Forfeiture Without Prosecution Under Section 56

Forfeiture Without Prosecution Under Section 56: Can the State Keep Your Property Without a Conviction?

Under the anti-money laundering law, property can be taken permanently by the Government even if no one is ever charged. The rules are strict, but so are the limits, and innocent owners, sellers and third parties have real grounds to resist.

Introduction

Most people assume that the State can only take their property after a criminal conviction. Under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (Act 613), commonly known as AMLA, that is not so. Section 56 allows the Public Prosecutor to ask the High Court to forfeit property even where no one has been prosecuted or convicted of money laundering. The owner may never have been charged with anything, yet the money in his account, his car or his house can end up belonging to the Government.

This is often called civil forfeiture, because it is decided on the civil standard of proof and is directed at the property rather than at a person. It is a powerful tool against crime, since criminals frequently hide behind relatives, companies and nominees who are never charged. But it also raises obvious concerns for innocent owners, for businesses that were paid with tainted money without knowing it, and for creditors and investors who lost money to the same wrongdoer.

This article follows on from the previous article in this series, which dealt with freezing and seizure. It explains how forfeiture under section 56 differs from forfeiture after a prosecution under section 55, what the Public Prosecutor must prove, what happens if a person is acquitted, how owners have successfully resisted forfeiture, and how innocent third parties can protect their interests under section 61.

Two routes to forfeiture

AMLA provides two main routes by which seized property can be forfeited. Section 55 applies where there has been a prosecution for money laundering or terrorism financing, and forfeiture is dealt with by the trial court. Section 56 applies where there has been no prosecution or conviction, and forfeiture requires a separate application to the High Court. Both are expressly made subject to the rights of bona fide third parties under section 61.

The main differences are set out below.

Forfeiture after prosecution compared with forfeiture without prosecution

Section 55 in brief

Under section 55, the court trying a money laundering or terrorism financing charge must forfeit property that is proved to be the subject matter or evidence of the offence, terrorist property, proceeds of unlawful activity or an instrument of an offence, if the offence is proved against the accused. Even if the offence is not proved, the court must still forfeit the property if it is satisfied that the accused is not its true and lawful owner and that no one else is entitled to it as a purchaser in good faith for valuable consideration.

Where the offence is proved but the property has been disposed of, has lost value or cannot be traced, section 55(2) requires the court to order the accused to pay a penalty equal to its value. That penalty is recoverable as a civil debt owed to the Government, with no limitation period. As explained below, there is no equivalent provision in section 56, and that difference has proved decisive in several cases.

How section 56 works

Section 56 applies to property that has been seized under AMLA where there is no prosecution or conviction for money laundering or terrorism financing. The Public Prosecutor may apply to a High Court judge for forfeiture if he is satisfied that the property falls into one of four categories. It must be the subject matter or evidence of a money laundering or terrorism financing offence, terrorist property, the proceeds of an unlawful activity, or an instrument of an offence.

The judge must then make a forfeiture order if satisfied of two things. First, the property must fall into one of those four categories. Second, there must be no purchaser in good faith for valuable consideration in respect of the property. The court decides these questions on the balance of probabilities, which is the standard used in civil cases, and not beyond reasonable doubt.

Before any forfeiture order is made, a notice must be published in the Government Gazette inviting anyone who claims an interest in the property to come to court and show cause why it should not be forfeited. Once property is forfeited, section 58 vests it in the Federal Government free from the rights and interests of others, except those of a purchaser in good faith for valuable consideration whose interest is not otherwise void under the Act. Under section 62, the Government may keep forfeited property for official use or sell it and keep the proceeds.

A proceeding against property, not a person

The courts have repeatedly described section 56 proceedings as directed against the property itself. In Liew Ket Boh & Anor v Public Prosecutor [2024] 2 MLJ 73, the Court of Appeal pointed out that section 56 does not require anyone to be convicted of money laundering, or even of the underlying crime, before property can be forfeited. It called the proceeding quasi-criminal, aimed at the proceeds of unlawful activity rather than at an accused person. This is why owners, relatives, companies and nominees who have never been charged can still lose property under section 56.

The 12-month time limit

Section 56 contains an important safeguard. The Public Prosecutor must apply for forfeiture within 12 months of the seizure or, where there was an earlier freezing order, within 12 months of that order. Under section 56(3), property that has been seized and in respect of which no application is made must be released to the person from whom it was seized once the 12 months have passed.

The courts have enforced this limit strictly. In Raqeem Rizqin Enterprise & Ors v Ketua Polis Negara & Anor [2019] 5 MLJ 693, the Federal Court ordered the release of frozen and seized accounts and vehicles because the owners had not been charged within 12 months and no forfeiture application had been filed. The Federal Court rejected the argument that the property should remain seized because of the size of the alleged fraud or the burden on investigators. It also held that keeping property without taking the steps required by law denied the owners any chance to show why it should not be forfeited, contrary to the constitutional protection of property.

Similarly, in Lim Hui Jin v CIMB Bank Bhd & Ors [2018] MLJU 981, the Court of Appeal ordered the release of a son’s bank account because no forfeiture application had been made and he had not been charged, even though his mother was facing money laundering charges connected with the same money. The High Court in Md Nawi bin Ab Aziz v Pendakwa Raya [2024] MLJU 1812 adopted the reasoning of an earlier High Court decision that the time limit protects owners against the arbitrary use of wide powers, that it must be construed strictly, and that an application filed after it has passed is too late.

The flip side is that a forfeiture application filed in time keeps the seizure alive until the court decides it. In Hong Leong Bank Bhd v Ten Jing Enterprise Sdn Bhd & Ors and another appeal [2025] 4 MLJ 725, the Public Prosecutor applied for forfeiture within 12 months of seizing a company’s account. The Court of Appeal held that the seizure therefore remained in force while the application was pending, and that a bank which released the money in the meantime was liable to the third party who was later found to be entitled to it.

Acquittal is no bar to forfeiture

Section 56A provides that the fact that a person has been acquitted of a serious offence, meaning the underlying crime such as cheating or corruption, does not affect the power of the court to issue a forfeiture order. In other words, being cleared in a criminal trial does not guarantee that the property connected with the alleged crime will be returned.

The reason lies in the different standards of proof. A criminal court acquits if the prosecution fails to prove guilt beyond reasonable doubt. A forfeiture court asks only whether it is more likely than not that the property is connected with unlawful activity. The same facts can therefore lead to an acquittal in one court and forfeiture in another. Owners should not assume that a favourable outcome in the criminal case will automatically bring their property back.

What the Public Prosecutor must prove

The standard of proof: settled by the Federal Court

For several years, there was uncertainty about how the underlying crime must be proved in forfeiture proceedings. In Simplex Sdn Bhd & Ors v Public Prosecutor [2021] MLJU 32, the Court of Appeal had held that the Public Prosecutor must first prove the underlying crime beyond reasonable doubt, and only then prove on the balance of probabilities that the property came from it. That approach was relied on by owners resisting forfeiture.

The Federal Court put the matter to rest in JJ Power Groups Enterprise & Ors v Public Prosecutor [2025] 5 MLJ 197. The case concerned a get-rich-quick scheme that promised investors monthly returns of 20 per cent from supposed foreign currency trading, without any licence from Bank Negara Malaysia. The founder had been charged with cheating, but the charge was withdrawn and he was given a discharge not amounting to an acquittal. The Public Prosecutor then sought forfeiture of bank balances, a property in Perak and two cars. The owners argued that since cheating had never been proved beyond reasonable doubt, the property could not be forfeited.

The Federal Court disagreed and held that Simplex had been wrongly decided. Section 70(2), which preserves the criminal standard, applies only to the prosecution of offences under AMLA itself, such as money laundering. The underlying crime, in this case cheating under the Penal Code, is not an offence under AMLA, so section 70(2) does not apply to it. In a section 56 application, every element, including the existence of the underlying crime, is to be proved on the balance of probabilities. There is no two-tier test. On the evidence, which included 19 police reports, statements recorded under AMLA, bank records and confirmation from Bank Negara Malaysia and the Securities Commission, the lower courts had been entitled to find that investors were deceived. The forfeiture was upheld.

The case also shows that forfeiture is decided asset by asset. Money traced to one party, which came from customers who had bought gambling excursion packages to a casino, was not shown to be proceeds of the scheme and was ordered to be returned. Claims by two law firms to be paid their fees out of the forfeited property were dismissed.

Proof still requires real evidence

The lower standard does not mean that the Public Prosecutor can succeed on suspicion. In an earlier decision cited with approval in JJ Power, the Federal Court stressed that section 56 does not relieve the Public Prosecutor of the burden of proving that the seized property was obtained in connection with the underlying crime. The Federal Court added that bare statements supported by scanty documents are not enough. There must be cogent documentary evidence that makes the Public Prosecutor’s case more probable than not.

An example of failure given by the courts involved a duty-free business in Labuan that was said to have sold cigarettes outside the duty-free zone without paying duty. The only evidence was that 82 cash deposits had been made into its accounts from Miri and Kota Kinabalu. There was no evidence of any actual sale or transport of cigarettes outside Labuan, and nothing unlawful about customers paying from elsewhere. The Court of Appeal held that forfeiting the money on that basis would amount to speculation.

There is no need to trace every ringgit

On the other hand, where the underlying crime is clearly shown, the courts do not require the Public Prosecutor to link every transaction in an account to it. In Liew Ket Boh, 30 investors lodged police reports after being deceived by a fake durian export investment scheme. Their money was paid into two accounts opened in other people’s names, then moved in large sums into the accounts of two businesses controlled by the appellant, and much of it was withdrawn in cash. Large cash deposits then appeared in the appellants’ personal and fixed deposit accounts during the same weeks.

The appellants argued that the Public Prosecutor had not identified which exact transactions in their accounts came from the scheme. The Court of Appeal rejected this. Once the cheating was proved and the flow of the victims’ money was shown, the balances in the accounts could be found to be proceeds of unlawful activity. The definition of proceeds in AMLA is wide enough to cover property found together with, or acquired partly with, tainted money. The court gave the example of a house bought partly with dirty money and partly with clean money, which would be caught as a whole. The appellants’ explanations that the money came from property commissions and family businesses were rejected because they produced no documents to support them.

What evidence can be used

Forfeiture applications are usually decided on affidavits filed by the investigating officers, supported by bank statements, police reports and recorded statements. In Public Prosecutor v Awalluddin bin Sham Bokhari [2018] 2 MLJ 401, the Federal Court held that officers’ affidavits based on knowledge gained through statements and documents obtained under section 32 of AMLA are admissible under section 40 and are not hearsay. In Abdul Mudtalib bin Ismail v Public Prosecutor [2021] 1 MLJ 252, the Court of Appeal upheld forfeiture relying partly on statements given by the owner’s son, former wife and business associate, and held that no corroboration was required. In Liew Ket Boh, the Court of Appeal went further and held that ordinary police statements recorded under section 112 of the Criminal Procedure Code may also be used in forfeiture proceedings, because section 71 of AMLA allows evidence obtained under the Act to be admitted despite any other written law.

For owners, the lesson is that what is said in an interview, and what documents are handed over, may later decide whether property is forfeited. Equally, an owner who wishes to resist forfeiture must be ready to support his own explanation with documents, not merely assertions.

When forfeiture fails: money that has already been spent

Some of the most important decisions for owners arose from the 1MDB-related applications. In Badan Perhubungan UMNO Negeri Pahang v Public Prosecutor and other appeals [2022] 2 MLJ 572, the Court of Appeal heard nine appeals together. In each case, the Public Prosecutor sought to forfeit money in the bank account of a political party or a business, on the ground that it had received cheques from the personal account of the former Prime Minister, which were alleged to contain proceeds of an offence under section 23 of the Malaysian Anti-Corruption Commission Act 2009.

The political parties admitted receiving large sums from the former Prime Minister, in one case RM255 million, but said that all of it had been spent years earlier and that the money now in their accounts came from other donations or, in one case, from the sale of a shophouse. The Public Prosecutor argued that once tainted money was mixed into an account, whatever remained in it was tainted, and that the parties would not have had those balances but for the payments.

The Court of Appeal rejected that argument. Section 56 permits forfeiture only of the specific property that is proved to be tainted. If the money received had been spent, there was nothing left of it to forfeit, and the balances could not be treated as the same money merely because they sat in the same account. The Public Prosecutor was making an assumption where the law required proof. The court also found that the affidavits merely traced cheques from the former Prime Minister’s account without showing how the money was linked to the alleged corruption offence. In the Pahang case, where the High Court had ordered forfeiture of about RM2.48 million, the Court of Appeal allowed the party’s appeal, noting that its sworn evidence that the seized sum came from other sources had not been challenged.

The court also refused to make a pecuniary penalty order under section 59 as an alternative. Such an order can only be made where forfeiture under section 55 or 56 is granted, and it had not been asked for in the application. Unlike section 55(2), section 56 contains no power to order an owner to pay the value of property that has been disposed of. The High Court reached a similar result in Public Prosecutor v Sim Sai Hoon [2020] MLJU 386, where about RM1.2 million received from the same source in 2012 had been spent long before the account was frozen in 2018, and the remaining balance of about RM41,000 was ordered to be returned.

These cases show that timing matters. Section 56 is a remedy against property that still exists and can be identified. Where money has long been spent and replaced by funds from other sources, the Public Prosecutor must prove that what remains is itself tainted. That is harder where there is a clear record of other lawful income.

Businesses paid in good faith

The same appeal also concerned five businesses, including a jeweller, a supplier of event canopies and equipment, a textile and headscarf seller, a T-shirt supplier and a cloth supplier. Each had received cheques drawn on the former Prime Minister’s account in payment for goods or services that were actually delivered, and each had invoices and receipts to prove it. The Public Prosecutor argued that they should have suspected the source of the money and that a jeweller, for example, should have followed Bank Negara Malaysia’s anti-money laundering guidelines.

The Court of Appeal upheld the High Court’s refusal to forfeit the money. The businesses had received payment in good faith for valuable consideration in the ordinary course of lawful trade. They dealt with the Prime Minister’s private secretary and office, not with him personally, and the cheques did not show the account holder’s name. The court said there is no law requiring a seller to investigate where a customer’s money comes from, and a seller may accept payment from anyone, including a third party paying for the buyer. The Act is meant to deprive wrongdoers of their gains, not to cause injustice to honest sellers by taking their hard-earned money. The court also indicated that owners in this position may rely on the same considerations that protect third parties under section 61.

For businesses, the practical lesson is to keep proper records of every transaction, including invoices, delivery orders, receipts and correspondence. In these cases, contemporaneous documents showing a genuine sale made all the difference.

Protecting innocent third parties under section 61

Section 61 provides that Part VI of AMLA applies without prejudice to the rights of bona fide third parties. The court that deals with forfeiture must publish a notice in the Gazette inviting anyone who claims an interest in the property to attend and show cause why it should not be forfeited. A third party’s lack of good faith may be inferred from the objective circumstances. The property is to be returned to a claimant only if the court is satisfied of five matters.

First, the claimant has a legitimate legal interest in the property.

Second, no participation, collusion or involvement in the money laundering or terrorism financing offence can be imputed to the claimant.

Third, the claimant did not know, and was not deliberately ignorant, of the illegal use of the property, or if he knew, did not freely consent to it.

Fourth, the claimant did not acquire the right from the person proceeded against in circumstances suggesting it was transferred to avoid forfeiture.

Fifth, the claimant did all that could reasonably be expected to prevent the illegal use of the property.

The courts have held that all five conditions must be satisfied together, and the burden is on the claimant to prove them on the balance of probabilities. It is not for the Public Prosecutor to show that the claimant is not in good faith.

Case in point: investors, a supplier and lawyers

In Lim Long Yew & Ors v Pendakwa Raya [2017] 9 MLJ 787, the directors of a company selling ceramic sets under a multi-level scheme were convicted of illegal deposit-taking and money laundering, and money in their accounts was forfeited under section 55. Several people came forward as third parties. Investors who had bought and resold the sets for profit, and who had become dealers with their own downlines, were held to have taken part in the scheme. Those who said they had checked Bank Negara Malaysia’s website had not taken the reasonable step of confirming the company’s status directly with the regulator before investing large sums. A T-shirt supplier seeking payment for goods supplied to the company also failed, because he had taken no steps to check whether the company’s business was lawful, and was seeking payment out of money already found to be tainted. Claims by three law firms for their fees were also rejected. All the claims failed, and the forfeiture stood.

The Federal Court took the same view of legal fees in Tetuan Wan Shahrizal, Hari & Co v Public Prosecutor [2023] 4 MLJ 1, a section 56 case. By a majority, it held that a law firm’s unpaid bills showed only that the client owed it money, and did not give the firm a legitimate legal interest in the seized property. Allowing lawyers to be paid from tainted money as of right would allow the money to be cleansed. The firm remained free to sue its client personally. Justice Mary Lim dissented, taking the view that the firm’s good faith was unchallenged and that the right to counsel would be undermined.

It is worth comparing these cases with the business cases discussed above. The T-shirt supplier in Lim Long Yew was an unpaid creditor seeking to be paid out of the wrongdoer’s tainted money. The T-shirt supplier in the 1MDB appeal had already been paid in the ordinary course of business, and the money sought to be forfeited was in its own account. A creditor who is still waiting to be paid is in a much weaker position than a seller who has already received payment in good faith for goods delivered.

When are third-party claims heard?

In Genneva Sdn Bhd v Dato’ Vengadasalam Letchumi Kandan & Ors [2024] 1 MLJ 925, the Public Prosecutor applied under section 55 to forfeit property seized from a gold trading company and four others. Several third parties responded to the Gazette notice. The Sessions Court refused to order forfeiture and, having done so, took the view that it had no power to rule on what the third parties had claimed. The High Court sent the claims back to be decided, but the Court of Appeal disagreed.

The Court of Appeal held that the first step is for the Public Prosecutor to establish that the property is liable to be forfeited. Only then does the court make a preliminary forfeiture order and turn to the claims of third parties, and the forfeiture only becomes final once those claims are decided. If the forfeiture application fails, the property is not forfeited and there is nothing for the third parties to claim under section 61. Their remedy is to bring separate civil proceedings against the owner. The court noted that an earlier Court of Appeal decision had placed more emphasis on publishing the Gazette notice before deciding forfeiture, so the precise sequence may depend on how the court manages each case. What is clear is that third-party claims under section 61 depend on the property first being shown to be forfeitable.

Claims must also be made in the right court. In C Vignesh Kumar a/l Chellapah & Anor v Public Prosecutor [2020] 1 MLJ 512, a lawyer claiming about RM1.54 million in unpaid fees and an in-house legal adviser claiming about RM775,000 in unpaid salary applied directly to the High Court to be recognised as bona fide third parties in respect of property forfeited by a Sessions Court under section 55. The High Court held that the application should have been made in the Sessions Court that dealt with the forfeiture, and the Court of Appeal dismissed their appeal.

A practical checklist

If your property is the subject of a forfeiture application

Check the dates. Confirm when the property was frozen or seized and when the application was filed. An application outside the 12-month limit is invalid, and the property must be released.

Challenge the link, not just the crime. The Public Prosecutor must prove, with cogent evidence, that the specific property is connected with unlawful activity. Point out gaps in the money trail and any failure to prove the underlying crime.

Prove your own sources with documents. Salary slips, tax returns, sale agreements, invoices, inheritance papers and bank records carry weight. Bare explanations are routinely rejected.

Show that the money has been spent, if it has. If tainted money was received long ago and spent, and the current balance comes from other lawful sources, the courts have refused forfeiture. Evidence of other income is essential.

Do not rely on an acquittal. Section 56A means that being acquitted of the underlying crime does not by itself prevent forfeiture.

Answer every allegation in the affidavits. Forfeiture is decided on affidavit evidence. Facts that are not denied may be treated as admitted, and this can work for or against either side.

If you are a third party, creditor, investor or seller

Watch the Gazette. Respond to any notice inviting third parties to show cause, and file your claim in the court dealing with the forfeiture.

Be ready to prove all five conditions. Show a legitimate legal interest, no involvement, no knowledge, no transfer designed to avoid forfeiture, and reasonable steps to prevent misuse.

Do your checks before you invest. Confirm directly with Bank Negara Malaysia or the Securities Commission that a business is licensed before putting money into it.

Keep proper business records. Sellers who could prove genuine sales with contemporaneous documents kept their money.

Lawyers should arrange fees early. The courts have refused to let fees be paid out of tainted property. Payment should be secured from assets clearly unconnected with the investigation.

Conclusion

Section 56 allows the State to keep property without anyone being convicted, and even after an acquittal. The Federal Court has confirmed that every element is decided on the balance of probabilities, and the courts accept evidence gathered through the investigation powers of AMLA, including statements that would not be admissible in a criminal trial. Where a fraud is clearly shown and money can be traced, the Public Prosecutor does not need to account for every transaction.

But the power has firm limits. The application must be made within 12 months. The Public Prosecutor must prove with real evidence that the particular property is tainted, and cannot simply assume that whatever remains in an account is dirty because tainted money once passed through it. Property that has been spent cannot be forfeited under section 56, and honest sellers who were paid for genuine goods and services keep what they earned. Third parties with a legitimate interest can come forward, although they must satisfy demanding conditions. For owners and third parties alike, the outcome often depends on how well they can document where their money came from.