Mr. B is a long-standing customer of the law firm, refers a friend, Ms. A, a foreigner who just entered the property business in Malaysia. Ms. A needed a lawyer to advise her while also being the director and company secretary to her newly-formed company, Company ABC.

A few days later, Ms. A transferred RM2 million into the firm’s client account and called the lawyer to inform that the money was for the fees for the work they will need the firm to do in the next few months. Ms. A also said they have not opened a bank account but plans to do so later.

Over the course of 2 months, Ms. A made 16 property purchases in the secondary market using her personal funds, without any financing from banks. The sale and purchase agreement, however, was made on Company ABC’s name and not her own. The properties were located in run down parts of Kuala Lumpur and some were in bad shape. All the properties amounted to RM2.8 million. Later on, she immediately sold off the properties at a significantly higher price of RM8.5 million despite making no renovations on any of the properties, to the lawyer’s knowledge. These purchases also did not involve financing.

10 properties were sold to Company E for RM6.0 million
5 properties were sold to Company F for RM2.0 million
1 property was sold to Company G for RM0.5 million

In consolidating the payment, an account clerk at the law firm found that some of the payments were made through cash deposit machines from multiple states and that certain bank transfers were from individuals or companies who have no clear relationship with Companies E, F or G. The clerk grew suspicious and discussed the matter with the Compliance Officer (CO). The CO was unsure of what to do and left the situation unattended.  

The sale and purchase of all 16 properties were completed and the proceeds from the sales were transferred to Company ABC’s newly opened bank account after deducting the lawyers’ fees. Despite the successful sale of the properties, one month later, Ms. A informed that they are closing down their operations in Malaysia and instructed the lawyer to wind up the company. She requested for the excess payment from the initial RM2 million minus whatever fees to be transferred to a foreign company, which she says is her main company.

A few months later, news broke that Ms. A has been charged with money laundering of drug proceeds in her home country.

What are the red flags in this case?

• Substantial upfront payment to the firm for future work
• The speed at which the transactions were done (bought and quickly sold)
• The sale of goods at a premium or inflated price
• Cash payment made into lawyer’s client account from multiple locations
• Involvement of multiple third parties without a clear reason / relationship

What risk is the reporting institution facing in this situation?

• Criminals abusing the lawyer’s clients account as a place to ‘park’ their illegal money
• The firm may be unknowingly facilitating transfer of illegal money from one party to another
• Reputational risks to the firm
• Regulatory or criminal sanctions for not properly conducting customer due diligence (CDD) and not submitting a suspicious transaction report (STR)

What should have been done in this situation?

• Conduct CDD and risk assessment before engaging with a customer.
• Establish a list of red flags and share with the firm’s staff to help them to identify potentially suspicious transactions.
• Formulate policies to guide staff on how to report any suspicious transactions they may encounter.
• Appoint a compliance officer with the appropriate skills, knowledge and experience.
• CO needs to assess whether STR need to be submitted to Bank Negara Malaysia (BNM).

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Mr. A is a high-ranking government official who is also Chairman for X Charity. X Charity maintains a current account at a local bank, with Mr. A as the sole signatory.  His wife, Mrs. B is housewife and hold a few credit cards under her husband’s accounts. The cards were actively used for travelling, purchasing luxury goods and staying at expensive hotels overseas.

Mr. C is a newly appointed compliance officer who is well experienced in anti-money laundering and countering financing of terrorism (AML/CFT). Mr. C took over the position that has been vacant for quite some time. While reviewing transaction reports from his officers, he noticed irregularities as follows:

• Mr. A’s credit cards were paid by X Charity;
• frequent cash deposits from various locations below the value of cash threshold reporting requirements from X Charity’s bank account; and
• multiple large cheques deposited into the account from various entities without reasonable justification.  

Before Mr. C completed his assessment, he received Orders from law enforcement agencies to produce X Charity’s statement of account. Mr. A was subsequently charged with multiple counts of criminal breach of trust, money laundering and abuse of power.   

What are the red flags in this case?

• Single signatory for X Charity
• Payment of credit card by a charity organisation
• Frequent cash deposits from various locations
• Large cheques deposited from various entities
• Spending behavior does not commensurate with the income

What risk is the reporting institution facing in this situation?

• Criminal abusing the bank to penetrate illegal proceeds into the financial system
• Reputational risks to the bank
• Fines for not implementing adequate AML/CFT Compliance Programme including failure to submit STR.  

What should have been done in this situation?

• Put in place effective compliance programme.
• Appoint a compliance officer who has knowledge and expertise in AML/CFT
• Establish red flags and ensure trainings are provided to relevant employees.

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