Alipay Malaysia fined for sanctions screening lapse

alipay malaisya sanctions screening money laundering

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Alipay Malaysia Sdn. Bhd. (rebranded later as AIMY Merchant Services Sdn. Bhd.) was hit with an administrative monetary penalty (AMP) of RM 340,000 by Malaysia’s central bank on 19 June 2025. The penalty related to failures under paragraph 48(1)(a) of the Financial Services Act 2013, together with a number of clauses in the Anti-Money Laundering, Countering Financing of Terrorism and Targeted Financial Sanctions Policy Document for Financial Institutions. The heart of the breach: lapses in sanctions screening, delays in updating internal systems after domestic list changes, and failure to freeze and report matched customers promptly. Though the case is framed largely in terms of sanctions compliance, the underlying money laundering risk is central. This article explores the money laundering dimension in this case, dissects how the breach unfolded, outlines regulatory expectations in Malaysia, and draws lessons for financial crime compliance in digital payments.

Sanctions Screening Failures as a Money Laundering Enabler

Sanctions screening is typically seen through the lens of counterterrorism or sanctions risk. Yet failures in screening may also open a pathway for money laundering. When a reporting institution (in this case a payments provider) fails to promptly update its internal sanctions database following publication of a domestic list or United Nations resolutions, it may continue transacting with an entity that is or becomes prohibited. This gap means illicit funds tied to that entity may flow unchecked through otherwise legitimate rails.

In the Alipay Malaysia case, the noncompliance hinged on Alipay’s failure to update its internal sanctions database after the Domestic List was updated and published in the Gazette. Because Alipay did not incorporate those changes promptly, its screening engine could not flag matches even when customers matched names on that updated list. Consequently, a customer designated as a “specified entity” remained active, and transactions took place under the radar. Once a match eventually surfaced, Alipay was late in freezing the account and late in reporting it to the central bank.

From a money laundering perspective, this lapse allowed proceeds—whether from corruption, fraud, or other predicate crime—to circulate in the financial system without detection. If an entity is designated because of illicit activity or due to involvement in terrorism or proliferation financing, its transactional flows should be blocked. But if the financial institution’s systems lag behind the official lists, it in effect gives a grace window for funds to move. That window may be exploited for layering—shuffling money across multiple transactions to mask origins—and for integration, where illicit funds re-enter the economy disguised as legitimate.

Moreover, sanctions screening is part of the broader transaction monitoring and customer due diligence (CDD) framework. A payments provider that ignores updated lists is ignoring evolving intelligence on customer risk. That indicates weak vigilance, making it easier for launderers to evade detection by hopping across products, accounts, or services until screening catches up. The Alipay case is an illustration that compliance with sanctions lists is not ancillary — it is integral to the architecture that prevents money laundering.

Anatomy of the Case: Where Alipay Fell Short

To understand fully where Alipay’s deficiencies lay, one must break down the failure chain and see how each misstep amplified the money laundering exposure.

Internal Database Update Delay

When a domestic sanctions list is updated (for example via Gazette publication), financial institutions are mandated to update their screening databases “without delay.” In practice, that means system ingest, reconciliation, and reload processes must be triggered automatically or under immediate operational protocols. Alipay, in this instance, did not incorporate the changes in time. Because of that lapse, its internal screening engine had outdated reference data and could not flag matches even when customers transacted after the list change.

Screening Deficiency

Because the internal reference list was stale, subsequent customer screening—whether at onboarding, transactional screening, or periodic re-screening—was flawed. Even if a customer should have been flagged, the system never had the updated name record rendered. Thus, the positive name match never crystallized until later, giving illicit flows a free pass.

Delay in Freezing Funds

Once a name match is confirmed, policy requires that financial institutions freeze the customer’s funds promptly and halt further transactions. In the Alipay case, the freezing step was delayed. By the time action was taken, there may have been additional transactions, funds moved away, or attempts to dissipate balances. That delay enhances the risk that illicit funds are siphoned off, commingled or repaid, complicating recovery and investigation.

Delay in Reporting

After freezing funds, a timely report to the central bank is required. Because Alipay belatedly identified the match, its reporting followed the delay. That undermines the capacity of regulators or law enforcement to respond, trace flows, or pursue predicate investigations while funds are still accessible. The window lost may mean that further transactions were already irreversible or obfuscated.

Weak Internal Controls and Governance

The enforcement notice noted a lack of reasonable care in Alipay’s compliance with sanction screening requirements. That suggests the institution’s governance, escalation protocols, monitoring of system readiness, or periodic audits were either insufficient or ineffective. Because this was the first noncompliance of such nature, the regulator’s leniency was moderated by the seriousness of the breach. But lax controls mean recurring risk: future sanctions updates or name list changes may again slip through without proper oversight or alerts, enabling further money laundering exposure.

In sum, Alipay’s breakdown was not a single error but a chain: failing to update the database, which led to screening blind spots, which led to delay in freezing, which led to delay in reporting. Each link allowed illicit flows to move further into laundering steps.

Regulatory Framework in Malaysia: How the Breach Violated AML Norms

Malaysia’s regulatory architecture for AML/CFT is anchored on two major pillars: the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA) and sectoral laws such as the Financial Services Act 2013 (FSA). Overlaying those is the policy regime of AML/CFT and Targeted Financial Sanctions (TFS) for Financial Institutions, which sets out procedural obligations for reporting institutions (RIs).

Under AMLA, the duty to prevent money laundering includes obligations such as customer due diligence (CDD), ongoing monitoring, record retention, and reporting suspicious transactions. The law imposes penalties including fines up to RM 5 million or five times the value of the laundered proceeds, whichever is higher, and imprisonment. The policy document under the FSA further specifies that financial institutions must comply with targeted financial sanctions, including screening of both existing and new customers against domestic and United Nations lists.

Paragraph 48(1)(a) of the FSA and cross-referenced clauses in the AML/CFT & TFS policy require that RIs screen their entire customer database promptly upon issuance or update of sanctions lists, freeze accounts where there is a match, and report to the central bank. The relevant policy clauses (such as 27.3.5, 27.3.7, 27.4.2, 27.6.1, 27.7.1) articulate obligations such as immediate screening, prompt freezing, timely reporting, record-keeping, escalation protocols, and internal governance. By failing to meet those timelines and obligations, Alipay violated both statutory and policy norms.

The regulator’s approach to penalties is guided by its Enforcement Approach, which weighs aggravating factors (severity of breach, scale, customer harm) and mitigating factors (first offense, post facto remedial actions, cooperation). In Alipay’s case, aggravating factors included the seriousness — transactions were conducted by a targeted entity — and lack of reasonable care. The mitigating factors were this being the first breach of its kind and Alipay’s swift remedial steps. The RM 340,000 penalty was applied and paid.

That said, from a money laundering oversight perspective, regulators increasingly expect not only “check-the-box” compliance but that institutions proactively assess whether screening delays may lead to money laundering windows, embed scenario testing, validate timeliness metrics, and integrate sanction screening tightly with transaction monitoring and alert systems.

Lessons for Financial Crime Compliance in Digital Payment Providers

The Alipay Malaysia case offers stark lessons, especially for digital payments providers, fintechs, e-money issuers, or wallet services, which often straddle high transaction volumes, cross-border flows, and fast product development cycles.

1. Automated, resilient list updates

Manual or semi-manual database updates are vulnerable to lag, human error, or missed patches. Institutions should build automated pipelines that ingest Gazette publications or changes to domestic/UN lists instantly, reconcile versions, trigger reindexing in screening engines, and alert compliance teams if ingestion fails. Any delays must trigger failover procedures.

2. Real-time screening of both new and existing customers

It is insufficient to screen only at onboarding. Continuous re-screening of the full customer database must follow every sanctions update. That ensures that dormant accounts or legacy customers do not escape detection. Screening must also apply to internal changes (e.g. customer name change) or mergers/acquisitions.

3. Tight integration between sanctions and transaction monitoring

Sanctions screening should not sit in a silo. When a match occurs, transaction monitoring systems should flag the risk, freeze flows, escalate alerts, and prevent further activity. The moment a name match is triggered, transactional controls must block further debits or credits, isolating balances for investigation.

4. Strong governance and compliance oversight

Board and senior management must be fluent in financial crime risks and demand metrics — such as latency in list updates, screening hit rates, blocking rates, and time to freeze/report. Independent audits, red team testing, and simulation of critical scenarios will surface latent gaps. Compliance must have authority to halt deployments if screening infrastructure is out of date or compromised.

5. Training and change management

Operational teams, IT, compliance, and onboarding units must be aware that sanctions list updates are not theoretical — missing a small name change or variant can cause a blind spot. Change management processes must include validation of screening databases following every system update, code deployment, or data migration.

6. Scenario planning for emerging risks

Payment providers should stress test situations such as overlapping name variants, multiple jurisdictions, late list changes, or internal overrides. They should simulate what happens if ingestion fails, or if a match is missed for 24, 48, or 72 hours. Remediation playbooks should exist to quarantine transactions, backstop detection, and notify authorities swiftly.

7. Transparent remediation and cooperation

If a breach is detected, institutions should document root causes, perform forensics, implement fixes, and then self-report to regulators. This shows accountability and may mitigate penalties. Cooperation with central bank and law enforcement aids tracing of laundered funds, especially where freezing is delayed.

Digital payment platforms often straddle innovation and regulation. But when compliance infrastructure lags, those platforms risk becoming conduits for laundering high volumes of illicit flows at high velocity.

Source: Bank Negara Malaysia

Some of FinCrime Central’s articles may have been enriched or edited with the help of AI tools. It may contain unintentional errors.

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Alipay Malaysia fined for sanctions screening lapse

Table of Contents

Sanctions Screening Failures as a Money Laundering Enabler