Corporate Liability For Corruption Offences
Corporate liability for corruption offences is due to come into force on 1 June 2020, if things go as planned and there is no delay. There were calls by some businesses to delay the commencement date due to hardships caused by Covid-19, while some non-government organisations called for it to commence as planned. We will provide an update in the event of delayed commencement.
The corporate liability provision under Section 17A was inserted into the Malaysian Anti-Corruption Commission Act 2009 (MACC Act) by an amendment in 2018. Generally speaking, it imposes legal liability on the corporate entity for corrupt actions of persons associated with the corporate entity.
What kinds of businesses does Section 17A corporate liability apply to?
The corporate liability for corruption offences applies to a “commercial organization”.
A “commercial organization” means any of the following:
- a company incorporated in Malaysia under the Companies Act 2016, who carries on a business in Malaysia or elsewhere;
- a company incorporated outside Malaysia, who carries on a business or part of a business in Malaysia;
- a partnership incorporated in Malaysia under the Partnership Act 1961, who carries on a business in Malaysia or elsewhere;
- a limited liability partnership incorporated in Malaysia under the Limited Liability Partnerships Act 2012, who carries on a business in Malaysia or elsewhere; or
- any partnership formed outside Malaysia, who carries on a business or part of a business in Malaysia.
What are the scope and elements of Section 17A corporate liability?
Section 17A of the MACC Act states that 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 to:
- obtain or retain business for the “commercial organization”; or
- obtain or retain an advantage in the conduct of business for the “commercial organization”.
“A person associated with a commercial organization” includes anyone who is a director, partner or an employee of the “commercial organization” or a person who performs services for or on behalf of the “commercial organization”. 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”.
“Gratification” means:
- money, donation, gift, loan, fee, reward, valuable security, property or interest in property being property of any description whether movable or immovable, financial benefit, or any other similar advantage;
- any office, dignity, employment, contract of employment or services, and agreement to give employment or render services in any capacity;
- any payment, release, discharge or liquidation of any loan, obligation or other liability, whether in whole or in part;
- any valuable consideration of any kind, any discount, commission, rebate, bonus, deduction or percentage;
- any forbearance to demand any money or money’s worth or valuable thing;
- any other service or favour of any description, including protection from any penalty or disability incurred or apprehended or from any action or proceedings of a disciplinary, civil or criminal nature, whether or not already instituted, and including the exercise or the forbearance from the exercise of any right or any official power or duty; and
- any offer, undertaking or promise, whether conditional or unconditional, of any gratification set out above.
What defence is available to the “commercial organization”?
The burden of proof lies with the “commercial organization” to prove that it had in place “adequate procedures” to prevent persons associated with the “commercial organization” from undertaking such conduct.
We will elaborate on what is considered “adequate procedures” in the last part of this alert.
Who else should be aware of Section 17A?
The following persons should be aware that they are deemed to have committed the offence if their “commercial organization” is convicted under Section 17A:
- a director, controller, officer or partner of the “commercial organization” at the time of commission of the offence; and
- a person who is concerned in the management of the affairs of the “commercial organization” at the time of commission of the offence.
What defence is available to the persons who are deemed to have committed the offence?
The burden of proof lies with these persons to prove that:
- the offence was committed without their consent or connivance; and
- they exercised due diigence to prevent the commission of the offence as they ought to have exercised, having regard to the nature of their function in that capacity and to the circumstances.
What is the penalty upon conviction?
Either or both of the following:
- Fine of at least 10 times the sum or value of the gratification involved (where such gratification is capable of being valued or is of pecuniary nature), or RM1,000,000, whichever is higher; and/or
- Imprisonment for a term of up to 20 years.
What are “adequate procedures”?
The Prime Minister’s Department has issued the Guidelines on Adequate Procedures to guide “commercial organizations” on what are the “adequate procedures” that should be implemented to prevent corrupt practices in relation to their business activities.
These guidelines set out five principles as reference points for any anti-corruption policies, procedures and controls.
Principle I: Top Level Commitment
The top level management is primarily responsible to ensure that the “commercial organisation”:
- practices the highest level of integrity and ethics;
- complies fully with the applicable laws and regulatory requirements on anti-corruption; and
- effectively manages the key corruption risks of the organisation.
The top level management must be able to provide assurance to its internal and external stakeholders that the organisation is operating in compliance with its policies and any applicable regulatory requirements. This may include establishing the organisation’s “tone from the top” (i.e. the organisation’s general stance against the use of corrupt practices in relation to its business activities), and spearheading the organisation’s efforts to improve upon the effectiveness of its corruption risks management framework, internal control system, review and monitoring, and training and communication.
Thus, for this purpose, commercial organisations should carry out the following:
- establish, maintain, and periodically review an anti-corruption compliance programme which includes clear policies and objectives that adequately address corruption risks;
- promote a culture of integrity within the organisation;
- issue instructions on communicating the organisations’ policies and commitments on anti-corruption to both internal and external parties;
- encourage the use of any reporting (whistleblowing) channel in relation to any suspected and/or real corruption incidents or inadequacies in the anti-corruption compliance programme;
- assign and adequately resource a competent person or function (which may be external to the organisation) to be responsible for all anti-corruption compliance matters, including provision of advice and guidance to personnel and business associates in relation to the corruption programme;
- ensure that the lines of authority for personnel tasked with responsibility for overseeing the anti-corruption compliance programme areappropriate; and
- ensure that the results of any audit, reviews of risk assessment, control measures and performance are reported to all top level management, including the full board of directors, and acted upon.
Principle II: Risk Assessment
A corruption risk assessment should form the basis of an organisation’s anti-corruption efforts. As such, the commercial organisation should conduct corruption risk assessments periodically and when there is a change in law or circumstance of the business to identify, analyse, assess and prioritise the internal and external corruption risks of the organisation. This risk assessment should be used to establish appropriate processes, systems and controls approved by the top level management to mitigate the specific corruption risks the business is exposed to.
For this purpose, it is recommended that a comprehensive risk assessment is done every three years, with intermittent assessments conducted when necessary. The assessment may include the following:
- opportunities for corruption and fraud activities resulting from weaknesses in the organisation’s governance framework and internal systems/procedures;
- financial transactions that may disguise corrupt payments;
- business activities in countries or sectors that pose a higher corruption risk;
- non-compliance of external parties acting on behalf of the commercial organisation regarding legal and regulatory requirements related to anti-corruption. Given the wide definition of an associated person, a commercial organisations can be liable for the acts of such third parties; and
- relationships with third parties in its supply chain (e.g. agents, vendors, contractors, and suppliers) which are likely to expose the commercial organisation to corruption.
The risk assessment for corruption can be done on a stand-alone basis, but is recommended that the assessment be incorporated into the general risk register of the commercial organisation.
Principle III: Undertake Control Measures
The commercial organisation should put in place the appropriate controls and contingency measures which are reasonable and proportionate to the nature and size of the organisation, in order to address any corruption risks arising from weaknesses in the organisation’s governance framework, processes and procedures. These should include the following items:
(1) Due diligence
The commercial organisation should establish key considerations or criteria for conducting due diligence on any relevant parties or personnel (such as board members, employees, agents, vendors, contractors, suppliers, consultants and senior public officials) prior to entering into any formalised relationships. Methods may include background checks on the person or entity, a document verification process, or conducting interviews with the person to be appointed to a key role where corruption risk has been identified.
(2) Reporting channel
The commercial organisation should:
- establish an accessible and confidential trusted reporting channel (whistleblowing channel), which may be used anonymously, for internal and external parties to raise concerns in relation to real or suspected corruption incidents or inadequacies of the anticorruption programme. For smaller organisations, the reporting channel can be as simple as a dedicated e-mail address;
- encourage persons to report, in good faith, any suspected, attempted or actual corruption incidents;
- establish a secure information management system to ensure the confidentiality of the whistleblower’s identity and the information reported; and
- prohibit retaliation against those making reports in good faith.
Furthermore, the commercial organisation should establish policies and procedures to cover the following areas:
- a general anti-bribery and corruption policy or statement;
- conflicts of interest;
- gifts, entertainment, hospitality and travel;
- donations and sponsorships, including political donations;
- facilitation payments;
- financial controls, such as separation of duties and approving powers or multiple signatories for transactions;
- non-financial controls, such as a separation of duties and approving powers or a pre-tendering process;
- managing and improving upon any inadequacies in the anti-corruption monitoring framework; and
- record keeping for managing documentation related to the adequate procedures.
In this regard, the organisation’s policies should be:
- endorsed by top level management;
- kept up-to-date;
- publicly and/or easily available; and
- suitable for use where and when needed.
Principle IV: Systematic Review, Monitoring & Enforcement
The top level management should ensure that regular reviews are conducted to assess the performance, efficiency and effectiveness of the anti-corruption programme, and ensure the programme is enforced. Such reviews may take the form of an internal audit, or an audit carried out by an external party.
The reviews should form the basis of any efforts to improve the existing anti-corruption controls in place in the organisation.
For this purpose, the commercial organisations should consider the following:
- plan, establish, implement and maintain a monitoring programme, which covers the scope, frequency, and methods for review;
- identify the competent person(s) and/or establish a compliance function to perform an internal audit, in relation to the organisation’s anti-corruption measures;
- conduct continual evaluations and improvements on the organisation’s policies and procedures in relation to corruption;
- consider an external audit by a qualified and independent third party at least once every three years to obtain assurance that the organisation is operating in compliance with its policies and procedures in relation to corruption;
- monitor the performance of personnel in relation to any anti-corruption policies and procedures to ensure their understanding and compliance with the organisation’s stance in their respective roles and functions; and
- conduct disciplinary proceedings against personnel found to be non-compliant to the programme.
Principle V: Training & Communication
The commercial organisation should develop and disseminate internal and external training and communications relevant to its anti-corruption management system, in proportion to its operation, covering the following areas:
- policy;
- training;
- reporting channel; and
- consequences of noncompliance.
Communication
The organisation’s anti-corruption policy should be made publicly available, and should also be appropriately communicated to all personnel and business associates.
When planning strategies for communicating the organisation’s position on anti-corruption, the organisation should take into account what key points should be communicated, to whom they should be communicated, how they will be communicated, and the timeframe for conducting the communication plan. The organisation should also consider what languages the materials will be communicated in.
The communication of the organisation’s policies may be conducted in a variety of formats and mediums. These may include, but are not limited to:
- messages on the organisation’s intranet or website;
- emails, newsletters, posters;
- code of business conduct and employee’s handbooks;
- video seminars or messages; and
- town-hall sessions.
Training
The commercial organisation should provide its employees and business associates with adequate training to ensure their thorough understanding of the organisation’s anticorruption position, especially in relation to their role within or outside the commercial organisation.
The training may be conducted in a variety of formats, including but not limited to:
- induction programs featuring anti-corruption elements;
- role-specific training, which is tailored to corruption risks the position is exposed to;
- corporate training programs, seminars, videos and inhouse courses;
- intranet or web-based programs;
- town hall sessions;
- retreats; and
- out-reach programs.
The corporate liability exposure under Section 17A of the MACC Act can be potentially wide due to the wide category of persons associated with a “commercial organization”. It is imperative that “commercial organizations” begin to adopt anti-bribery policies, communicate the same and provide training to stakeholders. This would not just serve as a deterrent to corrupt practices in business activities. More importantly, it may serve as a defence against corporate liability if the “commercial organization” has adopted “adequate procedures” to prevent such corrupt practices.
Should you need assistance with anti-corruption policies and practices, please feel free to contact us.
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