MySay: Navigating the waves of corporate and personal liability on corruption

This article first appeared in Forum, The Edge Malaysia Weekly, on March 9, 2020 - March 15, 2020.
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In another three months, the law on corporate liability for corruption takes effect officially, as the two-year grace period expires on June 1. However, the business fraternity seems slow to appreciate the far-reaching implications of the new provisions.

Business owners and top management must appraise the radical changes of the risk allocation for potential acts of bribery and design an anti-corruption compliance programme to comply with the legal requirements.

The MACC (Amendment) Bill 2018, which was passed in parliament on April 4, 2018, and gazetted a month later on May 4, introduces a new Section, 17A, which sets out “Offence by Commercial Organisation” in the MACC Act 2009.

The thrust of the law is to introduce hefty fines for commercial organisations and custodial sentences for directors and officers for acts of corruption by any “associated persons” of the business.

The Law says: Section 17 A(1) — A commercial organisation commits an offence if a person associated with the commercial organisation 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 organisation.

Consequently, the corrupt act of such an associated person will now be attributed to the commercial organisation.

The gratification can be either for the “benefit of that person or another person” with intent to “obtain or retain business for the commercial organisation” or “to obtain or retain an advantage in the conduct of business for the commercial organisation”.

Thus, Section 17A criminalises an organisation for corruption-related actions by associated persons done for the benefit or advantage of the company.

The risk of liability under this new corporate offence is set

Commercial organisations that commit an offence shall be liable to a fine of not less than 10 times the sum or value of the gratification that is the subject matter of the offence, where such gratification is capable of being valued or is of pecuniary nature, or RM1 million, whichever is the higher, or to imprisonment for a term not exceeding 20 years or both. {S17A (2)}

If this corporate offence is committed by a commercial organisation, the director, controller, officer, partner or member of management are all exposed to liability.

The commercial organisation may be liable whether or not its top-level management and or representatives had actual knowledge of the corrupt acts of its employees and/or its associated persons. Thus, the act imposes strict liability on commercial organisations.

The classification of commercial organisations

Section 17A classifies commercial organisations as:

• A company that has been incorporated under the Companies Act 2016 (ACT 777) and carries on a business in Malaysia or elsewhere.

• A company incorporated wherever and carries on a business or part of a business in Malaysia (A foreign company).

• A partnership under the Partnership Act 1961 (Act 135) or a Limited Liability Partnership under the Limited Liability Partnerships Act 2012 (Act 743). This partnership carries on a business in Malaysia or elsewhere; or

• A partnership wherever formed and carries on a business in Malaysia or elsewhere.

• Partnerships registered elsewhere but carrying on business in Malaysia.

• Unincorporated entities — Refer Interpretations Act 1948 and 1967, which includes, “person” is defined as bodies of persons, corporate or unincorporated, “a person associated with the commercial organisation” includes both corporations and individuals.

Who is an associated person?

The categories of the associated person(s) (who may carry out the corrupt act) are kept wide. The list of individuals falling within the term “person associated with a commercial organisation” include the director, partner, employee and a person who performs services for or on behalf of the commercial entity.

The owner(s)/directors of any commercial organisation must appraise that the last category could extend to the firms/companies’ agents, distributors, contractors and even subsidiaries.

The law makes clear that the question whether a person who performs services for or on behalf a company will be determined based on interpretation and all relevant circumstances, and not merely to the relationship between the person and the company.

Source of the new law

The corporate liability provisions are modelled after the UK Bribery Act 2010 (UKBA), “Failure of Commercial Organisations to Prevent Bribery” and the US-based “Foreign Corrupt Practices Act 1977 (FCPA).

Corporate liability is the liability imposed upon a company or corporation for any criminal act done by any natural person. The purpose of applying the corporate liability provision was to criminalise commercial organisations if any associated person had committed an act of corruption with the intention of obtaining, retaining or taking advantage in the conduct of business for the organisation.

The principle of corporate criminal liability is based on the doctrine of “respondeat superior” where the master is made liable for the acts of his servant.

Corporations or most other legal entities may be criminally liable for the crimes of their employees and agents. Any corporation can be made liable for an act of its agent or servant if she/he (a) commits a crime; (b) acts within the scope of employment; and (c) with the intent to benefit the corporation.

So, what’s the defence?

Under Section 17A(3) — if the commercial organisation is found liable under the corporate liability provisions, a person who is the director, controller, officer or partner of the organisation or a person who is concerned with the organisation’s management affairs at the time of commission of an offence, is deemed to have committed that offence unless:

• such persons can prove that the corrupt act was committed without his consent or connivance; and

• that he exercised due diligence to prevent the commission of the offence as he ought to have exercised, having regard to the nature of his function in that capacity and to the circumstances.

Adequate procedures

If a commercial organisation is charged with a corporate liability offence, it has to prove that it has in place “adequate procedures” designed to prevent persons associated with the commercial organisation from undertaking such conduct, as provided under Section 17A (4).

Hence, there is a need for the company/firm to put in place “adequate procedures” so it can have a defence in case there is proven corruption by the associated person.

Ministerial guidelines on adequate procedures

The government has already published the Five (5) Ministerial Guidelines for commercial organisations as a guide to set up adequate procedures. These guidelines are aimed at assisting commercial organisations better understand what adequate procedures should be implemented. This will help minimise the occurrence of corrupt practices relating to their business activities, thereby safeguarding these businesses against unwanted issues.

The five principles are: (i) top-level commitment; (ii) risk assessment; (iii) undertake control measures; (iv) systematic review, monitoring and enforcement; and (v) training and communication.

These principles are reference points for any anti-corruption policies, procedures and controls as part of the requirements of the statutory provisions.

It will, therefore, be critical for directors and management to roll out an anti-corruption compliance framework and systems to demonstrate due diligence in preventing such corrupt offences.

Adequate procedures should include:

• A governance and compliance framework for key business functions where such risks may occur.

• Where required, adopt the standards under ISO 37001, which establishes the anti-bribery management system (ABMS) for the organisation.

Are these preventive steps a get-out-of-jail-free card?

Putting in place such adequate procedures could reduce the risk of incurring high financial costs and penalties, which impact on the bottom line of commercial entities. It also avoids severe damage to their reputation when confronted with such charges.

Selvaraja Muthaya is managing partner of Selvaraja Muthaya & Co

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