New Section 17A of the MACC Act introduces corporate liability for corruption It also imposes personal liability on directors, controller and management.
There is a new dawn in Malaysia in the fight against corruption. Cynics will say much of the news surrounding 1MDB, FELDA, Tabung Haji Fund and a slew of corruption cases are political in nature and just confined to the public sector. Governance has been weak in the public sector but there is also no denying a large part of public opinion out there thinks it is generally necessary to engage in some form of corrupt practices in emerging economies to get ahead, and Malaysia is no exception.
The new Section 17A of the Malaysian Anti-Corruption Commission Act takes a leaf out of the UK Bribery Act which many international business are familiar with. It directly addresses corporate liability for corruption in the same manner as the UK Act but it goes further than that. It pins responsibility squarely on directors, controllers and management for the commercial organisation’s corrupt acts. The burden of proof is shifting in a dramatic way.
It also goes beyond Singapore Prevention of Corruption Act in its reach and the size of penalties.
This new law has been enacted and is in the statute book but is expected to take effect in 2020 in order to give business adequate time to prepare and get ready for it.
The corporate liability provisions can be summarised as follows:
- the attribution of the corrupt acts of “a person connected with the commercial organisation” to the commercial organisation.
- the commercial organisation is liable to a maximum fine of ten times the sum of the gratification involved or one million ringgit, whichever is the higher; or to imprisonment of a term not exceeding 20 years, or both.
Once an offence is committed by a commercial organisation, a director, controller or person concerned with management is deemed to have committed that offence unless that person proves that the offence 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.
The new law uses a deeming provision to shift the burden of proof to the director, controller and management. As noted this is a dramatic shift and business should start asking what is needed to show that there was due diligence taken to prevent corruption.
An indication of due diligence is the incorporation of a defence for a commercial organisation to show that it has taken ‘adequate procedure’ to prevent persons associated with the commercial organisation from undertaking such conduct. A guideline has now been published by the Minister on what will constitute adequate procedure. Much of this is mirrored on the corresponding guidelines in the UK Bribery Act. It refers to top level commitment in the prevention of corruption, risk assessment, undertaking control measures, systematic review and monitoring and training.
Who is a “Commercial Organisation”?
Although routinely referred to as corporate liability, Section 17A applies to partnerships (both under the Partnership Act 1961 and the Limited Liability Partnership 2012). Of course, it applies to companies incorporated under the Malaysian Companies Act 2016. Section 17A will also apply to any company or partnership incorporated or established anywhere outside Malaysia but which carries on business in Malaysia. It has extra-territorial jurisdiction by including Malaysian incorporated companies and partnerships committing corrupt practices outside of Malaysia.
Person Associated with a Commercial Organisation
The provision defines a person associated with a commercial organization as a director, partner or an employee of the commercial organization. It also includes a person who performs services for or on behalf of the commercial organization. The latter will include the commercial organisation’s supply chain which could arguably be the most difficult to monitor.
Not Business As Usual Come 2020
With this new Section 17A commercial organisation who have been indifferent to bribery or who use agents and contractors to undertake unsavoury deeds will be at risk as the latter’s acts will be attributed to the commercial organisation. In addition, the directors, controller and management will be deemed personally liable as well unless due diligence have been taken to avoid these corrupt acts. This is a wake-up call.
This article is produced by our Singapore office, Bird & Bird ATMD LLP, and does not constitute legal advice. It is intended to provide general information only. Please contact our lawyers if you have any specific queries.