Money Laundering, Real Estate and the Legal Profession

According to Bank Negara Malaysia (BNM), money laundering is “a process of converting cash or property derived from criminal activities to give it a legitimate appearance. It is a process to clean ‘dirty’ money in order to disguise its criminal origin”.

Section 4 of the AMLATFPUAA 2001 defines money laundering as:

“an act that engages, directly or indirectly, in a transaction that involves proceeds of an unlawful activity or instrumentalities of an offence; acquires, receives, possesses, disguises, transfers, converts, exchanges, carries, disposes of or uses proceeds of an unlawful activity or instrumentalities of an offence; removes from or brings into Malaysia, proceeds of an unlawful activity or instrumentalities of an offence; or conceals, disguises or impedes the establishment of the true nature, origin, location, movement, disposition, title of, rights with respect to, or ownership of, proceeds of an unlawful activity or instrumentalities of an offence”.

There are three stages of money laundering processes which are commonly used to hide their illegal proceeds. The three stages are known as placement, layering and integration.[1] Placement is the first stage of the money laundering process. In order to separate illicit funds from their illegal source, the illicit funds are placed into the legal financial system. Layering is the second stage of the money laundering process where it involves the process of creating multiple layers of transactions to further separate the illegal funds from their illegal origins. An example would be the resale of assets initially purchased in cash by using the illegal funds. The function of layering is to conceal or to make it difficult to ascertain the source of the funds. Integration is the final stage. It completes the money laundering process where laundered funds are successfully integrated into the economy as legitimate proceeds.[2] An example would be by re-entering the legal financial system through investments into assets such as real estate and shares.[3]

In order to detect, reduce and prevent emerging money laundering threats, Malaysia has established an Anti-Money Laundering & Counter Financing of Terrorism (AML/CFT) framework which covers the legal and regulatory framework, preventive measures for reporting institutions, financial intelligence unit and law enforcement agencies; and domestic and international cooperation.^[4] Money laundering and terrorism financing is governed under AMLATFPUAA 2001. Anyone who is convicted of this offence of money laundering under s.4 of the 2001 Act shall be liable to imprisonment for a term not exceeding fifteen years and shall also be liable to a fine of not less than five times the sum or value of the proceeds of an unlawful activity or instrumentalities of an offence at the time the offence was committed or five million ringgit, whichever is the higher.^[5]

The Financial Action Task Force (FATF) in their report in 2008 identified the way in which the legal profession is vulnerable to money laundering activities, including a purchase of real property. In the event where someone uses illicit money to make a purchase of property and a law firm is used as a conduit for money laundering, how will this affect the law firm under AMLATFPUAA? Under Part 4 of AMLATFPUAA, ‘reporting institutions’ listed in the First Schedule s.3 of the Act, have the obligation under the law to undertake preventive measures to avert their institutions from being used as a conduit for money laundering and terrorism financing activities.^[6] The Malaysian legal profession is bound by Part 4 of the AMLATFPUAA as lawyers fall under the list of ‘reporting institutions’, categorised as designated non-financial business and professions (DNFBPs). Based on the FATF 2003 recommendations (The Anti-Money Laundering Forum IBA, 2013), the Anti-Money Laundering Act (AMLA) 2001 has been amended to include DNFBPs where legal practitioners have been given the same responsibilities as the financial institutions to report to the Financial Intelligence & Enforcement Department (FIED) of any suspicious transaction which falls within the ambit of s.14 of the AMLATFPUAA 2001 (IBA, 2013).^[7]

The legal profession is vulnerable to money laundering activities, as such, it has been obliged under Part 4 of the AMLATFPUAA to report any suspicious transaction under s.14 of the same Act. It can also be said that this is a form of protection for the legal profession from any money laundering activities during the transaction. Furthermore, s.24 of the Act states that the reporting institutions shall have no civil, criminal or disciplinary proceedings for disclosing or supplying any information. However, according to the Annual Committee Report 2011 by the Malaysian Bar Council, the level of reporting by legal practitioners is still ‘sluggish’.[8] In a sales and purchase of a real property, a Statutory Declaration (governed by the Statutory Declarations Act 1960) can be given by the solicitor to the client to be signed when it involves a cash purchase, overvalued real property and/or transaction between family members or between a company and an individual. It is to declare that no such money laundering activity is involved in the sale and purchase of a real property. This is to prevent any liability on the solicitor. However, these mechanisms are not conclusive methods to fully eliminate money laundering, nonetheless, are effective methods to follow a set of paper trail for purposes of accountability.

Therefore, as a safety measure, it is for the legal practitioners to exercise caution, be diligent and take precaution when dealing with suspicious persons in the sales and purchase process.

Below are the activities that reporting institutions are obliged to report to BNM:

1. cash transactions that exceed RM50,000.00, involving physical currencies and bearer negotiable instruments but excluding bank drafts, cheques, electronic transfers or fixed deposits^[9]
2. suspicious transactions such as (the list is non-exhaustive):
   1. transactions that cannot be matched with the investment and income levels of the customer;
   2. depositing large cash amounts in the Reporting Institution’s multiple bank accounts in the same day;
   3. a client who shows unusual concern for secrecy, e.g. in the identity of the beneficial owner of the account, his employment, business, assets, or fails to indicate a legitimate source of funds;
   4. a customer who suddenly starts making investments (in property) in large amounts when it is known to the Reporting Institution that the customer does not have the capacity to do so; and
   5. transactions that cannot be matched with the investment and income levels of the customer.^[10]

Furthermore, according to the Malaysian Bar Council, Circular No. 119/2018 dated 8 May 2018, BNM conducts regular on-site examination for AML/CFT on lawyers from selected law firms pursuant to s.25 of AMLATFPUAA 2001 and has identified good practices and common lapses.^[11] It is clear that BNM is extremely strict on monitoring not just on suspicious transactions but on reporting institutions as well. BNM exercises a holistic approach in preventing and capturing such criminal conduct.