Thursday 28 Mar 2024
By
main news image

An op-ed on the Court of Appeal's (COA) decision on Datuk Seri Najib Razak versus the public prosecutor: Significance of the case for corporations and public servants by Philip Koh Tong Ngee, Professor (Adjunct), University Malaya and Advocate & Solicitor, High Court of Malaya.

On Dec 8, 2021, the COA handed down its decision rejecting the appeal of the former prime minister (the appellant) in his attempt to overturn the decision of the High Court which held the appellant guilty of a total of seven charges relating to: i) receipt of gratification of RM42 million by involvement in decision-making as a public officer of the government of Malaysia in breach of Section 23 of the Malaysian Anti-Corruption Commission (MACC) Act 2009; ii) breach of Section 409 of the Penal Code that as an agent of SRC International Sdn Bhd and in his capacity as the then prime minister, finance minister and advisor emeritus committed a criminal breach of trust as in those capacities as being entrusted with dominion over RM42 million belonging to SRC; and iii) money-laundering charges under Section 4(1) (b) of the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA) by receipt of total of RM42 million into his personal bank accounts.

Significance of case for public body officer

A controller shareholder and also the board of director of a corporation, including a government-linked company (GLC), ought to take heed of the COA's affirmation of Justice Mohd Nazlan Mohd Ghazali‘s High Court decision. For account of the High Court decision, see The Edge reporting of the same.

A director cum dominant owner is now fastened with fiduciary duties which in the event of found misconduct may be exposed to not only civil liabilities under company and capital market laws and regulatory regimes but also severe sanctions under criminal law in the form of custodial penalties.

Finding on corruption charges

The court held that there are two main elements for an offence of illegal gratification under the MACC Act: i) the accused is an officer of a public body; and ii) the accused has used his office or position for gratification for himself, his relative or an associate.

The COA upheld the High Court ruling that the ex-prime minister being a member of the administration and a Member of Parliament and in receipt of public funds in being remunerated from such is a “member of a public body".

As for use of position for gratification, the court noted that there are statutory presumptions under Section 23(2) of the MACC Act upon the prosecution proving that an accused has taken part in the making of any decision or taken any action and such a decision or action concerned a matter in which the appellant had either a direct or indirect interest.

The appellant's presence in two Cabinet meetings approving government guarantees in favour of pension fund Retirement Fund (Incorporated) (KWAP) when read with the Kod Ethika bagi Anggota-Anggota Pentadiran (D599 and D599-A) which precludes a holder of public office to ensure that no conflict of interests arise between his holding of the public office and personal interest — when such a situation arises, a public officer must not only declare his interest but also leave the meeting and his non-attendance during the meeting or deliberations be recorded. The appellant in this case failed to comply with the above stated ethical norms.

The critical issue of whether the appellant had an interest in the subject matter of the executive decision made in the Cabinet was also found to be so and the COA observed that “there was overwhelming evidence which established a glaring personal interest … ” in the Cabinet decision to issue the two government guarantees which unlocked a flow of funds from KWAP to SRC.

It is of interest that the prosecution is not required to prove receipt of gratification and that it suffices under Section 23(2) of the MACC Act that there has been use of position to obtain gratification.

The finding that the appellant was not an officer of SRC and representative of the government

This part of the COA's ruling throws up an interesting facet. It was the appellant's defence case that Section 23(4) of the MACC Act which provides that “this Section shall not apply to an officer who holds office in a public body as a representative of another public body which has the control or partial control over the first mentioned public body in respect of anything done in his capacity as such a representative for the interest of that other public body.

The COA held that this exemption from the strictures of an offence of gratification is not applicable to the appellant as the appellant could not be deemed as an officer of SRC and representative of the government.

The finding that the appellant was not an officer is interesting. The term “officer" of a corporation has been defined under the Companies Act 2016 to include any director, secretary or employee of the company. The reference that the appellant cannot be deemed to be a representative of the government also raises questions. The COA is cognisant that the appellant played a dominant role in SRC by virtue of his being the prime minister at the material time. We must also draw attention to the fact that the COA in another section affirmed the finding that the appellant was a shadow director of SRC (see below). Section 4 of the Companies Act defines a “director" to include a shadow director as its states “a person in accordance with whose directions or instructions the majority of directors are accustomed to act ... ”

The exemption under Section 23(4) being not available to the appellant could be justified on separate analytical grounds of construction of the provision and not be finding that the appellant was not an officer of SRC nor that he was not a representative of the government. The finding that the appellant was a shadow director brings him within the compass of the Companies Act, and though the term "representative" is not defined, it does appear that surely a prime minister or finance minister is a representative of the government of Malaysia. The exemption under Section 23(4) of the MACC Act is meant to provide a "defence" to a holder of office in a public body which is merely at the holding level in a group enterprise and acts or decisions done solely for the interest of a member of that group shall not be deemed to have been a commission of an offence of gratification under Section 23(1) of the MACC Act.

Finding of a director and agent under the Penal Code: The COA referred to the Hansard of a speech by then law minister Datuk Syed Hamid Syed Jaafar Albar that a purposive construction be made on the scope of what constitutes a director or agent under the Penal Code. Reference to the Hansard as an aid to statutory construction though not determinative of judicial decision-making is salutary. The CAO agreed that with such an approach (purposive), mere technicalities resulting in acquittals being secured for white-collar crimes will be obviated. For lawyers, this ruling will bring clarity over issues thrown up by Justice Peh Swee Chin in the Yap Seng Hock’s case decades ago where the learned judge made distinctions between the definitions under the Companies Act 1965 and the Penal Code (then without Section 402A).

Shadow directors

For corporations and GLCs, the affirmation of who may be caught within the scope of being a shadow director is instructive and cautionary.

Section 402A of the Penal Code's definition of a director is similar to that under Section 4 of the Companies Act. The COA observed that “shadow directors” usually lurk in the shadow without any formal position in the company, seeking shelter behind others and seldom hold themselves out as directors of the company. They operate clandestinely and without showing their hands. But when the evidence is closely scrutinised, we will find their hidden hands instructing the directors to act in the manner that the shadow directors want them to.

While reference to the shadow suggests that the observation is apposite, it must be pointed out that recent common law decisions did not require the so-called “shadowy element" and that it suffices if the majority of board acts or is accustomed to act in accordance with directions or instructions of such a person.

In fact, the SRC case is such a case and the finding of the High Court as affirmed by the COA is that the appellant being also the then prime minister and advisor emeritus was such a shadow director notwithstanding lack of clandestine aspects. Again, Article 67 of SRC which granted authority to the prime minister to appoint and remove any director made him a directing mind and having authority to hire and fire de jure directors.

GLCs where the government whether through Minister of Finance Inc (MoF Inc) or the ministries hold a golden share with negative veto or appointing and dismissal power must take heed of this aspect of the ruling.

Finding on criminal misappropriation and instructions to banks

This aspect would be of interest to finance institutions. The COA affirmed the High Court’s ruling that there had been criminal misappropriation with movements of funds of RM27 million, RM5 million and RM10 million from SRC accounts into the appellant's personal bank accounts. The COA dismissed the appellant’s contention that scanned digital signatures and instructions do not suffice by reference to the fact that “the bank can act on scanned or electronic instructions as long as the signatories agree to the transfer and for their digital signatures to be used, also so long as other requirements by the bank imposed by the bank in respect of such instructions are fulfilled.

The COA further affirmed that the High Court finding of dishonest misappropriation and that “actual knowledge of SRC monies being deposited into his personal bank accounts" are not contradicted.

The Arab donation 

The COA carefully evaluated the appellant’s contention and agreed that the so-called letters from Arab purportedly written by a member of the Saudi royal family were a fabrication, a “concoction that is completely bereft of credibility”. The COA held that the funds in the appellant's personal bank accounts came from SRC.

The COA also observed that “all evidence negates the appellant’s contention that he was motivated by national interest and not personal gain when he participated in the Cabinet meetings that approved the two government guarantees. It was in that context the CAO made the observation that it was “a national embarrassment", a description well within provincial judicial language.

The AMLA and wilful blindness

The CAO affirmed that the AMLA charges had been rightly proved and also affirmed that there were elements of wilful blindness. The CAO observed that “the appellant had deliberately shut his eyes and chose not to verify the origins of the funds, but instead relied wholly on others, while at same time spending the RM42 million for his own purpose and benefit".

Corporate social responsibility (CSR)

A concluding observation that the COA also dismissed was that the funds were expended for corporate social responsibility (CSR) activities. Ex post facto justification of the reason or purpose of expenditure after dishonest misappropriation is not relevant to a criminal breach of trust charge. In any event, the evidence did not bear out the monies were expended for CSR nor were any authorised by SRC.

Conclusion

The COA decision is being appealed against. Notwithstanding the appeal decision, it has been set down with clarity the law in areas which corporations and GLCs must take heed and officers must discharge their fiduciary duties with requisite care and skill and honest diligence.

      Print
      Text Size
      Share