AUDIT AND ASSURANCE SERVICES

(AUD689)
CURRENT ISSUES
“MONEY LAUNDERING”
PREPARED BY:

FACULTY OF ACCOUNTING
KAC2208C
GROUP MEMBERS:

NO NAME STUDENT ID
1 FATIN AMEERA BINTI ABU BAKAR 2019722631
2 MUHAMMAD IRFAN BIN AZIT 2019336741
3 NURUL ARNIESHA BINTI RIDHUAN 2019361959
4 NURUL SYAFIQAH BINTI MOHD IDRIS 2019317235
5 NURULAIN SYAFIQAH BINTI SULAIMAN 2019341429
6 FATIN NABILA BINTI AA'LAWI 2019545021
7 NUR ASMAA ATIKAH BINTI MOHD SAAD 2019326567

PREPARED FOR:

DR MOHD FAIZAL JAMALUDIN

SUBMISSION DATE:

31ST JANUARY 2022

TABLE OF CONTENTS

TABLE OF CONTENTS ........................................................................................................................... 1

1.0 INTRODUCTION ........................................................................................................................... 2

2.0 DEFINITION OF MONEY LAUNDERING ................................................................................ 2

3.0 EVOLUTION OF MONEY LAUNDERING ................................................................................ 2

4.0 STAGES OF MONEY LAUDERING ........................................................................................... 4

5.0 ANTI-MONEY LAUNDERING .................................................................................................... 5

6.0 CASES .............................................................................................................................................. 5

7.0 COMMENTARY ............................................................................................................................. 6

8.0 RULES & REGULATIONS ........................................................................................................... 7

9.0 EFFECTS OF MONEY LAUNDERING ...................................................................................... 8

10.0 RECOMMENDATIONS ................................................................................................................ 9

11.0 CONCLUSIONS .............................................................................................................................. 9

REFERENCES .......................................................................................................................................... 11

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1.0 INTRODUCTION
Money laundering is considered as a business transaction that creates an asset or value as
a result of criminal activity. The forms may differ, but illegal activities that serve as feeders
to money laundering have always sought processes to convert their proceeds into usable
assets. Attempts are made to conceal the nature and origin of unlawful income and integrate
it into the financial system without attracting the attention of tax authorities or law
enforcement agencies (Compin, 2008). Money laundering is not a new phenomenon since
it has engrossed policymakers and regulatory authorities for centuries. Authorities will
have a difficult time investigating money laundering cases because they usually include
several parties.

Money laundering is governed by a number of laws. Money laundering legislation is

primarily governed by the Anti-Money Laundering, Anti-Terrorism Financing, and
Proceeds of Unlawful Activities Act of 2001. (AKTA 613 - LAWS OF MALAYSIA). The
Anti-Money Laundering, Anti-Terrorism Financing, and Proceeds of Unlawful Activities
Act 2001 (the AMLATFA) is Malaysia's primary anti-money laundering and anti-terrorism
financing statute. The AMLATFA is federal legislation that applies to all Malaysian states
and federal territories.

2.0 DEFINITION OF MONEY LAUNDERING

Money laundering is the process of concealing the origins and ownership of money or
assets obtained through illegal activity. The money launderer wants dirty money from drug
smuggling, human trafficking, criminal offenses, gambling, smuggling, and other illegal
activities to appear as legitimate money.

3.0 EVOLUTION OF MONEY LAUNDERING

3.1 The Ancient China Era

The wealthy Chinese merchants laundered their profits because the regional governments
banned many forms of commercial trading. Merchant operations are viewed with distrust

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 by the government because they are thought to be ruthless, selfish, and operate under other
norms. A significant portion of merchants' earnings came from black marketing, extortion,
and bribes. The merchants who stayed unnoticed were able to preserve their wealth safe
from bureaucrats' constant extortion. As a result, they adopted strategies such as turning
money into conveniently moveable assets and moving cash out of the jurisdiction to invest
in the business. Many money launderers still utilize this strategy.

3.2 The Prohibition Era

According to history, the word "money laundering" was originated in the United States
during the prohibition era in the 1920s. In the United States, organized criminals became
heavily involved in the lucrative alcohol smuggling industry, and in order to legalize their
gains, they began mixing their revenues with those from legislative activity. However,
according to Robinson, the word was first used in relation to the Watergate crisis in 1973.
He claims that, regardless of its origin, this example exactly illustrates money laundering.
In that scenario, dirty or illegal money was put through a series of transactions, with the
money appearing clean or lawful at the other end.

3.3 The 21st Century Era

Upon the start of the 21st century, money laundering started to take a different approach as
the world started witnessing the introduction of technology and the internet and therefore,
a new facilitator for money laundering became available. The term "transaction
laundering" has been used to describe the new face of merchant fraud. The usage of
alternative payment methods, which aid in hiding and anonymity, provided a glimpse into
this. With cases like prepaid gift card smurfing, where an amount of laundered money is
separated and parceled into multiple cards, traditional techniques were changed and fused
with modern ones. Transaction monitoring is not triggered since these are regarded to be
of low value. The development of E-Business has resulted in an increase in the hiding of
funds through the use of electronic currencies that hold a lot of data. As a result, rising
trends are incorporating traditional approaches while incorporating modern features.

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4.0 STAGES OF MONEY LAUDERING
The stages of money laundering usually consist of three steps which are placement,
layering, and integration. It is vital to ensure that these three steps of money laundering
frequently overlap in practice. There is no requirement for the unlawful funds to be 'placed,'
as there is in some cases of financial crimes.

4.1 PLACEMENT

The first stage of money laundering is called 'placement,' and it involves putting 'dirty'
money into legal, financial systems. Financial thieves relocate illegally obtained monies
from their source after obtaining them through theft, bribery, and corruption. This is where
criminal funds are 'washed' and concealed by transferring them to a lawful financial system,
such as offshore accounts.

4.2 LAYERING

'Layering' refers to the second stage of the money laundering process. This is a complicated
network of transactions used to get money into the financial system, which is frequently
done using offshore methods. Criminals make it difficult for authorities to discover money
laundering once the monies have been placed in the financial system. They do this by
strategically layering financial transactions and dishonest bookkeeping to obscure the audit
trail. The money laundering process involves a substantial amount of layering. Its goal is
to create many financial transactions to hide the illegal monies' original source and
ownership.

4.3 INTEGRATION

'Integration' is the third stage in money laundering. The so-called "dirty" money is now
being absorbed into the economy. The cash will be absorbed back into the legitimate
financial system as 'legal' tender once the 'dirty' money has been placed and stacked. To
establish a plausible explanation for where the money came from, integration is done
extremely carefully from authentic sources. This money is then returned to the offender
who appears to have obtained it from a legitimate source. It is difficult to tell the difference
between legal and unlawful money at this point. The money can be used without being

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 discovered by the launderer. If there is no documentation to utilize as proof from the
preceding stages, catching the perpetrator is extremely difficult.

5.0 ANTI-MONEY LAUNDERING

Legislation money laundering is primarily regulated by the Anti-Money Laundering, Anti-
Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLATFA) (AKTA
613 - LAWS OF MALAYSIA).

Under Section 613, in order to protect the forfeiture of property involved from money
laundering and terrorism financing offences, Anti-Money Laundering, Anti-Terrorism
Financing and Proceeds of Unlawful Activities Act 2001 had provided and act for the
offence of money laundering, the action has taken to prevent the money laundering and
terrorism financing offences, investigation powers and the loss of property involved in
money laundering and terrorism financing offences, as well as terrorist property, proceeds
of an illegal activity and instrumentalities of an offence.

As a strategy to fight money laundering, auditors have been introduced as an enforcer of

the laws due to their understanding into company affairs. Auditors might help in
investigating or solving money laundering by following the latest Anti Money Laundering
(AML) guideline for the legal industry reinforces regulators’ expectations that businesses
should evaluate whether to create an independent audit function or evaluate if it would
benefit them in any case. Mostly, an AML audit contains a total examination of the
company’s anti-money laundering compliance program document, transactional evaluation
and testing, and AML training evaluation.

6.0 CASES
The Public Prosecutor ("PP") had requested to the High Court to confiscate the respondents'
properties and funds under section 56(1) of the AMLATFA on the grounds that the
properties and monies were proceeds of illicit conduct under section 4 of the AMLATFA.
The PP asserted that the properties and funds were obtained in conjunction with the conduct
of a series of offences under Penal Code sections 409 and 420 ("the predicate offences")
involving four accused people.

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6.1 ISSUES RAISED
Whether the PP (the plaintiff) can forfeit the property confiscated under the AMLATFA or
not?

6.2 ACTION AND DECISION

The four accused people were not charged under section 4(1) AMLATFA. In addition, the
accused were either convicted or had the accusations against them dropped in relation to
the predicate offences.

Kuala Dimensi (the defendant) appealed to the Federal Court, which unanimously denied
the appeal and upheld the Court of Appeal's verdict that the prosecution had failed to
convince the court on the balance of probability of the necessary conditions in Section 56
of the Act and that there was a major shortage and gap in substantial evidence in their case.
The prosecution had failed to specify the nature and degree of the respondents' participation
in the money laundering violation, or to connect the acquisition of the properties to the
predicate conduct.

The Federal Court, on the other hand, directed that the case be remanded to the Court of
Appeal and considered on its merits. A separate panel of the Court of Case considered the
merits of the appeal and rejected it. As a result, the PP filed the current appeal to the Federal
Court against the Court of Appeal's rejection.

7.0 COMMENTARY
The exercise implemented leading to the learned Judge's decision in this case illustrated
that the affidavits in their entirety and agreed with the Court of Appeal's decision that the
prosecution failed to define the nature and extent of the respondents' participation in the
offence of money laundering or linking the acquisition of the Properties to the predicate
offence. As a consequence, the prosecution failed to demonstrate, on a balance of
probabilities, that the Properties seized were obtained as a result of or in connection with
an offence under section 4(1) AMLATFA. Furthermore, the appeal is without substance.
As a result, the appeal was dismissed, and the Court of Appeal's verdict was upheld.

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8.0 RULES & REGULATIONS
The Act has been imposed in Malaysia which is the Anti-Money Laundering, Anti-
Terrorism Financing and Proceeds of Unlawful Activities Act 2001. By having the law and
regulations on money laundering, it can create awareness on how society should act against
money laundering. Society should learn from the cases that have been imposed so that they
would obey the law enforcement by the government.

Under Section 4(1) Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of

Unlawful Activities Act 2001 stated that any person who are: -

(a) engages, directly or indirectly, in a transaction that involves proceeds of unlawful

activity or instrumentalities of an offence;
(b) acquires, receives, possesses, disguises, transfers, converts, exchanges, carries,
disposes of, or proceeds of unlawful activity or instrumentalities of an offence;
(c) removes from or brings into Malaysia, proceeds of unlawful activity or
instrumentalities of an offence; or
(d) conceals, disguises or impedes the establishment of the true nature, origin, location,
movement, disposition, the title of, rights with respect to, or ownership of, proceeds of
unlawful activity or instrumentalities of an offence,

Any person who commits a money laundering offence and shall on conviction be liable to
imprisonment for a term not exceeding 15 years and shall also be liable to a fine of not less
than 5 times the sum or value of the proceeds of unlawful activity or instrumentalities of
an offence at the time the offence was committed or five million ringgits, whichever is the
higher.

Based on the case, the PP had failed to prove the case on the balance of probabilities and
to satisfy that all the essential requirements as provided in s 56(1) AMLATFA had been
established and failed to identify the nature and extent of the participation of the
respondents with the offence of money laundering or linking the procurement of the
Properties to the predicate offences. Consequently, the PP failed to establish, on a balance
of probabilities, that the Properties seized had been obtained as a result of or in connection
with an offence under s 4(1) AMLATFA.

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9.0 EFFECTS OF MONEY LAUNDERING
9.1 The business will doubt the capital sources

Since there is an issue of money laundering in society, the owner of Kuala Dimensi Sdn
Bhd will doubt the capital sources from the investor. Therefore, it is the role of society to
help in giving the information if there is an involvement of money laundering so that the
issue of money laundering can be eliminated. It also helps in giving the awareness to the
society that involving in money laundering could affect the bad reputation towards the
business. The governments also must play their role to improve the anti-money laundering
regulations for a company to comply to create a safe and transparent society.

9.2 Bad Reputation of The Company

Money laundering is an illegal crime that could lead to a bad reputation of the company
and thus, the stakeholder will lose their trust toward Kuala Dimensi Sdn Bhd. The company
might suffer huge losses since it has controversial issues with money laundering. The
company will incur additional costs throughout the process of interrogation. For the worst
scenario, the business might have to close due to the time taken for the authorities to
interrogate and detect the money laundering activities that occurred. Thus, it is hard for the
company to make a comeback in continue running their business as usual.

9.3 Decreasing in the levels of tax revenue

When Kuala Dimensi Sdn Bhd is involved with money laundering, the businesses will not
be as productive as it. This will cause a decreasing in the levels of tax revenue. Since the
revenue of taxes is the most significant shares in the public revenues, if this income is low,
it will have the possibility that public revenue does not meet the public expenditure. Next,
the organisation that launders the money has advantages in selling products for a cheaper
price since their primary purpose is to clean the money. The money launderer usually
invests their ‘dirty money’ in a business so that the government cannot detect the illegal
transaction that the money launderer had done.

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10.0 RECOMMENDATIONS
It is important to have a good investigate support system to assist the law enforcement
agencies during investigation process of money laundering and terrorism financing under
the act. By having an integrated investigation support system will be able to tackle the
difficulties and challenges in the gathering information for combat money laundering
activities. Other than that, a strong rule of law governing financial institutions is an
important requirement for economic growth. For instance, central banks and other agencies
cooperate with each other can reduce financial risks for individual banks and international
financial systems as a whole.

Next, preventive measures for the financial sector and other designated sectors should be
apply to prevent the money laundering and terrorism financing. For example, financial
institutions should be prohibited from keeping any anonymous accounts and should be
required to undertake customer due diligence measures when there is a suspicion of money
laundering or terrorist financing or the financial institution has doubts about the adequacy
of previously customer identification data.

11.0 CONCLUSIONS
The rise in financial crime has resulted in a slew of regulatory reforms to combat the issue.
The technological advancement, as well as connections between criminal organisation and
guardians such as accountants, attorneys, and bankers who are willing to assist in
laundering, has aggravated the challenges confronting law enforcement. The debate over
the effectiveness of regulations in achieving desired goals has put regulators under pressure
to defend their actions in the context of political, executive, and judicial scrutiny. This has
ultimately resulted in risk colonization, or risk playing a critical role in defining the aspects,
methods, and rationale for regulations (Rothstein et al., 2006). However, instances of
regulatory failure have brought up the question of whether regulatory strategies can be
catered to the dynamics of real-world problems in order to counter the issue. To address
the problem, the current circumstances necessitate highly responsive regulation via a

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combination of multiple regulatory instruments (Black and Baldwin, 2010). Collaborative
efforts among nations, as well as cooperation among domestic law enforcement officials
within every nation, is indeed essential in order to stem the massive and rising tide of
laundered organized crime and corruption proceeds. The potent tool of asset forfeiture
should also be used to help support the battle against transnational crime.

(2,677 words)

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11. PP v. KUALA DIMENSI SDN BHD & ORS. (n.d.). Retrieved on January 24, 2022, from
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