Innocent Third Parties Section 61

Protecting Innocent Third Parties: The Five Conditions Under Section 61(4)

When the Government seeks to forfeit property under the anti-money laundering law, banks, buyers, creditors, investors and even victims can come forward to claim it. But the law sets five demanding conditions, and many genuine claimants have failed to meet them.

Introduction

Money laundering rarely involves only the wrongdoer. A fraudster’s house may be charged to a bank. His car may have been sold to an unsuspecting buyer. His company may owe money to suppliers, landlords and lawyers. The investors or customers he cheated may be looking for a way to get their money back. When the authorities seize and then seek to forfeit his property, all of these people may have something at stake.

Section 61 of the Anti-Money Laundering, Anti-Terrorism Financing, Anti-Restricted Activity Financing and Proceeds of Unlawful Activities Act 2001 (Act 613), commonly known as AMLA, is the provision that protects them. It states that the forfeiture provisions apply without prejudice to the rights of bona fide third parties, and it sets out a procedure for them to come forward. But to get property back, a claimant must satisfy all five conditions in section 61(4). As the cases show, that is far harder than many claimants expect.

This article explains how section 61 fits into the forfeiture process, the procedure for making a claim, each of the five conditions and how the courts have applied them, and what claimants should do to give themselves the best chance of success.

Where section 61 fits

AMLA provides two main routes to forfeiture. Under section 55, property may be forfeited in connection with a prosecution for money laundering or a related offence. Under section 56, the Public Prosecutor may apply to the High Court for forfeiture even where no one is prosecuted. Both sections are expressly made subject to section 61. Section 56(2)(b) also requires the court to be satisfied that there is no purchaser in good faith for valuable consideration before forfeiting property.

The stakes are high. Once property is forfeited, section 58 vests it in the Federal Government free from the rights, interests and encumbrances of any other person, with one exception: an interest held by a purchaser in good faith for valuable consideration that is not otherwise void under the Act. A creditor or lender who does not come forward, or whose claim fails, may lose its interest entirely.

Section 61 has four parts.

Section 61(1) provides that the forfeiture provisions apply without prejudice to the rights of bona fide third parties.

Section 61(2) obliges the forfeiture court to have a Gazette notice published, inviting anyone who claims an interest in the property to attend court on a specified date and show cause why it should not be forfeited.

Section 61(3) allows the court or an enforcement agency to infer that a third party lacked good faith from the objective circumstances of the case.

Section 61(4) requires the court or enforcement agency to return the property to the claimant when it is satisfied of five conditions.

The procedure: when and where to claim

The Gazette notice

The notice in the Gazette is the formal invitation to third parties. It identifies the property and the date on which claimants must attend. Anyone with an interest in property that is the subject of forfeiture proceedings should watch for such notices and respond by the date given.

The courts have treated the notice as essential. In Pendakwa Raya lwn Taiko Fertiliser dan lain-lain [2019] MLJU 88, the Public Prosecutor applied for the Gazette notice and for forfeiture of bank balances of about RM280,000 and two luxury cars connected with alleged customs offences. The High Court dismissed the forfeiture application on its merits without dealing with the request for the notice. The Court of Appeal held that this was wrong. Because section 56(1) is expressly subject to section 61, and section 61(2) says the judge shall publish the notice, publication is mandatory before a forfeiture order is decided. The court asked how a good faith purchaser could ever be heard if no notice was published, and sent the matter back for the notice to be issued.

The order of events

A later decision took a somewhat different view of the sequence. In Genneva Sdn Bhd v Dato’ Vengadasalam Letchumi Kandan & Ors [2024] 1 MLJ 925, the Court of Appeal held that the Public Prosecutor must first establish that the property is liable to be forfeited. Only then does the court make a preliminary forfeiture order and decide third-party claims, after which the order becomes final. If the forfeiture application fails, the property is not forfeited and there is nothing for third parties to claim under section 61. Their remedy is to bring separate civil proceedings against the owner.

The two decisions can be read together. The notice should be published so that third parties have an opportunity to be heard, but their claims only need to be decided if the property is found to be forfeitable. For claimants, the practical point is to respond to the notice and be ready to prove their claim, while recognising that if the forfeiture fails, they may need to pursue the owner directly.

The right court

Claims must be made in the court dealing with the forfeiture. 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 in respect of property forfeited by a Sessions Court. The High Court held that they should have applied to the Sessions Court first, and the Court of Appeal dismissed their appeal.

The burden of proof

The burden lies on the claimant, not on the Public Prosecutor. The claimant must prove, on the balance of probabilities, that each condition in section 61(4) is satisfied. In Teh Tek Soon lwn Pendakwa Raya [2015] MLJU 2212, the Court of Appeal held that the five conditions must be read conjunctively, which means that all five must be proved. Failure on any one is fatal. The Court of Appeal applied the same principle in Deputy Public Prosecutor v Amar Asyraf bin Zolkepli [2020] 12 MLJ 287, and the Federal Court confirmed it on further appeal in Tetuan Wan Shahrizal, Hari & Co v Public Prosecutor [2023] 4 MLJ 1.

Section 61(3) adds a further hurdle. The court may infer a lack of good faith from the objective circumstances. A claimant’s own explanation of what he believed is therefore not decisive. The court will look at what he did, what he knew or should have known, and whether his account is consistent with his own documents.

The five conditions

The conditions, and examples of where claims have failed, are summarised below. Each is then discussed in turn.

The five conditions in section 61(4) and how the courts have applied them

(a) A legitimate legal interest in the property

The claimant must have a legitimate legal interest in the property itself. The courts have drawn a clear line between an interest in the property and a mere claim against its owner.

In the Amar Asyraf case, a law firm claimed about RM398,700 in unpaid fees out of money seized from a former client whose property the Public Prosecutor was seeking to forfeit. The Court of Appeal held that the firm’s unpaid bills gave it only a personal claim against the client under their contract, not a proprietary interest in the seized property. It drew on a Singapore decision holding that even a judgment creditor does not acquire an interest in its debtor’s particular assets merely by obtaining judgment. The Federal Court upheld this by a majority in Tetuan Wan Shahrizal, holding that illegal property does not become legal by being used to pay legal fees. The firm remained free to sue its client personally.

The same case shows what a legitimate interest looks like. A bank, Public Islamic Bank, also responded to the Gazette notice and claimed a fixed deposit of about RM102,000 and an apartment among the seized property. The High Court allowed the bank’s claim, and the Public Prosecutor did not appeal against that part of the decision. A secured lender with a genuine interest in specific property is in a very different position from an unsecured creditor seeking to be paid out of it.

A successful claim is also illustrated by Hong Leong Bank Bhd v Ten Jing Enterprise Sdn Bhd & Ors and another appeal [2025] 4 MLJ 725. A company responded to the Gazette notice and proved that it was entitled to about RM1.27 million in a seized bank account, and the High Court and then the Court of Appeal ordered the money to be released to it. When it turned out that the bank holding the account had wrongly released the money elsewhere, the company later recovered the sum from the bank itself.

(b) No participation, collusion or involvement

The claimant must show that no participation, collusion or involvement in the offence can be imputed to him. 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. Several investors claimed money in the forfeited accounts. The High Court found that those who had bought and resold the sets for profit, and who had become dealers with their own downlines, had taken part in the scheme. One had built a network of about 10,000 people and held a senior position in the business. Their claims failed.

The lesson for investors is that a person who actively promoted a scheme, recruited others or profited from its structure is unlikely to be treated as an innocent third party, even if he also lost money when the scheme collapsed.

(c) No knowledge of the illegal use

The claimant must show that he did not know, and was not deliberately ignorant, of the illegal use of the property. If he did know, he must show that he did not freely consent to it.

The Teh Tek Soon case shows how strictly this is applied, even to a victim. A businessman paid about RM5.18 million in stages to a man and his wife who promised to help him secure four drainage and irrigation projects from a government department. The couple disappeared, and the police later found RM1,095,000 in cash buried behind a house the man had rented. The businessman claimed the cash, saying he was a victim of fraud and that the money was his.

The High Court and the Court of Appeal rejected his claim. In his own police report, he had said the money was an advance to lobby the relevant departments to ensure the projects were awarded, and that payments to certain parties were to be made discreetly. The Court of Appeal held that paying money to lobby for government projects was a serious offence listed in AMLA, that he had failed to show he did not know the money would be used for an unlawful purpose, and that a lack of good faith could properly be inferred from the circumstances. The inconsistency between his evidence in court, where he described the money as capital for a joint venture, and his police report also counted against him. The cash was forfeited to the Government.

The case is a stark reminder that being a victim is not enough. A person who parted with money for a purpose he knew or should have known was improper cannot use section 61 to recover it.

(d) No transfer designed to avoid forfeiture

The claimant must show that he did not acquire his right in the property from the person proceeded against in circumstances suggesting that it was transferred to avoid eventual forfeiture. This condition guards against wrongdoers passing property to friends, relatives or creditors to keep it out of the Government’s hands.

The Court of Appeal in Amar Asyraf linked this condition to claims based only on bills. It observed that if debts evidenced only by the creditor’s own bills could be paid out of seized property, it would be easy for a creditor and the owner to arrange matters so that the property escaped forfeiture. In Lim Long Yew, the High Court similarly held that paying lawyers’ fees out of money already found to be tainted would be contrary to this condition. Transfers made shortly before or after an investigation began, to connected persons, or on unusual terms, are likely to attract close scrutiny.

(e) All reasonable steps to prevent illegal use

The claimant must show that he did all that could reasonably be expected to prevent the illegal use of the property. This is where many investor claims fail.

In Lim Long Yew, two investors said they had checked Bank Negara Malaysia’s website and the relevant law and found nothing suggesting the business was unlawful. The court held that this was not enough. Given the large sums and the high returns promised, a reasonable investor should have confirmed the company’s status directly with the regulator, in writing or in person. Other investors had made no checks at all, saying there was no need. A supplier who claimed payment for T-shirts supplied to the company also failed, because he knew the company ran a multi-level business and had taken no steps to check whether it was lawful. All of their claims were dismissed.

The practical message is that a person who invests in or deals with a business offering unusually high returns, or operating in a regulated field, is expected to verify its status properly before handing over money.

A different view: the dissent in Tetuan Wan Shahrizal

In the Federal Court, Justice Mary Lim dissented. In her view, the five conditions in section 61(4) apply only where a third party claims the return of property that was seized from it. A third party who merely shows cause why property should not be forfeited, such as a lawyer claiming unpaid fees, should only need to prove good faith and an interest in the property on the balance of probabilities. She considered that the law firm’s good faith had never been challenged, and that a reading which prevented lawyers from being paid would undermine the constitutional right to counsel. That view did not prevail. The majority position, that all five conditions must be satisfied by every third-party claimant, is the law.

Owners and sellers who dealt in good faith

Section 61 is concerned with third parties, but similar considerations can protect owners who received property honestly. In Badan Perhubungan UMNO Negeri Pahang v Public Prosecutor and other appeals [2022] 2 MLJ 572, the Public Prosecutor sought to forfeit money in the accounts of five businesses, including a jeweller and suppliers of textiles, event equipment and T-shirts, which had been paid by cheques drawn on the former Prime Minister’s account for goods and services actually supplied. The Court of Appeal upheld the refusal to forfeit. The businesses had been paid in good faith for valuable consideration in the ordinary course of trade, and there is no general duty on a seller to investigate the source of a customer’s money. The court observed that owners in this position may rely on the same considerations that protect third parties under section 61.

The contrast with Lim Long Yew is instructive. There, a T-shirt supplier was an unpaid creditor seeking to be paid out of money already found to be tainted, and he failed. In the 1MDB-related case, the suppliers had already been paid for genuine goods, and the money was in their own accounts. A seller who has received payment in good faith for goods delivered is in a far stronger position than a creditor who is still waiting to be paid.

When section 61 is not enough: other routes for victims

Victims who cannot satisfy section 61 may still have other remedies. In Lim Ting Chai v Genneva Malaysia Sdn Bhd & Ors and other suits [2026] MLJU 216, customers of a gold company whose directors were convicted of money laundering and illegal deposit-taking sued the company and its directors personally for fraud. The High Court held the directors personally liable to repay about RM2.34 million. The customers had first had to obtain the Public Prosecutor’s consent under section 54(3) of AMLA, because the company’s assets were under seizure. An earlier suit filed without that consent had been declared void.

Claimants should therefore consider their options together. A claim under section 61 targets the seized property itself. A civil claim against the wrongdoer or those behind him may reach other assets, but requires the Public Prosecutor’s consent while the property is seized.

A practical checklist for claimants

Banks and other secured lenders

Monitor the Gazette. Respond to any notice affecting property over which you hold security, by the date stated.

Prove your security and your checks. Produce the loan documents, the security, and evidence of the due diligence carried out when the facility was granted.

Show you acted on warning signs. Records of monitoring and escalation help to satisfy the conditions on knowledge and reasonable steps.

Buyers of property

Keep evidence of a genuine purchase. Sale agreements, proof of payment at a fair price and documents showing how the transaction came about are essential.

Be cautious of unusual deals. A purchase at an undervalue, from a connected person, or around the time of an investigation, may be treated as a transfer designed to avoid forfeiture.

Investors and customers

Verify before you invest. Confirm directly with Bank Negara Malaysia or the Securities Commission that the business is licensed. A website search is unlikely to be enough.

Do not become part of the scheme. Recruiting others or acting as a dealer may mean you are treated as a participant rather than a victim.

Be consistent. Your police report, statements and affidavits should give the same account. Inconsistencies can be fatal.

Unsecured creditors, suppliers and lawyers

Recognise the limits of section 61. An unpaid bill does not give an interest in the seized property. Consider a civil claim against the debtor instead, after obtaining the Public Prosecutor’s consent where required.

Lawyers should arrange fees early. Seek payment from assets that are clearly not under investigation.

Everyone

Claim in the right court and on time. Respond to the notice in the court dealing with the forfeiture, and take advice promptly.

Prepare to prove all five conditions. The burden is on you, and failure on any one condition is enough to defeat the claim.

Conclusion

Section 61 promises that forfeiture will not prejudice the rights of bona fide third parties, and in the right case it delivers. Secured lenders with genuine interests, and third parties who can prove a real entitlement, have recovered property. But the five conditions in section 61(4) are cumulative and demanding, and the burden lies entirely on the claimant. The courts have rejected claims by lawyers with unpaid bills, investors who promoted or failed to check a scheme, a supplier who made no inquiries, and even a victim of fraud who had paid money for an improper purpose.

For anyone with an interest in property caught up in an AMLA investigation, the lesson is to act early, keep careful records and be realistic. The strongest claims are those backed by a clear legal interest in the property, proper checks made at the time, and a consistent account from start to finish. Where section 61 is not the right tool, a civil claim against the wrongdoer may offer a better route.