Crime & Courts

Criminals using pyramid schemes to cheat Malaysians

KUALA LUMPUR: Criminals are now using pyramid schemes as a platform to deceive Malaysians by offering special applications which supposedly facilitate member spending.

Pyramid schemes are among four methods used by financial criminals to carry out money laundering activities, alongside using mule accounts, fake business documents, and creating front companies and shell companies, said Domestic Trade and Consumer Affairs Ministry enforcement director-general Datuk Azman Adam.

He said this was done to evade detection and action under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLATFPUAA 2001).

Azman said pyramid scheme organisers typically offer various additional benefits to attract members, such as purchasing goods using reward points or specific packages.

"Investors are usually more confident with the use of current application technology, while these schemes operate without any legitimate economic activity, requiring participants to recruit new members to earn profits.

"This leads to a multi-level fraud chain, where new members are deceived into believing they will earn significant profits, whereas, in reality, they will ultimately lose money," he told Berita Harian.

Azman added that pyramid schemes are also suspected to be used as tools for money laundering, allowing organisers to erase financial traces from authorities.

"Funds obtained from criminal activities like drug trafficking or other frauds can be laundered through pyramid schemes, making them appear as legitimate income.

"Financial exploitation occurs in these schemes when victims are asked to make large investments with unrealistic return promises. When the scheme fails, investors face significant financial losses," he said.

He noted that pyramid schemes not only cause financial losses to individuals but also threaten economic stability and contribute to various financial crimes in the country.

Azman also mentioned a rising trend in the opening of investigation papers involving the Anti-Money Laundering Act (AMLA) by the ministry since 2016.

In 2016, 10 investigation papers were opened, followed by four in 2017, nine in 2018, 12 in 2019, four in 2020, eight in 2021, nine in 2022, 15 in 2023, and two in 2024.

"Based on enforcement statistics for actions taken under AMLA from 2021 to 2024, the ministry has seized RM18,537,017.89, in vehicles, cash, movable assets in financial institutions such as bank accounts, and immovable properties like buildings.

"An amount of RM29,428,426.86 has been frozen under AMLA by the ministry from 2021 to 2024, which includes movable assets like vehicles and immovable properties in financial institutions, namely bank accounts," he said.

He said in addition to pyramid schemes, the ministry has detected at least three other methods used by financial criminals to erase financial traces from authorities.

Through mule accounts, criminals primarily use other individuals' bank accounts to conduct financial transactions.

"Criminals create fake business documents, such as invoices, to prove that business transactions are legally valid.

"Additionally, we have detected them creating various companies with different roles and purposes, especially in the context of business and finance.

"Front companies are used to disguise illegal operations or hide the true owners, operating as if they are running legitimate businesses to mislead authorities or third parties.

"Shell companies are legally established but do not have real business operations, assets, or employees. They are often used for specific financial purposes," he said.

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