Money Laundering under Malaysian Law (AMLA 2001) – Notes

1. Malaysian Definition of Money Laundering

Position under Malaysian Law

• Malaysia does not provide a simple dictionary definition of “money laundering.”
• Instead, the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA) defines money laundering by describing the acts that constitute the offence.
• The principal provision is section 4(1) AMLA.

2. Simplified Definition

Money laundering is:

Any dealing with property that represents the proceeds of unlawful activity, where the person knows or has reason to believe that the property is derived from unlawful activity.

3. What Acts Constitute Money Laundering?

Under section 4 AMLA, money laundering includes:

• Acquiring criminal proceeds.
• Receiving criminal proceeds.
• Possessing criminal proceeds.
• Using criminal proceeds.
• Transferring criminal proceeds.
• Converting criminal proceeds into another asset.
• Exchanging criminal proceeds.
• Moving or disposing of criminal proceeds.
• Disguising or concealing:
• the source,
• origin,
• nature,
• ownership,
• movement,
• location, or
• rights relating to the property.
• Assisting another person to deal with criminal proceeds.

4. Key Element

The property must be:

• Proceeds of unlawful activity, and
• The accused knows or has reason to believe that the property represents proceeds of unlawful activity.

5. Important Difference from Academic Definitions

Traditional (Academic) Model

Money laundering normally involves:

1. Placement
2. Layering
3. Integration

These explain how criminals commonly launder money.

Malaysian Position

AMLA does not require proof of:

• Placement
• Layering
• Integration

These are not legal elements of the offence.

The prosecution only needs to prove that the accused dealt with criminal proceeds in one of the prohibited ways under section 4, together with the required mental element.

6. Examples

Example 1 – Buying an iPhone

Facts

• Ali scams RM6,000.
• Ali immediately purchases an iPhone.

Under the Traditional Model

• No placement.
• No layering.
• No integration.

Some commentators may simply describe this as spending criminal proceeds.

Under Malaysian AMLA

Potentially money laundering because Ali has:

• used criminal proceeds; and
• converted criminal proceeds into another asset.

Example 2 – Buying a House

Facts

• Ali receives RM2 million from corruption.
• He purchases a bungalow.

Under AMLA

Potentially money laundering because he has:

• acquired property using criminal proceeds; and
• converted criminal proceeds into real property.

Example 3 – Fake Consultancy Income

Facts

• RM1 million obtained from fraud.
• Deposited into a consulting company.
• Recorded as:

Consultancy Income

Why Money Laundering?

Because the criminal has:

• concealed the true source of the money;
• created a legitimate explanation; and
• disguised criminal proceeds as lawful business income.

Example 4 – Cash Deposited into Restaurant

Facts

Restaurant genuinely earns:

RM40,000 monthly.

Owner secretly adds:

RM160,000 drug money.

Accounts now show:

Restaurant Revenue

RM200,000.

Why Money Laundering?

Illegal money is disguised as legitimate business income.

Example 5 – Overseas Transfer

Facts

Drug proceeds are transferred from Malaysia to another country before being deposited into a foreign bank.

Why Money Laundering?

The transfer may:

• distance the money from the original crime;
• complicate tracing; and
• conceal the movement of criminal proceeds.

7. Why is AMLA So Broad?

Parliament recognised that criminals may deal with criminal proceeds in many different ways.

Accordingly, AMLA criminalises:

• simple dealings;
• sophisticated laundering schemes;
• direct use of criminal proceeds; and
• concealment of criminal proceeds.

The law therefore extends beyond the traditional placement-layering-integration model.

8. Traditional Model vs Malaysian Law

Traditional Model

Malaysian AMLA

Explains how money is usually laundered.

Defines what conduct constitutes the offence.

Placement → Layering → Integration.

No requirement to prove these stages.

Focus on concealment.

Covers acquisition, possession, use, transfer, conversion, concealment and other dealings.

Academic and criminological model.

Statutory legal definition.

9. Key Examination Points

✔ Malaysia does not define money laundering by reference to the three stages.

✔ Placement, layering and integration are criminological concepts, not legal requirements.

✔ AMLA adopts a much broader approach.

✔ A person may commit money laundering by:

• acquiring,
• receiving,
• possessing,
• using,
• transferring,
• converting,
• exchanging,
• disguising, or
• otherwise dealing

with property that represents the proceeds of unlawful activity.

✔ The prosecution must establish that:

1. the property is the proceeds of unlawful activity; and
2. the accused knew or had reason to believe that the property represented such proceeds.

Statutory Reference

Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (Act 613)

• Section 3 – Interpretation (including “proceeds of an unlawful activity”).
• Section 4(1) – Offence of money laundering.

Revision Tip: Remember that the three-stage model explains the laundering process, whereas section 4 AMLA defines the legal offence. A person may therefore commit money laundering under Malaysian law even without evidence of placement, layering, or integration, provided the statutory elements of section 4 are satisfied.

Money Laundering – Scholarly Definitions (Questions & Answers with Examples)

Q1. Is there a single universally accepted definition of money laundering?

Answer

No. There is no single universally accepted definition of money laundering. Different scholars describe the concept from different perspectives. However, they all agree that money laundering involves dealing with the proceeds of crime in a manner that conceals or disguises their illegal origin so that the money appears legitimate.

Analogy

Imagine someone steals a bicycle and paints it a different colour, changes the registration number, and sells it. Although the bicycle remains stolen, the criminal has attempted to hide its true origin.

Real-Life Example

A fraudster obtains RM500,000 through an online investment scam. Instead of depositing the money directly into his personal bank account, he channels it through a company he owns and records it as “business income.” The objective is to make the money appear legitimate.

Q2. How do Reuter and Truman define money laundering?

Answer

According to Peter Reuter and Edwin Truman:

**“Money laundering is the conversion of criminal incomes into assets that cannot be traced back to the underlying crimes.”**¹

This definition focuses on conversion. Criminals transform illegally obtained money into another form of property or asset, making it more difficult for authorities to trace it back to the original offence.

Key Point

The emphasis is on changing the form of the criminal proceeds so that they appear disconnected from the crime.

Analogy

Imagine changing stolen cash into gold bars. Although the value remains the same, the form has changed, making the original source less obvious.

Real-Life Example 1

A drug trafficker earns RM2 million from drug trafficking.

He purchases a commercial building.

Five years later, he sells the building.

He now claims:

“The RM3 million came from selling my commercial property.”

Instead of appearing as drug proceeds, the money now appears to originate from a legitimate property transaction.

Real-Life Example 2

A fraudster uses RM500,000 of criminal proceeds to purchase shares in a listed company. Several years later, the shares are sold and the proceeds appear to be legitimate investment gains.

Reference

¹ Peter Reuter & Edwin Truman, Chasing Dirty Money: The Fight Against Money Laundering (College Park: University of Maryland Press, 2004) p. 1.

Q3. How does Marina Lee Foong Tow define money laundering?

Answer

According to Marina Lee Foong Tow et al.:

**“Money laundering is a process by which criminals attempt to conceal the origin of the proceeds and to provide a legitimate cover for their money by various means.”**²

This definition highlights two essential elements:

1. Concealing the criminal origin of the money, and
2. Providing a legitimate explanation or cover for possessing the money.

Key Point

The criminal is not merely spending illegal money. Instead, the criminal creates a believable explanation that the money was lawfully earned.

Analogy

Imagine replacing the label on a bottle marked “Poison” with a new label reading “Mineral Water.” The contents remain the same, but the label creates the appearance of legitimacy.

Real-Life Example 1 – Fake Consultancy Income

A corruption suspect receives RM1 million in bribes.

He owns a consulting company.

The RM1 million is recorded in the company’s accounts as:

“Consultancy Fees Received”

No consultancy services were ever provided.

The money now appears to be genuine business income.

Why is this money laundering?

Because the criminal has concealed the true origin of the money and created a legitimate cover by falsely describing it as consultancy income.

Real-Life Example 2 – False Business Revenue

A restaurant genuinely earns RM50,000 per month.

The owner secretly adds RM150,000 of illegal gambling proceeds into the daily sales records.

The financial statements now show:

Restaurant Revenue

RM200,000

The illegal money appears to be ordinary restaurant income.

Reference

² Marina Lee Foong Tow et al., “Money Laundering and Banking Practices” (2002) 2 Singapore Management Review 2.

Q4. How do Levi and Reuter describe money laundering?

Answer

According to Michael Levi and Peter Reuter, money laundering consists of:

**“The techniques for hiding proceeds of crime including transporting cash out of the country, purchasing businesses through which funds can be channelled, buying easily transportable valuables, transfer pricing, and using underground banks.”**³

Unlike the previous definitions, this definition focuses on the methods or techniques criminals use to hide criminal proceeds.

Technique 1 – Transporting Cash Overseas

Example

A criminal earns RM5 million through drug trafficking.

Instead of depositing the cash into a Malaysian bank, he transports the money to another country and deposits it there.

Why?

The overseas transfer may make it more difficult for investigators to trace the money and obtain banking records.

Technique 2 – Purchasing Businesses

Example

A criminal buys a car wash.

The car wash genuinely earns RM30,000 each month.

The criminal secretly adds RM100,000 of illegal cash into the business’s daily receipts.

The accounts now show:

Monthly Revenue

RM130,000

Why?

The legitimate business provides a convenient explanation for the large cash deposits.

Technique 3 – Buying Easily Transportable Valuables

Example

A criminal purchases diamonds and luxury watches using criminal proceeds.

Several months later, the valuables are sold.

The criminal now explains that the money came from selling personal assets.

Why?

High-value items are easy to transport, store, and convert back into money.

Technique 4 – Transfer Pricing

Example

Company A in Malaysia intentionally overpays Company B overseas for goods worth RM500,000 by paying RM2 million.

The additional RM1.5 million represents criminal proceeds transferred overseas under the appearance of an ordinary commercial transaction.

Why?

The money appears to be a genuine payment for international trade.

Technique 5 – Underground Banking

Example

A criminal gives RM1 million cash to an underground money broker in Malaysia.

Without using the formal banking system, another broker pays the equivalent amount to the criminal’s associate in another country.

Why?

The transfer occurs outside the regulated banking system, making it more difficult for authorities to trace the movement of funds.

Reference

³ Michael Levi & Peter Reuter, “Money Laundering” (2006) 34 Crime & Justice 289.

Q5. What do these scholarly definitions have in common?

Answer

Although each scholar emphasises different aspects of money laundering, they all share the following common principles:

Scholar

Focus

Example

Reuter & Truman

Conversion of criminal proceeds into assets that cannot easily be traced.

Purchasing property or investments using criminal proceeds.

Lee Foong Tow et al.

Concealing the origin of criminal proceeds and creating a legitimate explanation.

Recording illegal money as consultancy fees or business income.

Levi & Reuter

Techniques commonly used to hide criminal proceeds.

Overseas transfers, shell businesses, luxury goods, transfer pricing, underground banking.

Simple Analogy

Imagine dirty water.

• Reuter & Truman explain how the dirty water is poured into a different container (conversion).
• Lee explains how criminals put a label saying “Clean Water” on the container (legitimate cover).
• Levi & Reuter explain the different routes used to transport the container so nobody knows where it came from (laundering techniques).

Together, these definitions provide a comprehensive understanding of money laundering by explaining what it is (concealing and legitimising criminal proceeds), why criminals do it (to disguise the illegal origin), and how it is commonly carried out (through various laundering techniques).

References

1. Guy Stessens, Money Laundering: A New International Law Enforcement Model (London: Cambridge University Press, 2000) 85.
2. Peter Reuter & Edwin Truman, Chasing Dirty Money: The Fight Against Money Laundering (College Park: University of Maryland Press, 2004) 1.
3. Marina Lee Foong Tow et al., “Money Laundering and Banking Practices” (2002) 2 Singapore Management Review 2.
4. Michael Levi & Peter Reuter, “Money Laundering” (2006) 34 Crime & Justice 289.

Money Laundering – Definitions

Q1. How do scholars define money laundering?

Answer

There is no single universally accepted definition of money laundering. However,  legal scholars and commentators generally agree that it is a process by which criminals conceal or disguise the illegal origin of proceeds obtained from criminal activities so that the money appears to have come from legitimate sources.

Analogy

Imagine stealing a painting and then obtaining a fake certificate claiming it was inherited from your grandfather. The painting is still stolen, but the false certificate is intended to make it appear legitimate.

Real-Life Example

A fraudster obtains RM1 million through an investment scam. Instead of keeping the money in cash, he channels it through a company he owns and records it as “consultancy income.” Although the money originated from fraud, it now appears to be legitimate business revenue.

Reference

Peter Reuter & Edwin Truman, Chasing Dirty Money: The Fight Against Money Laundering (University of Maryland Press, 2004) 1.

Q2. How do Reuter and Truman define money laundering?

Answer

According to Peter Reuter and Edwin Truman:

**“Money laundering is the conversion of criminal incomes into assets that cannot be traced back to the underlying crimes.”**¹

This definition emphasises that criminals attempt to transform illegal money into assets whose criminal origin becomes difficult to identify.

Analogy

Think of melting stolen gold jewellery into gold bars. The gold is the same, but its original form and ownership become much harder to identify.

Real-Life Example

A drug trafficker uses illegal cash to purchase a commercial building through a company. Several years later, the building is sold legitimately. The proceeds now appear to come from the sale of real estate rather than drug trafficking.

Reference

¹ Peter Reuter & Edwin Truman, Chasing Dirty Money: The Fight Against Money Laundering (College Park: University of Maryland Press, 2004) p. 1.

Q3. How does Lee define money laundering?

Answer

According to Marina Lee Foong Tow et al.:

**“Money laundering is a process by which criminals attempt to conceal the origin of the proceeds and to provide a legitimate cover for their money by various means.”**²

This definition highlights two important objectives:

• Concealing the criminal origin of the money; and
• Creating a legitimate explanation for possessing or using the money.

Analogy

Imagine placing counterfeit money inside a genuine wallet filled with real cash. At first glance, everything appears legitimate, even though part of the contents is unlawful.

Real-Life Example

A criminal establishes a consulting company and issues fake invoices for services that were never provided. The criminal proceeds are deposited into the company’s bank account as “consultancy fees,” creating the appearance of lawful business income.

Reference

² Marina Lee Foong Tow et al., “Money Laundering and Banking Practices” (2002) 2 Singapore Management Review 2.

Q4. What techniques are commonly used in money laundering?

Answer

Another commentator describes money laundering as involving techniques for hiding the proceeds of crime, including:

• Transporting cash out of the country;
• Purchasing businesses through which funds can be channelled;
• Buying easily transportable valuables;
• Manipulating prices in international trade (transfer pricing); and
• Using underground banking systems.

These methods are intended to make it more difficult for authorities to trace the criminal origin of the money.

Analogy

Imagine trying to hide a drop of red ink by pouring it into several buckets of water. With each transfer, the original source becomes harder to identify.

Real-Life Examples

Transporting cash overseas

• A criminal physically carries large amounts of cash to another country and deposits it into a foreign bank account.

Purchasing businesses

• Illegal money is invested in a restaurant, which reports inflated daily sales to justify the cash deposits.

Buying valuables

• Criminal proceeds are used to buy diamonds or luxury watches, which are later sold to obtain money that appears to come from legitimate sales.

Transfer pricing

• A company deliberately overpays an affiliated company overseas for goods, allowing criminal proceeds to be transferred under the guise of international trade.

Underground banking

• A criminal gives cash to an underground money broker in one country, while an associate receives equivalent funds from the broker’s network in another country without using the formal banking system.

Reference

Michael Levi & Peter Reuter, “Money Laundering” (2006) 34 Crime & Justice 289.

Q5. What are the common elements found in these definitions?

Answer

Although scholars use different wording, their definitions share several common themes:

1. Money laundering involves proceeds derived from criminal activity.
2. The objective is to conceal or disguise the illegal origin of the money.
3. Criminals attempt to make the money appear legitimate.
4. Various financial transactions or assets are used to distance the money from the original crime.

Analogy

Think of repainting a stolen car, changing its registration number, and selling it. The car remains stolen, but the criminal has tried to disguise its true identity.

Real-Life Example

A corruption suspect receives illegal payments through shell companies, invests the money in commercial properties, and later sells the properties. The sale proceeds appear to originate from legitimate property transactions, even though the original funds came from corruption.

Key Takeaways

Reuter & Truman (2004)

Conversion of criminal income into assets that cannot be traced back to the crime.

Converting and distancing criminal proceeds.

Lee Foong Tow et al. (2002)

Concealing the origin of criminal proceeds and providing a legitimate cover.

Concealment and legitimacy.

Levi & Reuter (2006)

Techniques used to hide proceeds of crime through various financial methods.

Methods and techniques of laundering.

References

1. Guy Stessens, Money Laundering: A New International Law Enforcement Model (London: Cambridge University Press, 2000) p. 85.
2. Peter Reuter & Edwin Truman, Chasing Dirty Money: The Fight Against Money Laundering (College Park: University of Maryland Press, 2004) p. 1.
3. Marina Lee Foong Tow et al., “Money Laundering and Banking Practices” (2002) 2 Singapore Management Review 2.
4. Michael Levi & Peter Reuter, “Money Laundering” (2006) 34 Crime & Justice 289.

Money Laundering – Introduction

Q1. What is money laundering?

Answer:

Money laundering is the process of disguising the illegal origin of money obtained from criminal activities so that it appears to have come from legitimate sources. In simple terms, it is the process of making “dirty money” look “clean.”

Analogy

Imagine a person spills mud on a white shirt. Instead of buying a new shirt, they wash it until it looks clean again. Similarly, criminals try to “wash” illegally obtained money so that it appears legitimate.

Real-Life Example

A drug trafficker earns RM500,000 from selling illegal drugs. Instead of depositing the cash directly into a bank, they use a restaurant to record fake sales. The money now appears to be legitimate restaurant income.

Q2. Is money laundering a new crime?

Answer:

No. Money laundering is not a new phenomenon. Criminals have been attempting to hide the source of illegally obtained money for centuries. While the methods have evolved with technology and financial systems, the objective has always remained the same—to conceal the criminal origin of illicit funds.

Analogy

Just as thieves have always tried to hide stolen goods from the authorities, criminals have always tried to hide where their illegal money came from.

Real-Life Example

Centuries ago, pirates buried stolen treasure or traded it through merchants to disguise its origin. Today, criminals may use shell companies, cryptocurrencies, or complex banking transactions to achieve the same objective.

Q3. Why do criminals launder money?

Answer:

Criminals launder money to avoid detection by law enforcement authorities and to enjoy the proceeds of their crimes without raising suspicion. If they spend or deposit large amounts of illegal cash openly, they risk investigation, seizure of assets, and prosecution.

Analogy

Imagine a student cheats in an exam but tries to make it appear that they studied hard. The goal is to avoid being caught while enjoying the undeserved result.

Real-Life Example

A corruption suspect receives millions in illegal payments. Instead of buying luxury houses directly, the money is transferred through several companies before purchasing properties, making it difficult to trace the original source.

Q4. Where did the term “money laundering” originate?

Answer:

It is widely suggested that the term “money laundering” was first used during the 1920s by United States law enforcement agencies. Criminals allegedly used self-service launderettes (laundromats) to disguise money earned from illegal activities such as bootlegging, gambling, and prostitution.

Analogy

Think of pouring dirty water into a water filter so that the water coming out looks clean. Criminals used legitimate businesses as the “filter” for illegal money.

Real-Life Example

A gang earns large amounts of cash from illegal gambling. They own several laundromats and falsely record the illegal cash as payments from customers doing laundry. The money now appears to be legitimate business income.

Q5. Why were self-service launderettes useful for money laundering?

Answer:

Self-service launderettes were ideal because they were cash-intensive businesses. Since customers typically paid with cash, it was easy for criminals to mix illegal cash with genuine business revenue without attracting attention.

Analogy

Imagine adding a cup of coloured water into a swimming pool. Once mixed, it becomes almost impossible to identify which water was originally coloured. Similarly, illegal cash becomes difficult to distinguish when mixed with genuine business income.

Real-Life Example

A laundromat normally earns RM8,000 per week. A criminal secretly adds RM20,000 of illegal cash into the business records and reports total weekly earnings of RM28,000. To outsiders, the money appears to be legitimate business revenue.

Q6. What types of crimes originally generated the money that was laundered?

Answer:

Historically, money laundering was commonly associated with proceeds from crimes such as bootlegging (illegal alcohol sales), gambling, and prostitution. Today, money laundering also involves proceeds from drug trafficking, corruption, fraud, tax evasion, cybercrime, human trafficking, terrorism financing, and many other serious offences.

Analogy

The source of dirty water may differ—mud, oil, or chemicals—but the goal is always to make the water appear clean. Likewise, regardless of the underlying crime, the objective of money laundering is to disguise the illegal source of the money.

Real-Life Example

A cybercriminal steals RM2 million through online banking fraud. The money is transferred through several companies and eventually invested in real estate, making it appear to have originated from legitimate business activities.

Key Takeaways

• Money laundering is the process of making illegally obtained money appear legitimate.
• It is not a new crime and has existed for centuries.
• Criminals launder money to hide the illegal source of their proceeds and avoid detection.
• The term “money laundering” is commonly associated with criminals in the 1920s who used cash-intensive laundromats to disguise illicit income.
• Cash businesses are attractive for money laundering because illegal cash can easily be mixed with legitimate business revenue, making the funds appear lawful.