Introduction To Corporate Liability

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Introduction To Corporate Liability

August 25, 2021 Corporate & Commercial Disputes General Knowledge 0

What is corporate liability?

Corporate liability refers to the liability of the company in the event they commit wrongdoing. More specifically, it deals with a situation whereby a company (or in this case, commercial organization) conspires with other companies/ parties/ individuals to commit acts of fraud or dishonesty that involves bribery i.e. corruption. 

If you take the time to read the Malaysian Anti-Corruption Commission Act, you will realize that MACC only focuses on prosecuting individuals involved in corruption- nowhere does it reel in the bigger fish in the transaction i.e. the company itself.  Therefore, amendments were made to tackle this issue to ensure that commercial organizations cannot escape simply because one of their own employees commit a crime. 

So what happens if a company was caught for corruption? What is the law on this issue? Are there any defenses at all? 

Q&A on corporate liability

Question: What is the law governing this topic?

Answer: Section 17A of the Malaysian Anti-Corruption Commission Act (MACC) Act.

Question: What is a commercial organization?

Answer: It means:

  1. A company running its business in Malaysia/ outside of Malaysia or part business in Malaysia/ outside of Malaysia and is incorporated under the Companies Act;
  2. A partnership  running its business in Malaysia/ outside of Malaysia or part business in Malaysia/ outside of Malaysia and is incorporated the Partnership Act; or
  3. A limited liability partnership running its business in Malaysia/ outside of Malaysia and is incorporated the Limited Liability Partnership Act.

Question: How would a commercial organization land itself in hot soup?

Answer: If a person associated with the commercial organization corruptly gives, agrees to give, promises, or offers to any person any gratification whether for the benefit of that person or another person with the intent to obtain or retain:

  1. Business for the commercial organization; or 
  2. An advantage in the conduct of business for the commercial organization.

Question: Who will be caught in the crossfire?

Answer: The law states that if a commercial organization is caught under this section, the following individuals will be assumed to committed corruption:

  1. Director/ controller/ officer/ partner; or
  2. Anyone who is involved in the management of the affairs of the commercial organization.

Question: What happens if a commercial organization is found to have committed an act of corruption?

Answer: If found guilty, the commercial organization will be liable to a fine of not less than ten times the sum or value of the amount received, whether sum/ value is capable of being valued or is of pecuniary nature, or one million ringgit, whichever is the higher, or to imprisonment for a term not exceeding twenty years or to both.

Is there available defense(s)?

Yes. For the individuals mentioned above, they will be presumed to be guilty unless

  1. They can prove that the offense was committed without their consent or knowledge; and 
  2. They can prove they have exercised due diligence to prevent the commission of the offense as they ought to have exercised, having regard to the nature of their role and also to the circumstances of the case.

For the commercial organization, assuming it’s being charged under section 17A, it can raise the fact that it had in place adequate procedures to prevent persons associated with the commercial organization from undertaking such conduct (and yet the person still managed to do it) as a defense

Question: How do you define an “associated person”?

Answer: An “associated person” is defined as a director, partner, or an employee of the commercial organization or a person who performs services for or on behalf of the commercial organization.

Question: How do you define “services”

Answer: The definition of “services” is dependent on the circumstances of each case not merely by reference to the nature of the relationship between the associated person and the commercial organization.

What can be done to mitigate the risk of corporate liability

While non-exhaustive, below are some of the common practices a commercial organization should consider adopting to mitigate the risk of corporate liability:

  1. Lay down a standard guideline (with the help of all the relevant parties i.e. customers, suppliers, government authorities) for all staff to comply with- this will provide a certain degree of certainty if what can be done or cannot be done or what is considered an act of corruption vice versa.
  2. Create a safe haven for staff to report any instances of corruption without the fear of retaliation/ retribution from the higher-ups.
  3. Implement special/ stricter procedures for jobs/ departments that have a higher risk of committing such offenses and ensure that their work is being consistently monitored/ screened/ audited to mitigate the risk of corruption.
  4. Provide staff with regular training/ development programs on the topic itself.
  5. Vet the potential employees before hiring them- any red flags should be immediately investigated to mitigate potential future damage that might be caused by the potential employee to the organization. 

The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Information on this website may not constitute the most up-to-date legal or other information.

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