The “Adequate Procedures” And “Due Diligence” Defences To Corporate Liability And Personal Liabilities Of Directors And Management For Corruption And Bribery In Malaysia

As the new dawn breaks over Malaysia, scandals and corruption are dominating the air waves and digital news media. With the Pakatan Harapan government’s renewed emphasis on upholding the Rule of Law, the issue of corporate liability and personal liabilities of directors and management for Corruption and Bribery has come into sharp focus.

The Malaysian Anti Corruption Commission (MACC) Amendment Act 2018, gazetted on 4 May 2018 introduced a new Section 17A as follows:

Offence by commercial organization

(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 ten times the sum or value of the gratification which is the subject matter of the offence, where such ratification 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 twenty years or to both.

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

(a) who is its director, controller, 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 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.

(4)   If a commercial organization is charged for the offence referred to in subsection (1), it is a defence for the commercial organization to prove that the commercial organization had in place adequate procedures designed 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 Partnerships 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 the light of high incidence of hidden scandals and corruption in Malaysia, while the new Section 17A will only be enforced in two years’ time to allow commercial organisations to prepare themselves and to develop the necessary programs to prevent corruption, there is urgency to start implementing the necessary measures immediately.

As provided under Section 17A(4) –

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

Likewise, under Section 17A(3), the directors and or management are “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 statutory defenses provided to the company and the directors are similar to the UK Bribery Act 2010.

In order to safeguard both the company itself as well as the company’s directors and officers, it is essential for Malaysian companies and foreign companies doing business in Malaysia to have in place such a system of adequate procedures.

The new Section 17A(5) provides that the Minister responsible for the Malaysian Anti-Corruption Commission shall issue guidelines relating to such adequate procedures.

To date, no guidelines has been issued under the MACC Amendment Act in Malaysia yet.

Nonetheless, it is highly likely that Malaysia when issuing the Guidelines on the extent of adequate procedures may adopt principles similar to the United Kingdom (UK) Bribery Act 2010 Guidance to commercial organisations which sets out 6 guiding principles:

• Proportionate procedures: putting  in place procedures proportionate to the risk of corruption and the nature, scale and complexity of the commercial organisation’s activities.
• Top level commitment: commitment of top-level management to prevent corruption.
• Risk assessment: periodic, informed and documented assessment of the external and internal risks of corruption.
• Due diligence: due diligence procedures in order to mitigate risks.
• Communication: internal and external communication, including training, within the commercial organisation.
• Monitoring and review:  monitor and review procedures designed to prevent corruption by persons associated with it.

Under the new law, it is pertinent to note that:

(1) commercial organizations are accountable for the corrupt acts of associated persons;

(2) the penalties are severe and high;

(3) the net is widened to include Malaysian companies, partnerships and limited liability partnerships carrying on business within and outside Malaysia and foreign companies carrying on business or part of the business in Malaysia;

(4) associated person is defined widely to include director, partner, employee and persons who performs services for or on behalf of the commercial organisation;

(5) directors, controllers, management, officers are deemed responsible and liable unless they have put systems in place to demonstrate due diligence in preventing such corrupt offences.

Two years will pass by quickly, and it is imperative that anti corruption and anti bribery systems, policies, manuals and the relevant training programs be put in place now to protect directors and management from personal liabilities.

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