Tax Evasion Is Money Laundering Offence: It Can Be More Serious Than You Thought!

Q1. Does the Inland Revenue Board (“IRB”) of Malaysia has information about my offshore financial account?

Answer: 

Yes. Malaysia is a participating country in the Automatic Exchange of Information System (AEOI) initiated by the Organization for Economic Cooperation and Development (OECD) which aims to reduce global tax evasion. Under the system, Malaysian tax authorities will automatically receive information from the other participating countries relating to taxpayers’ foreign bank and safekeeping account. Currently, there are more than 100 participating countries in the system such as the British Virgin Islands, Cayman Islands, Sweden, United Kingdom, Australia, Singapore and Hong Kong (China).

Q2. What Account Holder’s information which is subject to exchange under the AEOI System?

Answer: 

The Income Tax (Automatic Exchange of Financial Account Information) Rules 2016 and the Labuan Business Activity (Automatic Exchange of Financial Account Information) Regulations 2018 imposed on Malaysian Financial Institutions (MYFI) the Common Reporting Standard (CRS) to collect and report to IRB financial account information of non-residents. IRB will then exchange this information with the participating countries of those non-residents. Information that is subject to exchange includes name, address, taxpayer identification number, account number, account balance or value as of the end of the relevant calendar year and capital gains (depending on type of account)1.

Q3. Who is an “account holder” under the CRS?

Answer: 

An account holder is a person identified as the holder or owner of the account with the MYFI that maintains the account. “Person” under CRS means an individual, a partnership or a corporation. Only the following 5 categories of Financial Accounts under the CRS need to be reviewed2: –

a. Depository Accounts;

b. Custodial Accounts;

c. Cash Value Insurance Contracts;

d. Annuity Contracts; and

e. Equity and Debt Interests in Investment Entities.

Q4. Is tax evasion an offence of money laundering under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (“AMLATFPUA 2001”)?

Answer: 

Yes. Section 4 of AMLATFPUA 2001 provides that any person who engages, directly or indirectly in a transaction that involves proceeds of an unlawful activity commits a money laundering offence.

Second Schedule of AMLATFPUA 2001 specified the following offences in the Income Tax Act 1967 as a “serious offence” and therefore, constitutes an unlawful activity under Section 4 of AMLATFPUA 2001: –

a. Section 112 Income Tax Act 1967: Failure to furnish return or give notice of chargeability;

b. Section 113 Income Tax Act 1967: Incorrect returns; and

c. Section 114 Income Tax Act 1967: Wilful evasion.

Hence, a tax evader not only committed offences under the Income Tax Act 1967, but also a money-laundering offence under AMLATFPUA 2001.

Q5. What is the penalty for an offence of money laundering under AMLATFPUA 2001?

Answer: 

The penalty for an offence of money laundering is imprisonment for a term not exceeding fifteen years and a fine of not less than five times the sum or value of the proceeds of an unlawful activity or instrumentalities of an offence at the time the offence was committed or five million ringgit, whichever is the higher.

Q6. Can the enforcement agency freeze or seize my property pending the investigation into suspected tax evasion?

Answer: 

Yes. Section 44 of AMLATFPUA 2001 empowers the enforcement agency to freeze the property of a person if an investigation in regard to an unlawful activity has commenced against that person, and there is reasonable ground to suspect that the property is that proceeds of an unlawful activity or the instrumentalities of an offence. A Freezing Order under Section 44 shall expire after 90 days from the date of the order, if the person has not been charged with an offence under the AMLATFPUA 2001.

Further, AMLATFPUA 2001 grants wide power to the Investigating Officer or Public Prosecutor to seize any movable or immovable property which he has reasonable grounds to suspect to be the subject-matter of such offence or evidence relating to the commission of such offence or to be terrorist property, proceeds of an unlawful activity or instrumentalities of an offence (Section 45, 51 AMLATFPUA 2001). The power extends to movable property which is in the possession, custody or control of a financial institution (Section 50 AMLATFPUA 2001).

A seizure order shall lapse after the expiration of twelve months from the date of the seizure order, or where there is a prior freezing order, twelve months from the date of the freezing order, if the person against whom the order was made has not been charged with an offence under the AMLATFPUA 2001.

Q7. What will happen to the property seized under the AMLATFPUA 2001??

Answer: 

This depends on whether there is prosecution for an offence under the AMLATFPUA 2001. If there is no prosecution, the Public Prosecutor may, before the expiration of twelve months from the date of the seizure order, or if there is a freezing order, twelve months from the date of freezing order, apply to High Court for an order for the property seized to be forfeited (Section 56 AMLATFPUA 2001).

The Public Prosecutor will have to prove to the Court on the balance of probabilities that the property is the subject-matter of an offence under Section 4(1) or terrorism financing, or evidence relating to the commission of such offence, or terrorist property, or the proceeds of an unlawful activity, or instrumentalities of an offence (Section 56 AMLATFPUA 2001).

If there is a prosecution under AMLATFPUA 2001 and the offence is proved against the accused, the Court shall make an order for forfeiture if the Court is satisfied on the balance of probabilities that the property is the subject-matter of an offence under Section 4(1) or terrorism financing, or evidence relating to the commission of such offence, or terrorist property, or the proceeds of an unlawful activity, or instrumentalities of an offence (Section 55 AMLATFPUA 2001).

In the case where the prosecution failed to prove the offence against the accused, the Court shall make an order for forfeiture if the Court is satisfied that the accused is not the true and lawful owner of the property, and no other person is entitled to the property as a purchaser in good faith for valuable consideration.

FOOTNOTES 

[1] Standard for Automatic Exchange of Financial Account Information in Tax Matters, retrieved from https://www.oecd-ilibrary.org/docserver/9789264216525-en.pdf?expires=1609055453&id=id&accname=guest&checksum=3538B6601C68BDC2F70EFEE9F359A553 

[2] Common Reporting Standard (CRS) Guidance Notes, retrieved from http://phl.hasil.gov.my/pdf/pdfam/Malaysia_CRS_Guidance_Notes_Revised_05062018.pdf 

THIS FAQ IS PREPARED AND PUBLISHED BY GENERAL LITIGATION, CORPORATE INSOLVENCY AND APPELLATE DEPARTMENT OF THE DISPUTES RESOLUTION OF MESSRS GAN & ZUL, ADVOCATES & SOLICITORS.