 Written by Nur Zarisa binti Mohd Zait, a first-year law student of the Faculty of Law, University of Malaya. Edited by Tan Jia Shen and Celin Khoo Roong Teng. Reviewed by Zafirah Jaya. Money laundering can be perceived from two opposing perspectives. It serves one’s materialistic lust, yet it also exists as one of the contributors to a destabilised economy. Malaysia has several established policies and legislation to curb the menace. I. INTRODUCTION On 28th July 2020, Malaysia marked history when Dato’ Sri Najib Tun Razak became the first former Prime Minister to be convicted of abuse of power, breach of trust, and money laundering. He was guilty of all seven charges relating to the 1Malaysia Development Berhad (1MDB) scandal, in which he siphoned billions of dollars of funds into his personal account.[1] Malaysians rejoiced when the verdict delivered by High Court judge Justice Mohd Nazlan Mohd Ghazali brought victory in combating money laundering offences among corrupt politicians and government officials. As the joy slowly wore off, alongside the celebration sparked curiosity: what exactly is ‘money laundering’ and how does it work? Money laundering has been in existence for centuries. Mass media and entertainment industries have portrayed dirty money on the big screen to educate viewers on the menace of money laundering and how criminals escape their liability. While some consider huge-scaled money laundering as filthy acts that contribute to financial crises, others yearn to enjoy luxurious lifestyles living off siphoned wealth — sailing on 300-foot million-dollar yachts, spending billions on Picassos and Van Gogh, or wagering in casinos. Thus, we wonder: is money laundering an art for which money is obtained through manipulation in serving our endless materialistic lust? Or is it a menace — a hidden threat that saps the economy and destabilises the government. This article caters to the average layperson by providing an insight into money laundering and highlighting policies as well as legislation in place to combat it. II. WHAT IS MONEY LAUNDERING A. Origins and Broad Definition More than 3,000 years ago, money laundering was considered a norm for crime cartels to guard their illegitimate wealth against the undesired attention of the government.[2] Historian Sterling Seagrave, in his book ‘Lords of the Rim’, vividly illustrates how merchants from China hid their fortune by converting money into readily movable assets or business investments to avoid taxation from rulers.[3] In fact, these techniques are still used by money launderers today. The origin of the term ‘money laundering’ has been widely speculated. According to research, the term was first coined in the 1920s when a notorious mob gangster known as Al Capone established a criminal organisation in America during the US Prohibition Era.[4] He earned $100 million annually from various criminal activities such as prostitution, bootlegging, and gambling.[5] Capone and his associates managed to hide the illegal funds by purchasing cash-only laundromats. The illegitimate funds were then placed through a cycle of transactions so that it came out as ‘clean’ money.[6] Presently, money laundering can be broadly defined as a process of converting illegal funds or property which originated from criminal activities into legitimate wealth. In other words, money laundering aims to conceal and give ‘legal’ appearance to dirty money accumulated from unlawful means.[7] B. Legal Definition Section 4(1) of the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLATFPUAA) lays down the definition of money laundering.[8] It defines money laundering as an offence committed by any person who:[9]
III. HOW DO CRIMINALS LAUNDER THEIR MONEY? ‘The Laundromat’ is undoubtedly the most entertaining movie which illuminates real-life corruption based on an actual event, the Panama Scandal. The scandal was exposed by 11.5 million leaked documents; it unveiled the hidden wealth of corruptors acquired from tax havens and offshore companies.[10] The story began when Jurgen Mossack and Ramon Fonseca’s Panamanian law firm carried out mischievous operations that benefited an abundance of launderers and criminals. The firm sold countless offshore companies around the world to aid purchasers — politicians, international criminals and well-known professional athletes — in covering up their financial wrongdoings, such as tax evasion, bribery, money laundering, and financial fraud.[11] To comprehend how the Panamanian law firm conducted their illegal operations, one must first understand what an offshore company is. An offshore company, or better known as shell companies, is a corporation created to hold funds and run financial transactions.[12] It serves only one purpose — to keep track of the assets the company holds. Despite the mayhem stirred up by offshore companies, they are still technically legitimate. The problem arises when people exploit them as a vehicle to carry out illegal activities such as money laundering, tax evasion and fake services schemes.[13] For instance, bank robbers, arms traffickers and mafia kingpins use offshore companies to obscure their identities while hiding their illicit funds.[14] Although money laundering seems complicated, the transactions used by criminals typically fall into three stages. The three-staged process is placement, layering and integration.[15] A. Placement Placement is the first stage of money laundering which separates illicit funds from illegal sources. It serves two purposes: first, to distance illegal proceeds from the sources and second, to relieve criminals from holding large amounts of cash. One way of performing it is to deposit money into financial institutions.[16] However, money launderers are at their most vulnerable during the placement stage because depositing large amounts of money into legitimate banks could raise suspicions from officials. Thus, crime cartels would employ several ways to avoid detection, such as breaking down high-value funds into small-value transactions,[17] repaying loans or credit cards using illegal proceeds, purchasing gambling chips or placing bets on sporting events and purchasing foreign money with illegal cash through foreign currency exchanges.[18] B. Layering The second stage of the money laundering process involves a rather complex procedure. Layering, or sometimes referred to as structuring, often involves moving funds from one country to another electronically.[19] Multiple layers of transactions will be created to distance the funds from its sources further. For example, multiple fund transfers into the same or various accounts and resale of assets initially purchased in cash. C. Integration The final stage of money laundering is integration. At this stage, the laundered money will be successfully integrated into the financial system as legitimate funds.[20] Integration typically involves buying property or high-value items using proceeds that have been successfully layered. Some launderers opt to purchase artwork, jewellery or high-end automobiles.[21] Consequently, it would be difficult to trace the source of the money, as the now-legitimate-funds act as a veil to protect money laundering activities from detection. IV. LEGAL & REGULATORY FRAMEWORK IN MALAYSIA The menace of money laundering has led to the establishment of numerous legal and regulatory frameworks to curtail the impact of such crimes. According to Tan Sri Dato’ Seri Utama Prof Dr Zeti Akhtar Aziz, Malaysia recognises the importance of a coordinated national effort and understands the need for a conscientious approach in combating money laundering.[22] The foundation of the Malaysian legal framework regulating money laundering came from policies and proposals initiated by the Financial Action Task Force (FATF). Established in July 1989 by Group of Seven (G-7) Summit in Paris, FATF aims to set standards and promote effective implementation of legal, regulatory, and operational measures in combating money laundering globally.[23] Malaysia is a member of the Asia/Pacific Group on Money Laundering (APG) under FATF. Hence, FATF actively monitors Malaysia’s progress in implementing its recommendations. So far, the APG has been of great assistance to Malaysia in various aspects, for example enacting laws to deal with proceeds of money laundering, setting up systems for reporting and investigating suspicious transactions as well as establishing a financial intelligence unit.[24] Acting upon FATF policies and recommendations, Malaysia developed several national policies and formed committees to counter money laundering, which includes the National Coordination Committee to Counter Money Laundering (NCC) and the Anti-Money Laundering Act 2001 (AMLA).[25] Apart from that, other non-legislative measures were also undertaken — the Financial Intelligence Unit (FIU) was established and several initiatives were introduced by the Central Bank of Malaysia. A. Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 First and foremost, the Anti-Money Laundering Act 2001 (AMLA), which is now known as the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLATFPUAA), was gazetted in July 2001 and came into force in January 2002. Under the AMLATFPUAA, law enforcement agencies, public prosecutors and courts are given powers to freeze, seize and confiscate or forfeit the proceeds or properties involved in money laundering.[26] Furthermore, the Act is extremely powerful as it places the burden of proof on the accused. The accused must first prove in the court of law that he acquired the money from lawful sources.[27] Money launderers will be sentenced to an imprisonment term not exceeding fifteen years upon conviction. Additionally, the court will impose a fine of at least five times the sum obtained from money laundering or RM5 million — whichever is higher.[28] Besides governing penalties on money laundering, the Act further encompasses preventative measures on money laundering, terrorism financing along with procedures for the forfeiture of property derived from money laundering. On a side note, the existence of AMLATFPUAA indicates Malaysia’s sturdy position against money laundering. However, the fact that criminal businesses proliferate internationally with the service of bank institutions makes money laundering even harder to trace. It urges the formation of a more comprehensive framework besides legislation to combat money laundering. B. National Coordination Committee to Counter Money Laundering Furthermore, the National Coordination Committee to Counter Money Laundering (NCC), which consists of thirteen government agencies, was founded in April 2000. The purpose of NCC is to develop and implement measures to counter money laundering and terrorism financing. Back in 2001, NCC was responsible for drafting the Anti-Money Laundering Act 2001 (AMLA).[29] Besides, NCC initiated the National Risk Assessment (NRA) to assess Malaysia’s vulnerability to money laundering and terrorism financing. C. Financial Intelligence Unit Thirdly, the Financial Intelligence Unit (FIU) was established within the Financial Intelligence and Enforcement Department in Bank Negara Malaysia. The primary function of FIU is to perform a thorough analysis of the information relating to money laundering and terrorism financing.[30] Collaborating with more than twelve domestic and foreign enforcement agencies, the FIU works to analyse and exchange information on financial intelligence, foster effective communication between FIU members and act as an investigating agency in providing information and evidence for prosecution.[31] D. Initiatives by the Central Bank of Malaysia Last but not least, the Central Bank of Malaysia plays an important role in guarding the integrity of the Malaysian financial system from criminal activities. Numerous initiatives have been introduced to counter money laundering, such as Know Your Customer Guidelines, Provision of Internet Banking Services and Due Diligence requirements.[32] These three initiatives confer banking institutions the capacity to necessitate customer identification and verification, keep financial records and report any suspicious transactions to the Central Bank.[33] All of these preventative measures are still in place to ensure that banking institutions will not be used as a means to perform illegal transactions.[34] Furthermore, Bank Negara Malaysia has taken a courageous step to introduce the electronic Know Your Customer (e-KYC), which is an online process of identifying customers and detecting any suspicious activities during financial transactions.[35] However, despite all the legal and regulatory frameworks formulated to combat money laundering, the outcomes in Malaysia still fell short of expectations. Politicians and corrupt public officials still managed to get away from being charged and punished. Is it because of our failure to sustain the integrity of our financial institutions, hence rendering the framework above ineffective? Possibly so. V. MONEY LAUNDERING CASES IN MALAYSIA The first case of money laundering in Malaysia involves an international company led by Dr Hamimah Idruss, the former director of Syarikat Safire Pharmaceuticals Sdn Bhd. She was charged under AMLA for receiving RM41.3 million from illegal sources.[36] Ultimately, she was charged with eight counts of money laundering and sentenced to 38 years in prison along with a fine of RM6.39 million.[37] Apart from that, she also faced ten counts under Section 109 of the Penal Code for abetting her staff to falsify ten agreements under her company.[38] In February 2018, four former directors of Genneva Sdn Bhd (GSB), a gold investment firm, were found guilty of 154 counts of money-laundering and four counts of receiving unlicensed deposits worth more than RM200 million.[39] The panel chaired by Justice Mohtarudin Baki sentenced the four directors to eight years in jail and fines amounting to RM1 million respectively. Five years of imprisonment and RM1 million fine were for illegal deposit-taking charges and three years of imprisonment was for money laundering charges.[40] In delivering his judgment, Justice Mohtarudin stated that the two sentences shall run separately, as a fine or a short jail sentence would not be suitable given the seriousness of the crime and the amount of money involved.[41] The next case is the most infamous, long-running global corruption scandal in Malaysia — the 1MDB, which stands for 1Malaysia Development Berhad. This scandal has been claimed to be responsible for the downfall of the then coalition party.[42] 1MDB was once a state fund aiming to promote Malaysia’s economic development through foreign investment and partnerships.[43] Soon after, shock struck the nation when more than $4.5 billion had been stolen from 1MDB. In this case, several well-known people were arrested for misappropriating funds alongside the international fugitive, Jho Low, who was allegedly the mastermind behind the 1MDB fraud. The former Prime Minister, Dato’ Sri Najib Razak faced 42 charges on five separate trials. On his first trial, he was found guilty of all seven charges which include three counts of criminal breach of trust under Section 409 of the Penal Code, one count of abuse of power under Section 23 of the Malaysian Anti-Corruption Commission (MACC) Act 2009, and three counts of money laundering under Section (1)(b) of the AMLATFPUAA.[44] In delivering his judgement, Justice Mohd Nazlan noted the significance of public interest and imperative enforcement to deter money laundering offenders.[45] He reasoned that the accused held a position of trust to which he had betrayed. As the case has been proven beyond reasonable doubt, three counts of criminal breach of trust carry an imprisonment sentence of 10 years each; one count of abuse of power carries 12 years imprisonment and a RM210 million fine; and three counts of money laundering carry 10 years of jail each.[46] All sentences shall run concurrently, making it 12 years of imprisonment in total. Besides, Dato’ Sri Najib Razak’s wife Datin Sri Rosmah Mansor was charged with 17 counts of money laundering to which she pleaded not guilty. Dato’ Sri Najib Razak’s lawyer, Tan Sri Dato’ Sri Shafee Abdullah was also charged with money laundering and tax evasion.[47] Riza Shahriz Abdul Aziz, his stepson, faced charges amounting to RM1.25 billion.[48] However, the Sessions Court granted Riza Aziz a conditional discharge subjected to him returning a substantial sum to the government. Only if he fails to return the sum will the court reinstate full charges and prosecute him. This unexpected outcome of Riza Aziz’s case caused a whirlwind of concern and criticisms among the public. People pondered whether Riza Aziz’s case is alarming signal that the new government intends to go easy on money launderers.[49] On 18th May, the President of the Malaysian Bar Salim Bashir released a press statement to examine legal issues in Riza Aziz’s case. To summarise, the whole statement emphasised on the ultimate discretionary power of the Attorney General and Public Prosecutor in determining the direction of criminal proceedings.[50] Apart from that, the statement referred to the long-established case of Teh Cheng Poh v Public Prosecutor.[51] It was stated that the factors considered by the Public Prosecutor in exercising his discretion must be ‘dictated by wisdom, relevant consideration and driven by facts and public interest.’[52] In Riza Aziz’s case, neither critical observation nor in-depth explanation was given on why the Sessions Court granted a conditional discharge, and why the government eventually dropped charges against Riza Aziz. On 8th June, the former Sabah Chief Minister Tan Sri Musa Aman was acquitted and discharged of all 46 charges involving money laundering and corruption relating to timber concessions.[53] The High Court judge granted the order after the Deputy Public Prosecutor notified the court of the prosecution’s decision to withdraw all charges.[54] VI. CONCLUSION Money laundering has presented rather complex and dynamic challenges to the world community. The sheer magnitude of how laundered money flows into global financial systems requires effective international cooperation and global standards of anti-money laundering regimes to fight this crime. Fortunately, Malaysia joined international forces such as FATF and assembled numerous legal framework and policies to battle such crimes. It is an excellent step in the right direction. Nevertheless, it is unsettling that certain Malaysian cases on money laundering can be successfully resolved by authorities, while some cannot. Perhaps, the time has come for Malaysian citizens to demand zero tolerance to money laundering, and strict adherence to the law. Integrity and accountability should be engrained in our system to avoid any injustice, especially towards people with powers. Disclaimer: The opinions expressed in this article are those of the author and do not necessarily reflect the views of the University of Malaya Law Review, and the institution it is affiliated with. Footnotes:
[1] Hafiz Yatim. (2020, July 28). SRC Trial: Najib sentenced to 12 years in jail, fined RM210m. The Edge Markets. Retrieved from <https://www.theedgemarkets.com/article/high-court-sentences-najib-12-years-jail-rm210m-fine>. Site accessed on 6 Sept 2020. [2] Morris-Cotterill, N. (2001). Money Laundering. Foreign Policy, 124, 16. <doi:10.2307/3183186>. Site accessed on 6 Sept 2020. [3] See footnote 2 above. [4] United Kingdom, International Bar Association. (n.d.). United Kingdom. IBA Anti-Money Laundering Forum. Retrieved from <https://www.antimoneylaundering.org/Money_Laundering.aspx>. Site accessed on 16 June 2020. [5] See footnote 4 above. [6] Spann, D. D. (n.d.). How does money laundering work? TED-Ed. Retrieved from https://ed.ted.com/lessons/how-does-money-laundering-work-delena-d-spann#:~:text=Money%20laundering%20is%20the%20term,as%20old%20as%20money%20itself.>. Site assessed on 7 Sept 2020. [7] See footnote 4 above. [8] Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (Act 613) (Malaysia) s 4. [9] See footnote 8 above. [10] Obermaier, F., Obermayer, B., Wormer, V., & Jaschensky, W. (n.d.). About the Panama Papers. Panama Papers The Secrets of Dirty Money. Retrieved from <https://panamapapers.sueddeutsche.de/articles/56febff0a1bb8d3c3495adf4/>. Site accessed on 6 Sept 2020. [11] See footnote 11 above. [12] Dixon, A. (2018, June 6). What Is a Shell Company? SmartAsset. Retrieved from <https://smartasset.com/investing/what-is-a-shell-company>. Site accessed on 6 Sept 2020. [13] See footnote 12 above. [14] See footnote 12 above. [15] Central Bank of Malaysia. (2014). Money Laundering & Terrorism Financing. Anti Money Laundering & Counter Financing of Terrorism. Retrieved from <http://amlcft.bnm.gov.my/AMLCFT01.html>. Site accessed on 16 June 2020. [16] See footnote 15 above. [17] See footnote 15 above. [18] About Business Crime Solutions Inc. (2017). Money Laundering: A Three-Stage Process. About Business Crime Solutions Inc. Retrieved from <https://www.moneylaundering.ca/public/law/3_stages_ML.php>. Site accessed on 6 Sept 2020. [19] See footnote 18 above. [20] See footnote 18 above. [21] See footnote 18 above. [22] Bekhouche, I. M. (2018). Money Laundering in Malaysia, regulations and policies. International Journal of Law. 4(2), 22. Retrieved from <http://www.lawjournals.org/archives/2018/vol4/issue2/4-1-67>. Site accessed 6 Sept 2020. [23] FATF. (2020). What do we do. FATF. Retrieved from <https://www.fatf-gafi.org/about/whatwedo/>. Site accessed on 16 June 2020. [24] APG. (2020). AML/CFT Technical Assistance and Training. Technical Assistance & Training. Retrieved from <http://www.apgml.org/ta-and-t/page.aspx?p=df174e0e-3e75-4810-902f-caf56d2e0ea5>. Site accessed on 16 June 2020. [25] Anti-Money Laundering Act 2001 (Act 613) (Malaysia). [26] See footnote 22 above, 23. [27] Salleh Buang. (2018, July 26). AMLA: An extremely powerful legislation. New Straits Times. Retrieved from <https://www.nst.com.my/opinion/columnists/2018/07/394517/amla-extremely-powerful-legislation>. Site assessed on 7 Sept 2020. [28] See footnote 8 above. [29] See footnote 22 above, 23. [30] See footnote 22 above, 24. [31] See footnote 22 above, 24. [32] See footnote 22 above, 24. [33] See footnote 22 above, 24. [34] See footnote 22 above, 24. [35] Raj, A.P. (2020, Mar 7). e-KYC for banks to come soon. The Edge Market. Retrieved from <https://www.theedgemarkets.com/article/ekyc-banks-come-soon>. Site accessed on 7 Sept 2020. [36] Datuk Seri Akhbar Satar. (2019, May 23). How dirty money is cleaned. New Straits Times. Retrieved from <https://www.nst.com.my/opinion/columnists/2019/05/490624/how-dirty-money-cleaned>. Site assessed on 7 Sept 2020. [37] The Star Online. (2012, Mar 21). Dr Hamimah gets 38 years jail, RM639 mill fine for money laundering. The Star Online. Retrieved from <https://www.thestar.com.my/news/nation/2012/03/21/dr-hamimah-gets-38-years-jail-rm639mil-fine-for-money-laundering>. Site assessed on 7 Sept 2020. [38] See footnote 37 above. [39] The Star Online. (2018, Feb 22). Four former Genneva directors jailed 8 years, fined RM1mil. The Star Online. Retrieved from <https://www.thestar.com.my/news/nation/2018/02/22/genneva-case-court-of-appeal>. Site accessed 7 Sept 2020. [40] See footnote 39 above. [41] See footnote 39 above. [42] Ellis-Peterson, H. (2020, July 28). 1MDB scandal explained: a tale of Malaysian’s missing billions. The Guardian. Retrieved from <https://www.theguardian.com/world/2018/oct/25/1mdb-scandal-explained-a-tale-of-malaysias-missing-billions>. Site accessed on 7 Sept 2020. [43] See footnote 42 above. [44] See footnote 42 above. [45] See footnote 1 above. [46] See footnote 1 above. [47] See footnote 42 above. [48] Bernama. (2019, Sept 20). Sept 24 mention for Riza Aziz’s money laundering. Free Malaysia Today. Retrieved from <https://www.freemalaysiatoday.com/category/nation/2019/09/20/sept-24-mention-for-riza-azizs-money-laundering-case/>. Site accessed on 7 Sept 2020. [49] Paddock, R. C. (2020, July 28). Malaysia Drops Charges Against ‘Wolf of the Wall Streets’ Producer in 1MDB Case. The New York Times. Retrieved from <https://www.nytimes.com/2020/05/14/world/asia/malaysia-riza-aziz-1mdb.html>. Site accessed on 7 Sept 2020. [50] Malaysian Bar. (2020, May 18). Legal Issues on the Granting of a Discharge Not Amounting to Acquittal of Riza Aziz. Malaysian Bar. Retrieved from <https://www.malaysianbar.org.my/article/news/press-statements/press-statements/press-release-legal-issues-on-the-granting-of-a-discharge-not-amounting-to-acquittal-of-riza-aziz>. Site assessed on 7 Sept 2020. [51] Teh Cheng Poh v Public Prosecutor [1979] 1 MLJ 50. [52] See footnote 50 above. [53] Khairah N Karim. (2020, June 9). Musa Aman freed of all 46 corruption, money laundering charges. New Straits Times. Retrieved from <https://www.nst.com.my/news/crime-courts/2020/06/599078/musa-aman-freed-all-46-corruption-money-laundering-charges>. Site assessed on 7 Sept 2020. [54] See footnote 53 above.
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