Corporate liability: Are you ready?

  • Business
  • Saturday, 23 Nov 2019

CORRUPTION is a disease that has torn nations apart and a cancer that can destroy societies if it is not tackled head-on.

According to the United Nations Secretary-General in an address on International Anti-Corruption Day last year, the annual cost of international corruption amounts to a staggering US$3.6 trillion in the form of bribes and stolen money.

World Bank says businesses and individuals pay more than US$1 trillion in bribes a year while the International Monetary Fund too has commented on corruption as it sees the world facing a crisis of trust in institutions across all sectors.

This crisis is as a result of trust deficit that has been built over time.

Corruption is not only in emerging markets like in Malaysia but it is a global epidemic as it is as high as 25% of GDP in the African continent, 17% in Asia and between 6% and 7% in the EU.

According to Transparency International-Malaysia 2017 Global Corruption Barometer, institutions perceived to be involved in corruption in Malaysia are the police force at 57%; local government and councillors at 48%; tax officials at 48%; business executives at 46%; government officials at 45%; representatives in legislature at 41%, the Prime Minister and his officials at 41%; and judges and magistrates at 33%.

Even religious leaders were perceived to be corrupt at 31%. By the way, this is not a surprise as globally, for similar institutions, the perceived corruption level is high as well but at a lower range of between 31% and 36%.

As can be seen, this survey is more than two years old and perhaps things should be better from here on as the Government is and has taken measures to address corrupt practices in Malaysia. In fact, at the launch of the National Anti-Corruption Plan (NACP) on Jan 29 this year, the Prime Minister was then quoted as saying that Malaysia once to be recognised for its integrity and not corruption.

Malaysia’s path towards addressing corruption issues took a giant step forward with the introduction of the new Section 17A of the MACC Act on 27 April 2018. The provision of Section 17A criminalises an organisation for corrupt actions by associated persons done for the benefit of the company. Before thecurrent amendment to the Act, the penalties were only applicable to individuals.

However, with the introduction of Section 17A, commercial organisation whom these individuals work for will also be held liable for not preventing the corrupt acts from happening.

Although the law was passed in April 2018, the effective date of implementation was pushed forward to 1 June 2020, to ensure commercial organisations are ready to face the new law. This also means commercial organisations have approximately just over six more months more to go before the new law comes into effect. The effective date is also timely as the government is trying to ensure it can reduce the incidence of large cash transactions which are by no means small. While some of these transactions are genuine, it is widely believed that they also include a sizable amount due to cases of bribery.

To put into perspective, Malaysia recorded over five million transactions valued at a staggering RM483bil up to September of this year.

This suggests cash transaction over the counter has been significant and imposing some sort of limitations would allow greater scrutiny on illicit transactions.

Section 17(A) is extensive as it covers offences, penalty, presumption, prevention, person associated, question of facts and what are commercial organisations. There are few key elements of Section 17A that’s needs to be understood. Firstly, it is the penalty, which is a fine of not less than ten times the sum or value of the gratification or RM1mil, whichever is the higher, or to imprisonment for a term not exceeding 20 years, or both.

Secondly is the presumption clause, which basically shifts the burden to the commercial organisation and its office bearers. Section 17A(3) basically says that if the commercial organisation is found liable, a person who is the director, controller, officer or partner of the organisation or a person who is concernedwith the organisation’s management affairs at the time of the offence, is deemed to have committed the offence unless such persons can prove that the corrupt act was committed without his consent or connivance and that he exercised due diligence to prevent that 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.

Thirdly, is the definition of preventive steps. Under Section 17A (4), if a commercial organisation is charged for the offence, it is a defense for the commercial organisation to prove that the commercial organisation had in place adequate procedures to prevent persons associated with the commercial organisation from undertaking such conduct.

Fourth, are the guidelines which has been issued by the Prime Minister’s Department with respect to what constitute as adequate procedures. These guidelines are the pillars of defense for corporates as it defines the steps that a corporate will need to get ready with.

This has a nice acronym – TRUST.

The letter “T” stands for Top Level Commitment; “R” for Risk Assessment; “U” for Undertake Control Measures; “S” for Systematic Review and Monitoring; and “T” for Training and Development.

The adequate procedure guidelines basically spelled out what the commercial organisations ought to do but at the same time, they are also required to put in place systems that can help them to monitor their level of readiness.

This may include systems that are similar to risk management tools presently available but only thing is that these are now defined as Anti-Bribery Management System (ABMS), Corruption Risk Management (CRM) and Integrity Assessment System (IAS). These tools are necessary for commercial organisations to prove that they are not liable for corrupt activities carried out by person associated with them.

With just over six months to go, it would be an important time period for commercial organisations to get ready with their adequate procedures in ensuring their level of compliance is within expectations.

For listed companies, this is indeed a must, if it is not already in place, as any form of actions by the authorities can have serious repercussion to investors’ confidence on the company’s business operations as a company’s reputation will be seriously impacted.

It is hoped that with the introduction of the corporate liability provision under the MACC Act, the incidence of corrupt practices by corrupt employees or persons connected is not only reduced but eliminated.

However, just like any other law, enforcement will be key to see its impact to companies and business practices as it is widely known that corruption or bribery is not just limited to the public sector but in the private sector as well, a point that was highlighted by none other than Tan Sri Rafidah Aziz early this week.

In addition, corruption in the private sector is mostly unreported to the authorities. In most cases, when they are actually reported, they are reported internally via the “whistle-blowing” mechanism.

The line of reporting in this mechanism must be clear to not only protect the “whistle blower” but to ensure investigations are actually carried out. Hence, a clear line of reporting should be established and the right channel is to the independent audit committee members as this can then be escalated to the relevant authorities.

So, corporate Malaysia, are you ready for Section 17(A)?

The views expressed here are solely the writer’s own.

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Corruption , Pankaj Kumar , MACC


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