Section 420 Cheating and AMLA

Scammed and Frozen: How a Section 420 Cheating Report Can Lead to Frozen Accounts and Forfeited Assets

When a cheating complaint under the Penal Code becomes a money laundering matter under AMLA

Most Malaysians know Section 420 of the Penal Code as the “cheating” section. It is the provision usually cited in police reports on online scams, fake investment schemes and dishonest business deals.

Fewer people realise what can happen after a cheating report is lodged. The investigation does not always stop at the criminal case against the cheater. It can extend to the money trail under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA, Act 613).

Once AMLA is engaged, bank accounts can be frozen and cars, houses and cash can be seized. Those assets can even be forfeited to the Government without anyone being charged in court.

This article explains how that link works, using recent Malaysian cases.

Why a cheating case can become a money laundering case

AMLA is built around a list of “serious offences” set out in its Second Schedule. Cheating under Section 420 of the Penal Code is one of them, as the High Court noted in Public Prosecutor v CPO Resources & Ors.

Three definitions in section 3 of AMLA do the rest:

• Unlawful activity: any activity that amounts to a serious offence is an “unlawful activity”.
• Proceeds of an unlawful activity: any property derived or obtained, directly or indirectly, from that unlawful activity. This includes property acquired with such money, and property that can reasonably be believed to fall within that description.
• Money laundering: under section 4(1), it is an offence to engage in a transaction involving such proceeds. The section also covers receiving, possessing, transferring, converting, using, concealing or moving the proceeds into or out of Malaysia.

On conviction, the penalty is imprisonment of up to 15 years and a fine of at least five times the value involved or RM5 million, whichever is higher.

In plain terms, the scammer who spends the money is not the only person at risk. Anyone who receives, keeps or moves the money may also fall within the wording of section 4(1). This includes a person who allows others to use his or her bank account to receive transfers, commonly called an “account mule”.

AMLA also allows a person to be convicted of money laundering even though no one has been convicted of the underlying cheating offence. This point was discussed in our earlier article on predicate offences and the Syed Saddiq decision.

The tools available after a police report

Once an investigation begins, AMLA gives the authorities several powers:

• Freezing any property of the person under investigation (section 44).
• Seizing movable property such as cars and cash (section 45).
• Seizing money held in banks by order of the Public Prosecutor (section 50).
• Seizing land and buildings (section 51).
• Forfeiting the property to the Government, either after a prosecution (section 55) or without any prosecution at all (section 56).

For forfeiture without prosecution, the Public Prosecutor must apply to the High Court within 12 months from the date of seizure or freezing. The court decides on the civil standard of proof, meaning whether it is more likely than not that the property is proceeds of an unlawful activity.

Case 1: Public Prosecutor v CPO Resources & Ors [2019] MLJU 756 (High Court, Kuala Lumpur)

The facts

This case shows how a Section 420 scheme can end with luxury assets forfeited. The prosecution alleged that a “crude palm oil investment” was in fact a money game run by one man. By the time of the application, 188 police reports had been lodged about the scheme.

Investor money was paid into company and agent accounts, withdrawn in cash and handed to him. It was then used to buy three houses, a boat and a fleet of luxury vehicles, including a Lamborghini, a Bentley and two Porsches. Several of these assets were registered in the names of his family members.

The Public Prosecutor applied under section 56 to forfeit the cash, bank balances, vehicles and properties, although no money laundering charge had been brought.

The decision

The High Court allowed the application. Key points for readers:

• Police statements under the CPC could not be used. Statements recorded under section 112 of the Criminal Procedure Code could not be used against the respondents in the AMLA proceedings. The court was concerned that there was no mechanism in these proceedings to test whether such statements were made voluntarily.
• Statements under AMLA itself were admissible. Statements recorded under section 32 of AMLA were admissible because section 40 of AMLA expressly allows them.
• Investigating officers’ affidavits were not hearsay. Affidavits from investigating officers that were based on their own investigation were accepted as evidence.
• The “money trail” was enough. The main figure had been bankrupt since 2008 and could not show any other lawful source of income. The court therefore inferred that the assets were bought with scheme money.
• Assets in relatives’ names were not protected. Registering assets in relatives’ names did not save them. One relative produced company accounts and claimed an inheritance, but the court was still satisfied that the properties were purchased by the main figure.
• Timing was measured from the AMLA seizure or freeze. The 12-month period ran from the date of the AMLA seizure or freezing, not from an earlier confiscation during the cheating investigation.
• The right to property was not breached. Forfeiture under AMLA did not breach Article 13 of the Federal Constitution because AMLA is a specific law that authorises the deprivation.

Case 2: Rosli bin Dahlan v IG Tan Sri Razarudin & Ors [2024] 11 MLJ 381 (High Court, Kuala Lumpur)

The facts

This case shows the other side of the coin. It concerns what happens when a Section 420 report is used against someone with no connection to it.

A police report had been lodged by one company against another over a 2018 transaction and classified as cheating under Section 420. A senior lawyer, who had only acted as counsel for one of the parties in other court cases, was arrested and remanded. His bank accounts were frozen and he was barred from leaving the country.

He was not a shareholder, director or employee of the company complained of. He was first questioned eight days after his arrest.

The decision

The High Court granted him leave to challenge these actions by judicial review. At this leave stage, the court made several strong observations:

• The police appeared to have linked him falsely to a report that had nothing to do with him.
• “Freeze first, investigate later” is contrary to section 44. A freezing order can only be made where there are reasonable grounds to suspect a money laundering offence, or that the property is proceeds of unlawful activity. The investigating officer must be clear on who the target is and what offence is being investigated.
• A travel ban under section 44(4)(c) must form part of a freezing order. It cannot stand on its own.
• Lifting the freeze did not make the challenge academic. The police had lifted the freeze and the travel ban after he went to court, but their legality remained a live issue.

The lawyer’s separate attempt to challenge a later seizure order over his unit trust funds was refused in Rosli bin Dahlan v Datuk Ahmad Terrirudin Mohd Salleh & Ors [2024] MLJU 2636. The court held that he had not alleged any bad faith on the part of the deputy public prosecutor who issued it. It added that the court should rarely interfere while an investigation is still ongoing.

What about the victims?

Victims of cheating naturally want to know whether frozen or forfeited money can come back to them. Two cases give some guidance.

Getting assets back: Lau Yong Ying v The Bank of Punjab & Ors [2018] 4 MLJ 88 (Court of Appeal)

Three foreign nationals allegedly defrauded a Pakistani bank and fled to Malaysia. The police froze and seized their assets, including a house in Country Heights. The High Court later forfeited the house and vested it in the defrauded bank.

In the meantime, the original sellers of the house had sued the buyer for the unpaid price and auctioned the house. It was sold to a third party, who then charged it to another bank.

The Court of Appeal held that once property is seized under AMLA, any later dealing with it is void. This includes lawsuits and auctions. It remains void even if the land office failed to endorse the seizure notice on the title. The auction buyer lost the house to the defrauded bank.

The lesson is twofold:

• For victims: forfeited property can be directed to the party who was defrauded.
• For buyers: always check whether a property is subject to an AMLA order before buying, even at an auction.

When “victims” are treated as participants: Lim Long Yew & Ors v Public Prosecutor [2017] 9 MLJ 787 (High Court)

This case involved an illegal deposit-taking scheme, also a serious offence under AMLA. Several investors tried to claim back money from the forfeited accounts as innocent third parties under section 61.

They failed. The court held that the five conditions in section 61(4) must all be met. Investors who had bought and resold products for profit, and who had their own “downlines”, were treated as having taken part in the scheme. Checking only the Bank Negara website was not enough to show reasonable care.

Our earlier article on the five conditions under section 61(4) discusses this in more detail.

Practical lessons

• Victims should lodge a police report quickly and give full transaction details. Freezing and seizure depend on the authorities being able to trace the money.
• Never allow others to use your bank account to receive or move money for them. Receiving and holding the proceeds of cheating can itself fall within the money laundering offence.
• Keep records of lawful income. In CPO Resources, the absence of any other income source weighed heavily against the respondents.
• Registering assets in a spouse’s or child’s name does not shield them if they were bought with proceeds of unlawful activity.
• Buyers of property and vehicles should carry out searches before paying, particularly at auctions.
• If you are wrongly linked to a cheating report, seek legal help early. AMLA powers must be used for proper purposes, and the courts will look closely at allegations of bad faith.