Legal Implications/Remedies in Relation to Common Business Scams In 2020

INTRODUCTION

The COVID-19 pandemic has fundamentally changed the way we conduct our day to day, with many seeing significant changes to their routine as most people socialize, play and work indoors.

In the era of worldwide cashless business transaction, frauds and fraudulent cases have been recorded throughout business transactions. Furthermore, the number of fraudulent cases reported has been increasing since the start of the COVID-19 pandemic.[1] It has been further reported by the Commercial Crime Investigation Department, Royal Malaysia Police that between Jan and Sept 2020, there were 4,764 Macau scam cases involving losses of over RM232 million, and 2,433 arrests.[2]

A further study was carried out by the Telenor Group covering scam victims in Malaysia, India, Singapore and Thailand concluded that Malaysians are the most vulnerable to internet scams due to higher demands of online shopping.[3]

The study also revealed that out of the 400 internet users aged 18-65+ interviewed, 9 out of 10 were aware of “internet scams”; 4 in10 were victims; 9 in 10 surveyed scam victims had lost money; 1 in 5 in Malaysia had fallen victim to internet scam auctions and 1 in 4 in India had been duped by lottery scams. The study further noted that the five top scams in this region are work from home scams, internet auction scams, fake bank emails, online dating scams, and identity theft.[4]

WHAT ARE BUSINESS SCAMS?

Business scams can be defined as illegal activities undertaken by an individual or company that are done in a dishonest or unethical manner. Often, this kind of business scams is designed to give an advantage to the perpetrating individual or company.

Business scams go beyond the scope of an employee’s stated position and are marked by their complexity and economic impact on the business, other employees, and outside parties including private individuals.[5]

Unfortunately, scammers are so good at duping people that it’s hard to spot one when individuals are the intended victim. Here are some of the common business scams that victims need to be aware of in Malaysia:

LEGAL IMPLICATIONS

If individuals may have just been scammed, they can try to contact the bank or credit card company that was used to make the transactions. Victims are advised to always be careful and not to fall prey to any of the financial frauds or scams. If individuals have become a victim, Bank Negara Malaysia advises to do the following:

• Firstly, victims are advised to lodge a police report.

• Then, to report to the relevant enforcement agency.[17]

•Victims must keep all records and documentations for the investments such as bank-in slips, deposit slips, agreements, vouchers that victims received from the company or perpetrator so that victims can use the documents to take action against the company.[18]

• This includes details of the officers or key persons that victims dealt with in the company. This information could prove useful for enforcement purposes.

A filing of a police report is indeed very important and, if relevant, a second report to Bank Negara Malaysia.[19]

In addition, different business scams complaints are dealt by different government authorities which can be referred in Table 2.0:[20]

LEGAL REMEDIES FOR BUSINESS SCAMS

One may define that business scams can be equated to fraud. However, the word fraud does not appear anywhere in the Penal Code of Malaysia. Nevertheless, the statute adopts the word “cheating”, which is equivalent to fraud. The general provision of section 415 Penal Code states:

“Whoever by deceiving any person, whether or not such deception was the sole or main inducement,- a. fraudulently or dishonestly induces the person so deceived to deliver any property to any person, or to consent that any person shall retain any property; or b. intentionally induces the person so deceived to do or omit to do anything which he would not do or omit to do if he were not so deceived and which act or omission causes or is likely to cause damage or harm to any person in body, mind, reputation, or property, is said to “cheat”.”[26]

Section 417 of the Penal Code states: “Whoever cheats shall be punished with imprisonment for a term which may extend to five years or with fine or with both.”[27]

In addition to the general provisions, several specific provisions are also provided for in the Penal Code. For example, regarding cheating and dishonestly inducing delivery of property, section 420 Penal Code states:

“Whoever cheats and thereby dishonestly induces the person deceived, whether or not the deception practiced as the sole or main inducement, to deliver any property to any person, or to make, alter, or destroy the whole or any part of a valuable security, or anything which is signed or sealed, and which is capable of being converted into a valuable security, shall be punished with imprisonment for a term which shall not be less than one year and not more than ten years and with whipping, and shall also be liable to fine.”[28]

However, we need to look closely at the wording of section 415[29], the pre requisite for the act of cheating is that a person must be deceived.

If a computer is cheated, can the person who cheats be charged under this section? The answer to this question can be seen in section 11 which states: “The word “person” includes any company or association or body of persons, whether incorporated or not.”[30] Therefore, in the United Kingdom, when the Fraud Act[31] was passed in 2006, the “deceiving a person” element is intentionally left absent. Section 2(1) of the Act states that fraud by false representation occurs when someone expressly or impliedly does the following act: “… dishonestly makes a false representation, and intends, by making the representation, to make a gain for himself or another, or to cause loss to another or to expose another to a risk of loss.”

This can be further referred in the recent decided cases. In PP v Tee Chiu Hang[32], Tee, a tile shop worker was charged and convicted under section 411 of the Penal Code for receiving stolen money totalling RM148,490 from a scam victim into her bank account in multiple transactions between 21 April and 12 June 2017. Tee earlier befriended two Nigerian scammers on Facebook, and surrendered her ATM card to them. The victim also befriended the scammers on Facebook. She was informed that they wanted to send her valuables, but she needed to pay a deposit to Tee’s account to release the items. Moreover,in PP v Gollneer Roshandin[33], Gollneer was charged and convicted under section 411 of the Penal Code for receiving stolen money totalling RM37,800 belonging to a scam victim into her CIMB account in multiple transactions between 19 to 21 July 2017.

In Sarimah binti Peri v Pendakwa Raya[34], Sarimah was accused of receiving RM251,990 belonging to a scam victim in her CIMB account between 15 and 30 March 2016. The victim earlier befriended via Facebook a scammer who fraudulently represented himself as a director at Shell oil and gas company. The deposit payments were made to “assist” him in settling his debt so that he would be receive USD4.25 million after the expiry of his contract with Shell. Sarimah was charged and convicted under section 424 Penal Code. However, she appealed against the decision, and Shah Alam High Court allowed her appeal on the ground that the magistrate had erred when she found that the prosecution had established a prima facie case. These decided cases have further cemented the legal position on offences relating to business scams.

A legal action on the ground of fraudulent misrepresentation can also be initiated by affected parties.In the Court of Appeal’s case of Bounty Dynamics Sdn Bhd (formerly known as Media Development Sdn Bhd) v Chow Tat Ming & 175 Ors[35], whereby the respondents had failed to specify with certainty as to whether their action for misrepresentation was one of negligent misrepresentation or fraudulent misrepresentation. In this case, the court held that the respondents would not be allowed to rely on any arguments relating to fraudulent misrepresentation as they had failed to plead fraudulent misrepresentation. The Federal Court in the case of ALW Carworkshop Sdn Bhd V AXA Affin General Insurance Bhd[36] has adopted the test of fraudulent misrepresentation as enunciated by the Privy Council in the case of Baron Akerheilm v Rolf De Marc[37], as follows:

“The question was not whether the defendant in any given case honestly believed the representation to be true in the sense assigned to it by the court on an objective consideration of its truth or falsity, but whether he honestly believed the representation to be true in the sense which he understood it albeit erroneously, when it was made”.

Further, the Federal Court in the case of Ling Peek Hoe & Anor v Ding Siew Ching and Another Appeal[38] ruled that the appellants were only required to prove their case on the balance of probabilities in cases of fraudulent misrepresentations.

The Court of Appeal cases of Kee Wah Soong v Yap Boon Hwa and Anor[39] and Sim Thong Realty Sdn Bhd v Teh Kim Dar @ Tee Kim[40] has referred to the judgement of Lord Denning in the case of Doyle v Olby[41] wherein four main points which are relevant to the measure of damages for fraudulent misrepresentation are as follows a) the measure of damages where a contract has been induced by fraudulent misrepresentation is reparation for all the actual damage directly flowing from (ie caused by) entering into the transaction; b) in assessing such damages it is not an inflexible rule that the plaintiff must bring into account the value as at the transaction date of the asset acquired; c) damages for deceit are not limited to those which were reasonably foreseeable; and d) the damages recoverable can include consequential loss suffered by reason of having acquired the asset. Therefore, the victim of fraudulent misrepresentation shall be entitled to compensation for all the actual loss, including consequential loss, directly flowing from the transaction induced by the deceit, subject to the victim substantiating the same.

CONCLUSION

It is clear from the above discussion that business scam is a twisted scheme designed to manipulate the weak traits in a person. And the way the scammers manipulate both the mules and the victims reveal that this problem will continue to subsist since it depends heavily on one’s own conscience. It is indeed quite difficult for legislation to be put forward to control a person’s monetary and emotional needs, as this is human nature which goes beyond the legal provisions.[42] Too much control on people, though done for the betterment of the society is always equated with dictatorship and violation of privacy. However, one has to understand that it is not possible for security and privacy to co-exist in their 100 percent form. Full security can only be reached at the expense of privacy, and vice versa. This notion however is not a preferred option in Malaysia as it would cost the government its popularity.

It needs a very strong political will if this strict measure is to be imposed. Thus the cliché recommendation for solution which is mostly focused on awareness campaigns and education is the only viable mechanism at the moment.[43]

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1. https://ccid.rmp.gov.my/Card/.
2. https://www.thestar.com.my/metro/metronews/2020/07/20/6187-scammed-by-online-sellers.
3. https://www.telenor.com/asias-top-internet-scamsand-how-to-stay-safe/.
4. https://www.nst.com.my/opinion/columnists/2020/10/632766/malaysians-among-most-vulnerable-scams.
5. https://www.investopedia.com/terms/c/corporatefraud.asp#:~:text=What%20Is%20Corporate%20Fraud%3F,the%20perpetrating%20individual%20or%20company.
6. https://www.thestar.com.my/business/business-news/2017/06/15/epf-warns-members-of-false-messagesscams/.
7. https://www.nst.com.my/news/crime-courts/2019/10/526165/woman-loses-rm11060-online-loan-scam.
8. https://www.imoney.my/articles/avoid-online-scams.
9. https://www.imoney.my/fixed-deposit.
10. https://www.imoney.my/articles/how-to-tell-if-aninvestment-is-a-scam.
11. https://ers.seccom.com.my/public/Default.aspx?menu=2.
12. https://www.nst.com.my/news/crime-courts/2019/11/539525/rubber-tapper-loses-rm185k-24-hours-macauscam.
13. https://www.nst.com.my/news/crime-courts/2019/11/539525/rubber-tapper-loses-rm185k-24-hours-macauscam.
14. https://www.thestar.com.my/news/nation/2018/12/29/police-beware-of-mule-account-scam.
15. https://ccid.rmp.gov.my/semakmule/.
16. https://www.malaymail.com/news/malaysia/2016/04/28/scratch-and-win-scammers-targeting-elderly/1108857.
17. https://www.bnm.gov.my/fraud-and-scam-notices.
18. https://www.bnm.gov.my/fraud-and-scam-notices.
19. https://www.bnm.gov.my/microsites/fraudalert/04_help.htm.
20. https://www.ssm.com.my/Pages/Services/Other-Services/e-Complaint.aspx.
21. urusetia_jsjk[at]rmp.gov.my.
22. e-aduan[at]kpdnkk.gov.my.
23. https://ttpm.kpdnkk.gov.my/portal/index.php/my/.
24. bnmtelelink[at]bnm.gov.my.
25. https://www.comparehero.my/fraud-scam/articles/money-back-financial-scams.
26. Section 415 of the Penal Code.
27. Section 417 of the Penal Code.
28. Section 420 of the Penal Code.
29. Section 415 of the Penal Code.
30. Section 11 of the Penal Code.
31. The United Kingdom Fraud Act 2006.
32. Magistrate Court, Kuantan (09/11/2018).
33. Magistrate Court, Sungai Petani (26/12/2017).
34. [2019] MLJU 130.
35. [2016] 1 MLJ 507.
36. [2019] 4 MLJ 561.
37. [1959] AC 789.
38. [2017] 5 MLJ 385.
39. [2018] MLJU 1289.
40. [2003] 3 MLJ 460.
41. [1959] AC 789.
42. Rizal Rahman. 2018. Malware and The Law of Deception in Malaysia, 3 MLJ lxxxvi, p 12.
43. Jensen, F. and Van Lenthe, J. 2017. Adaptation strategies of cybercriminals to interventions from public and private sectors. In Cybercrime Through an Interdisciplinary Lens, edited by Thomas J. Holt. Routledge

Written by:

Natalia Izra Dato’ Nasaruddin (Partner) natalia.izra@azmilaw.com

Adly Zulfadhly Zulkefly (general@azmilaw.com)