Scholarly article on topic 'The Legal Overview on Falsification, Fraud and Forgery'

The Legal Overview on Falsification, Fraud and Forgery Academic research paper on "Economics and business"

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{Falsification / Fraud / Forgery / Evidence}

Abstract of research paper on Economics and business, author of scientific article — Khairul Anuar Abd. Hadi, Halil Paino, Suria Fadhillah Md Pauzi

Abstract Falsification of documents, forgery, and fraud are categorized as white colour crime offences. To establish successful prosecution and civil claim, the prosecutor and claimant must prove the intention and conduct of the accused person and the presumption of intention that fall under respective statutory provision. However, the applicability of evidential standards are different particularly in civil action even though this conduct is an offence under Penal Code. This paper examines the elements, contradictions and proposes a reform to standardizing the evidential aspect in criminal and civil claim based on reported case law.

Academic research paper on topic "The Legal Overview on Falsification, Fraud and Forgery"

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Economics and Finance

ELSEVIER Procedia Economics and Finance 31 (2015) 581 - 586

www.elsevier.com/locate/procedia

INTERNATIONAL ACCOUNTING AND BUSINESS CONFERENCE 2015, IABC 2015

The Legal Overview on Falsification, Fraud and Forgery

Khairul Anuar Abd. Hadiab*, Halil Painoab, Suria Fadhillah Md Pauzib

aAccounting Reseacrh Institute UiTM, 40450 Shah Alam Selangor,Malaysa bUniversiti Teknologi MARA (Pahang), 26400 Jengka Pahang, Malaysia

CrossMar]

Abstract

Falsification of documents, forgery, and fraud are categorized as white colour crime offences. To establish successful prosecution and civil claim, the prosecutor and claimant must prove the intention and conduct of the accused person and the presumption of intention that fall under respective statutory provision. However, the applicability of evidential standards are different particularly in civil action even though this conduct is an offence under Penal Code. This paper examines the elements, contradictions and proposes a reform to standardizing the evidential aspect in criminal and civil claim based on reported case law.

© 2015 Published by Elsevier B.V. Thisisan open access article under the CC BY-NC-ND license

(http://creativecommons.Org/licenses/by-nc-nd/4.0/).

Peer-review under responsibility of Universiti Teknologi MARA Johor

Keywords: Falsification; Fraud; Forgery; Evidence

1. Introduction

Under the legal purview to established falsification and fraud, the prosecutor and the claimant must be able to collaborate and associate it with the fraudulent act. Therefore, forgery and falsification of documents are the mechanisms to commit fraud. Fraud can be defined as these activities such as theft, corruption, conspiracy, embezzlement, money laundering, bribery and extortion (Mohammed, 2002). Fraud essentially involves using deception to dishonestly make a personal gain for oneself and/or create a loss for another (Yusuf Ibrahim Arowosaiye, 2012). Although definitions vary, most are based around these general themes, as there must be a fraudulent act committed by the accused person.

Corresponding author. Tel: 609-4602283, Fax: 609-4602283, Email : khairuanuarah@pahang .uitm .edu .my

2212-5671 © 2015 Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license

(http://creativecommons.Org/licenses/by-nc-nd/4.0/).

Peer-review under responsibility of Universiti Teknologi MARA Johor

doi:10.1016/S2212-5671(15)01206-X

In the context of forgery, Black Latter Law defines forgery as making a false document to deceive. The act of making the false document for the purpose of fraud must be read together (Rantanlal & Dhirajlal, 2007). The act of making the false document only does not constitute forgery until and unless the prosecution and claimant are able to prove the presence of fraudulent act and this was illustrated in Yap Toon Choy v. Hong Leong Bank Berhad & Anor [2012] MLJU 288, the court held, the act of forgery is not established if it had been made out of negligence because there is no presence of intention. It is submitted that forgery can be a vehicle to commit other offences such as fraud, cheating, breach of trust and misappropriation of property and falsification of documents (Zhang, 2012).

Section 477A Penal Code underlines the ingredients and contents of falsification of documents. The scope of this section develop two offences i.e. [1] falsifying of accounts and [2] making or abetting the making of false entry, or omitting, or altering, or abetting the omission or alteration of any entry. These two sections had been read separately and independently. However, to prove under this section, the prosecution or claimant for civil action must prove [1] the persons coming within the purview must be a clerk, officers or servant and [2] he must wilfully and with intent to defraud in term of destroy, alter, mutilate, or falsify any books, paper, writing, and valuable security. The critical aspects of this section is it only deals with certain and specific professions. It is because the act of falsification requires the accused person to have a possession over the documents.

Provision under section 477A has been extended under section 89 Anti-Money Laundering and Anti-Terrorism Act 2001 has stated a person, with intent to deceive, in respect of a document to be produced or submitted under any provision of this Act, who makes or causes to be made a false entry, omits to make, or causes to be omitted, any entry, or alters, abstracts, conceals or destroys, or causes to be altered, abstracted, concealed or destroyed, any entry, forges a document, or make use of or holds in his possession a false document, purporting to be a valid document, alters any entry made in any document, or issues or uses a document which is false or incorrect, wholly or partially, or misleading. The section imposed punishment to a fine not exceeding one million ringgit or to a term of imprisonment not exceeding one year or to both, and, in the case of a continuing offence, to a further fine not exceeding one thousand ringgit for each day during which the offence continues after conviction. Even there is a similar ingredients required under this section but the differences in punishment imposed against accused person draw confusions among members of legal fraternity. In Pendakwaraya v. Ong Seh Seng, the appellant was charged under section 4(1) Anti Money Laundering and Anti-Terrorism Act for having forged 75 invoices belonging to a company owned by him. This case illustrates the act of forgery and falsification of documents not only limited within the meaning and sentencing jurisdiction of the penal code but also includes other statutory provisions.

The gap of evidential standard in fraud and forgery cases is widely criticizes. This proposition indirectly caused contradiction and confusion towards the definition and evidential standards required for forgery and falsification cases. Forgery in the civil claim applies balance of probabilities whereas for criminal prosecution applies beyond reasonable doubt standard of proof (Gottschalk, 2010). This different approach draws critique because forgery is the act of crime which the standard must be the same with other crimes stipulated in the Penal Code (Ng, 2001). This was mentioned in Narayan Chettyar v. Official Assignee, Rangoon AIR 1941 PC when the court held, 'Fraud of this nature, like other charge of criminal offences, whether made in criminal or civil proceedings must be established beyond reasonable reason'. This paper examines the legal contradiction between fraud, forgery and falsification in term of evidential value and proposed a legal reform in order to close the legal gap between falsification, forgery and fraud.

2. Falsification

Under section 477A Penal Code, the act of destroy, alter, mutilate, or falsify any original documents are considered as falsifying. In the accounting context, it is referred as false accounting which is the falsification, concealment, or destruction of records, (Shah, Butt, & Tariq, 2011) and is commonly used as the way to trick people into parting with money or any other property, or to cover up what have been done by falsifying the account (Rantanlal & Dhirajlal, 2007). In R v. Shama 91 Cr App R138, the act of falsifying the documents includes the act of making a false entry. In the case of Tan Ker Loo v. Pendakwaraya [2011] 7 MLJ 714, the court ruled the knowledge over and falsifying the documents is important to determine liabilities. The court emphasis the element of knowledge as an important aspect of determining the conviction for falsifying the specific documents for the purpose of defrauding others and obtaining specific financial advantages. However, in forgery cases, the court approach is different. The presumption of possession has been used in order to prove that there are intention and knowledge over the matters.

In the case of Dato' Raja Azwane Bin Raja Ariff & Anor, Dato' Tan Kim Kuan v. Dato Man Bin Mat [2009] MLJU 1480, the learned counsel for the petitioners had summarized the act of oppression by falsifying the company resolution and signature of the directors. Therefore this act is one form of white colour crimes and should be proven beyond reasonable doubt. Thus, possession alone with regard to the false documents does not constitute the accused person be liable for the falsification until and unless, the prosecution is able to prove the case beyond reasonable doubt.

In the case of Harun Bin Abdullah v. Public Prosecutor [2009] 3 MLJ 337, the credibility of prosecution witness had not been successfully discredited, and therefore, his evidence remained good. The charge against the appellant was forgery and not cheating prosecution witness and as such thus there was no requirement of corroboration. Therefore, prosecution witness was not an accomplice, for the charge against the appellant was one of forging or falsifying the specific document, of which at all relevant times was well within the custody and knowledge of the appellant and none others. Having sifted the evidence, no evidence was found to show that the High Court's judge's factual finding on this issue was erroneous.

In Ketua Polis Ibu Pejabat Kontigen Polis Seremban & Anor v. Manoharan a/l Dorasamy [2004] 3 MLJ 565, it was subsequently discovered by the Road Transport Department, Seremban that a syndicate in Sabah was responsible for falsifying and forging motor vehicle registration numbers, chassis numbers and engine numbers registered in that state but eventually brought into West Malaysia and this included the said motor vehicle purchased by the respondent. In this case, the prosecution was able to prove all the ingredients of document falsification as per required under the Penal Code. The court was satisfied that all the required evidence to prove falsification is beyond reasonable doubt. This case illustrates the relationship between forgery and falsification of documents.

In term of punishment in Leong Kok Huat v. Public Prosecutor [1998] 6 MLJ 406 the court emphasis the sequence of the three limbs of the 'penalty part'; first, a fine, followed by 'the imprisonment term' and lastly 'the whipping sentence'. By that order, the court inferred that it must have been the intention of the legislature to punish the offender like the accused first, by an appropriate fine if the facts against his wrongful act so justified before considering the other alternative penalties. The judge emphasis;

'I cannot find any evidence to convince me that on the balance of probabilities, an imposition of an appropriate fine will not help the accused to realize his wrongful act of falsifying such documents or any other criminal act, and at the same time deter others from doing the same wrong. I say so because, the accused can neither pay the fine imposed by the court below nor by me; that inability to pay the fine in itself, beside being in remand and later in prison since his arrest, in my considered opinion, will certainly deter the accused from committing the same offence or any other criminal act of similar nature in the future. It is my humble view that, it is only when there is convincing evidence to show that the accused can 'buy' his wrongful act with a sentence of just a fine from the proceeds of his wrongful act direct or indirectly that the court should find and inflict other alternative penalties but not otherwise'

For that reason, the purpose of the law is to ensure the guilty person can be punished in accordance of law if the case can be proven beyond reasonable doubt. Thus, the standard of prove requires to be tendered as per charge and not outside the scope of the charge. However, the method of the crime committed would affect the standard of evidence applicable. If the falsification of evidence involves forgery, the court applied the balance of probabilities standard of proof to determine the existence of the offence, whereas, if the falsification intend to deceive others under the purview of definition of fraud, the court applies beyond reasonable doubt standard of proof to determine whether or not the prosecution is able to establish prima facie.

4. Intention

Intention to commit a fraudulent act is a key to establish an ingredient of fraud, forgery and falsification of documents (Bicknell, Danna E, 2009). However, the legal meaning was not mentioned specifically under the Penal Code as it depends on the circumstances of the case and conduct of the accused person. One way to define and to determine the fraudulent act is to establish the collaboration of chain of events, as stated in the case of Takako Sakao v. Ng Pek Yuan & Anor [2009] MLJU 836 where the court ruled, in order to establish intention of the parties

involves, the court will examine all the circumstances, evidences and presumption of guilt. The court in this case further elaborated and imposed three tests required for the establishment of offences related to the financial crimes:-

[1] whether there is an intention to defraud others,

[2] whether the fact surrounding the case reflect the intention of the accused and

[3] the fact must be collaborated to each other without breaking of any chain of events. Without intention, the act of forgery, falsification and fraud cannot be said as a crime.

The aim of this test is to determine the existence of intention and knowledge. However, the intention of an accused person must be associated with events of the case. The legal meaning of intention was not mentioned under the Penal Code. It is subjective in nature and only can be determined by circumstances of the case and concealment of the materials fact during trial. However, the collaborative in respect that presented before the court must be credible and reliable as it requires collaborating with the circumstantial evidence (Krishnan, 2010). In Lo Vung Chung v. Public Prosecutor [2011 ] MLJU 1171, the appellant was found guilty for the charge of forgery and the court further explained that there is a solid circumstantial evidence to uphold the conviction. The circumstantial evidence must be interrelated with each other without the possibility of the presence of reasonable doubt. Further, in the case of Ko Chee Huat v. Pendakwaraya [2009] MLJU 440, the court ruled the possession of forged document, and in this case forged credit card, justified the presumption of intention to use it for fraudulent propose. Based on these two cases, the documentary evidence as to the forged document is essential for any criminal prosecution. This includes the presumption of intention without proving the real intention to establish prima facie in the prosecution case. In Tee Thian See v. Pendakwaraya [1996] 3 MLJ 209, the court ruled, it is necessary for the prosecution to prove that the accused, have a possession of 28 counterfeit credit cards and not necessarily to prove that the accused has an intention to use it. This case illustrates the presence of knowledge is sufficient to establish the presumption of guilt for the act of forgery without proving the actual reason of the possession. This proposition can lead to the concept of strict liabilities under the criminal offences. However, the usage of the concept of presumption to establish criminal cases is quite controversial. The prosecution only requires producing 'likely facts' rather than 'actual facts'. Therefore, the advantage in proving intention lies on the prosecution side.

In most legal proceedings, the establishment of presumption depends on the rationality of the circumstances of fact related to the case in questions and this includes the question of knowledge and possession. However, in some aspects the concept of presumption is only applicable when it is almost impossible to attain a actual facts. In Berry v. British Transport Commission [1961 ] 3 All ER 65 75, the court ruled

'Presumptions of law ought to be used only where their use is strictly necessary for the ends of justice. They are inherently undesirable because they prevent the court from ascertaining the truth, which should be the prime object of a judicial investigation, and because, if they are allowed to multiply to excess, the law will become divorced from reality and will live among fantasies of its own.'

Furthermore, in Bradford Third Equitable Benefit Building Society v. Borders [1941] 2 All ER 205, the court ruled, it is important to understand whether or not the defendant has knowledge over the said false statement. Knowledge of the accused person during the alleged commission of crime is the ingredient to establish presumption of intention. As this matter is within the judicial investigation, the court laid out the foundation by stating it must be made with the intention that it should be acted upon by the plaintiff, or by a class of persons, which will include the plaintiff in the manner, which resulted in damage to him. It is submitted that, the testimonial from the witness must be interrelated with the documentary evidence that has been tendered before the court; the witness is the key of successful prosecution and remedy in the civil claim.

The meaning of intent to defraud was mentioned in R v Wines (1953) 37 CrApp R 197. The fact of this case is a man who falsified certain accounts to show that the firm that employed him was doing better than it was. The appellant argued that he made no monetary gain out of this. He merely did so in order to retain his employment with the firm. The court ruled by assertion of the meaning of defraud; -

'To deceive is, I apprehend, to induce a man to believe that a thing is true which is false, and which the person practicing the deceit knows or believes to be false. To defraud is to deprive by deceit: it is by deceit to induce a man to act to his injury. More tersely it may be put, that to deceive is by falsehood to induce a state of mind; to defraud is by deceit to induce a course of action'

Based on this judgment, there must be an intention of the accused person to deceit others regardless whether or not the accused person successfully obtains the benefit over the act of fraud. The intention can only be proven in the presence of preparation, action and conduct. These interrelated activities must be proven through various means either documentary evidence or witness testimonial before the court. In term of falsification of documents, the conduct of the accused person before the actual commission of crime is important to establish chain of events and ultimately to proof the presence of intention,

In the case of Chandrasekaran & Ors v. Public Prosecutor [1971 ] 1 MLJ 153, the gist of the prosecution case against accused person was in relation involving two forged treasury vouchers. The court ruled, the prosecution must able to prove the circumstance before the commission of crime takes place. This is important to examine the conduct of the accused person for the purpose of establishing presumption of guilt.

5. Legal Reform

The standardization of legal framework must be done in order to avoid legal confusion and contradiction. The purposed standard is to introduce new provision under Penal Code. The form regulation includes aspects such as to enhance the punishment section, and comprehend the diversity of offences. The introduction of interpretation section with regards to the fraud, forgery and falsification of document must be conveyed. This is particularly in respect of evidential standard that must be taken into consideration and given emphasis by the prosecution and plaintiff to prove beyond reasonable doubt. In term of 'presumption of guilt', the fair and reasonable approach must be adapted in court proceeding and interpretation of presumption provision by the court must be strictly applied.

Furthermore, to ensure the uniformity of the laws, the statute dealing with white color crimes must be introduced. This includes other offences such as fraud, forgery, falsification of documents and criminal breach of trust. The uniformity of the statute will encourage specific interpretation that can avoid confusion pertaining to the legal term and evidential aspect of the offences itself. The court must strictly adapt beyond reasonable doubt standard of proof when dealing with these types of cases.

For the purpose of investigation, the setting of white color crime unit that specialized in identified financial crimes must be established. This includes by giving more power through law either to access and collecting evidence for the purpose of prosecution. Thus, the mutual assistance between various agencies must be effectively performed to cater the need for investigation.

Acknowledgements

We would like to thank Accounting Research Institute (ARI), Universiti Teknologi MARA in collaboration with Ministry of Education in providing financial support for this research project, we are indeed very grateful for the grant, without which we would not able carry out the research.

Berry v. British Transport Commission [1961] 3 All ER 65 75

Bradford Third Equitable Benefit Building Society v. Borders [1941] 2 All ER 205

Chandrasekaran & Ors v. Public Prosecutor [1971 ] 1 MLJ 153

Dato' Raja Azwane Bin Raja Ariff & Anor, Dato' Tan Kim Kuan v. Dato Man Bin Mat [2009] MLJU1480 Harun Bin Abdullah v. Public Prosecutor [2009] 3 MLJ 337

Ketua Polis Ibu Pejabat Kontigen Polis Seremban & Anor v. Manoharan a/l Dorasamy [2004] 3 MLJ 565 Ko Chee Huat v. Pendakwaraya [2009] MLJU 440 Leong Kok Huat v. Public Prosecutor [1998] 6 MLJ 406 Lo Vung Chung v. Public Prosecutor [2011 ] MLJU 1171

Narayan Chettyar v. Official Assignee, Rangoon AIR 1941 PC

Pendakwaraya v. Ong Seh Seng

R v. Shama 91 Cr App R138

R v Wines (1953) 37 CrApp R 197

Takako Sakao v. Ng Pek Yuan & Anor [2009] MLJU 836

Tan Ker Loo v. Pendakwaraya [2011 ] 7 MLJ 714

Tee Thian See v. Pendakwaraya [1996] 3 MLJ 209Yap Toon Choy v. Hong Leong Bank Berhad & Anor [2012] MLJU288 Statute

Anti-Money Laundering and Anti-Terrorism Act 2001 Penal Code

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