Can You Afford the Risk of Corruption?

In 1990, Tun Dr Mahathir Mohamad as Malaysia’s fourth premier, set the vision for the nation to achieve Developed Nation Status by the year 2020. Much has happened over the years, and the boat appears to have tragically sailed off course, its captains oblivious to the vicissitudes of previous fortune. 2020 will nevertheless be a landmark year for Malaysia, not because it will achieve its vision for developed status, but because it will finally set the tone and establish the foundation for which such aspirations are required. Recognizing that the best plans are always foiled by not only bad execution but also bad behaviors, the current leadership has affirmed the importance of first addressing the human element in establishing strategy. As set out in the recently launched National Anti-Corruption Plan 2019-2023, the acknowledged reality is that “once humans actualize human governance, they are in touch with their inner self and consciousness, resulting in the natural compliance with rules and observation of the mechanism, processes and procedures”. A multitude of changes to the design of policy and procedures effecting governance and integrity, especially in the public sector, have been detailed and planned. One such mechanism, representing an important cog in this newfound wheel of integrity, are the amendments to the MACC Act 2009, and the profound impacts to commerce that will be seen with the addition of Section 17A, the new provision of the law dealing with corporate liability.



Tale As Old As Time

Biology makes us liars. We deceive ourselves all the time - from our faith that our inherited or choice of religion represents the “real truth”, to the belief that we are better than others in matters that make us feel good or important. Science puts this natural tendency of self-deceit to our survival and self-preservation - of our biological mechanism that seeks out to improve how our immune system functions so that we do not have an immunological crash and more importantly so that we may continue to live. This creates false personal narratives that compel instinctive actions reflective of such tendencies, consistent with how our physiology tricks us into believing how we are able to survive.


As social animals, however, we have a need to coexist with others. This need results in compassionate and empathic behavior that creates a sense of equity and justice, and which provides the perspective to recognize dishonesty. Conversely, co-existence will

also result in clashes of interest, with deception and guile being the behaviors deemed necessary to preserve and promote self-interest. Whether we want to admit it or not, man deserves his position on the food chain because of his cognitive abilities and

innate self-serving instincts.


The question then is this. If mankind is plagued with the unavoidable and undetachable risks associated with deception, and that you will be cheated if you

allow yourself to be, how prepared are you in ensuring that you, and those under your care, are not pickled? Are your natural defenses good enough to protect you from the person sitting next to you that may be working his way to stabbing you in your eyeballs? As a fiduciary, are you ready to assume the responsibility for not doing anything, despite your awareness of this phenomenon and the various risks that come with it?


Most probably not.



Changing Times


While mankind’s basic instincts remain the same, the world we do business in today has rapidly evolved. Modes of communication are different, and the speed

in which information is relayed is blinding. Methods of execution, driven by our innovative spirit, make us more efficient and resilient as a race. The rule of conduct and how we conduct ourselves in commerce have also changed. Laws have been passed to address behavioral risks that never existed, as they were never contemplated before.


In Malaysia, while cheating has been recognized as a criminal offence in the Penal Code that was first enacted way back in 1936, the same deceptive behavior now and the specific act of obtaining a commercial advantage from persons of influence are

recognized as a criminal offence on its own under the MACC Act 2009. As much as we see the logic behind the need to codify such laws, it is the rules set by the western world, the side of the fence claiming to have seen it all, that we reference our own

yardsticks for good and bad behavior. The United States enacted the Foreign Corrupt Practices Act in 1977, criminalizing corruption of foreign public officials, and the United Kingdom, much later in the game, with the Bribery Act in 2009, criminalizing

corruption of not only foreign public officials but also officers in commercial organizations, designed against the goal of promoting fair trade.



The Impending Corporate Liability Provision

Gazetted on 4 May 2018, the MACC Amendment Act 2018 contains 8 amendments and 2 new sections to the existing MACC Act 2009, of which Section 17A is one. Except for Section 17A, all amendments are effective 1 October 2018. For Section 17A, a further window for education and roll-out has been graciously considered and allowed by the Malaysian government so that commercial organizations are able to implement suitable anti-bribery procedures in order to have a defence against the new offence of a commercial organization failing to prevent bribery. The commencement date for Section 17A is expected to be gazetted mid-2020, and its effective enforcement date targeted on 1 June 2020.


Where liability was previously limited to the offender found guilty of the bribery offence under Section 17, the new Section 17A will widen liability to (i) the commercial organization and (ii) its directors and managers, the fiduciaries tasked to

exercise their duty to ensure the commercial organization has adequate and effective control procedures in place to prevent bribery. This is predicated on the underlying rationale that the commercial organization, as the ultimate beneficiary of the bribe and illegal favor, would have secured an advantage not otherwise obtained had it not been for the bribe committed by its agent, and therefore bear principal responsibility.


Organizations and their officers will be exposed to severe liabilities. Where a commercial organization, and/or its officers are found guilty of bribery and are convicted, the penalty to the organization and/or its officers will be a fine not less than ten (10) times the value of the bribe, or RM 1 million, whichever is higher, or imprisonment for a term not exceeding twenty years (20), or to both. A grave consequence and an effective deterrent that ensures the statutory

objective is achieved.



This Will Not Blow Over


Corporate Malaysia was introduced to the need for enterprise risk management frameworks (ERM) with the publication of the Malaysian Code on Corporate Governance in 2000 and the introduction of the requirement in Bursa Malaysia Listing Requirements in 2001. Today, close to two decades later, many organizations are still languishing in their comfort zones, half committed to such requirements meant to support their commercial sustainability. As traditional and conventional ERM models typically deal with controls in relation to risks surrounding business objectives, but which, when implemented, do not draw proper distinction between the cause and effect of risk and consequence, there is invariably significant judgement on whether commitment and effort behind its implementation are genuine.


Unlike the requirement for ERM, the requirement for organizations to have adequate procedures in the form of an anti-bribery / anti-corruption framework to effectively prevent bribery and corruption can be assessed more objectively. Where it may be difficult to pinpoint a negative consequence occurring from a single risk event in the typical ERM model, it is very easy to pinpoint the occurrence of bribery from the organization’s failure of implementing or pursuing adequately its intended anti-bribery control, despite the expected standard for effective anti-bribery / anti-corruption controls addressing human behaviors. If bribery occurs and is discovered, it is up to you to show what your efforts were in preventing it from

occurring.


Organizations have been punished and have lost fortunes from liability payouts arising from their failures in exercising proper anti-bribery controls – for example, the penalties incurred by Rolls Royce from its indictments by the Serious Fraud Office in UK, the US Department of Justice, and the Brazilian authorities, involving cost and liabilities of close to RM 4 billion (!) in 2017. A commercial organization of lesser stature would not sustain such liability.



The Hammer Will Fall Hard


Over the past few years, Malaysia has not presented itself to be the prime model of virtue, but been a punching bag for other emerging nations on its reputation for corruption, principally due to the unearthing of the sweeping 1MDB scandal. The

nation has scored low in the Corruption Perception Index. Between 1995 and 2017, Malaysia averaged a position score of 50, but that had dropped to a record low of 43 in 2011. Corporate Malaysia has put the blame on public sector governance, as it believes that the standards of corporate governance by Malaysian corporations are well beyond average. But clearly not the case in government.


The Malaysian business environment however has since changed. And it will continue to change at an increasing pace in the coming year. Corruption and fair dealings are now features that Corporate Malaysia will need to exercise clear and demonstrable effort to address.


The new government, with Tun Mahathir taking lead, is very serious and has demonstrated its steadfast commitment to fighting corruption. Immediately

after the Pakatan Harapan coalition took over the administration, a Cabinet Special Committee on Anti-Corruption (“JKKMAR”) was formed, chaired directly by Tun Mahathir himself, and the National Centre for Governance, Integrity and AntiCorruption (“GIAAC”) was established in May 2018. These actions have been prioritized as it is believed that it is “imperative for the new Government to always be reminded that the single most burning issue which was capable of bringing down a 61-year old Government was its corrupt practice”.


Since then, the GIAAC has developed and launched the 5-year National Anti-Corruption Plan (“NACP”), introducing several initiatives aimed at addressing national issues of corruption, integrity and governance. Some of the key changes that are seen

through the NACP are presented in the following table.



The Final Word


These plans are presently in various stages of roll out and are being closely and regularly monitored. It is understood that monthly meetings are held by JKKMAR, with Tun Mahathir chairing discussions. The commitment displayed in seeing the NACP through is unusual in the context of typical administration, and the eventuation of objectives is convincing.


In March 2019, the GIACC proposed to the Government to establish specific higher level courts to handle graft cases, instead of the current sessions courts, as special courts are needed to address corruption given that “it is a matter of great seriousness”. This is to also speed up the hearing of corruption cases, and ensure there are no backlogs when active enforcement by the MACC commences.


On 22 July 2019, the Securities Commission (“SC”) issued a press release that it will be implementing action plans to support the NACP with the view to improve Malaysia’s ranking in the biennial Corporate Governance Watch survey by the Asian Corporate Governance Association. The SC will implement the requirement for all listed companies to put in place anti-corruption measures, and for the SC to develop a framework to promote the effective discharge of directors’ responsibilities. The SC has urged all listed companies to prepare themselves and take necessary measures to establish an effective anti-corruption framework.


Efforts by JKKMAR are expected to have a profound and positive impact to the nation’s integrity life line.


With the ramping up of anti-corruption initiatives by the current Government, the business environment that we operate in is expected to change very quickly. The public sector is set to clean up its act and transform the backdrop against which commerce is conducted. Malaysia will be a very different environment for business come 2020, where the pecuniary risks concerning corruption are frighteningly real and substantial.


Will corruption be eliminated? Absolutely not. By biological design, man and the conduct of his affairs are predictable and will be constant. Need and greed drive civilization, and those in the game will adapt, evolve, and continue to seek out opportunities to not only survive but thrive.

Will the rules governing how the game is played change? Absolutely. And quite drastically too.


And so, now that we all acknowledge the problem, see the writings on the wall - just how ready are you to run this new leg of the race?


Tick tock tick tock.


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