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How “Adequate” Are Your Adequate Procedures?

When the Malaysian Anti-Corruption Commission (Amendment) Act 2018 was passed by Parliament in April 2018, all eyes were on the most notable amendment made which introduced the corporate liability provision in Malaysia.

The new section 17A of the Malaysian Anti-Corruption Commission Act (“the MACC Act”) allows for a company to be prosecuted for corrupt conduct committed by an associated person. This provision will come into force on June 1, 2020.

Prior to this amendment which introduces section 17A, the penalties under the Malaysian Anti-Corruption Commission Act 2009 were only applicable to Malaysian citizens and permanent residents (individuals) who committed the corrupt acts.

With the introduction of section 17A, a company will now be exposed to liability for a corrupt act committed by associated persons. Upon conviction, the company shall be liable to a fine of not less than 10 times the value of the gratification, or RM1 million ringgit (whichever is higher).

Interestingly, the term “associated persons” in the newly-amended MACC Act covers not only the employees of the company but also includes any person who performs services for and on behalf of the company. This means the conduct of the company’s agents, consultants, JV partners, distributors, nominees or trustees may also expose the company to potential liability.

In the event the company is charged under section 17A of the newly-amended MACC Act, subsection (4) of the same section provides that “…it is a defence for the commercial organization to prove that the commercial organization had in place adequate procedures to prevent persons associated with the commercial organization from undertaking such conduct”. In other words, the corrupt act was committed in spite of such adequate procedures had been established.

Taking into account that companies may be in the dark as to what may be considered as “adequate procedures”, a 10-page Ministerial Guidelines on Adequate Procedures was issued in December 2018 to provide some guidance for companies on the elements that the anti-corruption regulator may look for in ascertaining whether adequate procedures are in place.

In the Ministerial Guidelines, there are five (5) principles outlined which are known as the “TRUST Principles” (T – top level commitment; R – risk assessment; U – undertake control measures; S – systematic review, monitoring and enforcement; T – training and communication).

The TRUST Principles describe the steps and actions which may be implemented by companies in preventing corruption from happening. Essentially, a culture to fight corruption should be inculcated with a top-to-bottom approach with the tone against corruption being set by the senior management. These Principles also emphasise the requirement for procedures to be set up by the company to deal with risk assessment, reviews, control measures and training/communication with whistle-blowing procedures also in place.

Section 17A only renders the company liable for the act of its associated person in corruptly giving, agreeing to give, promising or offering to any person any gratification with the intent to obtain or retain business or business advantage. (The act of receiving gratification is covered under section 16 and/or section 17 of the MACC Act.)

Section 17A(3) further states “where an offence is committed by a commercial organisation, a person – (a) who is its director, controller, officer or partner; or (b) who is concerned in the management of its affairs at the time of the commission of the offence, is deemed to have committed that offence unless that person proves that the offence was committed without his consent or connivance and that he exercised due diligence to prevent the 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.”

This deeming provision creates a presumption of criminal liability against the senior personnel of the company with the only defences available being that the corrupt act was committed without his or her consent or connivance and he or she had exercised the necessary due diligence to prevent such an offence. This provision imposes on the senior management the responsibility of ensuring the strict observance of anti-corruption principles.

As the effective date draws closer, companies have barely a few more months to roll out their adequate procedures.

The question that begs to be answered is therefore: “How ’adequate’ are your adequate procedures”?

If you have any queries or require further information on how we may be able to assist you, please feel free to contact us:

 

Jalalullail Othman

Partner

[email protected]

Yoong Sin Min

Partner

[email protected]

 

Dhaniah Ahmad

Partner

[email protected]

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