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M’sia ahead of Asian peers in enforcing anti-graft law against directors — ICDM

16 Mar 2020

KUALA LUMPUR: Malaysia is ahead of most of its Asian peers in introducing an anti-corruption law that will hold directors personally liable for graft practices within commercial organisations, says the Institute of Corporate Directors Malaysia (ICDM).

ICDM president and chief executive officer (CEO) Michele Kythe Lim said the new provision in the Malaysian Anti-Corruption Commission (MACC) Act 2009, coming into force in June this year, will serve as a “wake-up call” for board members and increase their sense of responsibility.

“You’re talking about directors. They are mature people, not someone who doesn’t know what he’s doing. But sometimes they need to find out more and do a little bit more. It’s a little bit of a wake-up call,” Lim said in an interview with The Edge Financial Daily.

“This is something new in terms of making directors directly liable for acts of employees and associated third parties who deal with the companies in which they represent. Malaysia is among the first nations in Asia to have this law in place,” she said.

The new provision — Section 17A — is a statutory corporate liability offence. The amended MACC Act, incorporating the provision, was gazetted on May 4, 2018 after Parliament passed the bill a month earlier.

Section 17A covers a broad range of commercial organisations including public listed, privately-held and state-controlled corporations, said Lim.

Under the law, a commercial organisation is deemed to have committed an offence if any person associated with it commits a corrupt act in order to obtain or retain business or an advantage in the conduct of business for the commercial organisation.

The offence carries a penalty of not less than 10 times the sum of gratification or imprisonment of not more than 20 years. Corporate organisations can raise a defence if they can show that they have “adequate procedures” in place.

Singapore’s Governance Plus and Complilearn Pte Ltd founder and CEO Sam Gibbins said Section 17A is “far-reaching” and “advance” compared to its counterpart in the UK Bribery Act which is not a deeming provision.

“Even countries that have had it as a potential legal provision for many years, in reality, most haven’t enforced it. Putting it in place and highlighting it now and everything that’s happening on the national level is pretty advance.

“In the UK, the directors have to be proven to be what they call the controlling mind, so you have to have evidence that that director actually authorised the corrupt activity that took place. In Malaysia, the director could be deemed responsible even without evidence. That is a huge difference variation we haven’t really seen before,” Gibbins added.

Deloitte Southeast Asia forensic director Oo Yang Ping, who leads Deloitte’s forensic practice in Malaysia as well as forensic digital solutions across Southeast Asia, expects board meetings to be more robust with the new law in place as it will prompt non-executive and independent directors to ask “tough” questions given their equal liability with executive and non-independent officials.

“The strict liability under Section 17A doesn’t distinguish between executive and non-executive directors. If I was a non-exec [board member] I would want to be asking tough questions because I know we share equal liability. One of the defenses is to show that you’ve done sufficient due diligence to prevent the commission of the offence,” he said.

According to the United Nations, the annual costs of international corruption amount to a staggering US$3.6 trillion in the form of bribes and stolen money. Corruption can take many forms including bribery, embezzlement, money laundering and tax evasion.

In Malaysia, it was reported that nearly 800 individuals were arrested between 2014 and 2018 due to corruption cases involving commercial organisations. A total of 900 investigation papers were opened by the MACC in the five-year period.

Oo said the implementation of Section 17A is a sign that Malaysia is serious about ensuring a corruption-free business environment in the country, which in turn, could help boost investor confidence. His sentiment is shared by Gibbins who concurred that both matters are highly correlated.

“It is a good sign. This is the type of thing investors are looking for globally. It ties to the whole ESG (Environment, Social, Governance) movement — this is one of the key pillars of it. In the longer term this could be a huge benefit for corporate Malaysia,” Gibbins said.

“Walmart Inc in the US, for example, after they had a mass shooting, the CEO decided that Walmart would stop selling most guns and ammunitions. At the time, 20% of guns and ammunitions in America were sold by Walmart.

“Walmart estimated that the move would impact their profit negatively by 6% to 9% in the first year but still thought it was the right thing to do. The next day, their share price increased and 40 other businesses announced that they were going to do the same. That’s ethical leadership,” he added.


This article first appeared in The Edge Financial Daily, on March 16, 2020.

Photo by khoo zw on Unsplash.