Financial Crimes

Overlap Between the Mental States Under Section 4(2)

Q. Can the mental states under section 4(2) overlap?

Answer

Yes.

The mental states under section 4(2) are alternative methods of proving the mens rea of money laundering. They are not separate offences and are not mutually exclusive.

In practice, the prosecution frequently relies on the same facts to establish more than one mental state. The court is not required to determine that only one mental state exists. Instead, it may find that the evidence establishes several mental states simultaneously.

For example:

• facts giving rise to reasonable grounds to suspect may also amount to reason to believe if the circumstances are sufficiently compelling;
• a person who deliberately ignores obvious warning signs may both have reason to believe and without reasonable excuse fail to take reasonable steps to ascertain the source of the property; and
• where there is direct evidence that the accused knew the property was criminal proceeds, the facts will naturally also support reason to believe and reasonable grounds to suspect.

Ultimately, the prosecution only needs to establish one of the mental states under section 4(2), although the evidence may prove more than one.

Illustration

Mr A receives RM20 million into his bank account from an unknown overseas company.

He notices that:

• there is no commercial agreement;
• no invoice has been issued;
• the sender refuses to identify the beneficial owner;
• the money is transferred through several shell companies; and
• he is instructed not to ask any questions.

Mr A nevertheless transfers the money to another account.

Scenario 1 – Knowledge

Before transferring the money, Mr A is told:

“The RM20 million comes from corruption.”

Application

Mr A has actual knowledge that the money constitutes proceeds of unlawful activities.

Scenario 2 – Reason to Believe

Mr A is not expressly told the source of the money.

However, he knows that:

• the sender has no legitimate business;
• fake consultancy agreements have been prepared;
• shell companies are involved; and
• the money is moved immediately after receipt.

Application

Although there is no admission, the surrounding circumstances would cause a reasonable person to conclude that the money is probably criminal proceeds.

Mr A therefore has reason to believe.

Scenario 3 – Reasonable Grounds to Suspect

Mr A is asked to collect several bags of cash from a deserted warehouse at midnight.

He is told not to ask questions.

Application

The circumstances are sufficiently suspicious to cause a reasonable person to suspect that the money is connected with unlawful activities.

Mr A therefore has reasonable grounds to suspect.

Scenario 4 – Failure to Take Reasonable Steps

Mr A notices numerous warning signs but deliberately avoids making any enquiries because he “does not want to know.”

He immediately transfers the money.

Application

Mr A has without reasonable excuse failed to take reasonable steps to ascertain whether the money constitutes proceeds of unlawful activities.

Scenario 5 – Objective Factual Circumstances

At trial, Mr A denies knowing that the money was criminal proceeds.

However, the prosecution proves that:

• fake invoices were created;
• shell companies were used;
• there was no legitimate commercial purpose;
• the money passed through several bank accounts within a short period; and
• the beneficial owner was deliberately concealed.

Application

The court may infer Mr A’s mental state from these objective factual circumstances.

Even without direct evidence or an admission, the surrounding facts may establish one or more of the mental states under section 4(2).

How Do the Mental States Relate to Each Other?

The four mental states generally reflect different degrees of culpability, although the AMLATFPUAA does not expressly rank them.

• Knowledge represents the highest level of culpability because the accused actually knows that the property constitutes proceeds of unlawful activities or instrumentalities of an offence.
• Reason to believe is a slightly lower threshold. The accused may not have actual knowledge, but the surrounding circumstances are so compelling that a reasonable person would conclude that the property is probably criminal proceeds.
• Reasonable grounds to suspect is a lower threshold still. The circumstances may not justify a firm belief, but they are sufficiently suspicious that a reasonable person would suspect the property is connected with unlawful activities.
• Failure to take reasonable steps focuses on the accused’s conduct rather than what he actually knew or believed. Liability arises because the accused deliberately ignored obvious warning signs and failed to make reasonable enquiries without a reasonable excuse. This reflects the principle that a person cannot avoid criminal liability through wilful blindness or deliberate ignorance.

These mental states are not separate or isolated categories. They frequently overlap.

For example:

• A person who has knowledge will almost certainly also have reason to believe and reasonable grounds to suspect.
• A person who has reason to believe will usually also have reasonable grounds to suspect.
• A person who fails to take reasonable steps may simultaneously have reasonable grounds to suspect or even reason to believe, depending on the surrounding facts.

The court is therefore not required to choose only one mental state. The same evidence may establish several mental states at the same time.

Exam Note

When analysing the mens rea under section 4(2), remember:

• The prosecution only needs to prove one of the four mental states.
• The mental states are alternative methods of proving mens rea and are not mutually exclusive.
• The same facts may establish knowledge, reason to believe, reasonable grounds to suspect, and failure to take reasonable steps simultaneously.
• Objective factual circumstances are not a separate mental state. They are the evidential basis from which the court may infer one or more of the four mental states.
• The stronger the surrounding circumstances, the easier it is for the court to infer the requisite mens rea, even in the absence of direct evidence such as an admission or confession.