AN “ABC” GUIDE TO THE “ABC” FRAMEWORK IN MALAYSIA

Fariz Abdul Aziz provides a guide to avoid some bribery and corruption pitfalls in Malaysia


INTRODUCTION

Siemens, BAE Systems, Daimler, Johnson & Johnson, Alcatel. These luminaries of the global market place have much in common with each other, be it their global brand names, ability to innovate products and leadership in their respective markets. As a testament to this fact, each is amongst the largest and most profitable companies in the world and is consistently recognised as a Fortune Global 500 company. These companies also share the dubious honour of having been required to pay hefty fines running up to hundreds of millions of US dollars for offences involving corruption and bribery. 

Each of the cases involving the above-mentioned companies was investigated primarily by the US Department of Justice (“DOJ”) and the Securities and Exchange Commission under the dreaded US Foreign Corrupt Practices Act of 1977 (“FCPA”) which makes it is an offence for a US person, entity and certain applicable foreign entities (mainly issuers of securities on a US exchange) to make bribes or offer any inducement for the purpose of obtaining or retaining business with a US firm. Whilst the FCPA may have provided the basis for the flurry of investigations into bribery and corruption which we have seen in recent years, such actions could not have been successful without the enhanced facilitation afforded by governments around the world.

Much of the credit for the increased international facilitation and cooperation in fighting corruption may be attributed to the coming into force of the United Nations Convention Against Corruption (the “Convention”) on the 14 December 2005. Under the Convention, signatory countries are required to criminalise a wide range of corrupt acts, including domestic and foreign bribery and related offences such as money laundering and obstruction of justice. In addition, signatory countries agree to cooperate with one another in every aspect of the fight against corruption, including prevention, investigation and prosecution of offenders.

Signatory countries are bound by the Convention to render specific forms of mutual legal assistance in gathering and transferring evidence for use in court as well as in extraditing offenders. Statistical evidence of the effect of the Convention can be seen from the significant surge in FCPA enforcement actions that has taken place since its entry into force. In 2004, the DOJ charged only two individuals under the FCPA and collected around USD11 million in criminal fines. By contrast, it is asserted by Lanny A Breuer, Assistant Attorney General of the DOJ’s Criminal Division, in a speech delivered on 16 March 2011 that the DOJ charged over 50 individuals and collected nearly USD2 billion fines in 2009 and 2010.

 

ANTI-BRIBERY AND CORRUPTION FRAMEWORK IN MALAYSIA

Whilst corporates who fall within the purview of the FCPA may be familiar with their anti-corruption and bribery obligations under the FCPA, it is also important for such entities operating in Malaysia to familiarise themselves with the anti-bribery and corruption framework in Malaysia (“Malaysian ABC Framework”) as it is covers a broader spectrum of activities than the FCPA.

The main thrust of the Malaysian ABC Framework is the Malaysian Anti-Corruption Commission Act 2009 (“MACC Act”) which came into effect on 1 January 2009. The MACC Act is the successor to the Anti-Corruption Act 1997 (“ACA”) and is designed to bring Malaysia’s ABC Framework in line with its international obligations under the Convention, particularly its obligations to counter bribery of foreign public officials.

The MACC Act covers the following conduct:

  • the giving and accepting gratification;
  • the giving or accepting gratification by an agent;
  • corruptly procuring the withdrawal of a tender;
  • bribery of an officer of a public body;
  • bribery of foreign public officials;
  • using an office or position for gratification; and
  • dealing with, using, holding, receiving or concealing gratification or advantage in relation of any offence under the MACC Act.

The giving or receiving of gratification forms the basis of many offences under the Malaysian ABC Framework. The expression “gratification” has been drafted in the widest conceivable terms under the MACC Act and includes – 

  • money, donation, gift, loan, property, financial benefit or other similar advantage;
  • any office, dignity, employment, contract of services;
  • any payment, release or discharge of any loan, obligation or other liability;
  • any discount, commission, rebate, bonus or percentage;
  • any forbearance to demand any money or money’s worth or valuable thing;
  • any favour of any description, including protection from any penalty or proceedings of a disciplinary or criminal nature or forbearance from the exercise of any right, power or duty; and
  • any offer or promise of any gratification within the meaning of any of the preceding items.

 

In terms of its effect, the MACC Act is novel in that it possesses limited extra-territorial effect in relation to citizens and permanent residents of Malaysia. Where an offence under the MACC Act is committed in any place outside Malaysia by any citizen or permanent resident of Malaysia, that person may be dealt with in respect of such offence as if the offence had been committed within Malaysia.

Despite the general application of the MACC Act, the Malaysian Government did not repeal existing bribery laws (with the exception of the ACA) and therefore such provisions continue to remain in force. Statutes which contain their own anti-bribery provisions include: the Penal Code, Customs Act 1967, Election Offences Act 1954, and the Banking and Financial Institutions Act 1989.   

 

RISK AREAS

Gifts & Hospitality

The culture of corporate gift giving and hospitality is deeply entrenched in Malaysia and such practice is not generally viewed as corrupt. For instance, it is an accepted practice for businesses to host functions during festive seasons at restaurants and hotels where complimentary food and small gifts are provided. Such practices are not likely to be considered as corrupt practice under the Malaysian ABC Framework, although care should be taken to ensure compliance with applicable FCPA requirements (if applicable). It is also not uncommon for hospitality to be provided outside festive periods and in a more personal manner.

Care must be taken when engaging in the above-mentioned activities as overly generous gestures may give rise to the perception that such activities are for a corrupt purpose.

Kickbacks & rebates

Kickbacks and rebates are regarded as a corrupt practice in Malaysia. Such activities clearly fall within the scope of the MACC Act and should be avoided.

Liability for acts of agents

The MACC Act recognises that corrupt payments are often channelled through agents in order to create a buffer between the bribe giver and the bribe receiver and such arrangements are expressly caught under Section 17 of the MACC Act.

A review of the FCPA cases in recent years show that the vast majority of resolved cases have involved an agent paying bribes on behalf of his principal. Whilst the position under Malaysian law has yet to be tested, it is important to note that the US courts have affirmed that it is not necessary for the principal to have actual knowledge of the actions of his agent. It is sufficient to prove that the principal had reason to believe or suspect that the agent had the power, right or opportunity to do, or forbear from doing, the act in question and that the act was in relation to the agent’s principal’s affairs or business.  

Facilitation payments

Particular care must be taken when considering facilitation payments. Facilitation payments are payments made with the purpose of expediting or facilitating the performance by a public official of a routine governmental action, and not to obtain or retain business or any other undue advantage. Examples of routine government action include the registration of land dealings, police protection and processing of visas. Whilst such payments fall outside the scope of the FCPA, they are caught within Section 16(B) of the MACC Act.

Travel and entertainment

Whilst paying for the travelling expenses for a guest may be bona fide e.g. for the purposes of inspection of facilities, conducting training etc., there have been a great many examples where companies have been found to have used such tactics as a way to channel bribes. For instance, a New Jersey based telecommunications company spent millions of dollars on approximately 315 Chinese government officials, apparently to inspect its factories. In reality, during many of these trips, the officials spent little time at the factories and instead were treated to trips to destinations such as Las Vegas, Disney World, New York and were provided sums of up to USD1,000 per day in spending money.      

Donations to political parties

In recent times, there has been increasing practice of companies providing donations to political parties in Malaysia. Although political donations are not specifically covered by any law in Malaysia, particular care must be taken in ensuring that such donations are not construed as an inducement or a reward for doing or forbearing to do any act as this would fall within the general prohibitions of the MACC Act. Further, Section 50 of the MACC Act deems a corrupt intent of the giving or receiving of gratification unless the contrary is proven.

 

PROTECTING YOURSELF

The increased number of enforcement actions both in Malaysia and globally bring home the need to ensure that all levels of a company’s employees are made aware of corruption and bribery risks. An effective anti-corruption programme needs to be a priority and regular measurement of its effectiveness is a requirement. The GC100, a group of general counsel from leading UK companies, has published draft guidance, which in its view, may amount to adequate procedures, including:

  • Establishing board level responsibility for the anti-corruption programme;
  • Ensuring that a senior officer is directly accountable for overseeing the anti-corruption programme;
  • Designing a code of conduct which includes an anti-corruption element;
  • Vetting employees;
  • Implementing a gifts and entertainment policy;
  • Conducting appropriate training;
  • Carrying out appropriate due diligence on foreign partners, agents, consultants and entities;
  • Establishing financial controls to minimise risks;
  • Establishing procedures for minimising corruption by sub-contractors and suppliers; and
  • Developing whistleblowing procedures and implementing an anonymous reporting mechanism.

 

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