The ESG–AML Convergence Challenge: A New Financial Criminology Perspective for Malaysia

Abstract

There is a growing intersection between AML and ESG, signalling a new phase in the criminology of finance. Although there is plenty of work on ESG and AML dimensions independently, little work is done in the overlapping space of the two in terms of risky activities and enforcement. Accordingly, this research proposes the ESG–AML Convergence Model as a novel theoretical instrument that facilitates an investigation into the assessment of how an advanced sustainability scene, like Malaysia’s forward-looking ESG landscape (including green finance and Islamic banking), may engender potential misuse cases of anti-money laundering. Using criminological theories like routine activity theory and convenience theory, the model shows how the perceived legitimacy of ESG initiatives can “conceal” AML risk. This helps fraudsters take advantage of greenwashing, due diligence and regulatory silos. One of the important findings, particularly concerning, is that there are systemic weaknesses in Malaysia’s financial system, manifested in ESG and AML compliance functions not being aligned; due-diligence processes are fragmented; and technology is limited in ensuring that transactions of an ESG type can be tracked. This conceptual paper provides specific actions based on government-wide governance, state-of-the-art analytics, and trans-regulatory coordination to better manage such risks in the future. Our contribution to the literature is twofold. This study will contribute to academic knowledge and provide tools for regulators, financial service providers and policymakers, by connecting the fields of financial criminology and sustainable finance policy, that further sustainability and financial integrity in developing countries.