Investors of illegal financial schemes face severe penalties: Bank Negara governor

KUALA LUMPUR: Investors knowingly involved in illegal financial schemes can be punished under the law for abetment and dealing with illegal proceeds, said Bank Negara Malaysia governor Datuk Muhammad Ibrahim.

“Under the Financial Services Act 2013, we can take action against (these investors). We can charge them with abetment of illegal activities, with a maximum penalty of RM50 million and 10 years' imprisonment. It’s quite severe,” he told a press conference after announcing the first quarter gross domestic product numbers here last Friday.

Other regulations include laws administered by Bank Negara, the Penal Code, the Interest Schemes Act 2016, the Direct Sales and Anti-Pyramid Scheme Act 1993, as well as, the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001.

Muhammad said any numbers beyond the 3%-7% returns offered by fixed deposits and unit trusts cannot be true and one has to be mindful about such scams. Illegal financial schemes are also a “zero-sum” game, where dividends are paid out from the new investors’ funds.

“When it comes to pyramid schemes, ‘smart people’ know that such scams are illegal but they know they’re at the top tier of the scheme and they jump from one scheme to another, benefiting from the profit. This is definitely unacceptable,” said Muhammad.

He urged the public to stop participating in illegal financial schemes as this type of business model is never sustainable with no real economic activities generated. He pointed out that a money scam is likely to burst within 12 months and cannot be sustained for a long time.

“There’s no benefit in participating in these ventures and you will lose your money,” said Muhammad.

He said financial institutions have been cooperative over the last few months and have closed 238 accounts related to illegal financial schemes. Customers who failed due diligence will result in their suspicious accounts being blocked or closed.

“Subject to investigations and with a court order, they will freeze it (bank account). Or they will close the account and return the money to the account holder if there’s no court order.”

Muhammad said Bank Negara raided operators of money schemes last week and will take action if there is evidence.

“We’re doing many things. One of they key priorities is consumer education. We’re also doing roadshows, enhancing our website, meeting people on a regular basis throughout the country,” said Muhammad.

To combat illegal financial schemes, the Attorney-General’s Chambers will lead an inter-agency committee for joint enforcement to undertake the widest possible enforcement actions under various legislations. These actions are aimed at perpetrators and promoters of illegal financial schemes as well as illegal proceeds generated.

The inter-agency committee will also be a platform to assess the current legal framework and the need for more unified approach at the national level to combat illegal financial schemes.

“We’re cooperating with our counterparts from other countries, especially through sharing of information via the financial intelligence department so that this scam can be stopped. We swap information with our counterparts and other jurisdictions as well,” said Muhammad.