Money Laundering in Malaysia

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Part A Explain what is illegally depositing money in a company ( illegal deposits ) or commonly called as money laundering. Explain using an actual example of a Malaysian company found to have conducted illegal money depositing. What sanctions were imposed on those who were caught to have involved in such activities. (20 marks) Money laundering refers to the illegal proceed of drug crime syndicates, terrorist crimes, smuggling or other crimes and the income generated through a variety of means to disguise or conceal the source and nature, it is in the form of legalization behaviour. The most common types of criminals who need to launder money are drugs traffickers, corrupt politicians and public officials. The processes of money laundering are very extensive. Though criminal money can be successful laundered without the help of financial sector, in reality, it can be done through financial institution annually. The nature of services and products offered by financial services industry (managing, controlling and possessing money and property belonging to others) can be easily abuse by money launderers. Money laundering can be done through investing money in legal business, acquisition of assets by paying the necessary taxes and use underground banking ways to transfer the money. Money laundering has been described as a process which takes place in three distinct stages, which are placement, layering and integration stages. At the placement stage, the launderer puts the dirty money into a legal financial institution. It often be done in the form of cash or bank deposits. This stage is the riskiest as large amount of cash can easily bring conspicuous and banks are required to report high-value of transactions. Next, it moves to layering stage. It involves sending money through many types of financial transactions to change its form and make it hard to follow. Layering may consists of several bank to bank transfers, making deposits and withdrawals continually vary the amount of money in the accounts or purchasing high value items such as houses, cars, diamonds and so on to change the form of money. Lastly, at integration stage, the money re-enters the mainstream economy in legitimate-looking form. It can appear to come from a legal transaction. This also involves a final bank transfer into the account of a local business in which the launderer invests in exchange for profit reduction. Thus, the criminal can use its money without getting caught. For understanding why the people committed into money laundering cases, at first, we need to understand why people do crime activities. Crimes are classified into three types which are crime of honour , crimes of violence and economic crimes. Economic crime is the most common crime which happens around the world. This type of crime usually carries out due to two reasons. One of the reasons is to prove to their friends that it is possible to commit in such a crime and still can escape from getting punishment by the Law. Another reason is that it is practically possibly to make more money while getting involved in crime than making money in a legal way in same effort. After making black money, criminals can invest it on another criminal activities to hide it for some time or spend it instantly. Due to these reasons. Criminals can quickly move the money before it will be traced by the investigators. If somehow the money can be put into a black hole, the investigators will lose track forever. The objective of money laundering can be earning the profit by get involving in the crimes. The reason for the creation of offence is that it is wrong for individuals and organizations to help the criminals to gain advantages from the proceeds of their illegal activities or to bring out the commission of such crimes by giving financial services to them. Their aim for money laundering is also can be enabling for them to take control over the proceeds and ultimately, provide for their income and wealth. Examples of Malaysian Company found to have conducted illegal money depositing are AK United Sendirian Berhad and Bestino Group Berhad. Nowadays, money laundering becomes a serious problem today. In view of this, it is the common denominator of predominantly all other criminal acts. It is impossible to relate it with other criminal cases. People tend to hide the sources of the money coming from. Thus, this will cause difficult for the government to track the source of their money. The criminal organizations have implemented money laundering in different countries to gain some benefits from it. . Part B Syarikat Wetwet Sdn Bhd is in the business of producing diapers for children and adults. Ahmad was employed as Managing Director of the company, and undertook not to compete with the business should he leave the company. This restriction was to apply for two years after his departure. In June 2010, Ahmad resigned from the company. He subsequently incorporated another company called Syarikat Ken Ching Sdn Bhd which also operated in the same area carrying out the manufacture of adult diapers. Ahmad was the executive director who officially held 20% of the share with the balance being held by his wife and nephews. Ahmad wished to evade liability by relying on the doctrine of separate legal entity when sued by Syarikat Wetwet Sdn Bhd.

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  1. Advise Ahmad as to his chances of evading liability by using the doctrine of separate legal personality. ( 8 Marks )

According to doctrine of separate legal personality, the company and its members are two separated. This means that Ahmad and Syarikat Ken Ching Sendirian Berhad are distinct entities. Ahmad should follow company law when he establishes a company and registered the company to make it become legal company. By registering a company, it provides a corporate personality to the company. Corporate personality means that in the eyes of Law, the registered company is an independent person or entity which is separate from its members and controllers. The court would not lift the veil in order to find out who actually is liable on the company’s debt. If the Syarikat Wetwet Sendirian Berhad (affected party) wants to sue Ahmad, Syariket Wetwet Sendirian Berhad cannot sues Ahmad because he owns a company but they can only sue Syarikat Ken Ching Berhad. Thus, Ahmad gets protection by law so he does not need to be responsible for it.

  1. One of the main benefits of incorporation is limited liability. Briefly explain the concept of limited liability. ( 2 Marks )

Limited liability is where a person’s financial is limited to the fixed sum, most commonly is the amount of the person’s investment in a company or partnership. For example, if a company with limited liability is being sued, then the plaintiffs will sue the company, not its owners or investors. Shareholders can participate in the growth of company, he or she is restricted to the amount of the investment in the company, even if it subsequently goes bankrupt and racks up millions or billions in liabilities. A shareholder in a limited company is not personally liable for any debts of the company, other than the value of their investment in the company. This usually happens when person’s dividends in the company being zero, since the company has no profit. This same for members of a limited liability partnership and the limited partners in a limited partnership. (c) Describe TWO circumstances when the benefit of limited liability is not available to a company. ( 4 Marks ) When the limited liability is not available to company, the company will become limited liability. Limited Liability Company has a few advantages. They can provide limited liability protection to their owners, who are not typically personally responsible for the business debts and liabilities of the Limited Liability Company. Creditors cannot ask the owners use personal assets such as house, cars and other assets of the owners to pay business debts. Besides that, there are pass-through taxation. Limited Liability Company typically does not need to pay taxes at the business level. Any tax level is paid based on individual level. Forming Limited Liability Company also can help to heighten credibility It can help a new business establish credibility with potential customers because they see you have made a formal commitment to your business. They also have limited management structure. It can be managed by the owners or by managers. (d) A private limited company had been formed in 2005 with two members, Chan and Dick. In January 2006, Chan sold his shares to Dick and left the company. Since then the company had been managed solely by Dick and continued to incur heavy debts. Can Dick be held personally liable for all or any part of the debts of the company? Explain. ( 6 M ) Dick will manage all parts of the debts of company since Chan left his company and sold his shares to Dick. This is because the company is registered under Dick only since Chan leaves his company. If Dick does not want to be responsible for its debts, he can have personality corporation. Thus, he will be separated from company for its liability. Company will take in charge with all its liability and its liability will become limited. Creditors cannot persuade owners to uses his own assets to pay for the debts.T he court will ask the company to responsible for it and owner will not have to pay for any debts which carried by its company.

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Money Laundering in Malaysia. (2017, Jun 26). Retrieved November 29, 2022 , from

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