Fraud Investigation, Investigative Powers & Admissibility of Evidence
Authored by Alya Qistina Junaidy on November 11th, 2024
Definition of Criminal Investigation
An investigation involves a thorough inquiry and inspection of evidence which determine facts following the objective receipt of an allegation. Evidence is then amassed after an investigation to form a basis for further action. Further actions could include decisions such as whether formal charges or misconduct should be made against a staff member or whether a termination of a staff’s contract is necessary.
In reference to the above, a criminal investigation is further accompanied by heavier burden of prosecution, to determine whether an offence has been committed and for evidence to be gathered, in order to protect victims involved. The criminal investigative process is part of a system of accountability. The manner or approach of its execution must support this system as well as the interests of justice.
Criminal investigations in Malaysia involve those offences which fall under the Penal Code (Act 574). The highlights discussed in this paper are mainly fraud-related offences. The Penal Code does not define the word “fraud” however provides for “fraudulent offences” which require the element of “dishonesty” in offences such as cheating, criminal breach of trust, criminal misappropriation and theft.
Types of Fraud
Fraud is defined as a deliberate deceiving action with intention to obtain an unauthorized benefit, for oneself or an organization, by false suggestions, suppression of truths or other unethical means, which are believed and relied upon by others.
In Section 24 of the Penal Code (Act 574), “dishonesty” is defined as an “intention of causing a wrongful gain or wrongful loss to the other party”. In Section 24, “fraudulently” refers to a manner where “a person is said to do a thing fraudulently if he does that thing with intent to defraud, but not otherwise”. An emphasis was placed on intention to deceive.
Fraud can happen in any sectors; investment, insurance, real estate, finance or any day to day business. Some common types of fraud include tax fraud, credit card fraud, wire fraud, securities fraud, and bankruptcy fraud.
Fraud can be categorized through many lenses. Firstly, we can look at the degree of victimization. Here, fraud can be classified by First-party fraud, Second-party fraud and Third-party fraud.
First-party fraud is where the person knowingly misrepresents their own identity for material gain. The details can be as little as exaggerating their income, fabricating employment history, or misrepresenting their finances and figures to gain services or advantage.
Second-party fraud is when another person knowingly gives his identity to another individual to commit fraud. A common syndicate involves money mulling. The money being moved are usually the result of criminal activities or money laundering.
Third-party fraud is where an individual’s identity is being used for fraud without their consent or knowledge, to gain credit or products. This can involve manufactured identities using stolen or false information.
Next, we can look at fraud through the lens of prevalence. Occupational fraud is the largest type of fraud that organizations are up against. It involves fraud committed against the organisation by their own officers, directors, or employees. They make use of their occupation for personal enrichment through deliberate misuse organisation’s resources and assets. Occupational fraud in essence is an attack against the organisation from within, by the very people who were entrusted to protect its assets and resources.
There are many categories of occupational fraud, but the three primary categories – which are both most prevalent and of highest risk – are asset misappropriation, financial statement fraud, and corruption.
To elaborate, asset misappropriate fraud can include billing schemes, cash larceny, skimming, check and payment tampering, theft of non-cash assets, payroll schemes, and expense reimbursement schemes. Financial statement fraud involves intentionally causing a material misstatement or omissions in the organisation’s financial statements. According to 2024 Occupational Fraud 2024 report, Association of Certified Fraud Examiners reported that financial statement fraud is least prevalent out of the three but is the costliest in loss. Corruption offences include bribery, conflicts of interest and extortions. They fall in the middle in terms of both frequency and losses.
Qualities of A Good Investigator
There are a few qualities often mentioned of a good investigator, but mainly, throughout his investigation, he must possess objectivity, impartiality, and independence. A good investigator must be competent is his skills and reasoning to conduct his investigations well and fair.
An investigator will examine and determine the veracity of allegations of all kinds of criminal, corrupt, and fraudulent practices. The way the investigator approaches his investigation is that he must always maintain objectivity, impartiality and fairness throughout the investigative process. He must conduct his activities competently and clad with highest levels of integrity. In addition, the investigator is to perform his duties independently and free of improper influence without pressure or fear of retaliation.
An investigator must disclose any arising or potential conflicts of interest to his supervisor in a timely manner. An investigator must also maintain confidentiality of any non-public information associated with an investigation. A good investigator must observe the principles of investigation which include; upholding presumption of innocence throughout the investigation, maintaining a professional, impartial and thorough investigation, and showing due care of handling and sharing of confidential information.
Objectives of an Investigation Being Carried Out
A primary objective of an investigation is to determine relevant facts of an allegation to allow for initiation of necessary actions, including arrest or disciplinary proceedings.
The investigation’s objectives and scope can be determined by the investigator by answering;
Once the factual and evidentiary basis is formed, appropriate action can be taken against the accused. Investigative findings are based on both facts and related analysis, which may include reasonable inferences.
The Investigation Process and Requisites for a Successful Investigation
The investigative process is comprised of 3 consecutive elements; assessment, investigation, and reporting.
1. Assessment
During the assessment stage, a preliminary inquiry or initial review is conducted to determine if there is sufficient basis to initiate a formal investigation into a potential crime. Basic evidence is gathered, preserved, and secured, while the available information is evaluated to assess if further investigation is warranted.
The outcome of this stage may result in either case closure due to insufficient evidence or assignment of the case to an investigator. If assigned, an investigation plan is prepared, outlining the steps necessary to objectively examine the allegation or factual basis. Decisions on how to proceed with the investigation follow the organization’s rules, policies, and procedures, and the investigation officially begins once an investigating officer is appointed.
2. Investigation
After the assessment stage, the investigation phase begins. This involves planning and carrying out targeted inquiries to gather the necessary evidence to objectively establish the factual basis of an allegation.
Key steps include preparing an investigation plan, interviewing individuals with relevant information and documenting their statements, gathering documentary evidence, conducting financial and IT analyses (if applicable), evaluating all information and evidence, and finally, reporting findings and making recommendations.
3. Reporting
The outcome of the investigation stage is followed by reporting by the investigator. The resulting report can come about in various manners following the findings of the investigator.
Firstly, he may produce a Closure Report (No Further Action) report. This is where the investigation does not result in any recommendation for consideration of disciplinary, administrative, nor other actions. It can be produced in circumstances where the evidence obtained by the investigator does not substantiate the allegations, and also in circumstances or whereby the nature of cases that an investigation is not warranted. For example, cases involving threat to national security.
Secondly, shall the investigation reveal adequate evidence to reasonably conclude that a wrongdoing had occurred, the investigator will prepare an investigation report (IR) which sets out the allegations, the investigation methodology and the facts established in the investigation. In cases where the complaint involved more than one allegation, the investigation report will provide details of the investigative steps done to corroborate each allegation, as well as the evidence gathered as relevant to each allegation.
In addition, he might also produce a disciplinary report to convey to the responsible managers the issues gotten out of the investigation which require immediate corrective action. This can be recommendations to strengthen internal controls, prevention of similar incidents, and also include observations outside the parameters of the investigation that require management attention.
A successful investigation depends on five key elements. First, company management needs to back the investigation teams, whether HR, ethics, compliance, by ensuring they have the necessary resources and funding to carry out the investigation effectively. Second, the right resources need to be in place, whether that means equipping investigators with useful tools or bringing in external specialists like forensic experts if those skills are not available in-house.
Third, legal and regulatory compliance is crucial. Investigations are subject to legal guidelines around timeliness, employer responsibilities, and the conduct expected in workplace investigations. Even a simple case can escalate into a complex legal issue if mishandled. Fourth, thorough documentation is essential; this allows investigators and management to make decisions based on solid information rather than memory. A well-documented investigation report is vital, especially if the findings need to hold up in court.
Lastly, follow-up is a must. Just because an investigation ends doesn’t mean the issue is resolved. Following up to confirm, for instance, that disciplinary actions have been enforced, or using investigation insights to update policies and enhance employee training, can be just as important as the investigation itself.
Framework Guidance for Investigation Under Criminal Procedure Code and Evidence Act 1950
Criminal Procedure Code (Act 593) and Evidence Act 1950 includes legislative procedure and guidance to reporting of a crime to the police, the investigation, and the trial in court, for purpose of perpetrators of crimes to be punishable for their acts. The rules of criminal procedure are designed to guarantee constitutional due process to individuals charged with a crime.
The administration of criminal justice in Malaysia provides for the fundamental principle that ‘an accused person is innocent until proven guilty.’ The system provides various safeguards to protect accused person, comprehensively covering the crime a defendant allegedly committed, the law enforcement officers who arrested him, the court system that prosecutes and defends him, and how the defendant is punished if he is convicted. Evidence Act 1950 supports the Criminal Procedure Code in the conduct of and preservation of evidence to support the process of an investigation. Looking at binding court cases also allow an insight into considerations of the court.
In contrast, Criminal Procedure Code provides for investigations in Section 107 to Section 120 which deals with information to police and their powers to investigate, while Evidence Act 1950 covers relevant evidences from oral witnesses and documentary evidence, such mentioned in its Section 3 and Section 5. Chapter IV deals in depth of Oral Evidence and Chapter V deals in depth with Documentary Evidence.
Chapter IX (Section 118-134) of EA deals with Witnesses. Section 118 of Evidence Act provides for competent persons to testify, citing those the court prevented from understanding questions or giving answers to those questions by tender years, extreme old age, disease, whether of body or mind, or any other cause of the same.” Section 119 provide for “dumb witness” where a witness is unable to speak may give his evidence in any other manner in which he can make it intelligible, for example by writing or signs; but the writing must be made written and signs be made in open court. This will be considered oral evidence.
Section 120 to 127 of Evidence Act 1950 deals with the privileges provided under the law in regards to compellable evidence in court. These privileges are martial communication privilege, legal professional privilege, state/crown privilege, and privilege against self-incrimination. These privileges were mentioned and applied in Ghouse Bin Haji Kader Mustan v R [1946] MLJ 36, See Teow Chuan & Anor v Dato’ Anthony See Teow Guan [2006] 3 MLJ 97 (confidentiality of legal professional communication), and BA Rao v Sapuran Kaur [1978] 2 MLJ 146 (crown privilege on documentary evidence).
Ensuring Fairness to Suspects In Terms of Fairness, Impartiality, and Justice from First Information Report Until Completion of Investigation When Complied with Criminal Procedure Code and Evidence Act 1950
The legislative procedure had been designed to support our criminal justice system which is a system of accountability. Through the combined efforts of law enforcement agencies, the court system, and the detention and supervisory agencies for offenders, they all work together to maintain a society’s rule of law and are interlinked to dispense justice to those who have committee a crime. The system also provides for a list of safeguards to protect accused persons from the commencement of investigation, to competency of police officers and witnesses, admissibility of evidence and many other elements of an investigation, through the Criminal Procedure Code and Evidence Act to ensure fairness, impartiality and justice.
Section 106 of Criminal Procedure Code mentions the First Information Report which becomes the basis upon which an investigation is activated by police. In Pendakwa Raya v Dato Seri Anwar bin Ibrahim, the court explains that the First Information Report is given with the object of putting the police into motion to investigation. Section 114 (g) of Evidence Act 1950 states how the First Information Report is to be tendered. Based on Balachandran v Public Prosecutor, the court has considered the issue of whether the failure to adduce the First Information Report at trial would trigger an adverse inference against the prosecution under Section 114 (g) of Evidence Act.
Section 112 of Evidence Act provides for a witness statement, which is a signed document recording evidence of a witness. It reads that a police officer may examine orally any person supposed to be acquainted with the facts and circumstances of the case and shall reduce into writing any statement made by the person so examined. It also says that such person shall be bound to answer all questions relating to the case from the officer and in truth. The police officer examining must also inform to the witness of provisions stated above, laid out in subsections 2 and 3 of Section 112.
Section 112 of Evidence Act also covers that the statement only be made during a police investigation towards a police officer at the rank or above the rank of inspector only. This ensures and emphasises that the investigation officer must be competent to take down the witness statement.
The criminal justice administration constantly keeps itself up to meet the challenges of investigations, whether it be from standpoint of statutory challenges, or equipping investigation officers with skills needed, research into modus operandi of fraudsters, or equipping the teams with necessary digital tools to upkeep with ever-evolving criminal landscape.
Legal and Non-legal Consequences of Non-compliance with the Criminal Procedure Code and Evidence Act When Conducting Criminal Investigations
It must always be stressed that criminal convictions can carry severe consequences to an individual. These consequences include paying steep fines, court costs and loss of liberty by imprisonment. There have been several false imprisonments in criminal justice administrations only to find out years later that a law-abiding citizen’s freedom of movement had been violated by non-compliance of legislative procedure.
Failure to comply with the Criminal Procedure Code and Evidence Act can give direct legal consequences to the case. The investigation can be halted and risks of case being closed. The perpetrator will not be brought to justice. Because a criminal prosecution requires legal burden of beyond reasonable doubt, any technical evidentiary mishaps could open an opportunity for the perpetrator to be acquitted and discharged.
Further issues have been stated in Pendakwa Raya v Kang Ho Soh [1992] 1 MLJ 360, where the prosecution could not use an arrest report (AR) made by the police, as it was not considered a First Information Report by the court. The arrest report was not allowed to be used to corroborate the evidence of the officer and therefore could not be put in evidence. In PP v Foong Chee Cheong, the First Information Report made to the police was verbal and never reduced to writing. Partly due to this, the accused was acquitted without defense being called.
In Section 112, a relevant witness that refuses to answer any question for a witness statement, would tend to be exposed to a criminal charge or penalty or forfeiture. The section can also be used for the purpose of impeaching the credibility of a witness who does not comply with Evidence Act 1950. Witnesses’ communication privilege is also provided by Evidence Act 1950 and going against this could have the investigation team suffer legal consequences.
Types of Evidence to Be Gathered During An Investigation
There are two classifications of evidence mentioned by Evidence Act 1950 which are oral evidence and documentary evidence. There are also other types of evidences recognised though not necessarily admissible in the court of law. These are circumstantial evidence, physical evidence, primary and secondary evidence, similar fact evidence, and hearsay evidence.
Oral evidences can be obtained through relevant witnesses and be reduced to writing into a witness statement. These include all statements which the court permits or required to be made before the court by witnesses related to matters of fact under inquiry.
Documentary evidences are all documents produced for the inspection of the court. In R. v. Maqsud Ali [1965] 2 All ER 464 p. 469, ‘documents’ means any matter expressed, embodied in disc, tape, film or other devices, by means of letters, figures, marks, symbols, signals, isgns or other forms of expressions, descriptions, or representations.
Conditions for the Admissibility of Evidence Based on the Evidence Act 1950
Evidence is the material presented to courts to prove or disprove a claim in civil courts or establish a prosecution case or set up a defence. There are statutes that regulate how evidence is to be obtained. The first condition of admissibility of evidence based on the Evidence Act 1950 is that the evidence must be relevant evidence, as in Section 5.
Whereby evidence obtained is in contravention of Evidence Act 1950, is the evidence presumed to be inadmissible? The Malaysian courts say no, the evidence is not inadmissible merely because it had been unfairly or illegally obtained. The test of relevancy beats the illegality of obtaining evidence, though not always without civil repercussions to the investigative team. This includes methods such as entrapment or agency of agent provocateur.
There are even further elements to be noted in the producing the evidences in court. For example, in oral evidence, Section 60 of Evidence Act provides that it must be direct, and from the witness with personal knowledge i.e. excluding hearsay evidence. Section 61 of Evidence Act provides that documentary evidence must be proved either by primary or by secondary evidence. Though the main test stands that the evidence to be admissible is that it must be relevant to inquiry of facts.
Exceptions to the Hearsay Evidence
Hearsay evidence refer to an out-of-court statement made by someone other the witness reporting it. It is a testimony from a witness under oath who is reciting an out-of-court statement. It is not a direct statement nor done with personal knowledge of the event. They are generally considered inadmissible by the court.
However, there are two exceptions to the hearsay evidence which could render the statement admissible in court. Firstly, that the hearsay be a dying declaration. A victim whose dying declarations related to the facts surrounding the act that caused his or her dying condition are excepted from the hearsay rule. For the dying declaration to be admissible, the declaration must have been made while the victim was at extremity to her end of life, or under a sense of impending death without hope of recovery. Under Section 32 of Evidence Act 1950, it is outlined the persons who cannot be called as a witness and a dead person is one.
Second exception to the hearsay rule is Res gestae, whereby it is an involuntary exclamation or acts made at the time of the offence was committed and so closely connected to the main fact in issue as to be a part of it. These acts or utterances are not planned, but instead forced from the individual by the excitement of the moment. The ground of reliability is their spontaneity.