Cash Is King: Good Practice for Cash Transactions

All your life, you believe that cash is superior to all other forms of legal tender.

Maybe you don’t trust e-wallets. Perhaps you don’t like how they ask for your personal data. Maybe you don’t like debit or credit cards because they are easy to misplace and lose. Maybe you don’t trust banks, or don’t like paying transactional fees. Or maybe you’re just used to physical cash transactions and feel like there is no substitute for the sensation of counting wads of bills. 

Now, you have enough cash to make payment for a big-ticket item, like expensive furniture or a piece of property. While there is nothing wrong with making an honest payment in cash, there are many pitfalls that businesspersons fail to avoid when making cash payments, time and time again. 

Just recently, the Court of Appeal observed in Yayasan Selangor v Aviation Development Corporation (M) Sdn Bhd [2019] 1 LNS 927 that “It is curious in the least to think that business people only deal in cash and that large sums of money are kept not in financial institutions but elsewhere“ and that it was “incumbent” on the party claiming that it had made cash payments to “clearly establish the source of its funds” failing which the court may be compelled to conclude that no such cash payments were made.

This seems to suggest that the Courts will begin with a presumption of doubt as to the veracity of cash payments, particularly of large sums. Although the facts of the Court of Appeal case concerned alleged cash payments of around RM17 million, it is important for any person claiming that the cash payment of a large sum was made, to have proper records of the same.

This article sheds some light on how to make a well-recorded large cash transaction, from the perspective of a lawyer who has seen countless ‘honest business relationships’ dealing in cash transactions fall apart and eventually end up in litigation.

1. Count the cash

It is good practice to verify the total sum that is being paid, in the presence of the person collecting the cash. Inspect large bills (i.e. banknotes of RM50, RM100) for counterfeit traits. Bank Negara Malaysia (“BNM“) recommends using the “Feel, Look, Tilt and Check’ method to do so, and this can be found in its published guidelines here.

2. Record cash transactions

While this sounds like common sense, many people do not keep proper records of cash transactions. When a payment is made via bank transfer, cheque or card, every digital movement is automatically recorded and stored in the bank’s internal records. However, with a cash payment, there is no such automatic recording. 

There is no hard and fast way to build a good paper trail. The most basic thing you can do is to make sure that there is a written acknowledgement to show that the other side has received the exact sum of cash paid, whether be it via a computer print-out, payment stub, letter, or a plain piece of A4 paper. However, a written acknowledgement on a paper is close to useless to anyone, let alone a court of law, if it only contains the signature of the person who collects the money. At the heart of it, a good written acknowledgement has (a) clarity, (b) context and (c) contemporaneity.

For clarity, the written acknowledgement should contain enough information for a third party to, upon looking at it, say “this looks like an acknowledgement for cash sum of RMxxx,xxx”.

For context, the written acknowledgement should contain enough context for a third party to link it to the subject matter of the transaction, e.g. sale of a particular house or a particular collection of machinery.

For contemporaneity, the less time there is between the time the cash is deposited and the time the written acknowledgement is made, the better.

Additionally, there may be special considerations for certain kinds of transactions. If someone is collecting the cash on behalf of the rightful individual recipient, you should satisfy yourself that the person collecting the cash has authorization to do so. This can easily be done through a quick phone call, but it would be exponentially better if there was a letter of authorization, or even an e-mail or text message from the rightful individual recipient.

If the rightful recipient is a company, firm or business, the same principle applies – do you know the person who is collecting the cash and are you sure that they are authorized to do so on behalf of the recipient?

3. Have a witness (preferably a lawyer)

While there is no law requiring that lawyers must be present during large cash transactions, there is undoubtedly an air of legitimacy injected into the atmosphere when a lawyer is in the room.

Lawyers are officers of the court and are expected to maintain high professional integrity. Any accusation of impropriety made against a lawyer is not to be lightly treated. As such, having a lawyer present as a witness to your cash transaction will help reduce the possibility of distrust or false accusations.

Perhaps the person you are dealing with prefers to keep the cash transaction casual, and not-so-serious. A good tip is to inform them that the volume of cash being moved is a large sum, and that you would want to ensure that the payment is made in a safe environment. 

If you are tight on budget and time, you could just get a person who is independent (i.e. not an interested party) to witness the cash payment process. It is, however, important to note that this is no substitute for a written acknowledgement (see above).

4. Keep a watch on BNM guidelines

Aside from the above tips, all persons who regularly deal with large sums of cash transactions should keep an eye out for any changes in relevant legislation.

At the time of this post, BNM has taken steps to increase the frequency of reports of large over-the-counter cash transactions, by reducing the threshold from RM50,000 to RM25,000, since 1 January 2019. This means that banks are now required to report any over-the-counter cash transactions which exceed RM25,000 in their daily cash threshold report to BNM. This measure is part of BNM’s efforts in monitoring of money laundering, terrorist financing and other illicit activities. 

The effect of this is, simply that, if you frequently take out cash exceeding RM25,000 from banks, you may or may not end up on the radar of BNM, Lembaga Hasil Dalam Negeri and/or other government authorities. Of course, you should not face any issues if you are running a legitimate business.

At the end of 2019, BNM had announced an intention to impose a cash transaction limit (CTL) of RM25,000 in the following year (i.e. this year) to curb illicit activities, with the possible exemption for cash transactions made to or with financial institutions, and humanitarian aid.

However, given the recent change in government, the rapid falling of oil prices and the coronavirus pandemic, it appears unlikely that BNM is moving ahead with its original deadline of imposing the CTL of RM25,000 this year. Nevertheless, those who frequently make large cash transactions should continue to pay attention to any news reports on capping cash transactions, as there may be certain reporting requirements which would be imposed if the proposed changes take effect.