As we usher in the new Malaysia and the revival of Rule of Law, we hear of scandal after scandal being disclosed as the new government assume the reins of power. The new cabinet ministers are no doubt working hard with rolled sleeves to manage the country and restore it to financial health.

Reports have surfaced that Malaysia’s 1MDB debacle and scandals will have “Enron” like consequences for the accounting firms unlucky to have been embroiled in 1MDB’s financial audit.

Apart from the duty of disclosure of auditors, even more fearsome is the duty to report suspicious transactions under Section 14 of the Anti Moneylaundering And Anti Terrorism Financing Act (AMLA). Reporting institutions include accountants, lawyers, investment bankers and company secretaries.

“Suspicious transaction” refers to any transaction (including attempted or proposed), regardless of the amount that:

  1. appears unusual;
  2. has no clear economic purpose;
  3. appears illegal;
  4. does not commensurate with the customer’s profile or business activities;
  5. involves proceeds from an unlawful activity; or
  6. indicates that the customer is involved in money laundering or terrorism financing activities.

For accountants, lawyers, investment bankers and company secretaries working on those past 1MDB transactions as well as other dubious transactions in the newly unveiled scandals, failure to report suspicious transactions will result in disastrous consequences such as a fine not exceeding RM1 million or imprisonment of not more than 3 years or both. For continuing offences of non reporting of suspicious transactions, additional fines of RM3,000 per day or part thereof is payable.

The duty to report suspicious transactions apply to attempted or proposed transactions. Even if the transaction did not proceed, the duty to report persist. In April 2018 in Singapore, a managing director of a law firm was fined S$10,000 for failing to report a suspicious transaction even though the transaction was aborted: See https://www.todayonline.com/singapore/law-firm-director-fined-s10000-not-reporting-suspicious-sentosa-cove-property-deal

Earlier in this month of July 2018, a US bank and brokerage firm settled a civil penalty of USD2.8m for failure to report suspicious transactions involving their terminated investment advisers who it knew were engaging in suspicious transactions that violated its internal policies and were a risk to its customers : See https://economia.icaew.com/en/news/july-2018/charles-schwab-settles-over-suspicious-transactions

Soon, new corporate leaders will assume their responsibilities in government linked companies (GLCs) and the commercial and business entities they own. They will need to undertake a corporate compliance health check to determine if there are any past mismanagement and misdeeds.

Failure to report suspicious transactions is a continuing offence for which they are indirectly accountable. While Directors and management may not fall under the definition of Reporting Institutions, the company secretary is under a duty to report suspicious transactions and will no doubt bring it to the directors and management’s attention.

Failure to act in the interests of the company will expose directors to liabilities for breach of directors’ duties. The management will also be exposed to liabilities for breach of employment contract for failure to act in the interests of the company.

Posted by Jeff Leong

I am the senior partner of Messrs Jeff Leong, Poon & Wong, Malaysia and a Consultant at Justlaw LLC, Singapore. I am also actively serving with the Law Association For Asia And The Pacific (LAWASIA), the peak body for national bar associations and law societies in more than 40 jurisdictions in the Asia Pacific region as Chair of the Corporate, Securities & Investment Law and Co Chair of the Belt And Road Initiative Standing Committees. I lead a Special Projects team, structure and run complex M&A deals, resolve critical problems faced by clients such as crisis management, regulatory investigations, shareholder fights and board tussles and advise founders, business owners and senior management on business transactions. With numerous IPOs and M&A deals over 30 years, I am often consulted by clients in Shipping and Logistics, Technology and Digital Economy, Oil & Gas and other heavily regulated industries on complex, urgent and critical matters. I founded JLPW in 1999 during the 1997 Asian Financial Crisis with 2 other founders. We were deep into corporate rescues and mergers of banks, insurance companies and stockbrokers to resuscitate the bleeding Malaysian economy, working on some of the major corporate rescues of the 1997 Asian Financial Crisis. Affiliations with Deacons Graham & James 2001- 2012 and Dacheng (now Dentons China) 2012-2016 quickly followed. In 2012, we founded JLPW CROSSBORDER ASIA, a regional law firm network. In JLPW, we developed the current due diligence system adopted and used by industry participants in capital markets transactions in 1999. I am currently drafting sections of a new Due Diligence Guide for Malaysia with investment bankers, accountants, capital market lawyers and other industry participants. I currently lead our Japan Services Group, assisting Japanese companies venturing into Malaysia and South East Asia with market entry strategies, M&As and post merger integration advisory together with our Japanese speaking team. I am also leading our China Services Group and regional JLPW Belt and Road Services Group assisting Chinese companies investing and undertaking Belt and Road projects in Malaysia and other ASEAN countries. As leader, strategist, chief talent scout, builder and problem solver, I have initiated and developed various practice groups in JLPW and am now leading our Legal Tech initiatives to better support our clients in the new Digital Economy.

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