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Financial Crimes
Unlawful Activity and Serious Offence Under the AMLATFPUAA
Q. What is meant by “unlawful activity” under the AMLATFPUAA?
Answer
The AMLATFPUAA requires that the proceeds of unlawful activities must originate from an unlawful activity.
An unlawful activity is defined broadly to include:
- Any activity which constitutes a serious offence or a foreign serious offence; or
- Any activity which is of such a nature, or occurs in such circumstances, that it results in or leads to the commission of a serious offence or foreign serious offence, regardless of whether the activity takes place wholly or partly within or outside Malaysia.
The second limb significantly widens the scope of the definition. It recognises that criminal activities often involve preparatory or facilitating conduct which eventually leads to the commission of the predicate offence.
Q. What is an example of an unlawful activity under paragraph (a)?
Answer
Paragraph (a) covers conduct that itself constitutes a serious offence or foreign serious offence.
Case Example
Mr A accepts RM2 million in gratification in return for approving a government project.
Application
The acceptance of the gratification constitutes the offence of corruption, which is a serious offence under the Second Schedule.
Accordingly, the corruption itself is an unlawful activity under paragraph (a).
Q. What is an example of an unlawful activity under paragraph (b)?
Answer
Paragraph (b) covers activities which lead to or result in the commission of a serious offence or foreign serious offence.
The activity itself need not constitute the predicate offence.
Case Example
Mr A establishes several shell companies and opens multiple bank accounts to facilitate the receipt of corruption proceeds from government contracts.
Application
The establishment of the shell companies is not, by itself, the predicate offence of corruption.
However, the activity facilitates and leads to the commission of the corruption offence.
Accordingly, it constitutes an unlawful activity under paragraph (b).
Another Example
A syndicate rents a warehouse, purchases sophisticated drug-manufacturing equipment and stores precursor chemicals before commencing the production of methamphetamine.
Application
These preparatory activities may constitute unlawful activities because they lead to the commission of the serious offence of drug trafficking.
Serious Offence
Q. What is meant by a “serious offence”?
Answer
A serious offence refers to any predicate offence listed in the Second Schedule to the AMLATFPUAA.
The definition also includes:
- attempting to commit a listed offence; and
- abetting the commission of a listed offence.
Accordingly, criminal liability is not confined to the principal offender but also extends to persons who attempt or assist in committing the predicate offence.
Q. What are examples of serious offences?
Answer
The Second Schedule contains a wide range of predicate offences, including:
- corruption;
- criminal breach of trust;
- fraud;
- drug trafficking;
- kidnapping;
- theft;
- cheating;
- forgery;
- organised crime; and
- terrorism financing-related offences.
Case Example
Mr A dishonestly misappropriates RM8 million entrusted to him by his employer.
Application
The offence constitutes criminal breach of trust, which is a serious offence under the Second Schedule.
If Mr A subsequently launders the RM8 million, he may also be liable for money laundering.
Proof of the Predicate Offence
Q. Must there be a conviction for the predicate offence before a person can be convicted of money laundering?
Answer
No.
Section 4(4) of the AMLATFPUAA expressly provides that a person may be convicted of money laundering even if:
- no prosecution has been initiated for the predicate offence; or
- no conviction has been obtained for the predicate offence.
However, this does not mean that the prosecution is relieved of proving the existence of an unlawful activity.
The prosecution must still establish, on the evidence, that the proceeds originated from an unlawful activity or serious offence.
What is unnecessary is a separate prosecution or prior conviction for that predicate offence.
Q. Why did Parliament enact section 4(4)?
Answer
Section 4(4) reflects the primary objective of anti-money laundering legislation, namely:
- depriving criminals of the benefits of crime; and
- facilitating the recovery of criminal proceeds.
If a prior conviction for the predicate offence were always required, many money laundering prosecutions would fail because:
- the predicate offender may have died;
- the predicate offence may have occurred overseas;
- witnesses may no longer be available;
- evidence relating to the predicate offence may be insufficient; or
- only the laundering activity can be proved.
Section 4(4) avoids these difficulties while still requiring proof that the property originated from unlawful activities.
Case Authority
Q. How did the Court explain section 4(4) in Aisyah Mohd Rose & Anor v PP?
Answer
In Aisyah Mohd Rose & Anor v PP, Tengku Maimun Tuan Mat JCA (as Her Ladyship then was) explained that a conviction for money laundering may be sustained even without a conviction for the predicate offence.
The Court emphasised that what matters is whether the evidence establishes the unlawful activity giving rise to the criminal proceeds.
The decision confirms that proof of the unlawful activity is required, but a separate conviction for the predicate offence is not.
Illustration
Mr A is suspected of corruption and receives RM10 million in gratification.
Before the corruption charge can be prosecuted, Mr A absconds overseas.
Investigators nevertheless establish that the RM10 million represents corruption proceeds and that Mr A subsequently purchased luxury properties using those funds.
Application
Although Mr A has not been convicted of corruption, he may still be prosecuted for money laundering if the prosecution proves that the RM10 million constituted proceeds of an unlawful activity.
Liability of Companies
Q. Can a company commit a money laundering offence?
Answer
Yes.
The offence of money laundering applies to both:
- natural persons; and
- legal persons, including companies and other bodies corporate.
The Interpretation Acts 1948 and 1967 define a “person” to include both incorporated and unincorporated bodies.
Q. Are directors or managers personally liable for offences committed by a company?
Answer
Yes.
Section 87(1) of the AMLATFPUAA provides that where a body corporate or association commits an offence, every person who was:
- a director;
- controller;
- officer;
- partner; or
- involved in the management of the entity,
is deemed to have committed the offence.
However, such person may avoid liability by proving that:
- the offence was committed without his or her consent; and
- the offence occurred without his or her involvement, subject to the statutory requirements.
Case Example
ABC Sdn Bhd launders RM30 million through fictitious invoices.
The managing director personally approves the transactions.
Application
Both the company and the managing director may be prosecuted under the AMLATFPUAA.
Structuring (Smurfing)
Q. What is the offence of structuring under section 4A?
Answer
Section 4A creates the offence of structuring transactions to evade the reporting requirements imposed under the AMLATFPUAA.
Structuring is commonly known as “smurfing.”
It is a common money laundering technique whereby a large transaction is deliberately broken into numerous smaller transactions to avoid triggering reporting obligations imposed on financial institutions.
Q. Why do criminals engage in structuring?
Answer
The purpose of structuring is to avoid detection by reporting institutions and law enforcement agencies.
Rather than depositing a large sum at once, the offender divides the money into smaller amounts so that each transaction appears ordinary and attracts less scrutiny.
Case Example
Mr A possesses RM5 million obtained from drug trafficking.
Instead of depositing the money in one transaction, he recruits ten associates to deposit RM500,000 each into different bank accounts over several days.
Application
Mr A has deliberately structured the transactions to evade reporting requirements.
This conduct constitutes structuring (smurfing) under section 4A.
Exam Note
When analysing the money laundering offence, distinguish these concepts carefully:
Unlawful Activity
- Includes:
- activities that constitute a serious offence or foreign serious offence; and
- activities that lead to or result in the commission of those offences.
- May occur wholly or partly within or outside Malaysia.
Serious Offence
- Refers to any predicate offence listed in the Second Schedule.
- Includes attempts and abetment.
Proof of the Predicate Offence
- The prosecution must prove that the property originated from an unlawful activity.
- However, section 4(4) makes it clear that a conviction or even a prosecution for the predicate offence is not a prerequisite to a conviction for money laundering.
Corporate Liability
- Both companies and individuals may be prosecuted.
- Directors, controllers and managers may be personally liable under section 87(1) unless they establish the statutory defence.
Structuring (Section 4A)
- Also known as smurfing.
- Involves breaking a large transaction into multiple smaller transactions to evade reporting requirements.
- It is a recognised money laundering technique and constitutes a separate offence under the AMLATFPUAA.
