The Malaysian financial industry faces a dilemma exposed by two opposing trends in regulation: the global

appetite for Environmental, Social and Governance (ESG) objectives on one hand and an increasingly stringent

focus by regulators to harden Anti-Money Laundering (AML) standards. This convergence has great potential

for supporting sustainable development but also creates interrelated challenges in terms of crime prevention

and financial regulation. For Malaysia to achieve its vision of promoting global Islamic finance and sustainable

finance, the intertwining of ESG compliance and AML obligations requires discipline examination by financial

criminology. Recent research indicates that Malaysia has implemented ambitious sustainable finance

frameworks, such as Bank Negara Malaysia's (BNM) Value-Based Intermediation (VBI) for Islamic banks,

Climate Change and Principle-based Taxonomy (CCPT ), and Sustainable and Responsible Investment (SRI)

framework for the Securities Commission. These well-intended ESG efforts have resulted in operational

1MDB case bring to the fore how opaque money laundering scams can penetrate frail regulatory defences, the

fragility of which is exacerbated when oversight lags behind innovative financial products and ESG-flavoured

markets. Enforcement challenges persist in areas such as professional services, real estate, and money service

businesses, which remain compliance gaps, even as the financial industry adopts new forms of ESG-oriented

financing that may create additional openings.

This important gap is the one this article aims to fill by studying how the ESG agenda, in aiming at legitimate

sustainability goals, can also offer avenues for new money laundering practices. This is even more important

because many Malaysian banks are incorporating ESG factors into their customer due diligence (CDD) and

Know-Your-Customer (KYC) procedures. They risk creating dangerous blind spots if existing anti-money

laundering (AML) controls are not bolstered. In a recent study on Asian markets, for example, it was found

other white-collar crimes, such as the convenience theory approach, which maintains that fraud is a function of

financial pressure, opportunity, and rationalisation, in relation to the emerging domain of ESG compliance

risk. In so doing, this study sheds new light on the evolving financial crime dynamics in sustainable finance

contexts, such as how the “ethical halo” of ESG might make practitioners lower their guard against

wrongdoing. The paper is structured as follows: First, a thematic literature review and review of extant

empirical work and theories about ESG–AML linkages are presented, which also include empirical evidence

examples from cases illustrating how sustainability agendas can be co-opted. Subsequently, the study presents

a conceptual model, the ESG–AML Convergence Model, which captures these thoughts around four key

dimensions of ESG governance. This study concludes by reflecting on the policy implications that indicate,

among other things, that prevailing pressures may at best be counterproductive or have relevant unforeseen

criminology. While mainstream AML literature is surprisingly quiet about the issue of sustainability projects,

ESG research hardly touches upon financial crimes at all. This, in part, has resulted in conceptual silos around

where this push for ethical finance might connect (or be held back) by dirty money. Razali et al. (2022) argue

that ESG policy and principles must change in line with how strictly financial integrity (which incorporates, of

course, environmental and social issues as well as good governance) is enforced in practice in countries like

Malaysia, if credible sustainable finance is to be practised. In this direction, Shahrom and Kunhibava (2023)

observed that Malaysia's policy commitment to ESG, such as via the CCPT and SRI Sukuk, has been mixed in

its implementation. In reality, ESG and AML goals can even though they’re theoretically aligned toward more

transparency and accountability work against each other. For example, the rapid greenlighting of green

investments could mean that thorough due diligence is lacking, or banks look the other way when they see

are usually applied to white-collar crime

Gottschalk (2017), financial crimes arise not only from opportunism or pressure but also from an offender’s

strategic weighing of benefits, costs, and enforcement risk, effectively choosing the “convenient” path of illicit

behaviour when it offers a comparative advantage over ethical behaviour. From an ESG perspective,

convenience theory suggests three factors that could be the motives for crime. The first motive is economic;

institutions that are desperately trying to meet ESG targets may divert resources away from compliance. The

high-cost investments required for ESG infrastructure may cause management to be less diligent regarding

AML procedures. Olawale et al. (2025) and Yusoff et al. (2023) found that some firms reallocate compliance

budgets in favour of ESG reporting, potentially weakening AML vigilance. Second, organizational

sustainability practices.

Furthermore, Routine Activity Theory (RAT) has significant theoretical implications for this study. RAT is a

theory which posits that crime occurs when motivated offenders encounter suitable victims who are not

protected from capable guardians in any given point in time and space. In the ESG finance, RAT also finds

structural changes that lead to more target and guardian (absent) pairs. ESG-linked financial products, such as

green bonds, carbon credits and sustainability-linked loans, have fuelled the explosive growth of capital flows

in ever more complex and sophisticated forms. These instruments are also complicated, involve numerous

intermediaries, cross-border transactions and new disclosure burden economies around the rules that can be

gamed and avoided. Sreeram (2024), and Liu and Lai (2021) add that green bonds and Islamic sukuks have

extra complexities which could r e strict the exposure to miss al location. Meanwhile, starry-eyed villains may

Simultaneously, traditional guardians (regulators, auditors, and compliance) may be unable to verify ESG

claims and follow ESG-themed transactions. Insufficient training on ESG topics, poor data analytics and

fragmented enforcement across jurisdictions hinder guardians’ ability to stop ESG-driven financial crimes.” At

its core, RAT posits that what is more important than any single bad actor or company is that in travelling

down the path of structural change towards ESG finance, new vulnerabilities are generated that sophisticated

money launderers like Singh are going to canny enough to take advantage of.

Other recently published reports also emphasise the significant challenges in incorporating ESG within typical

AML/CFT models, as they are currently described in the literature. Effective implementation While there is

some subjectivity in interpreting the key findings, a recurring theme is the lack of organisational alignment and

Islamic law, has ever been tested in practice. This is a regulatory black hole where Islamic law offers no clear-

cut solutions, nor do secular laws, so there is space that potential criminals could exploit.

models using social and institutional risk factors. Although many AML systems are often calibrated to detect

traditional transaction typologies, they are challenged by ESG-related anomalies. ESG metrics (such as a

firm’s carbon credit trading or supply chain ratings) are heterogeneous and lack standardisation. This can lead

to false negatives in transaction monitoring, as illicit flows tied to “green” projects may not trigger traditional

red flags. Prakash (2025) finds that AI systems trained on conventional suspicious transaction patterns

that microfinance and community development loans, which are advertised as aiding the poor, may also be

used to launder small-to-moderate cash amounts. These places are usually under-moderated, and trust based in

nature, making it very easy for instigators to take advantage. For example, the involvement of non-profit

organisations (NPOs) or non-governmental organisations (NGOs) and charities in these crimes that serve in

capacities for terrorist financing (TF) and money laundering (ML) or abuse funds channelled into the veins of

dimensions, technology uses and behaviourist nuance in the governance response to the ESG–AML

continuum.

money laundering (AML) regime did not adapt.

The model recognises four primary dimensions of convergence: institutional merging, risk assessment

synthesis, technology merging, and behavioural dynamics. Each provides a way of addressing a weakness of

the existing policy approaches and is inspired by the criminological theories reviewed above.

This pillar emphasises the importance of dismantling the silo structures of compliance and fostering

partnerships between financial intermediaries and regulators on ESG and AML matters. Integrated ESG–AML

convergence is dependent on mature governance arrangements, with smooth information flow across functions

Malaysia, this might involve harmonising guidelines issued by different agencies so that an Islamic bank’s

value-based intermediation report is also scrutinised for AML implications. Institutional integration directly

counters the convenience-theoretic opportunity that criminals exploit when they face uncoordinated regulators

The second pillar focuses on blending ESG risk factors with traditional anti-money laundering (AML) risk

models. Currently, banks perform KYC and transaction monitoring largely based on customer financial

profiles and known predicate offences; ESG risks (such as a client’s carbon emissions profile or supply chain

labour practices) are rarely part of that calculation. This model calls for the development of integrated risk

assessment methodologies that consider both financial crime risk and ESG credentials. For instance, a high

ESG risk score (perhaps due to operations in a pollution-heavy industry) might warrant enhanced due

diligence, similar to a high money-laundering risk score. Conversely, companies with strong ESG transparency

bank can identify red flags, such as a client touting an environmental project that does not add up financially,

which could indicate a front for illicit money laundering.

The third pillar addresses the technological gap in monitoring ESG-related financial flows. Legacy AML

systems, rule-based engines, or even machine learning models trained on conventional transactions often

cannot “see” the risks in ESG-themed transactions. The model advocates the deployment of advanced

analytics, such as machine learning algorithms, blockchain traceability, and real-time data analytics,

specifically tuned to detect anomalies in green finance instruments. For example, machine learning models can

be trained on datasets of known greenwashing and fraud cases to identify subtle patterns (such as frequent fund

transfers around carbon credit purchases or donation spikes around ESG announcements). Blockchain has the

unreasonably hinder projects such as ESG, (such as one community development project being “flagged as

having too high a cash turnover”). Regulators should promote modern sandbox models in which new Regtech

for ESG–AML can be tested and refined. And when all is said and done, that convergence of ESG and AML

through technology investments not only combine “risk reduction,” it also paves a way for institutions to excel

in an increasingly crowded landscape where more traditional financial providers have long had the upper hand

over both sets of priorities.

The fourth relates to the nature of criminology-related disciplines in human behaviour and organisational

culture. People are still needed to drive both systems and tools, in addition to tone at the top, so there is still an

officers into ESG teams (and bringing them back) to develop a more nuanced perspective or scenario exercises

where employees have to identify money laundering issues in what seems to be only positive-impact fund.

Third, based on the principles of organizational crime theory, this dimension also acknowledges that there are

the model advocates aligning performance metrics and regulatory expectations so that banks are not punished

for taking a cautious approach to ESG investments. In essence, the behavioural dynamics pillar seeks to

manage the human factor, ensuring that neither complacency nor undue pressure undermines AML diligence

amid the rush to embrace ESG compliance.

Convergence Model explicitly embeds convenience, routine activity, and organizational theories to explain

why each pillar is needed. Convenience theory informs the Institutional Integration and Behavioural pillars: it

reminds us that if an ESG route is seen as an easier, less scrutinised path (a “convenient” loophole), both

legitimate and illegitimate actors may gravitate to it. For instance, if sustainable finance departments operate

with less oversight, even well-meaning staff might shift questionable clients there, rationalising it as

To operationalise the model, this study proposes a risk categorisation matrix that classifies ESG–AML risks

into the three ESG dimensions: Environmental, Social, and Governance. In the Environmental strand, risks

include “green crime” proceeds (such as those from pollution and illegal resource extraction) being laundered

through green financial instruments. A pertinent example is dirty money from illegal logging being invested in

green bonds or carbon credit schemes, a scenario that Malaysia is actively trying to address given its natural

resource endowments. In the Social strand, risks emerge when initiatives aimed at financial inclusion or social

impact (such as microfinance, crowdfunding, or charitable trusts) are exploited by illicit actors taking

advantage of relaxed due diligence or community trust. For instance, lax vetting might allow criminal money

to flow through a microloan program in small bits and pieces beneath the radar. Under the Governance thread,

there are risks such as corporate misbehaviour, that is, companies or individuals using ESG and ethical

elsewhere. Yusoff et al. (2023) invoke the spectre that the discursive employment of ‘ethical’ as a branding

tool could legitimise unethical activity simply by bestowing respectability upon it. With triggers and red flags

within these ESG areas identified, risk experts can then determine the types of controls which they may need to

apply with more vigour.

transactional data in conjunction with ESG performance information, audit trails underpinned by blockchain

for supply chains and initiatives to trade carbon credits, and interoperability standards for sharing of

This study examines the issues at the intersection of ESG, compliance, and AML control in Malaysia’s

financial sector. Demonstrate how a lack of alignment between sustainability practices and financial crime

prevention strategies leads to gaps through the ESG-AML Convergence Model. The results indicate that

Malaysia’s spirited proliferation towards ESG integration, although necessary to meet sustainable objectives,

legitimising ESG activities diminishes oversight and creates opportunities to launder criminal cash. Similar to

theft, routine activity theory helps clarify the significance of the development of green finance products and

social finance initiatives that give rise to new criminal opportunity structures or change current opportunity

structures and thus can also become ‘push’ factors for CWOs to commit environmental crime.

The ESG–AML Convergence Model suggested in this study provides a comprehensive framework to focus on

these challenges and consists of four pillars: institutional, risk synthesis, technology, and behavioural

guidance for ESG–AML issues to prevent blind spots, contradictions, and a lack of clarity that were brought to

the fore by this core scenario.

The results of this research should be a wake-up call for financial institutions to halt the cycle of siloed

compliance. Banks and markets need proper governance of succession, ESG, and financial crime management.

This is particularly the case in Islamic finance were trying to square Shariah-compliant criteria and ESG

imperatives, let alone AML requirements, poses special challenges. Switching for some of these places might

be even more targeted solutions, like getting a Shariah advisor close enough to compliance officers so that they

do not only play catch when it comes to the criminal side but they also have something to say about the ethical

side, which is very important that you are not straddling two paths entirely different. This study, moreover,

highlights the technological consequences of ESG–AML avoidance. Powerful analytics capable of processing

enhance the country’s credibility and competitiveness in the global market. Conversely, missteps such as a

major green finance scandal or a perception that AML enforcement was weak could undermine confidence in

ESG activities and the credibility of the financial system. The stakes are high because both sustainability and

financial responsibility are necessary for healthy, equitable growth.

Looking ahead, this study opens several avenues for future research. Empirical testing of the ESG–AML

Convergence Model would be a valuable next step; for instance, conducting case studies or collecting data

from financial institutions to assess how integrating ESG and AML indicators affects risk outcomes.

Developing specific risk assessment methodologies (perhaps industry-specific ESG–AML risk matrices) and

examining the challenges of implementation across different contexts (banks vs. asset managers, conventional

vs. Islamic sectors) are also pertinent areas for future research. Both ESG frameworks and money laundering