CORPORATE LIABILITY – HOW DOES IT IMPACT YOUR COMPANY?

By Alan Kirupakaran, Partner, OAKS Consultancy

This article aims to provide a clearer understanding of the Corporate Liability provision of the Malaysian Anti-Corruption Commission (MACC) Act 2019 which is applicable for all companies operating in Malaysia.

What is Corporate Liability?

The Corporate Liability provision is commonly referred to as s17A denoting the particular section of the Act which was amended. It was enforced on 1 June 2020, and states that:

A commercial organization shall be deemed to have committed an offence if a person associated with the commercial organization corruptly offers or gives any gratification to any person with an intent to obtain or retain business or advantage in the conduct of the business of the commercial organization.

It further states that:

Where an offence is committed by a commercial organization, anyone who is a director, controller, officer or partner of or who is concerned with the management of the affairs of the commercial organization at the time of the commitment of the offence will likewise be deemed to have committed the same offence and be similarly liable to punishment.

What Does This Mean?

Where previously any person associated with a commercial organization (herein referred to as Business) who allegedly committed a corrupt act will be individually prosecuted under the MACC Act, with this amendment key person(s) responsible for the running of the Business can be prosecuted as well.

s17A identifies two categories of persons in a Business – those who commit the offence and those who are criminally liable.

Those who commit a corrupt offence:

• Perform services for or on behalf of the Business
• Act within the scope of their employment and with the intent to benefit the Business
• Includes Employees / Agents / Consultants / Brokers

While those who are criminally liable include:

• Directors / Controllers / Officers / Partners or the Management of the Business

In the event a corrupt act does occur, the criminally liable person(s) only defense is that:

1. The offence was committed without your knowledge or consent
2. You have exercised sufficient diligence to prevent the commission of the offence, and
3. You have put in place reasonable mitigating steps (herein referred to as Adequate Procedures) within your organization to prevent the commission of the offence

Who Does Business Cover?

The definition of Business is wide, and covers:

1. Companies incorporated under the Companies Act, 2016 [Act 777]
2. Partnerships formed under the Partnership Act 1961 [Act 135]
3. Limited Liability Partnership formed under the Limited Liability Partnership Act 2012 [Act 743], and;
4. Foreign incorporated corporations and partnerships having business operation in Malaysia.

What Happens If a Business Owner Fails to Comply with s17A?

In the event any of their employees are charged with corrupt offences under the MACC Act, business owners can be held liable if they fail to show anti-corruption initiatives are in place which meets the stipulated Adequate Procedures measures.

If found guilty, the penalties are:

• A fine amounting to 10 times the sum of gratification or RM 1 million (whichever is higher), or
• A maximum jail term of 20 years, or
• Both

Be reminded that under s17A, this penalty can be applied to the director, controller, officer, partner or member of the management of a business.

What Must a Business Owner Do to Comply with s17A?

You must have policies and processes in place within your business which meets the guidelines on Adequate Procedures. These guidelines which are defined by the acronym T.R.U.S.T. were issued by the National Centre for Governance, Integrity and Anti-Corruption (GIACC). They comprise 5 main pillars, namely:

Details of these TRUST guidelines can be downloaded at http://giacc.jpm.gov.my/garis-panduan-tatacara/

Note that the MACC Act itself does not define what requirements need to be fulfilled. If a corruption incident should occur, the courts will decide whether the Business has the necessary safeguards in place. Nevertheless, by implementing these Adequate Procedures, a Business can show that it has established a suitable defense against s17A.

The policies and processes which comply with the Adequate Procedures guidelines are typically referred to as an Anti-Bribery Management System (ABMS). A business owner can implement the ABMS by engaging with consultants who have the necessary knowledge and experience in this field.

What Can I Do Next?

It is important to note that your business’ ABMS can be implemented incrementally over time. As the business owner, you must show your commitment to fighting corruption and complying with s17A with a plan to implement your ABMS. This can include:

1. Conducting a Corruption Risk Assessment for your business;
2. Producing your Anti-Corruption Plan;
3. Implementing a functional ABMS; and
4. Regularly reviewing and updating the above steps

Why is s17A MACC Act important to business owners?

The aim of s17A is to address and reduce private sector corruption. This is done by strengthening your internal controls through having adequate anti-corruption measures in place. This helps protect your business against the risk of corruption. By doing so, your business can potentially see the following benefits:

1. Reduces the cost of doing business
2. Viewed favorably by customers
3. Opens up new markets, notably those that value transparency and clean business practices
4. Reduces reputational risk to you brand name from corrupt practices
5. Attracts employees who have personal integrity
6. Enhances value to shareholders, and
7. Become more attractive to investors

What is one advice you will give business owners about complying with s17A?

s17A is applicable to business owners and the penalties if found guilty are heavy. As such it is imperative that you do not treat this as another burdensome compliance exercise which involves additional costs. It is in place to protect your business and deserves your attention. Show your keenness to support it by starting with a strong message from the management committing to conduct business with integrity, and producing an anti-corruption plan that specifically addresses your business’ corruption risks.

Conclusion

Corruption places a heavy price on all who are involved, both directly and indirectly. We owe it to ourselves; our family; our business and our country to decisively fight this scrounge. Having a functional ABMS to meet s17A is a decisive way to show our commitment to protecting our business and supporting our national effort against corruption.

MAKE PRACTICING INTEGRITY AND REJECTING CORRUPTION PART OF YOUR BUSINESS PHILOSOPHY