Introduction
Malaysia is a significant player in the precious metals industry, particularly in the production of gold, which is vital to both the economy and investment opportunities. The Trade Descriptions Act 1972 (Act 87) defines precious metals as gold, silver and platinum in their pure form or as alloys.
The industry has also embraced modern advancements, including fintech gold investments platforms like Bursa Gold Dinar, Maybank Islamic Gold Account-i (MIGA-i), and Public Bank eGold Investment Account (eGIA), as well as e-commerce platforms such as Shopee Tomei Store and Lazada Wah Chan Store which allow customers to invest in and purchase gold jewellery and bullion online. As the demand for precious metals continues to grow, so does the complexity of the legal and regulatory frameworks that govern their extraction, trade and deal.
Understanding these laws is essential for businesses, investors and regulators to ensure compliance and to maximize the potential within the precious metals sector. This article explores the legal landscape governing the extraction, trade and dealing of precious metals in Malaysia.
A. Regulatory Agencies and Their Roles
The management and regulation of precious metals in Malaysia involve several key stakeholders, each playing a distinct role in ensuring lawful operations. These authorities include federal ministries, state governments and financial regulators, collectively responsible for mining activities, financial oversight and cross-border trade.
i. Ministry of Natural Resources and Environmental Sustainability
The Ministry of Natural Resources and Environmental Sustainability (“NRES”) is responsible for managing natural resources, overseeing mining operations and enforcing environmental regulations. NRES also works to prevent illegal extraction activities that could harm the environment and economy.[1] The Ministry has been working on the Third National Mineral Policy (DMN3) to drive growth in the mineral sector, promoting sustainable practices and adopting advanced technologies.[2]
ii. State Governments
Under Malaysia’s Federal Constitution, states retain authority over land and natural resources within their borders.[3] This decentralized approach means that each state has its own set of guidelines for granting mining leases and enforcing compliance. For instance, state like Kelantan has enacted additional laws to regulate mining operations effectively such as the Enactment of Minerals 2001 and Regulation of Minerals 2003. State authorities issue and revoke mining licenses based on compliance with the state enactments, ensuring that mining operations follow proper protocols.[4]
iii. Mineral and Geoscience Department
The Mineral and Geoscience Department supervises mining activities in Malaysia under the Mineral Development Act 1994.[5] It ensures that companies follow legal standards for extraction and environmental protection. The department conducts inspections and ensures companies adhere to the guidelines set by the federal government, such as those related to worker safety and environmental safeguards.[6]
iv. Royal Malaysian Customs Department
The Royal Malaysian Customs Department monitors the import and export of precious metals, ensuring that they comply with the Customs Act 1967. The department conducts inspections at ports to prevent illegal trade and smuggling.[7] It also works with enforcement units to combat the illicit trade of precious metals, which is particularly a concern in regions like Pahang.[8]
v. Bank Negara Malaysia
Bank Negara Malaysia (“BNM”) plays a critical role in overseeing the financial aspects of precious metals, particularly in relation to investment products.[9] It ensures that transactions involving gold and silver comply with regulatory and Shariah law requirements.[10] Additionally, BNM regulates the use of precious metals in anti-money laundering efforts, safeguarding the economy from illegal financial activities.[11]
B. Laws Governing the Extraction of Precious Metals
The extraction of precious metals is a highly regulated activity in Malaysia, which reflects the government’s focus on environmental protection and economic sustainability.
i. Mineral Development Act 1994 (Act 525)
The Mineral Development Act 1994 (“MDA”) serves as the primary legislation governing mining activities.[12] It outlines the procedures for obtaining mining scheme,[13] operational standards,[14] offences and penalties for non-compliance.[15] Moreover, mining operators must submit detailed project plans and feasibility studies to obtain approval under Section 10(2) of the MDA. The Act also mandates adherence to health and safety regulations to protect workers and communities near mining sites.[16]
ii. State Mineral Enactments
Each state has its own set of regulations for mining. The state mineral enactments govern the issuance of mining licenses and exploration permits, with the State Land and Mines Office overseeing the management of these operations.[17] States also impose royalties, usually around 5% of the value of extracted minerals,[18] although rates can vary depending on the mineral type and local policies.[19]
iii. Environmental Quality Act 1974 (Act 127)
The Environmental Quality Act 1974 (“EQA”) requires that large-scale mining operations undergo an Environmental Impact Assessment (“EIA”) to evaluate the potential environmental effects of mining activities. The EIA process includes consultations with local communities and other stakeholders.[20] For instance, the controversial Raub Gold Mine in Pahang was temporarily shut down due to concerns over its waste disposal practices and water pollution, leading to stricter environmental regulations in the mining sector.[21]
C. Laws Governing Trade and Dealing of Precious Metals
The trade and dealing of precious metals, particularly gold, are integral to Malaysia’s economy. These activities are governed by a robust legal framework designed to ensure transparency, consumer protection, and compliance with international financial standards.
i. Trade Descriptions Act 2011 (Act 730)
The Trade Descriptions Act 2011 ensures that the trade of precious metals is conducted honestly and transparently.[22] It prohibits businesses from making false claims about the metals’ description, purity, weight or value.[23] The Act applies to all precious metals traded in Malaysia, ensuring that consumers are accurately informed and protecting the integrity of the trade.[24]
ii. Exchange Control Act 1953 (Act 17)
The Exchange Control Act 1953 regulates the movement of precious metals across Malaysia’s borders, ensuring that transactions adhere to the country’s monetary policies.[25] Under this Act, only authorized dealers are allowed to buy, sell or trade precious metals without prior approval from the controller of foreign exchange.[26] The Act is designed to protect Malaysia’s financial stability and control foreign exchange flows.[27]
iii. Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (Act 613)
This Act requires businesses dealing with precious metals to implement measures to detect and prevent money laundering and terrorism financing.[28] Under Part I, First Schedule of the Act, companies incorporated under Malaysian law that engage in activities involving the dealing of precious metals or stones are classified as reporting institutions. As such, they are required to implement preventive measures to safeguard their institutions from being exploited for money laundering or terrorism financing purposes.
Precious metals, due to their high value, can be exploited in illegal financial transactions and are governed by this Act when they are considered proceeds of unlawful activity in this context. For example, a recent joint enforcement action was taken against XFOX Market Sdn. Bhd. for offences, including violations under this Act. The operation involved raids on 12 premises within the Klang Valley, during which relevant documents and items to aid the investigation were seized, along with assets, including gold.[29]
iv. Malaysian Anti-Corruption Commission Act 2009 (Act 694)
The Malaysian Anti-Corruption Commission (“MACC”) Act 2009 criminalizes the use of precious metals as bribery or gratification in corruption cases.[30] According to Section 3 of the MACC Act, gratification is defined broadly to include money, gifts, valuable property, financial benefits, or any similar advantage. Precious metals, being a valuable and tangible asset, fits this definition as it holds significant economic value and can serve as a reward or incentive in various transactions. Since precious metals can be used as a form of illegal reward or incentive, the MACC investigates cases where they are linked to corrupt practices. Any precious metals found to be part of a corrupt transaction can be seized as part of anti-corruption measures.[31]
Conclusion
Malaysia’s legal framework governing the extraction, trade and dealing of precious metals is comprehensive and multifaceted, designed to ensure the sustainable development of this vital sector. Precious metals, particularly gold, play a significant role in the nation’s economy. As demand for these resources grows, the legal and regulatory landscape must continue to evolve to address emerging challenges and safeguard the sector from illegal activities. Balancing economic growth with responsible resource management is crucial for Malaysia’s continued success in the global precious metals market. Through effective regulation and enforcement, Malaysia can ensure that its precious metals sector remains a stable and attractive avenue for investment while maintaining integrity and sustainability.
For further information, please contact:
Mohamad Redzuan Idrus, Partner, Azmi & Associates
redzuan@azmilaw.com
- Identity, Environmental Management, Official Website of Ministry of Natural Resources and Environmental Sustainability. https://www.nres.gov.my/en-my/Core/Pages/Environment.aspx.
- Tham Yak Lee, “Govt actively developing Third National Mineral Policy, says Nik Nazmi”, Bernama, 23 October 2024. https://theedgemalaysia.com/node/731240.
- List II of Ninth Schedule, Federal Constitution.
- Chapter 5 of Enactment of Minerals 2001 of Kelantan.
- Rudi Arman Ahmad Athsani, “Legal Framework of Mining Industry in Malaysia”, Azmilaw Newsletter. https://www.inhousecommunity.com/wp-content/uploads/2016/07/v10i4_JURIS_Malaysia.pdf.
- Mines and Quarries, Department of Mineral and Geoscience Malaysia. https://www.jmg.gov.my/en/perkhidmatan-kami/lombong-dan-kuari.
- Section 106A of the Customs Act 1967.
- Sandra Sokial, “Geologist fined RM32,000 for smuggling gold from Tawau mine to Pahang”, The Star, 28 March 2024. https://www.thestar.com.my/news/nation/2024/03/28/geologist-fined-rm32000-for-smuggling-gold-from-tawau-mine-to-pahang.
- Bank Negara Annual Report 2023. https://www.bnm.gov.my/documents/20124/12142010/ar2023_en_book.pdf.
- Bank Negara Malaysia, “The Shariah Advisory Council of Bank Negara Malaysia (the SAC) 135th Meeting”. https://www.bnm.gov.my/-/sac-135th-meeting.
- Bank Negara Malaysia, “Malaysia National Risk Assessment on Money Laundering and Terrorism Financing 2020 (NRA 2020)”. https://amlcft.bnm.gov.my/documents/6312201/6322748/BNM+%5BNRA2020%5D+Assessment+Report.pdf/40fe8e13-f38c-13ef-e298-f46a8d27ef06?t=1648654707832.
- Section 2 of the Mineral Development Act 1994.
- Section 10 the Mineral Development Act 1994.
- Section 12 of the Mineral Development Act 1994.
- Chapter 3 of the Mineral Development Act 1994.
- Section 13 of the Mineral Development Act 1994.
- Spencer D. Butyen, “The Mineral Industry of Malaysia”, USGS 2017-2018 Minerals Yearbook (Malaysia). https://pubs.usgs.gov/myb/vol3/2017-18/myb3-2017-18-malaysia.pdf
- Schedule 1 of the Kelantan Mineral Enactment 2001.
- Rudi Arman Ahmad Athsani, “Legal Framework of Mining Industry in Malaysia”, Azmilaw Newsletter. https://www.inhousecommunity.com/wp-content/uploads/2016/07/v10i4_JURIS_Malaysia.pdf.
- Environmental Impact Assessment Guidelines for Quarry and Mining, 2018. https://enviro2.doe.gov.my/ekmc/wp-content/uploads/2019/02/Guidelines-for-Quarry-and-Mining-Compressed.pdf.
- Malaysiakini, “DAP rep tells Xavier residents’ claims on Raub gold mine convincing enough”, 11 August 2018. https://www.malaysiakini.com/news/438413.
- Preamble of the Trade Descriptions Act 2011.
- Section 5 of the Trade Descriptions Act 2011.
- Section 2 of the Trade Descriptions Act 2011.
- Preamble of the Exchange Control Act 1953.
- Section 4 of the Exchange Control Act 1953.
- Bank Negara Malaysia, “Foreign Exchange Administration Policies”. https://www.bnm.gov.my/documents/20124/830610/zcp07_001.pdf
- Part I, First Schedule of the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001.
- Bank Negara Malaysia, “Joint Enforcement Action against Companies Suspected to be Involved in Financial Crime Activities”, 29 November 2024. https://www.bnm.gov.my/-/ea-310724-en.
- Preamble of the Malaysian Anti-Corruption Commission Act 2009.
- Part IV of the Malaysian Anti-Corruption Commission Act 2009.
