Malaysian companies used to be immune from prosecution. This new law changes it

We know what happens when someone is arrested for corruption: they either get jailed, fined, or both. This applies even if they committed corruption on behalf of their company, such as this man who was arrested for bribing a government official RM 16,000 to secure a government contract for his company. 

But the rules are different for companies. The company itself can’t be charged for corruption, and often get away scot-free or at most punished indirectly for the offence. This is what happened with companies involved in the 1MDB scandal.

Goldman Sach’s employees were alleged to have bribed Malaysian officials to ensure that they would be selected for underwriting bonds on behalf of 1MDB. But our Attorney-General could only filed criminal charges against Goldman Sachs based on securities law. In other words, there were no corruption charges against Goldman Sachs, even though bribery was involved. 

You might think that putting the wrongdoers into prison is enough, and it doesn’t matter if it’s through infringement of securities law or anti-corruption laws. Someone got punished. But what if Goldman Sachs had been more careful with the security law too, thus avoiding charges for that? Now we have nothing to pin on them; not the corruption charges, or the security laws violation.

Then why not just bring a corruption charge against Goldman Sachs directly? This is because...

Our current anti-corruption laws does not punish companies.  

It can seem pointless to want to punish a company as they are just a name on a building, and not the people working inside. But this is where the line can get fuzzy. Under the law, companies are legally recognized as an individual entity. They have some of the rights and liabilities of a person, and can do fun things like buying properties, holding cash, and even suing people. 

But unlike a person, they can’t be charged for certain crimes, specifically corruption. If they were to bribe someone to receive a favourable chance at a contract, only the person directly involved in the dealings will be charged, instead of the higher ups and the company itself. 

That’s because we have little to no anti-corruption laws punishing companies. The Malaysian Anti-Corruption Commission Act (MACCA) 2009 is heavily focused on living human beings. And the main provision governing this scenario (Section 17 of the MACC Act 2009) only punishes those who carried out dirty deeds on behalf of the company. The law is silent on the liability of the mastermind or whoever the deed is carried out for (ie: the company). 

It might seem fair to just punish these corrupt employees rather than the company itself. But there are two reasons why this law can be abused:

• The company enjoys the benefits of bribery without too much consequences. In certain scenarios, the company may be even implicit in ordering or condoning such actions.This can be seen when the bribes were given out to secure business deals.
• Jailing the employees does little to encourage the company to avoid future incidents.

This gives companies little incentive to enforce anti-corruption measures against its own employees or contractors. After all, the rewards outweighs all the risk.

It seems that the authorities are stuck in a pickle, and when all hope seems lost…

Parliament amends law to make companies liable for graft

Parliament is rectifying the situation by amending the Malaysian Anti-Corruption Commission Act (MACCA) 2009, with the passing of the Malaysian Anti-Corruption Commission (Amendment) Act (MACCAA) 2018. 

The provision, Section 17A(1), reads as follows:

“A commercial organization commits an offence if a person associated with the commercial organization corruptly gives, agrees to give, promises or offers to any person any gratification whether for the benefit of that person or another person with intent-

(a) to obtain or retain business for the commercial organization; or 

(b) to obtain or retain an advantage in the conduct of business for the commercial organization.”

What this means: If an employee or independent contractor commits bribery to gain advantage for the company, the company can now be charged for the same criminal offense: corruption.

Notably, this provision covers independent contractors as well, who usually aren’t considered part of the company. This is significant, as companies nowadays tend to outsource labour and even whole departments such as payroll, human resources and IT. 

Companies now have to be proactive, and can’t just ignore questionable business practices by their employees and independent contractors. So if the MACC knocks on their door, companies can no longer say “I don’t know”.

The burning question now is: what punishment could the company face for failing to prevent bribery?  

Companies may now face jail time if convicted

Companies could face stiff punishment if they are convicted of corruption. The punishment is:

(a) a minimum fine of RM1,000,000 (one million ringgit) or 10 times the value of bribe given, whichever is HIGHER, or;

(b) imprisonment of up to 20 years, or;

(c) BOTH fine and jail. 

At this point, you’re probably wondering, how is a commercial organization going to be imprisoned? Do you cuff the contract it’s written on, or do you dump the brick and mortar building into a (very, very, very large) prison?

Section 17A(3) got that covered. Essentially, it’s everyone who is “concerned in the management of its affairs”. This broad wording covers pretty much everyone from medium to high-level management personnel. Plus, the provision singles out directors, controllers, officers and partners as a special category of potentially liable persons. 

The law also acts in good faith and does not punish a company blindly for their employee’s misdeeds. For example, a lone employee might commit bribery to get himself better career prospects, or just secure a bigger annual bonus. The company just happened to benefit, without being knowingly complicit of the crime.

Section 17A(4) allows the company to claim a defence in court, if it can prove that it had “adequate procedures” to prevent the associated persons from committing corruption offences. It is unsure whether this defence is a total defence, or only a partial defence in reducing sentences (ie: jail time to fine only). We will have to wait for further clarifications from the Government or the courts. 

Similarly, other people in the same company, especially management and colleagues of the lone employee, can avoid being charged as complicit in the crime. Section 17A(3) allows individual employees to claim a defence, if they had performed relevant due diligence procedures. Time to pick up that compliance handbook again!  

So our pro tip for companies are: Perform relevant due diligence procedures and stay away from corruption!

Malaysia’s corporate ethics are moving towards a positive direction. 

The introduction of MACCAA 2018 is a sign that Malaysia is keeping up with the times, and are working towards closing any loopholes that enable companies to avoid punishments.

Whilst the law may sound harsh to management level personnel, it actually isn’t. Nobody will be in trouble as long they keep their hands clean. In addition, management and employees need to shake off the notion that only the compliance department is responsible for anti-corruption policies, as the defences are individual-centric as explained above.  

For businesses, the MACCA 2018 will curb illegal business practices such as kickbacks, bid rigging and unscrupulous bargaining. This may be frustrating for businesses as they would have to reconsider business aspects such as contractor selection methods and the use of middle-men. However, if enforced properly, this legislation could really help economic growth as it removes hidden ‘business costs’ and encourages integrity in the private sector.