Enclosed below is the full keynote address from YBhg. Tan Sri Abdul Gani Patail, Attorney General Malaysia, held at Concorde Hotel on 2 Dec 2014.
YBhg. Tun Zaki Tun Azmi,
YBhg. Tan Sri James Foong,
Mr. Vivian Robinson QC,
The organizing team from Legal Plus Sdn Bhd,
the Malaysian Inner Temple Alumni Association, and
the Honourable Society of the Lincoln’s Inn Alumni of Malaysia,
Distinguished guests, speakers and Seminar participants,
Ladies and gentlemen.
On behalf of the Attorney General’s Chambers, allow me to record my appreciation to Legal Plus Sdn Bhd and their Seminar collaborators, the Malaysian Inner Temple Alumni Association, and the Honourable Society of the Lincoln’s Inn Alumni of Malaysia, for the honour of delivering the Keynote Address at today’s “Seminar on Corporate Governance: Corrupt Practices”.
Ladies and gentlemen,
SETTING THE SCENE
Every good drama begins by “setting the scene” for the story. The “drama” for this inter-active Seminar revolves around the thorny issue of corrupt practices in the corporate sector. In this regard, the Seminar organizers have set the plot. They invite the participants to carry on business activities in an ethical and sustainable manner and in compliance with the law. To this end it is recognized that familiarity with the relevant laws of Malaysia and relevant countries is a necessary precondition to compliance and the ability to assess the risk of non-compliance. With this familiarity, participants will also be in a position to examine whether a company has put in place mechanism, processes and directions that are adequate to comply with both domestic and foreign laws which deal with corrupt practices.
However, the main focus of the Seminar programme is to engage participants in the ongoing discussion on whether there is a need for a more stringent set of laws and regulations to ensure compliance by companies. Specifically, participants are invited to consider whether there is a need for the so-called “corporate liability provision” in the Malaysian Anti-Corruption Commission Act 2009 to create good corporate governance in Malaysia.
With vested interest, allow me to add another task. If new legal provisions are deemed necessary, provide views and feedback on what form these enhanced legal provisions should take. The Seminar will examine the United Kingdom’s 2010 Bribery Act in detail but there are also models from the United States of America and other countries worthy of consideration. In this regard, it is noted that countries from Canada to Latin America to Europe to Australia have adapted their own variants consonant with their fundamental legal systems as well as to suit their business environments.
Ladies and gentlemen,
To avoid any misunderstanding, let me categorically declare at the outset that my Chambers and I remain neutral on the matter. Ultimately this will be a policy decision for the Government to make. The role of the Attorney General’s Chambers will only be to ensure that the Government is properly advised on any legislative proposals, taking into consideration the views of the relevant stakeholders.
Instead it will be the task of the carefully selected speakers to lend the breadth of their practical experience on all issues. It will be their role to explain and clarify the existing regime of corporate criminal liability for acts of employees, agents and associates, the rationale for the proposals being mooted by the Malaysian Anti-Corruption Commission (MACC) as well as to highlight the risks of doing business with foreign legal entities that have established strict liability regimes for corporate bribery and other misconduct, whether or not Malaysia establishes its own “mirror” regime on corporate criminal liability. Last but not least, it will be for the experts and participating stakeholders to suggest practical parameters, tailored to the specific business environment of Malaysia, for any legislative proposal that may be made.
With those outcomes in mind, let us take a birds-eye view of the perception of corporate involvement in bribery and corruption in Malaysia. For this purpose, reference is made to the KPMG Malaysia Fraud, Bribery and Corruption Survey 2013.
According to the survey, 80% of respondents felt that the incidences of bribery and corruption in the corporate sector have increased since 2010. That was the year the Prime Minister declared war on corruption and the Corporate Integrity Pledge was launched. 90% of respondents believed that fraud, specifically bribery and corruption, is a major problem for businesses in Malaysia.
70% of respondents believed that bribery and corruption is an inevitable cost of doing business while 64% believed that business cannot be done in Malaysia without paying bribes. Based on survey results, cash payments (94%), entertainment (86%) and gifts (81%) were regarded as the most common forms of payment of bribery.
The most prominent factor contributing to bribery and corruption was identified to be poor internal controls (68%). It was also perceived that it was the inherent nature of the industry, for example the highly lucrative and competitive defence and energy sectors, that was the main factor contributing to bribery and corruption. Respondents revealed that the two most common underlying motivators for bribery and corruption were to win or retain business (82%) and to get routine administrative approvals from government agencies (81%).
The top four common steps taken by companies to mitigate the risks of fraud, bribery and corruption are to review and/or improve internal controls (91%), conduct pre-employment screening on staff (81%), establish a corporate code of conduct/ ethics (81%) and establish a fraud control strategy (73%).
However only 18% of the companies surveyed inserted “right to audit” clauses in agreements with business partners which encompass third parties, representatives and agents despite knowing the compliance risks of dealing with these external entities. Further only 22% of the respondents require their business partners to attest their commitment to behave in accordance with the company’s Ethics and Compliance, Anti-Bribery and Corruption Practices and Code of Conduct, assuming they had one in place to begin with.
The KPMG survey also found that 33% of the respondents are largely unfamiliar with the Malaysian Anti-Corruption Commission Act 2009. Further, more than half of the respondents were not aware if their organization was subject to the United States Foreign Corruption Practices Act 1977 and the United Kingdom Bribery Act 2010.
Ladies and gentlemen,
In addition, it was reported by the Malaysian Anti-Corruption Commission (MACC) that as at 12 May 2014, only 434 organizations (comprising multinational companies, private limited companies, government-linked companies, small and medium enterprises/ industries, civil society organizations, government agencies and professional bodies) have signed the Corporate Integrity Pledge (CIP) that was launched in 2010.
Of this number, only 395 out of 444, 544 companies registered with the Companies Commission of Malaysia have signed the CIP. The low numbers aside, the effectiveness of the CIPs remains to be seen.
In this regard, Malaysia should learn from the US corruption case against Alcatel-Lucent SA. In that case, the French company finally had to pay USD137 million (RM423 million) to settle charges that it paid millions of dollars in bribes to foreign officials to win contracts in Costa Rica, Honduras, Taiwan and Malaysia.
The US investigation under the Foreign Corrupt Practices Act 1977 and related laws, with its extra-territorial reach, revealed that Alcatel-Lucent SA paid bribes to Telekom Malaysia employees to obtain a contract worth RM263 million. These revelations damaged not only the reputation of TM but also that of Malaysia.
As a result TM and Axiata, which was part of TM when the alleged corruption took place, opened separate probes, and the Malaysian Anti-Corruption Commission initiated its own investigation. The view at the time was that the focus of the investigation should not only be on the local employees (“consultants”) who were paid to leak confidential insider information on the tender but that Malaysia should follow in the footsteps of the US prosecutors and go after the offending foreign enterprises as well. That case also showed the importance of having legal provisions in place to ensure that the offender company could not evade liability by merely altering itself, either through mergers or reestablishment as new companies with new management.
Ladies and gentlemen,
Put simply, this “reality check” means that both companies as well as the Malaysian Anti-Corruption Commission have a lot of enhancement work to do to address corporate awareness of the risks associated with bribery and corruption.
As emphasized in the KPMG survey report, the investor community (local and foreign) as well as stakeholders (which includes the employees, shareholders, financiers and business partners and customers) now expect company boards and internal audit mechanisms to proactively and diligently monitor their companies’ efforts to understand and mitigate the risks of fraud, bribery and corruption. Non-executive directors are also expected to earn their salaries by challenging company management on the adequacy of their fraud risk identification and mitigation plans.
Ladies and gentlemen,
NEW “CORPORATE LIABILITY” PROVISION
Since it is the focus of today’s Seminar, allow me to spend some time on the issue of the new proposed “corporate liability” provision.
The Chief Commissioner of the MACC announced that the MACC was considering the United Kingdom Bribery Act 2010 as its model to make it a corporate offence for companies that fail to prevent bribery among their employees on 24 March 2011. In October 2012, the plan to have the “corporate liability” provision placed in the MACC Act 2009 was made public.
In an editorial in The STAR published on 18 February 2014, it was commented that, “IN THE realm of law making, speed of action (or the lack of it) can be telling. Whenever a statute or amendment progresses quickly from an idea into legislation, we can generally conclude that it is a win-win case of the government and the elected representatives being solidly behind a well-received move. On the other hand, a delay in pushing through a new law or provision sometimes suggests that people are divided over the likely impact of the proposed change… .”
This is certainly true of the current proposal. The Malaysian Employers’ Federation (MEF) has called for more consultation because it has had limited information on the details of the proposal. Its perception is that the new provision will place blame entirely on the employers. It is nonetheless recognized by the MEF that global developments mean that this provision was a necessary requirement by most developed countries that Malaysia deals with and the fear is that without an equivalent provision in Malaysian law, companies from those countries may not want or be able to trade with Malaysia. The Associated Chinese Chamber of Commerce and Industry of Malaysia (ACCCIM) has also issued a statement calling for in-depth consultation on the proposal, noting that even in Europe and UK where such legislation is present, debates and controversies abound.
It cannot be overemphasized that before Malaysia embarks on the proposed route to fight corporate corruption with its far reaching impact, there needs to be understanding of how and why a particular regime was adopted by a particular country. We cannot blindly transplant foreign legislative provisions. There must be an understanding of the underlying regulatory mechanism of companies and their structure and activities. This is because no law works in isolation. Further, as recognized in the OECD compilation reference of legislative provisions entitled “Corporate Liability for Corruption Offences in Latin America”, corporate liability frameworks must be tailored to the specific characteristics of the legal system in question.
Ladies and gentlemen,
Criminalization of corporate liability
In relation to the criminalization of corporate liability, foremost it should be recognized that Malaysia has long accepted the common law approach that corporations, despite being a “legal fiction”, can be made criminally liable for the acts of its employees, agents and associates. This is unlike Germany and certain other countries with the Continental legal system. The link between company and individual is established under either the traditional agency principle or under the “identification” or “alter ego” doctrine. Therefore in principle, Malaysia would have no legal issue with imposing liability on companies for the bribery acts of its employees, agents or associates.
Establishing such criminal liability would also be in accordance with Malaysia’s obligations under Articles 12, 21 and 26 of the UN Convention against Corruption. The UNCAC recognizes that it would be impossible to achieve high moral and legal standards in relations with government unless companies also adopt high standards for themselves and for their dealings with one another. Tolerance of private corruption inevitably makes it more difficult to prevent and combat public corruption.
Article 12 of UNCAC requires a State Party to take measures to prevent corruption involving the private sector, enhance accounting and auditing standards in the private sector and, where appropriate, provide effective, proportionate and dissuasive civil, administrative or criminal penalties for failure to comply with such measures.
Article 21 of UNCAC requires a State Party to consider adopting legislative and other measures as may be necessary to establish as criminal offences, when committed intentionally in the course of economic, financial or commercial activities, the promise, offering or giving of an undue advantage to any person who directs or works in any capacity for a private sector entity in order that he in breach of his duties, act or refrain from acting. It also requires the solicitation or acceptance of an undue advantage by such person for such reason to be made a criminal offence. Hence both the giver and taker are expected to be prosecuted.
Further, Article 26 of UNCAC imposes a general duty on each State Party to adopt measures to establish the liability of legal persons for participation in the corruption offences established under the Convention. This liability is without prejudice to the criminal liability of the natural persons who have committed the offences.
Ladies and gentlemen,
Be that as it may, and as will be discussed in the first Seminar session, investigating bribery crimes and attributing liability to the legal entity and any individual are not without challenges. Hence from a law enforcement perspective, the US Department of Justice prosecutors’ box of tools – plea agreements, deferred prosecution agreements and non-prosecution agreements – to gain the cooperation of the legal entity to obtain the evidence necessary to proceed against individual employees and agents are worth exploring. And I would emphasize here that these tools are expressly provided for by law and exercised as part of the US Department of Justice’s prosecutorial discretion powers.
Extent of corporate criminal liability
The question of the extent companies can be held criminally liable for active bribery offences perpetrated by their employees, agents and associates focuses on the questions of the extent companies have a duty of care to prevent bribery by employees and the extent a breach of such a duty of care can cause criminal liability to ensue. To a certain degree, these questions are answered in the 2010 UK Bribery Act which came into operation on 1 July 2011.
2010 UK Bribery Act
The UK Bribery Act creates a new, unique strict liability offence for corporations or partnerships that fail to prevent bribery. It also widens the scope and reach of United Kingdom anti-bribery prohibitions which are likely to have significant ramifications for companies with business interests in the United Kingdom. The relevant section of the Act provides that the commercial organization can avoid liability where it can show that it had in place “adequate procedures” designed to prevent such conduct at the time the bribery occurred. Thus this provision is considered more a preventive provision rather than a punitive provision. Guidance is provided separately by the UK Secretary of State on what constitutes “adequate procedures”.
The Act is supposed to benefit, not hinder British business while allowing the United Kingdom to be at the forefront of the battle against bribery without being a burden on business. The passage of the Act was in part a reaction to the criticism the UK government received as a result of the 2006 decision to close the high profile inquiry into allegedly improper payments made by BAE Systems plc (“BAE”) to secure arms contracts in Saudi Arabia. In February 2010, BAE agreed to pay £30 million (approximately USD47 million) in fines to UK authorities in connection with allegations of improper payments made in Tanzania.
Ladies and gentlemen,
1977 US Foreign Corrupt Practices Act
Since Malaysian companies have also been impacted by the 1977 US Foreign Corrupt Practices Act (FCPA), this is another foreign law that companies should seek familiarity with.
As is emphasized in the “FCPA – A Resource Guide to the U.S. Foreign Corrupt Practices Act”, Congress enacted the Act in 1977 in response to revelations of widespread bribery of foreign officials by US companies. The Act was intended to halt those corrupt practices, create a level playing field for honest businesses and restore public confidence in the integrity of the marketplace.
The FCPA takes a two-prong approach. Firstly, its anti-bribery provisions prohibit US persons and businesses (domestic concerns), US and foreign public listed companies and certain foreign persons and businesses acting while in US territory from making corrupt payments to foreign officials to obtain or retain business. Secondly, its accounting provisions require these persons and entities to make and keep accurate books and records and to devise and maintain an adequate system of internal accounting controls, which also prohibit the falsification of records.
It is interesting to note the House of Representatives view in passing the FCPA that, “a strong antibribery statute would actually help U.S. corporations resist corrupt demands.” As stated by the former Gulf Oil Co. Chairman, Bob Dorsey, “If we could cite our law which says we just may not do it, we would be in a better position to resist these pressures and refuse those requests (for bribes).”
The Guide also recognizes that governments can be organized in very different ways and may operate through state-owned and state-controlled entities. A government instrumentality is also broadly defined and requires a fact-specific analysis of an entity’s ownership, control, status and function to determine if it is an agency or instrumentality of a foreign government. This operates both in the context of the “receiver” foreign public official and in relation to the given “company”.
The general principles of corporate liability apply to the FCPA. Thus, a company is liable when its directors, officers, employees or agents, acting within the scope of their employment, commit FCPA violations, intended, at least in part, to benefit the company. The Guide also sets out the liabilities arising from parent-subsidiary company relationships whereby the parent company may be held liable in only two ways for bribes paid by its subsidiary. Firstly, a parent may have participated sufficiently in the activity to be directly liable for the conduct – as, for example, when it directed its subsidiary’s misconduct or otherwise directly participated in the bribe scheme through, among others, providing the funds for the “slush fund”. Secondly, the parent may be vicariously liable under the traditional agency principles where the fundamental characteristic is control.
A further point to note is that US prosecutors use their “corporate liability” for bribery of foreign public officials provision in tandem with other related laws such as the Travel Act (18 USC s1952), money laundering laws, mail and wire fraud laws as well as certain other licensing, certification and reporting requirements.
Taking into consideration all the above efforts by the US to provide for corporate criminal liability, it is also noteworthy that the first-ever criminal conviction for violations of the FCPA after a trial was actually only handed down on 10 May 2011 against a California company and its executives and a Mexican intermediary.
Burden of proof
With reference to the burden of proof issue, the topic of the Panel Discussion may benefit from further elucidation. It is trite law that the burden to prove guilt of an offence beyond reasonable doubt remains always on the prosecution. However evidence law provides that “he who asserts must prove”. This is based on the fact that the facts and evidence to prove those assertions are within the control of the person making the assertion. Thus if a company seeks to rely on the defence provided under the UK model of company liability for employee bribery, namely that it had put in place “adequate procedures” as a preventive measure, the existing law is clear on where the burden to prove that fact, on a balance of probability standard, lies. There is no issue under the UK model of shifting the burden to prove that a company did not offer bribes.
Another important element of both the UK and US models as well as the criminal corporate liability laws of countries such as Denmark, Germany and Indonesia is protection for whistleblowers. In this regard, Malaysia’s Whistleblower Protection Act 2010 came into operation on 15 December 2010. The long title of the Act expressly provides that the purpose of the Act is to “combat corruption and other wrongdoings by encouraging and facilitating disclosures of improper conduct in the public and private sector, to protect persons making those disclosures from detrimental action, and to provide for the matters disclosed to be investigated and dealt with”.
The Act provides whistleblowers protection in the form of confidentiality of their information and revocable immunity from civil and criminal action if the whistleblower himself was involved in improper conduct. In serious cases, the Witness Protection Act 2009 which came into operation on 15 April 2010 would also enable witnesses to be protected under the witness protection programme established under that Act.
In this regard it is pertinent to note the call by the Singapore Attorney General, Steven Chong, speaking at the 26th LawAsia Conference on 29 October 2013, that lawyers should be gatekeepers who blow the whistle on dubious corporations. He explained that this idea should be given serious consideration in view of the rising expectations of courts and regulators across various jurisdictions, as well as clients such as hedge-fund bosses in Britain and in-house counsel in Australia, and that the ground has already begun to shift. In Singapore, the Attorney General stated that professional advisers must be “diligent” in processing information from their clients and “proactive” in making further inquiries.
In considering the direction for Malaysia, it is noteworthy that other jurisdictions such as Canada, Indonesia, and Ukraine, have also criminalized the non-action by companies to prevent bribery. Certain jurisdictions have however made exceptions for institutions of the State, governmental institutions, local governments, State-owned or State-funded enterprises, institutions and organizations. Such exceptions are seen by observers as limiting the ability of the law to fight corruption among such governmental, etc. entities.
The penalties for corporate bribery have also been designed to hit where it hurts most while trying to safeguard the innocent parties, which include innocent shareholders who are not privy to the finer details of how the companies run their business. In the Malaysian context, based on current corporate practice, it may even be necessary to exclude non-executive directors who are specifically excluded from business decisions as they should not be made liable for acts of the company that they were not allowed to be privy to.
Based on the laws of certain jurisdictions such as Guatemala, the fine or monetary penalty is pegged to the amount of the benefit obtained through the corrupt practice, with the maximum being prescribed as twice the amount of the benefit obtained. However to avoid any punitive element to the company per se, perhaps it may be sufficient just to recover the amount of the benefit unlawfully obtained.
Aside from substantial monetary penalties, other options for punishment include debarment from participating in contracts with State organs (such as federal public procurement); total or partial loss of tax benefits; temporary or permanent closure of the business; suspension or cancellation of legal status, licences, registration; and in the most serious cases, dissolution. Certain jurisdictions make express provision for judicial intervention to safeguard the rights of the offending company’s employees and creditors for a specified period of time.
Ladies and gentlemen,
In addressing the proposal for a corporate criminal liability provision in the MACC Act 2009, the Honourable Prime Minister, Datuk Sri Najib Tun Razak, stressed that the new provision would not operate in isolation but would complement existing anti-corruption, commercial crime as well as company laws. This is recognition that addressing corruption by legal entities is not solely dependent on this new provision. There are already existing laws that are being used and that will continue to be used to address every facet of bribery and corruption by legal entities and persons associated with them.
The Prime Minister also expressed his hope and vision that, “I want to make corruption part of Malaysia’s past, not its future … and that means changing organizational as well as business cultures.” Being a realist, the Prime Minister acknowledged that this transformation of operating cultures among the thousands of businesses would be a long process. However as the Prime Minister further stated, “To truly build sustainable economies, we must signal our commitment to ethical business practices by acting and reforming, to tackle corruption.”
Since it appears that Malaysian corporate regulators, internal and external, have not had a chance to properly implement and administer the corporate governance mechanisms that have been put in place to date, including under the 2012 Malaysian Code on Corporate Governance, perhaps focus should be on that as the immediate interim measure while consultations proceed on the need for this new “corporate liability” provision in the Malaysian Anti-Corruption Commission Act 2009. Another point to ponder is that if the key to “clean” business operations lies in having “adequate procedures” in place – as required under the UK model – perhaps it may just be simpler to legislate exactly what these “adequate procedures” are supposed to be into the Companies Act 1965 and its regulations. In such case, action for breach of the actual procedures can be taken as opposed to waiting for an offence to be committed by employees, agents and associates.
Ladies and gentlemen,
I hope for a fruitful outcome to the Seminar today. But as in all dramas, the outcome will probably not satisfy everybody. Some may favour an ending that entails external intervention through more laws and regulations.
Others may argue that self-regulatory measures that are guided by international norms and best practice will suffice. All will find that more can be done to ensure proper oversight. None can avoid deciding whether the “cost of doing business” will be higher by putting in preventive mechanisms against bribery and corruption now or in continuing to “pay the piper”.
Perhaps the clue to the solution lies in the observation by Catherine Stansbury from the Global Infrastructure Anti-Corruption Centre in her article “Liability for Corruption”. She stated that, “The prevalence of corruption is contributed by lack of awareness as to the risks of participating in corruption. Civil and criminal liability may be incurred by both individuals and their corporate employer. If there was greater awareness of such risks, individuals would be less willing to participate in corruption on behalf of their employers, companies could be more concerned to prohibit their employees from committing corrupt acts, and more corruption would be reported to the criminal authorities.” [Emphasis added]
 “Corporate governance” for Malaysia is defined in the High Level Finance Committee Report 1999 and the Malaysian Code on Corporate Governance (2012) as follows:
“The process and structure used to direct and manage the business and affairs of the company towards enhancing business prosperity and corporate accountability with the ultimate objective of realizing long term shareholder value, whilst taking into account the interests of other stakeholders.”
 Source: Malaysian Anti-Corruption Commission briefing on the Corporate Integrity Pledge to Yayasan Selangor, 26 May 2014.
 Bernama, 22 April 2014. The Corporate Integrity Pledge (CIP) programme was established in 2010 as a tool for prevention of corruption whereby corporations, companies, organizations or other bodies are invited to unilaterally declare their adherence to corruption prevention principles. The MACC begins monitoring adherence 6 months after the signing.
 New Straits Times editorial entitled “Greasy business” (1 January 2011).
 New Straits Times, 25 March 2011.
 New Straits Times, 14 May 2014.
 The STAR, 26 February 2014.
 Antonio Argandona, “The United Nations Convention against Corruption and Its Impact on International Companies”, 2006 IESE Business School.
 Bram Meyer, Tessa van Roomen, Eelke Sikkema, “Corporate Criminal Liability for Corruption Offences and the Due Diligence Defence: A Comparison of the Dutch and English Legal Frameworks”, 30 June 2014.
 Willkie Farr & Gallagher LLP, “United Kingdom Enacts Bribery Act 2010” – Client Memorandum, 19 April 2010.
 House of Representatives, 95th Congress, Report No. 95-640 – Unlawful Corporate Payments Act of 1977, September 28, 1977; viewed at http://10.173.2.10/criminal /fraud/fcpa/history/1977/houserpt.html[7/7/2009 7:49:04 AM] on 24 November 2014.
 The STAR, 30 October 2013 – Consensus among lawyers.
 Canadian Criminal Code (RSC 1985, C-46), Section 22.2
 Indonesia Law No. 31 Year 1999 regarding Eradication of the Criminal Act of Corruption, as amended by Law No 20 Year 2001. Source: http://www.conventuslaw.com/indonesia-corporate-liability-for-corruption, “Indonesia – Corporate Liability for Corruption, 11 July 2014; viewed 24 November 2014.
 Ukraine Law on amendments to certain Ukrainian legal acts (in order to implement EU-Ukraine visa dialogue action plan on visa liberalization regarding liability for legal entities).
 Mexico Federal Penal Code, Article 11.
 Ukraine, supra.
 Guatemala Criminal Code, Article 442-bis.
 Peru Penal Code, Article 105.
 The STAR, 31 August 2013.