How to Buy a Business Without Inheriting Its Legal Troubles
Buying a Company? How Not to Inherit Its Corruption and Money Laundering Problems
A practical guide for Malaysian investors, business owners and buyers on corruption and anti-money laundering due diligence in share and asset acquisitions
Introduction
The deal looks good. The target company has steady revenue, valuable licences, a few Government contracts and a property portfolio, and the seller is willing to let it go at an attractive price. The financial and tax due diligence come back clean. You sign, pay and take over.
Six months later, MACC officers arrive at the office. A contract the company won three years ago is under investigation. The company’s bank accounts are frozen under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA). A piece of land you thought you had bought turns out to have been seized before the sale.
This is not far-fetched. Under Malaysian law, a company does not leave its past behind when its shares change hands. And under AMLA, property that is linked to crime can be frozen, seized and forfeited even in the hands of a new owner, unless that owner can show it bought in good faith, for proper value and after making reasonable inquiries.
This guide explains what you can inherit when you buy a company or its assets, the red flags to look out for, how to carry out corruption and money laundering due diligence, how to protect yourself in the sale agreement, and what the Malaysian courts have said.
Share purchase or asset purchase: what do you inherit?
A company is a separate legal person, distinct from its shareholders and directors. That is the basic principle of company law, and Malaysian courts have applied it in criminal cases too. For a buyer, it has an important consequence. When you buy the shares, you do not get a fresh company. You get the same company, with everything it has done.
| Share purchase | Asset purchase | |
|---|---|---|
| What you acquire | The whole company, including its history, liabilities and ongoing investigations | Only the specific assets, such as land, equipment, stock, contracts or a business undertaking |
| Corruption risk | The company can still be charged under section 17A of the MACC Act for bribes paid before you bought it | You do not take over the seller’s criminal liability, but contracts won through bribery may be void or voidable |
| Money laundering risk | Frozen or seized accounts and property stay frozen or seized. Past laundering by the company remains the company’s problem | If the assets are proceeds or instrumentalities of crime, they can be seized and forfeited unless you are a good-faith purchaser for value |
| Your main protection | Thorough due diligence, warranties, indemnities, price retention and a clean-up plan after completion | Good faith, adequate value, reasonable inquiries and proper documentation of the purchase |
| A point on directors: Under section 17A(3) of the MACC Act, deemed personal liability attaches to people who were directors, controllers, officers, partners or managers at the time the company committed the offence. New directors appointed after completion are therefore not deemed liable for bribes paid before they joined. They become exposed if the wrongdoing continues on their watch. |
The corruption risks you can inherit
Corporate liability under section 17A
Since 1 June 2020, a commercial organisation is guilty of an offence if a person associated with it, such as a director, employee, agent or consultant, gives or offers a bribe to win or keep business or an advantage for it. Liability is strict. The only defence is to prove that the company had adequate procedures in place to prevent such conduct. A conviction carries a fine of at least ten times the value of the bribe or RM1 million, whichever is higher.
If the target paid bribes before you bought it, the company can still be prosecuted after you own it. The fine will be paid out of what is now your investment. The UK case of Amec Foster Wheeler shows how this plays out in practice. The bribery took place between 1996 and 2014, largely when the business was known as Foster Wheeler Energy Limited, before its acquisition by Amec plc. In 2021, under its new ownership, the company entered into a deferred prosecution agreement and paid £103 million in the UK, as part of a global settlement of US$177 million.
Contracts and revenue may be tainted
Part of what you pay for in an acquisition is the target’s contracts and future income. If those contracts were won through corruption, their value may be an illusion.
- A contract to pay for influence over a Government decision is void as against public policy under section 24(e) of the Contracts Act 1950, as the Federal Court held in Merong Mahawangsa Sdn Bhd v Dato’ Shazryl Eskay bin Abdullah.
- A contract procured by bribing the other side’s employee may be cancelled by the innocent party once it discovers the bribe.
- Companies caught in bribery schemes have been made to give up the profits from the tainted contracts. Rolls-Royce, for example, had to disgorge £258 million in profits in its UK settlement.
Subsidiaries and groups
Buying a group raises a further question. Will the parent company be liable for bribes paid by a subsidiary? Guidance on the UK Bribery Act, on which section 17A is modelled, suggests that a subsidiary will not automatically be treated as an associated person of its parent. It may be, however, if the subsidiary was performing services for the parent and the bribe was meant to benefit the parent. In R v Sweett Group, a UK parent company paid a £2.25 million penalty for bribes paid by its subsidiary in the Middle East.
The money laundering risks you can inherit
Section 4: dealing with the proceeds of crime
Section 4(1) of AMLA makes it an offence to engage in a transaction involving the proceeds of an unlawful activity, or to acquire, receive, possess, transfer or use such proceeds. Corruption, cheating, criminal breach of trust and many other serious offences count as unlawful activities. The penalty is jail of up to 15 years and a fine of at least five times the value of the proceeds or RM5 million, whichever is higher.
For a buyer, section 4(2) is particularly important. A court may infer the necessary state of mind from objective circumstances, including where a person, without reasonable excuse, failed to take reasonable steps to find out whether the property was the proceeds of crime. In other words, deliberately not asking questions is not a safe strategy.
Freezing, seizure and forfeiture
AMLA gives enforcement agencies, including the MACC, the police and Bank Negara, wide powers over property linked to crime. These powers follow the property, not just the wrongdoer.
| Power | What it means for a buyer |
|---|---|
| Freezing (section 44) | Bank accounts and other property can be frozen during an investigation. The order lapses after 90 days if no AMLA charge is brought. |
| Seizure of land (section 51) | Once a Notice of Seizure is issued, all dealings in the land are prohibited. Knowingly agreeing to sell or deal with seized land is an offence carrying a fine of up to five times the property’s value or RM5 million, whichever is higher, or jail of up to seven years, or both. |
| Seizure of a business (section 52) | An enforcement agency can seize a whole business if it is run by or for a person who is to be charged with money laundering, or by his relative or associate, or if any of them holds at least 30 per cent of it or has management or effective control. The agency can appoint a supervisor, divert profits to the Accountant General, bar directors from involvement or close the premises. |
| Dealings after seizure are void (section 54) | While a seizure is in force, any dealing with the property is null and void and must not be registered. Civil claims and execution over the property are also barred without the Public Prosecutor’s written consent. |
| Forfeiture (sections 55 and 56) | Property can be forfeited to the Government even without a conviction, on the civil standard of proof. An acquittal does not stop forfeiture (section 56A). |
| Section 52 and share buyers: If you buy into a business in which the seller, or a relative or associate of the seller, keeps a stake of 30 per cent or more or continues to control it, and that person is later to be charged with money laundering, the whole business may be seized. Find out who will remain involved after completion. |
Your protection: good faith, value and reasonable inquiries
AMLA does protect innocent buyers, but only those who meet its conditions. Under section 56(2)(b), the court must not forfeit property if there is a purchaser in good faith for valuable consideration. Section 58(5) explains what that means. The purchaser, chargee or other transferee must have given adequate value, and must have had no notice that the property was tainted. Crucially, that includes having no notice of circumstances from which reasonable inquiries would have revealed the taint.
Separately, a third party claiming seized property under section 61(4) must prove five conditions: a legitimate legal interest, no involvement in the offence, no knowledge or wilful blindness, no acquisition of rights designed to avoid forfeiture, and that it did everything reasonably expected to prevent the illegal use of the property.
Put simply, your due diligence file is your defence. A buyer who asked the right questions, paid a fair price and kept proper records is in a strong position. A buyer who ignored red flags may lose both the asset and the money paid for it.
Red flags in a target company
| Area | Warning signs |
|---|---|
| Ownership | Nominee shareholders, complex offshore layers, owners who will not identify themselves, links to politically exposed persons or public officials |
| Source of capital | Unclear origin of the founders’ initial investment, large unexplained cash injections or shareholder loans |
| How it wins business | Heavy reliance on Government contracts won by direct negotiation, large “consultancy” or “commission” payments, agents paid success fees |
| Payments | Payments to third parties in other countries, cash-heavy operations, round-sum transfers to individuals, vague invoices |
| Legal status | Pending MACC, police or Bank Negara investigations, frozen accounts, registrar’s caveats or seizure notices on land, unexplained litigation |
| Compliance | No anti-corruption policy, no whistleblowing channel, unresolved internal complaints, auditors’ concerns left unanswered |
| The deal itself | Price well below market value, pressure to complete quickly, requests to pay part of the price to someone other than the seller |
How to carry out corruption and AML due diligence
| STEP 1 | Identify who really owns and controls the target |
Go beyond the register of members. Identify the individuals who ultimately own or control the company, known as beneficial owners, and check whether any of them, or their family members or close associates, are politically exposed persons. Ask where the founders’ original capital came from. In the PetroSaudi case described below, the court looked behind the corporate structure and traced the start-up capital itself.
| STEP 2 | Search for investigations, freezes and seizures |
Ask the seller to confirm in writing whether the company, its directors or its assets are, or have been, under investigation by the MACC, the police, Bank Negara or any other agency, and whether any freezing, seizure or prohibition order has been issued. Carry out land, court and company searches. Do not rely on a clean land search alone. In Lau Yong Ying, the Land Registrar never recorded the seizure on the title, yet the seizure was still valid and the buyer lost the property.
| STEP 3 | Understand how the target makes its money |
Review the target’s key contracts, especially Government and GLC contracts, and how they were won. List all agents, consultants and intermediaries, what they were paid and what they actually did. Look for commissions and success fees, payments to offshore entities and cash payments. Compare revenue with the size and capability of the business.
| STEP 4 | Test the compliance programme |
Ask for the target’s anti-corruption policy, its risk assessments, its gifts and hospitality register, its whistleblowing reports and any internal investigation reports. Check whether the five T.R.U.S.T. principles under the Government’s Guidelines on Adequate Procedures are actually followed. A paper policy is not enough. Large companies such as Airbus and Glencore had written policies that were bypassed or ignored.
| STEP 5 | Interview key people and obtain declarations |
Speak to the directors, the finance head and the people who manage sales and procurement. Ask them to sign declarations on conflicts of interest and on any criminal record or investigation. Pay attention to answers that are evasive, inconsistent or unsupported by documents.
| STEP 6 | Make sure the price and payment are clean |
Pay an adequate price, supported by a proper valuation, and pay only the seller, into an account in the seller’s own name. A price far below market value, or a request to route payment elsewhere, may later be used to argue that you were not a purchaser in good faith.
Protect yourself in the sale agreement
Due diligence reduces risk but cannot eliminate it. The sale agreement should allocate what remains. Consider including:
- warranties that the target, its directors, employees and agents have complied with the MACC Act and AMLA, have not paid or received bribes, and are not under investigation
- warranties that none of the target’s assets is frozen, seized, subject to a prohibition order or derived from unlawful activity
- a specific indemnity from the seller for fines, penalties, forfeiture and losses arising from conduct before completion
- conditions precedent allowing you to walk away if an investigation, freezing or seizure order comes to light before completion
- a retention or escrow of part of the price for a period after completion, to back the warranties and indemnity
- a right to terminate and recover the price if the seller’s warranties turn out to be untrue
Remember that an indemnity is only as good as the seller’s ability to pay. If the seller’s own funds are frozen or forfeited, a retention may be the only real protection.
After completion: the first 100 days
- Appoint a board and management team that will take compliance seriously, and remove anyone implicated in past wrongdoing.
- Put in place adequate procedures based on the T.R.U.S.T. principles, adapted to the target’s risks.
- Review every agent, consultant and intermediary. Suspend suspicious payments and renegotiate or end high-risk arrangements.
- Set up a confidential whistleblowing channel and train staff, especially those in sales and procurement.
- If you uncover past bribery or laundering, take legal advice promptly on reporting it. In Amec Foster Wheeler, the board’s earlier decision not to report a lawyers’ risk report on corruption was strongly criticised by the court, and similar misconduct soon recurred.
- Document every step you take. If the authorities later investigate historical conduct, this record will show that the new owners acted responsibly.
What the courts have said
CASE SPOTLIGHT Lau Yong Ying v The Bank of Punjab & Ors [2018] 4 MLJ 88 (Court of Appeal) |
What happened: Three Pakistani nationals who had allegedly defrauded the Bank of Punjab fled to Malaysia. The police froze a house in Country Heights bought by one of them, and the Public Prosecutor issued a Notice of Seizure under AMLA, but the Land Registrar never endorsed it on the title. The original vendors then sued the buyer for the unpaid balance of the price, obtained judgment and auctioned the house. Mr Lau bought it at the auction for RM3.51 million, was registered as owner, had the registrar’s caveat removed and charged the property to Alliance Islamic Bank. By then, the High Court had already ordered the property to be vested in the Bank of Punjab. What the court decided: The Court of Appeal held that every dealing with the property after the Notice of Seizure, including the vendors’ judgment, the auction sale, Mr Lau’s registration and the bank’s charge, was null and void under section 54 of AMLA. The registrar’s failure to endorse the notice did not invalidate the seizure, and the removal of the caveat was irregular. Mr Lau’s argument that he was a bona fide purchaser for value with indefeasible title failed, because his title came through void instruments. The Bank of Punjab was registered as owner. Why it matters to you: Paying full price and getting your name on the title is not enough if the property was already seized. A buyer and a lender both lost out. Before buying land or a company that owns land, look beyond the title search and get written confirmation that no AMLA seizure or freezing order exists. |
CASE SPOTLIGHT Public Prosecutor v Mediaedge: Cia Malaysia Sdn Bhd [2020] MLJU 1529 (High Court, Kuala Lumpur) |
What happened: A media agency was engaged by a client to plan and buy advertising space. It invoiced the client RM4,631,602 and, at the client’s request, collected a cheque which, it later emerged, had been drawn on the personal account of the then Prime Minister. The court accepted that this account held proceeds of unlawful activity linked to 1MDB. More than five years later, the MACC froze and seized the agency’s bank account and applied to forfeit the same sum under section 56 of AMLA. What the court decided: The High Court refused forfeiture. The agency showed, with invoices and payment records, that it had used the money to pay media owners for the advertising it had bought, and that the balance in its account came from other customers. The prosecution’s bare denial was not enough. The court held that the agency had provided services in the ordinary course of its business and was a purchaser in good faith for valuable consideration. It also stressed that section 56 is not a tool to make a party “refund” money it has legitimately spent. Why it matters to you: A business that deals at arm’s length, delivers real services and keeps proper documents can defend itself even when money from a tainted source passes through it. When buying a company, check that its records would stand up in the same way. Note, though, that the agency’s account was still frozen and seized for more than two years before the court ruled. |
CASE SPOTLIGHT Public Prosecutor v Beh Boon Sian & Ors [2019] MLJU 984 (High Court, Kuala Lumpur) |
What happened: Members of a “scratch and win” cheating syndicate had their bank accounts, a bungalow, a Porsche and other items seized. The Public Prosecutor applied to forfeit them. Alliance Bank claimed the bungalow as a bona fide third party because it had financed the purchase and held a registered charge over it. What the court decided: The court refused forfeiture of the respondents’ assets because the prosecution relied on vague references to “suspicious deposits” and failed to trace the money to the unlawful activity. It also found that the bungalow had been bought, and the bank’s loan agreed and charge registered, before the respondent’s involvement in the syndicate began. The bank satisfied all five conditions under section 61(4) and the bungalow was returned to it to deal with under its loan terms. Why it matters to you: Rights acquired through a proper, documented transaction before any wrongdoing began are protected. Timing and paperwork matter. When you buy assets, keep evidence of when and how the seller acquired them and how you paid for them. |
CASE SPOTLIGHT Teh Tek Soon lwn Pendakwa Raya [2015] MLJU 2212 (Court of Appeal) |
What happened: A businessman paid RM5.18 million to a man and his wife who promised to obtain four Drainage and Irrigation Department (JPS) projects for him. The man disappeared, and police found RM1,095,000 in cash buried behind a house he had rented. The businessman claimed the cash as a victim of cheating. What the court decided: His claim failed. In his own police report, he had said the money was an advance for “lobbying” the relevant departments to secure the projects. The Court of Appeal held that paying for lobbying to obtain Government projects in this way was a serious offence under AMLA’s Second Schedule, and inferred a lack of good faith. He could not show that he did not know the money would be used unlawfully, and the cash was forfeited to the Government. Why it matters to you: Money paid to fixers to win Government business is at risk of being lost entirely, and the payer cannot hide behind being a victim. If a target company has made such payments, both the money and the contracts may be tainted. |
Other lessons from the cases
Clean contracts do not clean dirty capital: Public Prosecutor v Tarek Obaid & Ors [2026] 1 MLRH 528 and [2025] MLJU 1018. In proceedings linked to 1MDB and PetroSaudi, the High Court granted an order prohibiting dealings with funds held abroad. It held that the separate legal personality of companies is not an absolute shield and that a court may look behind corporate structures. A genuine drilling contract did not cleanse the proceeds where the capital used to buy the drilling vessels was traced to misappropriated funds.
Company accounts can be forfeited: Syarikat Semut-semut (M) Sdn Bhd v Public Prosecutor [2021] 5 MLJ 687. The Court of Appeal held that balances in company accounts used for an illegal gold investment and deposit-taking scheme were the subject matter of the offence and could be forfeited. Once the prosecution showed the link, the burden shifted to the companies to show a legitimate source.
Buying distressed assets: Hong Leong Bank Bhd v Ten Jing Enterprise Sdn Bhd [2025] 5 MLRA 534. The Court of Appeal held that a bank breached its duty by releasing seized funds to a liquidator under a winding-up order without the Public Prosecutor first varying or revoking the seizure. Buyers of businesses or assets from liquidators should check whether any AMLA seizure is still in force.
Frequently asked questions
If the bribe was paid before I bought the company, can the company still be charged? Yes. The company is the same legal person after a share sale, so it remains liable for offences it committed before completion. Directors appointed after completion are not deemed liable for those past offences, but they will be exposed if the conduct continues.
Is an asset purchase safer than a share purchase? It avoids taking over the company’s past criminal liability, but the assets themselves can still be frozen, seized or forfeited if they are linked to crime. You must still show good faith, adequate value and reasonable inquiries.
The land search was clean. Am I protected? Not necessarily. In Lau Yong Ying, a seizure that the registrar failed to endorse on the title was still valid, and the auction buyer lost the property. Get written confirmation and carry out wider searches.
Can I rely on the seller’s warranties and indemnity? They help, but they are only worth what the seller can pay. If the seller’s own assets are frozen or forfeited, a retention or escrow of part of the price gives more practical protection.
We found evidence of past bribery after completion. What now? Stop any continuing payments, preserve the evidence and take legal advice promptly on internal investigation and reporting. Acting quickly and transparently is the best way for the new owners to show good faith.
We are buying a small business. Is all this necessary? The depth of due diligence should match the size and risk of the deal, but even a small purchase should include ownership checks, investigation searches, a review of how the business wins work, and proper documentation of the price paid.
Conclusion
An acquisition can bring growth, licences and customers. It can also bring a criminal investigation, frozen accounts, worthless contracts and property that the Government can take away. Under the MACC Act and AMLA, the past follows the company and tainted property follows the asset. The buyers who are protected are those who asked the right questions before signing, paid a fair price to the right person, kept proper records and dealt with problems promptly after taking over.
If you are planning to buy a company, a business or a significant asset, speak to a lawyer before you sign. Our team can carry out corruption and anti-money laundering due diligence, draft protective terms in the sale agreement and help you put adequate procedures in place after completion.
Disclaimer: This article is for general information only and does not constitute legal advice. The law and its application may change, and every case depends on its own facts. Please seek specific legal advice before acting on any matter discussed here.
Keywords: buying a company Malaysia due diligence, acquisition due diligence corruption, anti-money laundering due diligence M&A, share purchase vs asset purchase risk, section 17A MACC Act successor liability, inherited bribery liability, AMLA seizure of business section 52, dealing with seized property void section 54, bona fide purchaser AMLA section 58, good faith purchaser forfeiture, Lau Yong Ying v Bank of Punjab, Mediaedge forfeiture case, frozen company accounts acquisition, beneficial ownership check, warranties and indemnities sale and purchase agreement, beli syarikat rasuah pengubahan wang haram
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