act and continue in force until revoked. Institutions should therefore not assume that existing instruments have lapsed simply because the Act has been renamed.

A practical checklist

Update your risk assessment. Assess your exposure to proliferation financing specifically, not only money laundering and terrorism financing, taking into account your products, customers, geography and trade links.

Screen against the right lists. Include United Nations proliferation-related designations and domestic designations, and screen beneficial owners and counterparties as well as customers.

Understand the goods and the end user. For trade-related business, obtain and check end-user information, descriptions of goods and shipping details.

Train staff to recognise warning signs. Because liability can arise on reasonable grounds to believe, staff must know what to look for and how to escalate.

Report suspicions promptly. Section 14 now expressly requires reports where there is reason to suspect a link with restricted activity or a proliferator.

Freeze without delay on a confirmed match. Then report to Bank Negara Malaysia in the prescribed manner.

Document every decision. Written records of checks, escalations and reasons are the strongest evidence that there were no reasonable grounds to believe the funds would be misused.

Make individual responsibility clear. Directors, officers and employees can be personally bound by directions under section 66I and personally liable for failing to comply.

Check the Strategic Trade Act. Where your business involves sensitive goods or technology, make sure your compliance under AMLA is aligned with your obligations under the Strategic Trade Act 2010.

Conclusion

Restricted activity financing may be the least discussed part of AMLA, but its importance is growing. The 2025 amendments placed it alongside money laundering and terrorism financing in the very title of the Act and extended the Act’s reporting, investigation, freezing, seizure and forfeiture powers to cover it. Section 66H creates a serious offence that can be committed without actual knowledge, on reasonable grounds to believe alone, and carries a heavy mandatory fine. Sections 66I and 66J give regulators binding powers over institutions and their staff, backed by significant penalties.

For most businesses, the practical risk lies not in knowingly funding weapons programmes, but in unknowingly providing services or processing transactions for someone who is. The best protection is a clear understanding of customers, counterparties, goods and destinations, supported by well-documented decisions. As the first cases come before the courts, the meaning of key terms such as reasonable grounds to believe and the approach to penalties will become clearer. Until then, a cautious and well-recorded approach is the safest course.