Section 17A Explained

Section 17A Explained: When Your Company Can Be Charged for Someone Else’s Bribe

A plain-English guide to corporate liability for corruption in Malaysia for business owners, directors, managers and employees

A Bribe the Boss Never Knew About

Picture this. Your company is bidding for a large contract. A sales manager, keen to hit his target, quietly hands a “token of appreciation” to someone on the client’s side. The contract is won, the board is pleased, and nobody at the top asks how it was secured.

In the past, if this came to light, the sales manager would face prosecution. The company that enjoyed the profit usually would not. Corruption was treated as a crime committed by individuals, and only individuals were charged.

That position changed with Section 17A of the Malaysian Anti-Corruption Commission Act 2009 (“MACC Act”). Today, the company itself can be charged in court, and its directors and managers may be charged along with it. This article explains how Section 17A works, who it catches, how heavy the penalties are and what businesses can do to protect themselves.

What Is Section 17A of the MACC Act?

Section 17A introduced corporate liability for corruption in Malaysia. Parliament introduced it on 5 April 2018 as part of the 2018 amendments to the MACC Act, and it came into force on 1 June 2020.

The provision was modelled on two well-known foreign laws, the UK Bribery Act 2010 and the US Foreign Corrupt Practices Act 1977. It also helps Malaysia meet its obligations under Article 26 of the United Nations Convention against Corruption, which requires member countries to make legal persons, such as companies, answerable for corruption. Malaysia has been a signatory to that Convention since 2003.

Why should a company be punished for what one employee or agent did? The thinking, drawn from the UK experience, is that businesses are in the best position to stamp out bribery within their own operations. It is also often difficult to hold a company to account in any other way. By placing the responsibility on the company, the law pushes owners and managers to take active steps against corruption instead of turning a blind eye.

When Can a Company Be Charged? The Four Key Ingredients

Under Section 17A(1), a company or partnership commits an offence when all four of the following are present:

1. It is a “commercial organisation” as defined in the MACC Act.
2. A person associated with it, such as an employee or agent,
3. corruptly gives, agrees to give, promises or offers any gratification (in simple terms, a bribe) to any person, whether for that person or for someone else,
4. with the intention of obtaining or retaining business, or an advantage in the conduct of business, for the organisation.

The last ingredient is important. The bribe must be linked to the company’s business. For example, if an employee bribes a traffic officer to escape a speeding ticket while on a personal outing, the company gains nothing from it and would not generally be exposed to liability under Section 17A.

Which Businesses Are Covered?

The MACC Act gives “commercial organisation” a wide meaning. It includes:

• a company incorporated under the Companies Act 2016 that carries on business in Malaysia or anywhere else,
• a company incorporated anywhere in the world that carries on a business, or part of a business, in Malaysia,
• a partnership under the Partnership Act 1961, or a limited liability partnership (LLP), that carries on business in Malaysia or elsewhere, and
• a partnership formed anywhere that carries on a business, or part of a business, in Malaysia.

Bribes paid overseas still count

Because of this wide definition, Section 17A reaches beyond Malaysia’s borders. It does not matter where the bribe is paid, where the person paying it is located or what nationality that person holds. For instance, if an associated person of a Malaysian company bribes a public official in the United Arab Emirates to win business there, the Malaysian company can still be held liable in Malaysia.

Foreign companies with a Malaysian presence

The MACC Act does not define “carries on a business or part of a business in Malaysia”. It does, however, define “business” broadly as any activity carried on for gain or profit. In the UK case of Director of the Serious Fraud Office v Airbus SE, Airbus SE, a company registered in the Netherlands, was treated as falling within the UK’s equivalent law because it exercised strategic and operational control over its UK subsidiaries. On a similar approach, a foreign holding company that actively manages its Malaysian subsidiaries is likely to be regarded as carrying on business in Malaysia.

Who Counts as an “Associated Person”?

A company is only liable for bribes paid by a person associated with the commercial organisation. Under Section 17A(6), this means:

• a director, partner or employee of the organisation, or
• a person who performs services for or on behalf of the organisation.

The first group is straightforward. For the second group, Section 17A(7) states that the question is decided by looking at all the relevant circumstances, not merely the label given to the relationship. In practice, this second group can include agents, intermediaries, consultants, contractors and even subsidiary companies. What matters is the substance of the relationship, not its form.

Section 17A was shaped by the UK Bribery Act 2010, and UK cases show how far this concept can stretch:

Joint ventures and holding companies

Taking guidance from the UK, the mere existence of a joint venture does not make the joint venture entity “associated” with each of its members. However, a bribe paid by the joint venture entity may expose a member to liability if the joint venture was performing services for that member and the bribe was intended to benefit it. The degree of control the member has over the joint venture will be a relevant factor. The same reasoning is likely to apply to a holding company whose subsidiary is involved in corruption.

What Does “Obtain or Retain Business or an Advantage” Mean?

The MACC Act does not define these words, and they could be read widely. In the UK cases, the advantage gained by the company was usually clear and direct:

• Standard Bank plc: A sister company in Tanzania paid US$6 million to a local firm to help secure a mandate from the Government of Tanzania. Standard Bank made a profit of about US$8.4 million and, under a deferred prosecution agreement, had to give up its profits and pay more than US$20 million in total.
• Airline Services Ltd: Its sales staff used commission-based agents to win work from Lufthansa and its subsidiary worth about £7.39 million, producing a gross profit of about £991,000.
• Sarclad Ltd: Contracts linked to the bribery brought in about £17.24 million between 2004 and 2013, around 15.81 per cent of the company’s turnover in that period.

An indirect benefit can be enough

The company does not have to receive the benefit directly. In the Glencore case, some bribes were paid to officials of Nigeria’s national oil company to help another company, Petroleos de Geneve (PDG), obtain frequent oil allocations and longer credit terms. Glencore had a separate arrangement to take and sell all of PDG’s allocated oil, so it gained from the outcome. Glencore was convicted on that count. This matches Section 17A(1), which covers a bribe given for the benefit of any person. The real question is whether the bribe was given with the intention of benefiting the company.

Owning shares alone is usually not enough

There are limits. Simply owning shares in a company, or receiving dividends from a subsidiary, will not normally make the shareholder liable without proof of the required intention. In Sarclad, its parent company had received about £1.95 million in dividends, but the court accepted that these were received innocently and that the parent had no obligation to help pay the penalty. The court also gave a warning. If a parent company sets up a subsidiary as a disposable vehicle for bribes, so that it can be abandoned if the payments come to light, the parent is likely to be prosecuted.

How Heavy Is the Penalty?

Under Section 17A(2), the penalties are severe:

To put the minimum fine into perspective: for a bribe of RM50,000, ten times the value is RM500,000, so the minimum fine would be RM1 million, the higher of the two. For a bribe of RM321,350, the amount in the Pristine Offshore charge, the minimum fine would be at least RM3,213,500. A company cannot be sent to prison, so the imprisonment term is relevant to individuals who are deemed liable, as explained next.

Directors and Managers Can Be Personally Liable

Section 17A(3) is the part that should concern every director. When a company commits an offence under Section 17A, the following persons are deemed to have committed the same offence:

• anyone who, at the time of the offence, was a director, controller, officer or partner of the organisation, and
• anyone who was concerned in the management of its affairs.

This is strict. The prosecution only needs to prove that the company committed the offence and that the person held the relevant position at that time. It does not need to prove that the person actually knew about the bribe. This goes further than the UK Bribery Act 2010, under which the prosecution must show that a senior officer consented to or connived at the offence.

On paper, “officer” can include employees, which makes the provision very wide. In practice, the book on which this article is based suggests that charges are far more likely to be brought against those who were involved in, masterminded or acquiesced in the bribery. The decision on whom to charge rests with the Public Prosecutor, who may charge the company, its directors or both.

“Concerned in the management” is also broad. It is likely to cover shadow directors, meaning people whose instructions the board usually follows, and senior managers such as chief financial officers and chief operating officers. Staff who merely carry out policies decided by others are less likely to be targeted.

The defence for individuals

A person deemed liable can escape conviction by proving both of the following, on a balance of probabilities:

1. the offence was committed without his consent or connivance, and
2. he exercised the due diligence that he ought to have exercised to prevent it, bearing in mind his role and the circumstances.

Other lessons from Malaysian cases

Although the following cases arose under other laws with similar deeming provisions, they show how the courts are likely to approach Section 17A(3):

• A “sleeping director” has no excuse. In Azmi bin Sulaiman v Public Prosecutor, a director claimed he did not even know he was a director. The court rejected this as wilful blindness. A person who accepts a directorship takes on legal duties and cannot hide behind being a silent or non-executive director.
• Private disagreement is not enough. In the case involving Dato’ Dr Haji Mohd Adam Che Harun, the executive chairman of Megan Media Holdings Berhad, the court said that at the very least he should have recorded his disagreement. Police reports he lodged only after the scandal became public were treated as an afterthought.
• Knowing and doing nothing is risky. A person who knows that a bribe may be paid and does nothing to stop it is likely to be regarded as having connived at it.
• Junior staff are judged by their own role. In Pillay v Public Prosecutor, a branch manager who handled only sales, and was not responsible for salary payments made by the parent company, had his conviction set aside. A person cannot be expected to exercise diligence over matters outside his responsibilities.

The Company’s Only Shield: Adequate Procedures

Section 17A is a strict liability offence for the company. It can be liable whether or not its management knew about the bribe. The only defence under Section 17A(4) is for the company to prove that it had adequate procedures in place to prevent associated persons from committing bribery. The burden of proving this lies on the company.

To explain what “adequate procedures” means, the Prime Minister’s Department issued the Guidelines on Adequate Procedures under Section 17A(5). They are built around five principles, known as T.R.U.S.T.:

The Guidelines are not one-size-fits-all. They are meant to be applied in proportion to the size, industry and risk profile of each organisation. Even so, having a policy on paper is not enough:

• In R v Skansen Interiors Ltd, a UK company with about 30 employees relied on anti-bribery clauses in its contracts, multi-level approval of invoices and staff awareness that bribery was prohibited. The court rejected its adequate procedures defence.
• In R v Sweett Group plc, the company not only lacked proper anti-bribery procedures but had also ignored two reports by KPMG, in 2011 and 2014, flagging weaknesses in its controls.

For directors, taking real steps to implement these Guidelines is also the most practical way to show the due diligence needed for their own personal defence.

An Unresolved Question: Does the Presumption of Corruption Apply?

In ordinary corruption cases, Section 50(1) of the MACC Act allows the court to presume that a gratification was given corruptly once certain facts are proved. However, this presumption refers to proceedings against “any person” and was not extended to offences under Section 17A.

The result, as the book points out, is a puzzle. If only the company is charged, the prosecution may have to prove on its own that the bribe was given corruptly. If the employee and the company are tried together, the presumption may apply to the employee but not to the company, which could lead to inconsistent outcomes. At the time the book was written, this issue had yet to be settled by the courts or by an amendment from Parliament.

When a Corruption Probe Grows into a Money Laundering Case

A corruption investigation does not always stay a corruption case. In Azmi bin Osman v Public Prosecutor and another appeal [2016] 3 MLJ 98, a police superintendent was first investigated under the anti-corruption law then in force. In the course of the investigation, it was found that he had income of about RM9.48 million from unknown sources, and he was eventually charged with four counts of money laundering under the Anti-Money Laundering and Anti-Terrorism Financing Act 2001. For businesses, the lesson is clear. Money linked to bribery can bring the separate and serious consequences of money laundering law into play.

Practical Checklist: How to Protect Your Business

Drawing on the Guidelines on Adequate Procedures and the case study published by the National Centre for Governance, Integrity and Anti-Corruption (GIACC) for small companies, every business, whatever its size, should consider the following:

• Adopt a written zero-tolerance policy on corruption, endorsed by the board and easy for everyone to find.
• Carry out a corruption risk assessment, repeat it regularly and review it whenever the law or the business changes.
• Conduct due diligence on agents, consultants, contractors and joint venture partners before engaging them, including background checks, document verification and interviews.
• Set clear rules on gifts, entertainment, hospitality, donations, sponsorships, facilitation payments and conflicts of interest.
• Put financial controls in place, such as multiple signatories and separation of duties, and check regularly for payments that may disguise bribes, such as unusual “commissions” or “service fees”.
• Provide a confidential reporting channel, such as a dedicated email address, and protect the identity of whistleblowers.
• Train employees and business partners, starting from their first day, and keep the training up to date.
• Keep records of your policies, assessments, training and investigations, as these will be your evidence if the defence is ever needed.
• Directors should record any objections in board minutes and act promptly on warning signs, rather than waiting until a problem becomes public.

Conclusion

Section 17A has changed the rules of the game for businesses in Malaysia. A company can no longer claim that a bribe was simply the act of a “rogue employee” or an overenthusiastic agent. If the bribe was meant to benefit the business, the business may answer for it in court, together with its directors and managers.

The good news is that the law also offers a way out. Companies that take corruption risk seriously, put genuine procedures in place and keep them working are in the best position to defend themselves. For directors, the message is equally clear: stay informed, speak up and take action. In the eyes of Section 17A, silence can be costly.

Cases Referred To

• Public Prosecutor v Gan Boon Aun [2017] 3 MLJ 12 (Federal Court)
• Dato’ Dr Haji Mohd Adam Che Harun v Public Prosecutor [2019] MLJU 2146 and Public Prosecutor v Datuk Dr Mohd Adam Che Harun [2017] MLJU 2442
• Azmi bin Sulaiman v Public Prosecutor [2016] MLJU 1347
• Pillay v Public Prosecutor [1965] 1 MLJ 35
• Azmi bin Osman v Public Prosecutor and another appeal [2016] 3 MLJ 98 (Court of Appeal)
• Director of the Serious Fraud Office v Airbus SE [2020] Lexis Citation 56
• Serious Fraud Office v Glencore Energy UK Ltd [2022] Lexis Citation 1463
• Director of the Serious Fraud Office v Airline Services Ltd [2020] Lexis Citation 335
• Serious Fraud Office v Sarclad Ltd [2016] Lexis Citation 686
• Serious Fraud Office v Standard Bank plc (now known as ICBC Standard Bank plc) [2015] Lexis Citation 567
• R v Sweett Group plc (Southwark Crown Court, 2016, unreported)
• R v Skansen Interiors Ltd (Southwark Crown Court, 2018)