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Does the House Always Win? An analysis of civil forfeiture of property for the offence of “online gambling”

25 May 2022

INTRODUCTION
 
Section 56 of the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (“the Act”) provides for civil forfeiture of property seized under the Act where there is no prosecution or conviction for a money laundering or terrorism financing offence (i.e. a predicate offence). The Public Prosecutor may, before the expiration of 12 months from the date of seizure or freezing of the property, apply to a judge of the High Court for an order of forfeiture of that property if he is satisfied that such property is: 
  1. the subject-matter or evidence relating to the commission of such offence;
  2. terrorist property;
  3. the proceeds of an unlawful activity; or
  4. the instrumentalities of an offence. 
The judge shall make an order for the forfeiture of the property if he is satisfied on a balance of probabilities that the property falls within any one of the aforesaid four categories and that there is no purchaser in good faith for valuable consideration in respect of the property.
 
In the recent decision of Public Prosecutor v Multi Electrical Supply & Services & 105 Ors1 (“Multi Electrical”), the High Court embarked on a detailed analysis of the term “instrumentalities of an offence” and the establishment of a predicate offence of online gambling under Section 4B of the Common Gaming Houses Act 1953 (“CGHA”) in considering an application to forfeit:   
  1. bank accounts;
  2. monies in the bank accounts; and
  3. a piece of landed property located in Selangor, 
which were claimed to be instrumentalities of the predicate offence of online gambling.
 
THE APPLICANT’S POSITION
 
The Applicant’s position was that the monies in the bank accounts constituted proceeds of an unlawful activity. The Applicant proceeded to pursue forfeiture of the bank accounts of the Respondents on the basis that they were instrumentalities of the predicate offence of online gambling. The Applicant submitted that by forfeiting the actual bank accounts, the Applicant would not only be successful in forfeiting the monies in them but would also be able to close the bank accounts and deprive the Respondents further use of those accounts in the commission of an unlawful activity.
 
As for the landed property sought to be forfeited, the Applicant contended that the landed property was an instrumentality of an offence because the Respondent owner benefitted and redeemed the property through a loan derived from the proceeds of unlawful online gambling.
 
THE RESPONDENTS’ POSITION
 
There were 106 respondents in the application which the High Court categorised into “Disputing Respondents” and “Non-Disputing Respondents”. The common issues in contention raised by all the Disputing Respondents are that: 
  1. the Applicant had failed to prove the predicate offence against all the Disputing Respondents; and
  2. the Applicant had failed to prove that the monies in the bank accounts and the landed property were used as instrumentalities of an offence. 
The Disputing Respondents also contended inter alia that:   
  1. the Applicant bore the onus of proving that the bank accounts and the landed property were substantially used and not merely incidental to the commission of the offence;
  2. the bank accounts were not instrumental but merely incidental to the commission of the offence as they were also used for legitimate business purposes;
  3. a bank account is not a property under Section 3 of the Act;
  4. there was no nexus between the landed property and the offence of online gambling;
  5. Respondent 102 (the owner of the landed property) had no knowledge of the source of the funds as the funds were channelled through a firm of solicitors and therefore was entitled to assume and believe that the source and nature of the funds were legal; and
  6. Section 4B of the CGHA does not establish the offence of online gambling and therefore the predicate offence under that provision had not been proven. 
THE HIGH COURT’S ANALYSIS
 
“Instrumentalities of an offence”
 
Section 3 of the Act defines “instrumentalities of an offence” as: - 
  1. any thing which is used in, or in connection with, the commission of any unlawful activity; or
  2. any property which is wholly or partly used in, or in connection with, the commission of any unlawful activity,
whether the thing or property is situated within or outside Malaysia.
 
The High Court considered a wide breadth of legal resources, such as the United Nations Convention against Corruption, publications by the United Nations Office on Drugs and Crime, the United Kingdom Proceeds of Crimes Act 2002, the Prevention of Organised Crime Act 1998 of the Republic of South Africa, the Australian Proceeds of Crimes Act 2002 and case laws from those jurisdictions in analysing the definition of “instrumentalities of an offence”.
 
The meaning of “used in, or in connection with, the commission of any unlawful activity”
 
Firstly, with regards the interpretation of the words “used in, or in connection with, the commission of any unlawful activity”, or in the words of the Learned Judicial Commissioner ‘how a “thing” or “property” acquires the legal characteristics of an instrument of an offence, for example, does (sic) the incidental or ancillary use of that thing or property sufficient or must that thing or property be integral or essential to the commissioning of the offence or its intended use such that without that thing or property the offence could not have been carried out or completed’, the High Court looked to the Court of Appeal case of PP v Kuala Dimensi Sdn Bhd & 8 Ors [2018] 6 MLJ 37 which in turn referred to the English decision in R v Ward, Maries & Graham [1989] 1 Qd R 194, holding that there must be substantial connection between the property and the offence and not a mere accidental or incidental connection to that offence. The High Court also cited with approval the case of National Director of Public Prosecutions v Kalmar Industries SA Pte Ltd [2017] ZASCA 142 where the Supreme Court of Appeal of South Africa held the view that in giving meaning to the term, “instrumentality of an offence”, the focus is not on the wrongdoer but on the role the property plays in the commission of the crime.
 
In determining the substantiality of the link between the “thing” or “property” used in or in connection with the commissioning of the unlawful activity, the courts will have to examine the facts and circumstances of each case and consider the following general factors: 
  1. the nature of the thing or property;
  2. its proximity or link in the commission of the unlawful activity;
  3. whether the thing or property has a private or public character; and
  4. whether the offence could have been committed without the use or utilisation of that thing or property. 
Thus, the core question in any enquiry into the question of instrumentality must be whether the crime could have been committed or completed without the use of the “thing” or “property”.
 
The meaning of “thing” and “property”
 
Secondly, the High Court considered the meaning of the words “thing” and “property”.
 
“Thing”
 
The Act does not define “thing”. However, taking the plain and ordinary dictionary meaning of “thing”, the High Court took the view that “thing” in Section 56 of the Act would mean any physical object other than “property” and can include any material making up that thing. Examples given by the High Court of “thing” include any object such as mode of transport, machinery, an electrical appliance, a computer, a communication device, tools or appliances, access instruments such as keys or access card, credit or debit card, physical books, and can even extend to electronic records kept in folders or files in a computer. The scope of what a “thing” may include is therefore wide.
 
“Property”
 
Section 3 of the Act defines “property” as:  
  1. assets of every kind, whether corporeal or incorporeal, moveable or immovable, tangible or intangible, however acquired; or
  2. legal documents or instruments in any form, including electronic or digital, evidencing title to, or interest in, such assets, including currency, bank credits, deposits and other financial resources, traveller’s cheques, bank cheques, money orders, capital market products, drafts and letters of credit,whether situated within or outside Malaysia, and includes a legal or equitable interest, whether full or partial, in any such property. 
The Act does not define “assets”. However, it is generally accepted than an asset is a resource owned by an individual or an entity which has value and that will provide a future benefit including conversion into cash and can be used for payment of debts. Thus, the High Court was of the view that “asset” in the definition of “property” should mean and refer to any thing that has value whether presently or at some point in future and can be converted into cash or be used to pay a debt.
 
Can a bank account constitute a “thing” or “property” in an “instrumentalities of offence”?
 
The Applicant claimed that a bank account is “property” as it falls within the meaning of “deposits and other financial resources” under limb (b) of the definition.
 
The High Court in determining the issue examined the nature of a bank account. It is trite under the law on banking in Malaysia that a bank and its customer are in a contractual relationship where a bank is entitled to use the money of the customer in a deposit account such as a current or savings account for its own purposes on its undertaking to repay an equal amount to that, with or without interest, either at call or at a fixed time. A banker-customer relationship may be terminated either by way of mutual agreement, by unilateral act of a party (for example, where the customer or the bank closes the current or saving account), or by operation of law (for example, upon death or bankruptcy).
 
The Learned Judicial Commissioner held that a bank account is not a “thing” or “property” or “asset” and thus cannot be an “instrumentality of offence”, on the following observations and reasons: 
  1. A bank account is a facility offered by a bank to an applicant after acceptance of an application and confirmation of the basic identification details. The bank has the right and even an obligation under law to not offer the facility if there are doubts as to the identity or integrity of the applicant. This is supported by the bank’s statutory obligation under Section 16 of the Act to undertake a customer due diligence before the opening of an account; 

  2. A customer of the bank in operating his bank account has no absolute right and freedom to conduct his account in any way or fashion he pleases. The customer is subject to duties under contract and under statutory law; 

  3. A bank account is a mere virtual storage facility where a customer deposits his funds and makes payments out from. This facility is identified through the bank account number registered under the customer’s name and all deposits and payments are verifiable via a periodic statement of accounts issued by the bank. The fact that a bank account is only a facility is reflected in the right of the bank to stop the operation of the account in circumstances of death or mental incapacity, bankruptcy or winding-up of the customer, garnishment of monies by a third party, and/or assignment of the credit balance in the account to a third party; 

  4. There is a clear distinction between the cash in the facility (i.e. the bank account) and the facility that holds the cash – whilst the former may belong to the customer, the latter belongs to the bank as part of its banking business and the facility is not a banking instrument of value. A bank account is also not an object – whilst monies standing in credit in a bank account are assets, a bank account is a mere facility that is applied for and accorded to the customer at the discretion of the bank. The bank account is not acquired by the customer to the exclusion of any right of the bank over the same. A bank account also has no value in itself that can be converted into cash and as such, cannot constitute an “asset acquired” under section 3; 

  5. A bank account is not a legal document or monetary instrument or “deposit and other financial resources”; and 

  6. Section 50 of the Act on seizure of moveable property in financial institutions allows for seizure of “any movable property or any accretion to it” which is in the possession, custody or control of a financial institution. “Accretion” would refer to the gradual increase in the cash standing in a deposit account or the value or a fixed term deposit account due to accumulation of interest over the principal amount. Hence, the reference to “moveable property” must not have intended to mean a bank account but only to monies standing in credit in that bank account. It would have been very easy and convenient for the legislators to define “account” under the Act as the Australian Proceeds of Crimes Act 2002 did (which defined “account” as “…any facility or arrangement through which financial institutions accepts deposits or allows withdrawals”), but that was not done. Hence, the High Court took the view that bank accounts were never intended to be a subject of a seizure and later forfeiture because the legislators must have recognised that a bank account is not property in any legal sense that can be seized or forfeited, but a mere storage facility where no possession attaches, let alone ownership. 
Since a bank account is not a “thing” or “property”, it follows that a bank account cannot be an “instrumentalities of offence” and therefore cannot be the subject of forfeiture under Section 56(1)(d) of the Act.
 
The predicate offence of online gambling under Section 4B of the CGHA was not established
 
“Unlawful activity” is defined under Section 3 of the Act to mean, inter alia, “any activity which constitutes any serious offence”. “Serious offence” are offences listed under the Second Schedule of the Act which includes Sections 4, 4A and 4B of the CGHA. “Unlawful activity” serves as the predicate offence upon which the application for forfeiture rests.
 
The CGHA does not define or contain any specific provision on online gambling. The Applicant had in this case, premised the predicate offence of online gambling on Section 4B of the CGHA, which essentially criminalises any act of, inter alia, dealing with, transacting in, importing, manufacturing, selling, servicing and repairing gaming machines or the combination of them. Nowhere does Section 4B of the CGHA relate to or provide for the offence of online gambling.
 
Applying the clear words of Section 4B of the CGHA, which refer only to acts concerned with the business of trading in or servicing of machines or instruments used in gaming but not the act of gaming itself, the High Court went on to hold that in this case, and notwithstanding the adopted practice of the authorities in using Section 4B of the CGHA over the years to apprehend illegal online gambling suspects, the predicate offence of online gambling had not been established and that reliance on Section 4B of the CGHA to establish the offence of online gambling would have been misconceived, a misapplication of the law and illegal. It follows also that Section 4B of the CGHA cannot be used to establish any offence related to receipt of or paying out of any monies arising from online gambling. On the facts, the entire evidence presented relate only to acts of alleged online gambling and nothing directly or remotely related to dealing with or transacting in gaming machines under Section 4B of the CGHA.
 
As such, the Applicant had failed to apply the correct law in proving the predicate offence which was to serve as the basis of the application for forfeiture. The High Court further remarked that whilst it shares the Applicant’s and the Government’s abhorrence for online gambling as the new evil that the Malaysian society will have to combat, the law as it currently stands does not provide the authorities with the correct legislative tools to battle online gambling since there is no offence against online gambling under Section 4B nor any other parts of Section 4 of the CGHA.
 
The High Court also held that the fact that some of the Disputing Respondents and Non-Disputing Respondents may have admitted to participating in online gambling and that their bank accounts had been used to serve that activity, does not make those admissions proof of the commission of online gambling under Section 4B of the CGHA.
 
Forfeiture of the landed property owned by Respondent 102
 
Although it had already established that the Applicant had failed to prove the predicate offence of online gambling under Section 4B of the CGHA (and thus, the entire application for forfeiture cannot be sustained), the High Court addressed the issue of forfeiture of the landed property for the sake of a complete deliberation.
 
The High Court did not find a causal link or nexus between the landed property and the commission of an offence of online gambling as: 
  1. The landed property was acquired by Respondent 102 much earlier back in 2014 and was financed by Alliance Bank Berhad;
  2. The alleged illegal loan derived from proceeds of an unlawful activity/online gambling was granted by one of the respondents to Respondent 102 much later in 2019;
  3. Thus, the alleged illegal loan had no role in the acquisition of the landed property. There is no dispute that the illegal loan was only used to settle the original debt and release the landed property from the encumbrance under the original loan;
  4. There is no evidence that Respondent 102 had used or permitted to be used the landed property towards the commission of online gambling, neither was the landed property used as a premise for online gambling nor as collateral toward raising monies used in online gambling; and
  5. There is also no evidence on how the landed property was used as an instrument in the commission of online gambling. 
THE HIGH COURT’S DECISION
 
Based on the above, the High Court dismissed the application for forfeiture of the Disputing Respondents’ bank accounts, including in any case all monies in those bank accounts, and the landed property.
 
Furthermore, notwithstanding that the Non-Disputing Respondents took no action to challenge the application, the High Court held that its decision is to be equally applied for their benefit since the duty of the court under Section 56(4) of the Act demands equal consideration on whether the bank accounts of the Non-Disputing Respondents can be forfeited under “instrumentalities of offence”. There is also no provision under the Act which empowers the Court to grant the application in default of any challenge or dispute and in any event, the granting of such a default order when the Court has found no legal basis for the application to be brought in the first place will cause injustice to the Non-Disputing Parties. Hence, the High Court also dismissed the application for forfeiture of the Non-Disputing Respondents’ bank accounts and in any case all monies in those bank accounts.
 
COMMENTS
 
The case of Multi Electrical affirms once again, in addition to previous case laws on the point, the importance of establishing the predicate offence of money laundering or terrorism financing as the foundation and basis for an application for forfeiture of property under Section 56 of the Act. The penal provision applied must be correct and the proving of the elements of offence in line with it – failure to do so was fatal in this case. The courts will not stretch the interpretation of an existing penal provision especially when the legislators have yet to rise to fill in the blanks in the law in respect of the CGHA and online gambling. This is in spite of there being admissions of online gambling by some of the Respondents. In this regard, the CGHA which was last amended in 2001 is in urgent need of a major revamp to enable enforcement agencies to effectively combat the scourge of online gambling in Malaysia.
 
On another note, the finding that a bank account cannot be an “instrumentalities of an offence” (and thus cannot be the subject of a forfeiture) on the basis that a bank account is a mere facility and not a “thing” or “property”, although in line with the principles of the law on banking and the wording in Section 50 of the Act, may water down the bite and the purpose of the Act which is ultimately to prevent money laundering offences. Bank accounts are key facilitative instruments in many criminal offences as they are the main mode by which monies are moved around especially with online banking. Whilst the seizure and forfeiture of the monies in the bank accounts without closing the latter may not effectively deter or stop the return of illegal activities using the same accounts, the enforcement agencies must, as an interim measure, take steps to seize and forfeit the monies in the bank accounts to deprive offenders of their financial resources and ill-gotten gains, and leave the closure of the impugned accounts to the financial institutions. Again, legislative reform is urgently needed to address the gap arising from the High Court’s decision in this case as to the nature of bank accounts.
 
Case Commentary by Lim Koon Huan (Partner), Manshan Singh (Senior Associate) and Siew Ka Yan (Associate) of Skrine. 
 
1 In the High Court of Malaya at Georgetown Penang, Criminal Application No: PA-44-33-07/2020, Grounds of Judgment dated 12 April 2022.

This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.

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