Alipay Malaysia Penalized RM 340,000 for Sanctions Screening Failures Linked to Money Laundering Risks

Bank Negara Malaysia imposed an administrative monetary penalty (AMP) of RM 340,000 on Alipay Malaysia Sdn. Bhd. (which has since rebranded as AIMY Merchant Services Sdn. Bhd.) on 19 June 2025, citing breaches under paragraph 48(1)(a) of the Financial Services Act 2013 and several provisions of the Anti-Money Laundering, Countering Financing of Terrorism and Targeted Financial Sanctions Policy Document for Financial Institutions.

At the center of the violation were weaknesses in sanctions screening, delays in updating internal systems after domestic list changes, and a failure to freeze and report matched customers within required timelines. While the regulator framed the case largely as a sanctions compliance issue, the underlying exposure to money laundering remains a central concern.

Sanctions Failures as a Laundering Gateway

Sanctions screening is often understood as a counterterrorism or sanctions compliance requirement, but lapses in screening can also act as a direct enabler of laundering. If a financial institution fails to update its internal sanctions database after changes to the domestic list or United Nations resolutions, it risks continuing to transact with an entity that should be prohibited. This oversight creates a window where illicit funds can circulate undetected through legitimate payment rails.

In Alipay Malaysia’s case, the breach stemmed from the company’s failure to update its sanctions database after the Domestic List was amended and gazetted. Because the changes were not incorporated quickly enough, its screening engine failed to flag customers who matched names on the updated list. One customer, designated as a “specified entity,” was able to remain active, with transactions flowing until the match was eventually identified.

At that point, Alipay delayed freezing the account and was late in reporting the incident to the central bank.

From an anti-money laundering standpoint, the delay meant proceeds linked to corruption, fraud, or other predicate crimes may have passed through the system unnoticed. If an entity is listed due to criminal or terrorism-related activities, its funds must be blocked immediately.

“If the financial institution’s systems lag behind the official lists, it in effect gives a grace window for funds to move.” That period can be exploited for layering—moving money through a chain of transactions to hide its origin—or integration, where illicit funds are reintroduced into the economy disguised as legitimate flows.

Moreover, sanctions screening is part of the broader due diligence and monitoring framework. By ignoring updated lists, a payment provider disregards evolving intelligence on customer risks. Such lapses signal weak vigilance, enabling launderers to shift across accounts and products until detection occurs. As this case illustrates, “compliance with sanctions lists is not ancillary — it is integral to the architecture that prevents money laundering.”

Anatomy of the Compliance Breakdown

Alipay’s deficiencies can be traced across several key stages, each compounding laundering exposure.

Internal Database Update Delay — Under Malaysian rules, financial institutions must update screening databases “without delay” once a domestic sanctions list is revised. In practice, this requires automated ingestion and reconciliation processes. Alipay failed to integrate the Gazette updates promptly, leaving its database outdated and unable to capture positive matches.

Screening Deficiency — Because the reference data was stale, onboarding checks, transaction screening, and re-screening exercises were ineffective. The name record did not exist in the system, so the positive hit was never generated in time, granting illicit flows temporary invisibility.

Delay in Freezing Funds — When a match is confirmed, institutions are obligated to freeze customer funds immediately and stop further transactions. Alipay took action late, allowing the possibility that additional transfers occurred or balances were moved, complicating recovery and amplifying laundering risks.

Delay in Reporting — After freezing funds, a prompt report must be made to the central bank. Because the identification itself was delayed, reporting followed late as well. This limited regulators’ and law enforcement’s ability to react in real time, trace movements, or intervene before funds were dissipated.

Weak Internal Controls and Governance — The enforcement notice stated that Alipay “failed to exercise reasonable care” in meeting sanction screening requirements. This suggests weaknesses in governance structures, escalation procedures, or monitoring of system readiness. Although regulators considered this a first offense and weighed mitigating actions, the seriousness of the breach was underscored by the finding that targeted entities were able to transact.

Overall, the case represents a cascading breakdown: failure to update databases, resulting in flawed screening, followed by delays in freezing, compounded by late reporting. Each missed step gave illicit funds greater opportunity to move deeper into laundering cycles.

Malaysian Regulatory Context

Malaysia’s AML/CFT framework is anchored by the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA), reinforced by the Financial Services Act 2013 (FSA), and supplemented by the policy regime governing Targeted Financial Sanctions.

Under AMLA, obligations include customer due diligence, monitoring, reporting of suspicious transactions, and record-keeping, with penalties reaching RM 5 million or five times the value of the illicit proceeds, along with imprisonment. The FSA, through its AML/CFT & TFS policy, obliges institutions to immediately screen customers against domestic and UN sanctions lists, freeze matched accounts, and file reports to the central bank. Clauses such as 27.3.5, 27.3.7, 27.4.2, 27.6.1, and 27.7.1 specifically require “immediate screening, prompt freezing, timely reporting, record-keeping, escalation protocols, and internal governance.”

Alipay breached these standards by failing to update in time, delaying freezes, and reporting late. Bank Negara’s Enforcement Approach considered aggravating and mitigating factors.

Aggravating points included the seriousness of transactions involving a designated entity and the lack of reasonable care. Mitigating points included the fact that this was Alipay’s first offense and its cooperation in implementing remedial measures. The resulting penalty of RM 340,000 was imposed and paid.

The regulator signaled that compliance expectations are shifting: institutions must go beyond “box-ticking” exercises and actively assess whether delays in screening may enable laundering. This includes scenario testing, monitoring timeliness, and embedding sanctions screening more tightly with transaction monitoring systems.

Lessons for Digital Payments Compliance

For digital payment providers, e-money issuers, and fintech platforms, the Alipay case provides concrete lessons:

1. Automated, resilient list updates — Systems must ingest updates instantly and reconcile without delay. Failures should trigger contingency protocols.

2. Continuous re-screening — Screening must apply to existing and dormant accounts, not just onboarding.

3. Integration with monitoring — Sanctions screening should work hand in hand with transaction monitoring to block transactions in real time.

4. Strong governance — Boards must track metrics such as latency in updates, freeze times, and escalation rates. Independent audits and stress tests are essential.

5. Training and awareness — Staff across IT, compliance, and operations must understand that even small delays create risk windows.

6. Scenario planning — Providers should simulate missed updates, name variants, or delays to test resilience.

7. Transparent remediation — When lapses occur, documenting root causes, self-reporting, and cooperating with regulators may mitigate penalties.

As analysts point out, “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.” 

By fLEXI tEAM