The Duty To Report Suspicious Transactions Under Anti Money Laundering Laws In Relation to 1MDB and other scandals in Malaysia

As we usher in the new Malaysia and the revival of Rule of Law, we hear of scandal after scandal being disclosed as the new government assume the reins of power. The new cabinet ministers are no doubt working hard with rolled sleeves to manage the country and restore it to financial health.

Reports have surfaced that Malaysia’s 1MDB debacle and scandals will have “Enron” like consequences for the accounting firms unlucky to have been embroiled in 1MDB’s financial audit:  See http://malaysiansmustknowthetruth.blogspot.com/2018/07/malaysias-own-enron-unravels-can-govt.html?m=1

Apart from the duty of disclosure of auditors, even more fearsome is the duty to report suspicious transactions under Section 14 of the Anti Moneylaundering And Anti Terrorism Financing Act (AMLA). Reporting institutions include accountants, lawyers, investment bankers and company secretaries.

“Suspicious transaction” refers to any transaction (including attempted or proposed), regardless of the amount that:

  1. appears unusual;
  2. has no clear economic purpose;
  3. appears illegal;
  4. does not commensurate with the customer’s profile or business activities;
  5. involves proceeds from an unlawful activity; or
  6. indicates that the customer is involved in money laundering or terrorism financing activities.

For accountants, lawyers, investment bankers and company secretaries working on those past 1MDB transactions as well as other dubious transactions in the newly unveiled scandals, failure to report suspicious transactions will result in disastrous consequences such as a fine not exceeding RM1 million or imprisonment of not more than 3 years or both. For continuing offences of non reporting of suspicious transactions, additional fines of RM3,000 per day or part thereof is payable.

The duty to report suspicious transactions apply to attempted or proposed transactions. Even if the transaction did not proceed, the duty to report persist. In April 2018 in Singapore, a managing director of a law firm was fined S$10,000 for failing to report a suspicious transaction even though the transaction was aborted: See https://www.todayonline.com/singapore/law-firm-director-fined-s10000-not-reporting-suspicious-sentosa-cove-property-deal

Earlier in this month of July 2018, a US bank and brokerage firm settled a civil penalty of USD2.8m for failure to report suspicious transactions involving their terminated investment advisers who it knew were engaging in suspicious transactions that violated its internal policies and were a risk to its customers : See https://economia.icaew.com/en/news/july-2018/charles-schwab-settles-over-suspicious-transactions

Soon, new corporate leaders will assume their responsibilities in government linked companies (GLCs) and the commercial and business entities they own. They will need to undertake a corporate compliance health check to determine if there are any past mismanagement and misdeeds.

Failure to report suspicious transactions is a continuing offence for which they are indirectly accountable. While Directors and management may not fall under the definition of Reporting Institutions, the company secretary is under a duty to report suspicious transactions and will no doubt bring it to the directors and management’s attention.

Failure to act in the interests of the company will expose directors to liabilities for breach of directors’ duties. The management will also be exposed to liabilities for breach of employment contract for failure to act in the interests of the company.

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