Global asset management quarterly: A global briefing on developments and market trends
Welcome to the thirteenth edition of Global asset management quarterly.
On April 5, 2018, the Malaysian Parliament amended the Malaysian Anti-Corruption Commission Act 2009 (MACC Act) to incorporate, among others, a new Section 17A on corporate liability for corruption.
The new Section 17A not only establishes a new statutory corporate liability offence of corruption by a commercial organisation under Malaysian law, but also deems any director, controller, officer, partner or manager of a commercial organisation to be personally liable for the same offence if the commercial organisation is found liable, unless the relevant individual can prove that the offence was committed without his or her consent, and that he or she had exercised the requisite due diligence to prevent the commission of the offence.
While the legislation introducing the amendments was promulgated on May 4, 2018, the amendments themselves will only come into force upon the publication of a gazette notification by the Minister.
Following the 14th Malaysian General Elections held on May 9, 2018, a new Malaysian government swept to victory against the expectations of many observers. The new Malaysian government has made combating corruption one of its main priorities, and the corporate liability offence amendments to the MACC Act will provide it with an additional tool for enforcement.
Upon its coming into force, Section 17A(1) of the MACC Act will provide that a commercial organisation commits an offence if a person associated with it corruptly gives, offers or promises any gratification to any person with an intent to obtain or retain business or a business advantage for the said commercial organisation. While a corporate entity could, in theory, be found to be liable for corruption under the pre-amendment MACC Act, this would have required the prosecution to prove, beyond reasonable doubt, that there was criminal intent on the part of the person(s) who were the "directing mind and will" of the corporate entity at the time of the alleged crime. Arguably, this common law threshold imposed an impractically high burden on the prosecution, and may explain why no corporate entities have been charged for corruption in Malaysia in recent memory.
Section 17A(6) of the MACC Act stipulates that persons considered to be “associated” with a commercial organisation include directors, partners and employees of the commercial organisation, as well as any person “who performs services for or on behalf of the commercial organization.” The question as to whether a person is found to be associated with a commercial organisation is determined by reference to all the relevant circumstances and not merely by reference to the nature of the relationship between the person and the organisation. Thus, a commercial organisation will not only be liable for bribery by its director or partner, but also its employee – regardless of status or function. It could also be liable for bribery by its agents or distributors and potentially, joint venture partners.
Section 17A(8) of the MACC Act clarifies that a commercial organisation means a company or partnership that is formed under Malaysian law or a company or partnership that carries on business or a part of a business in Malaysia.
Further, Section 17A(2) provides that the penalty for an offence under Section 17A shall be a fine of not less than ten times the value of the gratification in question or RM 1 million (US$247,300), whichever is higher, or imprisonment for not more than 20 years, or both. The financial penalty for a corporate liability offence is much higher than the existing financial penalty for a bribery offence under the MACC Act, which is only a fine of not less than five times the value of the gratification in question or RM 10,000 (US$2,473), whichever is higher.
As to who will be liable for the imprisonment term under the corporate liability offence, Section 17A(3) of the MACC Act provides that senior personnel, such as a director, controller, officer, partner or person who is concerned with the management of a commercial organisation found to be liable for corruption under Section 17A at the time of the commission of the offence, shall be deemed to have also committed the same offence, unless the individual proves that the offence was committed without his or her consent or connivance; and that he or she had 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.”
In other words, not only would a commercial organisation be liable for corruption committed by a person associated with it, but its senior personnel holding office at the time of the commission of the offence will be deemed to have personally committed the offence as well.
By introducing parallel personal criminal liability for the senior personnel of a commercial organisation which has been found to be liable for corruption, the Malaysian government has signaled a clear intention to hold individuals running businesses accountable for corrupt acts perpetrated through their respective organisations. The new provisions have effectively reversed the burden of proof – by creating a presumption of criminal liability through a deeming provision with the accused person required to disprove liability by showing that the offence was committed without his or her consent or connivance, and that he or she had exercised the necessary due diligence in the circumstances. While such a presumption is rebuttable, senior personnel of commercial organisations have the unenviable task of proving a negative or would need to proactively document steps taken to show efforts to prevent corruption.
A similar deeming provision was challenged in Public Prosecutor v Gan Boon Ann  3 MLJ 12, but its validity was upheld by the Malaysian Federal Court. In that case, which focused on Section 122 of the Securities Industry Act 1983, the Federal Court opined that it was first necessary for the prosecution to prove beyond reasonable doubt that the offence had been committed by the body corporate before the presumption could be triggered to deem the offence to be committed by the directors and officers of the body corporate. The court further observed that it was only fair that the absence of consent and connivance should be proved by the individual accused as these would be matters within his or her knowledge.
When tabling the amendments in Parliament, the Malaysian government expressly cited the UK Bribery Act as the model for the new Section 17A of the MACC Act. With respect to corporate liability and the liability of senior officers of corporate entities and partnerships for corruption, the UK Bribery Act 2010 had introduced two distinctive statutory offences.
First, the offence of failure by commercial organisations to prevent bribery (Section 7) – where a commercial organisation would be liable if a person associated with it commits bribery in order to obtain or retain business or a business advantage for the said commercial organisation. The Section 7 corporate offence applies, among others, to commercial organisations that carry on a business, or part of a business, in the UK.
Second, the personal criminal liability of senior officers of corporate entities or partnerships for bribery committed by the relevant corporate entities or partnerships (Section 14). Under this section, a senior officer of a corporate entity or partnership that is found to be liable for bribery under Sections 1, 2 or 6 of the UK Bribery Act will also be personally liable for the offence, if it is proven that the offence was committed with the individual’s consent or connivance. Notably, the Section 7 corporate offence is excluded from the scope of Section 14 of the UK Bribery Act, and the prosecution bears the burden of proving the senior officer’s consent or connivance.
While the amended MACC Act clearly aligns itself with the UK Bribery Act, on deeper analysis, it actually goes beyond the UK approach. The new Section 17A of the MACC Act fuses together both of the distinctive features of the UK Bribery Act discussed above. By creating the deemed personal criminal liability of senior personnel for corruption by a corporate entity or partnership that is committed by an associated person, the new Section 17A of the MACC Act has both broadened the scope of liability and reversed the burden of proof onto directors, controllers, officers, partners and managers of commercial entities operating in Malaysia by requiring such individuals to prove the absence of consent and connivance.
The new Section 17A of the MACC Act further emulates the UK Bribery Act by creating a similar statutory defence against the offence of corruption by a commercial organisation. Section 17A(4) of the MACC Act states that a commercial organisation shall be acquitted of a charge under Section 17A if it proves that it “had in place adequate procedures designed to prevent persons associated with the commercial organization from undertaking such conduct.” This provision is in pari materia with Section 7(2) of the UK Bribery Act.
Taking a similar tack to Section 9(1) of the UK Bribery Act, Section 17A(5) of the MACC Act stipulates that the government shall issue guidelines relating to such procedures which would be considered to be “adequate” as a defence under Section 17A(4). These guidelines have yet to be issued.
When tabling the amendments to the MACC Act, the then Deputy Minister in the Prime Minister’s Department, Datuk Seri Razali Ibrahim, explained that the new Section 17A will start to be enforced two years after the amendments are enacted. This is to ensure that there would be sufficient time for the commercial organisations affected by the amendments to adopt the necessary anti-corruption procedures.
However, during the parliamentary debates on the amendments to the MACC Act, the then opposition Member of Parliament (and current Deputy Minister of Primary Industries), Shamsul Iskandar bin Mohd. Akin, argued that:
“ … it would be reasonable for the government to consider implementing the amendments immediately after the amendments are passed. What is the rationale of the two years? This is because, to me, it is too long, I believe that any company out there would understand that corruption is not acceptable, and cannot be committed. Therefore, why is there an exemption? This means that there is a gap of two years given by the government in this amendment.”
Given the newly elected government’s focus on combatting corruption and its campaign promise to “reform the Malaysian Anti-Corruption Commission and strengthen anti-corruption efforts”, the new government may adopt a different timeline for the enforcement of the new Section 17A of the MACC Act. Commercial organisations affected by the new law should take immediate steps to implement an appropriate anti-corruption compliance program. Even though the Malaysian government has yet to issueguidelines on the adequate procedures defence, it is likely that such guidelines will be consistent with international best practice, such as the UK Ministry of Justice guidance about procedures which relevant commercial organisations can put into place to prevent persons associated with them from bribing and the ISO 37001 standard on anti-bribery management systems issued in 2016.
Directors and other senior personnel of companies with business operations in Malaysia would do well to take steps to ensure that robust anti-corruption policies and procedures that will withstand scrutiny are adopted and implemented throughout their respective organisations. Apart from forming the basis of an adequate procedures defence, such efforts can also evidence the due diligence steps expected of senior personnel.
This article was co-written with Ms Lim Koon Huan and Mr Kwan Will Sen of Malaysian law firm Skrine. We are grateful for their contribution.
Welcome to the thirteenth edition of Global asset management quarterly.
If COP25, 2019 were to be summarized in a word, it would be ‘pathways’ – shorthand for the social, economic and technological choices that must be made in the near term in order to avoid catastrophic climate change.
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