CORPORATE LIABILITY FOR ACTS OF CORRUPTION

by Shim De Zhen (28 April 2021)

INTRODUCTION

3 years ago, an amendment was made to the Malaysian Anti-Corruption Commission Act 2009 (“MACC Act”) with the objective of curbing corruption by and amongst commercial organizations across Malaysia. The amendment was implemented via the addition of Section 17A to the MACC Act, which provides as follows:

“(1) A commercial organization commits an offence if a person associated with the commercial organization 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 organization.

(2) Any commercial organization who commits an offence under this section shall on conviction be liable to a fine of not less than 10 times the sum or value of the gratification which the subject matter of the offence, where such gratification is capable of being valued or is of pecuniary nature, or one million ringgit, whichever is the higher, or to imprisonment for a term not exceeding 20 years or to both.

(3) where an offence is committed by a commercial organization, a person–

(a) who is its director, controlled, officer or partner; or

(b) who is concerned in the management of its affairs, at the time of the commission of the offence, is deemed to have committed the 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.

(4) If a commercial organization is charged for the offence referred to in subsection (1), it is a defence for a commercial organization to prove that the commercial organization had in place adequate procedures to prevent persons associated with the commercial organization from undertaking such conduct.

(5) The Minister shall issue guidelines relating to the procedures mentioned in subsection (4).

(6) For the purposes of this section, a person is associated with a commercial organization if he is a director, partner or an employee of the commercial organization or he is a person who performs services for or on behalf of the commercial organization.

(7) The question whether or not a person performs services for or on behalf of the commercial organization shall be determined by reference to all the relevant circumstances and not merely by reference to the nature of the relationship between him and the commercial organization.

(8) For the purposes of this section, “commercial organization” means –

(a) a company incorporated under the Companies Act 2016 [Act 777] and carries on a business in Malaysia or elsewhere;

(b) a company wherever incorporated and carries on a business or part of a business in Malaysia;

(c) a partnership –

(i) under the Partnership Act 1961 [Act 135] and carries on a business in Malaysia or elsewhere; or

(ii) which is a limited liability partnership registered under the Limited liability Partnership Act 2012 [Act 743] and carries on a business in Malaysia or elsewhere; or

(d) A partnership wherever formed and carries on a business or part of a business in Malaysia. “

In summary:

(1) If a person associated with a commercial organization has committed an act of corruption for the benefit of that commercial organization, the commercial organization itself shall be deemed to have committed that act of corruption.

(2) The penalty for the offence is:

• a fine of at least 10 times the value of the act of corruption, or RM1 million if the value is incalculable, whichever is higher; OR
• imprisonment to up a maximum of 20 years; OR
• both.

(3) Once a commercial organization has been convicted of committing the offence, every director, controller, officer, partner or anyone who is concerned in the management of the commercial organization is deemed to have committed the same offence.

CASE OF PRISTINE OFFSHORES SDN BHD

Malaysia saw its 1^st charge under Section 17A of the MACC Act in March 2021.

The charge was against a company, Pristine Offshore Sdn Bhd, and arose from the actions of the company’s former director who had given a bribe of RM321,350.00 to the chief operating officer of Deleum Primera Sdn Bhd to ensure that Pristine Offshore Sdn Bhd was awarded a subcontract from Petronas Carigali Sdn Bhd.

The prosecution proceedings remain ongoing, but if Pristine Offshore Sdn Bhd is convicted, the minimum fine that Pristine Offshore Sdn Bhd would have to pay is RM3.21 million and every director and member of management of the company will be deemed to have committed the offence.

This case is a wake-up call for all businesses in Malaysia that Section 17A can be enforced by the anti-corruption authority if the circumstances are suitable.

WHY IT MATTERS

This is because Section 17A not only establishes a new strict liability offence by a business (i.e. business is presumed to have committed the offence without the prosecutor having to prove anything more), but also deems any director, partner or any member of the management of a commercial organization to have committed the act of corruption himself.

Previously, only the director/employee/specific person giving the bribe and the recipient of the bribe would be prosecuted under the MACC Act. It would have been difficult for the management of the business to be prosecuted if they had no knowledge of or did not authorise the act.

This is compounded by the wide definition of ‘persons associated with the commercial organization’, which includes directors, partners, employees and anyone who performs services for or on behalf of the commercial organization.

The last phrase can be interpreted to include agents, contractors, joint venture partners, marketing service providers, brokers and potentially anyone who is related to the business. With this new amendment, the management can no longer explain away the offence by saying they had no knowledge of the act, as they are now deemed to have committed the act themselves. If executed in its entirety, Section 17A will have far reaching consequences for businesses in every industry, particularly in how business is obtained and how business relationships are formed and managed

DEFENCES

Section 17A provides the following defences:

1) Section 17A(3)(b) for the directors, controllers, partners and anyone concerned in management (i.e. members of the management):

“…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.”

(2) Section 17A(4) for the commercial organization:

“…that the commercial organization had in place adequate procedures to prevent persons associated with the commercial organization from undertaking such conduct.”

While there may be a difference between the 2 defences in that a member of the management (aside from not having knowledge of the offence) must prove that he had exercised due diligence, and the commercial organization must prove that it had in place adequate procedures, it is anticipated that there will be overlaps in practice.

Indeed, the Courts have recognised that the requirement for due diligence is, depending on the circumstances, satisfied where the management has devised a proper system for the business to prevent the commission of an offence by its employees, and has taken all steps reasonably practicable to ensure that the system was fully implemented. In larger organisations, where it is difficult to constantly monitor the actions of every employee, agent, broker, contractor or fellow director, members of the management can rely on the setting up and implementing of adequate procedures to demonstrate that they had carried out the required due diligence.

While in smaller organisations, directors and owners alike may be expected to take a more active and personal approach in ensuring that acts of corruption are not committed by their fellow directors or staff. Nevertheless, it is anticipated that by setting up adequate procedures, it will go a considerable distance towards proving that they had carried out the necessary due diligence.

ADEQUATE PROCEDURES & IMPLEMENTATION

The effectiveness of having a proper system in place can be derived from cases regarding other similarly worded legislation providing for the need to show due diligence and an absence of knowledge of the offence.

An example would be the Occupational Safety and Health Act 1994, of which
Section 55 reads:

“It shall be a defence in any proceedings against a person for an offence under this Act or any regulation made thereunder to satisfy to the Court that the offence was committed without his consent or connivance and that he had exercised all such due diligence to prevent the commission of the offence as he ought to have exercised, having regard to the nature of his functions in that capacity and to all the circumstances.“

In the case of Jabatan Kesihatan dan Keselamatan Pekerjaan v Sri Kamusan Sdn Bhd [2015] 7 MLJ 397, the High Court found that the accused employer was entitled to rely on the defence, having taken all reasonable steps and due diligence to ensure the safety of each worker through the following measures:

1. workers were called every morning and instructed on the safety aspects of their work;
2. safety regulations were briefed to all workers;
3. safety signboards were placed around the plantations;
4. disciplinary actions were taken against workers who breach the rules and regulations on safety; and
5. warning signs were placed in the vicinity of the plantations on hazardous dangers.

Adequate procedures for curbing acts of corruption would include:

1. anti-corruption policies addressing staff, contractors, agents and third-party service providers;
2. more extensive due diligence during the hiring and appointment process for employees, contractors, agents and service providers;
3. compliance with established TRUST Principles and guidelines issued by the authorities;
4. effective whistle-blower procedures and protection;
5. strict enforcement of anti-corruption policies;
6. regular feedback to and from the members of the management; and
7. independent financial controls.

In addition to having adequate procedures, it must be shown that steps were taken by the members of the management personally to ensure that these procedures were complied with.

QUERIES AND ASSISTANCE

While Section 17A and the risk of being charged will differ between industries and will depend on various factors such as the size of the business and how responsibility is allocated within, business owners must now be mindful of how their businesses are being run, who is helping them run their businesses, how their business relationships are being formed and managed, and whether there are any weak spots internally or externally which may expose them and the business to anti-corruption whistleblowing reports and charges.

If you have any concerns on whether you have the required policies and systems in place, you are welcome to reach us to set up a consultation session.

Note: This article does not constitute and should not be relied on or treated as legal advice on or with respect to any particular case. The facts and circumstances of each and every case will differ and therefore will require specific legal advice. Feel free to contact us for complimentary legal consultation.