FORMER prime minister Datuk Seri Najib Razak has been charged with 42 counts of corruption, abuse of power, criminal breach of trust and money laundering in connection with the 1Malaysia Development Bhd (1MDB) scandal. If found guilty, he may face a jail sentence of up to 500 years and fined billions of ringgit.
The Guardian claimed that the 1MDB case is one of the biggest corruption scandals in the world. Moreover, in a civil suit, the US Department of Justice said that more than US$4.5 billion was stolen from 1MDB and the resulting scandal had been responsible for the toppling of the Barisan Nasional government in May 2018.
Najib’s wife, Datin Sri Rosmah Mansor, was also slapped with 19 counts of corruption and money laundering.
Former deputy prime minister Datuk Seri Dr Ahmad Zahid Hamidi is facing 47 charges of criminal breach of trust, corruption, and money laundering involving RM114 million.
1MDB is a serious, extraordinary political and corruption scandal involving top government officials misusing billions of ringgit from a state fund. It is the people’s money. The scandal also affected the economy and tarnished Malaysia’s image. According to Baring Asset Management, the prolonged impact of 1MDB is prompting investors to seek out other markets in Southeast Asia
One of the ways of making dirty money legitimate is through money laundering — a process of converting dirty money so it appears legal. Money is the prime reason for engaging in almost any criminal activity.
This money is smartly cleaned to extinguish its its origin from illegal activities, such as bribery, corruption, drug trafficking, terrorism, fraud, robbery, prostitution, illegal gaming, arms trafficking and cigarette smuggling.
The modus operandi of money launderers is getting more sophisticated and once the money is “cleaned” it’s difficult to detect it. Money launderers and white collar criminals are generally educated, smart, egoistical, and risk takers. The ultimate goal is to get the “dirty money” into the financial system using various techniques.
In criminology rational choice theory, people generally act in their self-interest and make decisions to commit a crime after weighing the means and ends, costs and benefits and the potential risks, including getting caught and punished, against the reward.
But money laundering is a multi-billion dollar business. According to PwC’s Global Economic Crime Survey 2016, global money laundering transactions are estimated to amount to two to five per cent of the global gross domestic product, or roughly US$1 trillion to US$2 trillion annually. Yet, based on the United Nations Office on Drugs and Crime, less than one per cent of global illicit financial flows are seized by the authorities.
In Malaysia, the police’s Commercial Crime Department reported that “any criminal activity that generates significant profit creates a need for money laundering.
Organised crime and financial crime together cost the country between RM15 billion and RM25 billion per annum”.
It is interesting to note that the first person in Malaysia to be prosecuted for money laundering was a woman. Dr Hamimah Idruss, a former director of Syarikat Safire Pharmaceuticals Sdn Bhd, was charged under the Anti-Money Laundering Act 2001 with receiving RM41.3 million in illegal gains between June 3 and 10, 2003. Dr Hamimah was found guilty and sentenced to 38 years in prison and fined RM6.39 million on eight counts of money laundering and 10 counts of abetting charges.
How is illegal money cleaned? There are three steps. The first is placement and is considered the most difficult. The money launderers will try to place the ill-gotten proceeds in legitimate financial institutions. Once the funds are introduced into the financial system, the next step is layering. This process occurs when the money is separated from the illegal funds obtained from the original sources. The launderers will create complex layers of financial transactions to make sure the links between them and the illegal money cannot be traced. They will normally make bank-to-bank fund transfers, especially to different accounts under different names and in different countries.
Next, the property is “washed” and its ownership and source disguised and the final step is known as integration.
Here, the money enters the financial system and is placed back in the economy, appearing to be clean and legally earned funds. At this stage, it is difficult to differentiate between legal and illegal money. The money launderers will purchase expensive houses, hotels, apartments, yachts and other real estate, diamonds and fine art for this purpose.
As part of the investigations linked to money laundering and 1MDB, the police raided three luxury condominiums in Kuala Lumpur said to be owned by Najib and confiscated 284 handbags, Hermes and Birkin brands among them, and 72 luggage bags containing cash of various denominations, watches, jewellery and other valuables.
In tightening the loopholes for money laundering and corruption, effective Jan 1, banks must report any cash transaction exceeding RM25,000 compared with the RM50,000 currently.
Money laundering is a serious crime. It is an offence under Section 4(1) of the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001.
An offender faces imprisonment not exceeding 15 years and a fine of not less than five times the sum or value of the proceeds, or RM5 million, whichever is higher.
As long as the process looks realistic, reasonable and logical, white collar criminals or money launderers will use their creativity to launder money which needs a hiding place. Indeed, money laundering is always needed when there is something to hide. But once the victim is caught and charged, it can mean a lifetime of consequence.
The writer is president of the
Malaysia Association of Certified
Fraud Examiners