CORPORATE CRIMINAL LIABILITY AND SECTION 17A OF THE MALAYSIAN ANTI-CORRUPTION COMMISSION ACT

• Date: 01 December 2020
• Published date: 01 December 2020
• Citation: (2020) 32 SAcLJ 563
• Author: Chee Keong LOW BEc, LLB (Monash), LLM (University of Hong Kong); FCIS FCS; Associate Professor in Corporate Law, CUHK Business School, Shatin, NT, Hong Kong. Tak Yip LOW LLB (University College London).

Considerable attention was drawn to the scourge of corruption as details of the 1Malaysia Development Berhad (1MDB) saga surfaced, enhancing awareness of the significant resource misallocation that greatly hampers the efficiency of businesses, the costs of which are ultimately borne by the society. Partly in response, s 17A of the Malaysian Anti-Corruption Commission Act 2009 (Act 694) was enacted to introduce the concept of corporate criminal liability with the imposition of liability on commercial organisations and their associated persons for the failure to prevent bribery. By focusing on why it is important to do the “right thing”, this article examines the scope and constitutionality of s 17A, highlights how companies may implement adequate measures to comply before concluding with an identification of some of its deficiencies as well as a proposal to introduce a deferred prosecution agreement regime to augment the existing framework which legislative objectives are grounded upon the prevention of bribery.

I. Introduction

1 Passed in April 2018 and enforced from 1 June 2020, s 17A of the Malaysian Anti-Corruption Commission Act 20091 (“MACC Act”) will introduce the concept of corporate criminal liability with the imposition of liability on commercial organisations and their associated persons for the failure to prevent bribery. Two clear themes arise. First, the only business enterprise that does not fall within the scope of s 17A is the sole proprietorship. Secondly, its potentially wide-reaching provisions have

resulted in significant concerns being raised within corporate Malaysia – especially amongst small and medium-sized enterprises – as to how they can avoid falling foul of the sanctions that are imposed.

2 This article seeks to address some of the latter concerns in the following manner: Part II2 commences with an overview of the legislative intent and the scope of s 17A of the MACC Act before proceeding to highlight the Guidelines on Adequate Procedures which discuss the elements of the statutory defence. The “identification” or “attribution” principle which stands as a key cornerstone for the imposition of corporate criminal liability is discussed in Part III3 while Part IV4 draws upon the judicial pronouncements on the ambit of s 7 of the Bribery Act 20105 (“Bribery Act”) in the UK – upon which s 17A is based – to provide an insight as to how the latter may be enforced in Malaysia. Part V6 examines the relevant sections of the Report of the House of Lords' Select Committee on the Bribery Act, together with the responses by the Government thereto. Part VI7 highlights some possible benchmarking models to assist with the drawing up and implementation of “adequate procedures”. Part VII8 discusses the constitutionality of s 17A while a proposal for the enactment of a “Deferred Prosecution Agreement” is advanced in Part VIII9 before concluding with Part IX.10

II. Overview of s 17A of the Malaysian Anti-Corruption Commission Act

3 Published in the Gazette on 4 May 2018 – in similar lines to the relevant provisions of the Bribery Act and the US Foreign Corrupt Practices Act 1977 – the Malaysian Anti-Corruption (Amendment) Act 201811 introduced, inter alia, s 17A, the objective of which was to address and curtail the problem of bribery by commercial organisations and their associated persons.

4 By doing so, Malaysia fulfilled its obligations under Art 26 of the United Nations Convention against Corruption12 which it ratified in 2008. Taking cognisance of the seriousness of problems and threats posed by corruption to the stability and security of societies, which undermines the institutions and values of democracy, ethical values and the rule of law, the said article required member countries to “adopt such measures as may be necessary, consistent with its legal principles, to establish the liability of legal persons for participation in the offences established in connection with this Convention”.

5 The enactment also recognised concerns with the steady decline in the annual Corruption Perceptions Index published by Transparency International which ranked Malaysia – with its score of 47 out of 100 in 62nd place amongst 180 countries – behind its East Asian neighbours Singapore, Hong Kong, Japan, Taiwan and South Korea – in 2017.13 Significantly, more than two-thirds of the countries surveyed scored below 50 – with the average being just 43 – as the data revealed a link between corruption and the health of democracies. With its score of 47, Malaysia fell within the classification of a “flawed democracy” which average score was 49.14

6 Section 17A(1) of the MACC Act deems a commercial organisation to have committed an offence if a person associated with it corruptly gives, agrees to give, promises or offers any person any gratification with intent to obtain or retain business or advantage for the organisation. A “commercial organisation” is defined extensively in s 17A(8) to include either a company or a partnership formed in Malaysia which carries on a business in Malaysia or elsewhere; or a company or a partnership formed outside of Malaysia which carries on a business or part of a business in Malaysia. It is thus evident that s 17A is intended to have extraterritorial effect with the principal objective of preventing bribery.

7 Under that provision a person is associated with the commercial organisation if he or she is a director, partner, an employee or someone

who performs services for or on its behalf.15 Substance matters over form with regard to the question of whether a person performs services for or on behalf of the commercial organisation as this relationship shall be “determined by reference to all the relevant circumstances”.16 However, as the MACC Act does not define what these “relevant circumstances” are, a wide range of individuals and/or entities are potentially at risk of – possibly inadvertently – breaching s 17A(1) and consequently being charged with a corrupt act.

8 Significantly, due to a rather odd and inexplicable omission, this group of individuals and/or entities – together with the employees of the commercial organisation – do not appear to have any defence which s 17A(3) restricts to a director, controller, officer, partner or a person who is concerned in the management of its affairs. The latter group may be absolved of liability if it can be shown that the offence was committed without his or her consent or connivance and that he or she had exercised all reasonable due diligence to prevent the commission of the same.

9 Thus, while highly anomalous, it does appear that employees of the commercial organisation and/or any person who performs services for or on its behalf can only escape liability if the commercial organisation absolves itself by proving that it had in place adequate procedures to prevent persons associated with it from undertaking such conduct.17

10 The foregoing is significant as there are substantial penalties that can be imposed upon conviction under s 17A(2), namely, either a fine of not less than ten times the sum or value of the gratification subject to a minimum of RM1m and/or a term of imprisonment not exceeding 20 years.

11 The Guidelines on Adequate Procedures (“MACC Guidelines”) which were published on 4 December 2018 pursuant to s 17A(5) are not intended to be prescriptive and it should not be assumed that “one size fits all” since these must take into account the specific scale, nature, industry, risk and complexity of the organisation.18 Thus, the key determinants must include applicability, relevance and practicality, taking into consideration the factors as outlined above, and it shall ultimately be “for the courts to decide whether the commercial organisation truly

established the necessary safeguards which should have prevented the offence from happening”.19

12 The underlying principles for the adequate procedures as set out in the MACC Guidelines have the acronym “T.R.U.S.T.” which stands for:

(a) Top Level Commitment – which imposes upon the top management the primary responsibility of “setting the tone” by ensuring that appropriate policies are put in place with the objective of achieving and maintaining “zero tolerance” for corruption;20

(b) Risk Assessment – which should be sufficiently robust to establish appropriate processes, systems and controls approved by top level management to mitigate the specific corruption risks that the business is exposed to;21

(c) Undertake Control Measures – to address any corruption risks arising from weaknesses in the organisation's governance framework, processes and procedures which should include robustness of due diligence and reporting channels;22

(d) Systematic Review, Monitoring and Enforcement – conducted regularly to assess the performance, efficiency and effectiveness of the anti-corruption programme and to ensure that this is properly and adequately enforced;23 and

(e) Training and Communication – to develop and disseminate internal and external training and communication relevant to its anti-corruption management system, in proportion to its operation, covering policy, training, reporting channel and consequences of non-compliance.24

13 The MACC Guidelines are not meant to be static or “cast in stone” as top management is expected to review them for robustness and relevance at regular intervals taking cognisance of the changing and evolving environment within which the specific business of the commercial organisation operates. Accordingly, the “five principles may be used as reference points for any anti-corruption policies, procedures

and controls the organisation may choose to implement towards the goal of having adequate procedures”25 as required under s 17A.26

14 In addition to the foregoing MACC Guidelines, commercial organisations may refer to and apprise themselves of the case studies which are posted on the website of the Governance...