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What happens to a company if it’s guilty of a crime in Malaysia?

8 months ago JS Lim

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This article is for general informational purposes only and is not meant to be used or construed as legal advice in any manner whatsoever. All articles have been scrutinized by a practicing lawyer to ensure accuracy.

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We’re all quite familiar with what happens to a person when they are convicted of a crime - they get fined and/or put into jail. Even when a person commits a corporate crime like graft, they get punished the same way like this director who stole RM18.9 million from companies he was in charge of.

Malaysians are familiar with companies themselves being up to no good, like Lynas. More recently, our government is pressing criminal charges against investment bank Goldman Sachs for its involvement in the 1MDB scandal, which is a company. But how do you charge an entire company with a crime, instead of the individuals responsible?

Image from The Star

Does that even make sense? Even if you find the company guilty, how do you put a company in jail? You can’t exactly throw their logo, company files, or their building into jail, so shouldn’t you go after the people in the company instead?

Yes, you’d go after the people acting on behalf of the company, but you would still include the company as one of the “criminals” for a few reasons we’ll explore below.

 

The company is better at taking responsibility

Image from imgflip

Put simply, making the company take responsibility is more efficient. It has more money to pay fines than a person, it’s much harder for a company to “run away”, and as you’ll see later, going after the company can also make its directors responsible automatically.

When an employee commits a wrongdoing, lawyers will want to go after their company alongside the employee because of a rule called “vicarious liability” - which refers to the fact that because the company is in charge of the employee and the employee is under orders, the company will have to take responsibility.

But, if the employee didn’t follow their orders, then the company is not responsible. For example, if a bus driver lets another person drive when they’re not supposed to, and then bus crashes, then the bus driver is solely responsible - the company is not involved. To put simply, if the employee was acting outside of their duties, whether they were off-duty or disobeying orders, then the company doesn’t take any responsibility.

[READ MORE - If a worker hurts you by accident in Malaysia, do you sue him or his boss?]

 

There’s a rule that makes the people in charge of the company responsible

Image from NST

A company can’t actually do things without people to be its brains, arms, and feet. Under certain principles of law, you can actually hold the people who were acting on behalf of the company responsible for a criminal offence. This isn’t enshrined in any particular law in our country, although some of our laws do specifically make the directors, agents, and officers of a company personally liable for crimes related to terrorism, like in Section 87 of our Anti-money Laundering, Anti-terrorism Financing And Proceeds Of Unlawful Activities Act 2001.

Generally speaking, a company is considered a separate legal entity, like a different “person” from the people who work for it - but the law will also not allow this to be abused. There’s a legal practice of “lifting the corporate veil” in certain cases to make sure justice is done. For example, if a company’s director decided to use the company to cheat its shareholders, you can actually bypass the company and hold the director directly responsible if he was using the company as a convenient “shell” or “shield”.

Similarly, you could hold employees of the company responsible as well if they were the decision maker behind the crime. On top of that, the directors, being in charge of the company, may have to justify that the crime:

  1. Happened without their permission/They were not in on it

  2. They took all reasonable measures within their power to prevent the crime from happening

[READ MORE - How is a company considered a "person" in the law?]

 

But how is a company punished if it’s guilty of a crime?

Image from Walsh Group. Image for illustration purposes only.

A company’s punishments work quite differently from normal people since we’ve already established that you can’t send a company jail. Instead, there are a few other types of punishments that are used:

  1. Fines

  2. Reprimands (just a warning)

  3. Suspension of trading or delisting (for public companies)

  4. Dissolution (company is forced to close down)

When you have a situation where directors or employees are responsible together with the company, you can still give jail terms to the actual people, while you fine the company. Take how Goldman Sachs was charged by Malaysia - our government is looking to slap Goldman Sachs with huge fines, but the jail time that they want to impose will be served by the people in charge who acted for the company.

If a company wrongs you, but it’s not a criminal offence (one that concerns the country where the government steps in), you may still be able to bring a civil action (dispute between individuals) against the company and even it’s directors under certain cases. You can read more about that in our other article linked below.

[READ MORE - If a company in Malaysia fails, can I sue the directors?]

Tags:
malaysia
company law
vicarious liability
corporate crimes
goldman sachs
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JS Lim

Jie Sheng knows a little bit about a lot, and a lot about a little bit. He swings between making bad puns and looking overly serious at screens. People call him "ginseng" because he's healthy and bitter, not because they can't say his name properly.


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