Paid a Bribe Overseas? You Can Still Be Prosecuted in Malaysia

Paid a Bribe Overseas? You Can Still Be Prosecuted in Malaysia

How far the MACC Act reaches beyond Malaysia’s borders, which companies and individuals it can catch, and what the UK’s Airbus and Rolls-Royce cases reveal about bribery involving Malaysia

Corruption Does Not Stop at the Border

International trade has made it easier than ever to strike deals across countries, and harder than ever to detect corruption in them. A contract can be negotiated over video calls, signed electronically and paid through accounts in three different jurisdictions. To keep up, anti-corruption agencies need powers that reach beyond their own borders.

Internationally, the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions requires member countries to criminalise the bribery of foreign officials. According to the book, only 44 countries have adopted the Convention, and Malaysia is not a signatory. Even so, the Malaysian Anti-Corruption Commission Act 2009 (“MACC Act”) has significant reach outside Malaysia, both for individuals and for companies. This article explains how.

1. Individuals: Citizens and Permanent Residents

Under section 66 of the MACC Act, the Act applies both inside and outside Malaysia to Malaysian citizens and permanent residents. If one of them commits an offence under the MACC Act abroad, he may be dealt with as if the offence had been committed in Malaysia.

The UK’s Bribery Act 2010 reaches further. It uses a “close connection” test, which covers not only British citizens and UK companies but also several other categories, including individuals ordinarily resident in the UK even if they are not British. The book cites Eurasian Natural Resources Corp Ltd v Dechert LLP, where the English court described this reach: UK courts have jurisdiction if any part of the offence happens in the UK, or, if it all happens abroad, where the person has a close connection with the UK.

2. Companies: The Wide Reach of Section 17A

The individual rule is narrow, but the corporate offence is much wider. Section 17A, in force since 1 June 2020, makes a commercial organisation liable if a person associated with it bribes someone to obtain or retain business or an advantage for it. The definition of commercial organisation covers four groups:

In practice, this means every Malaysian company and partnership is covered no matter where it trades, and every foreign company and partnership is covered to the extent it does business in Malaysia.

The book also stresses that for a Section 17A offence it does not matter:

• whether the corrupt act happens inside or outside Malaysia,
• whether the associated person who pays the bribe is located in Malaysia or abroad, or
• whether that person is a Malaysian citizen or not.

3. When Is a Foreign Company “Carrying On Business in Malaysia”?

For foreign companies, everything turns on whether they carry on a business, or part of a business, in Malaysia. The MACC Act does not define this phrase. It does define “business” very widely, as any activity carried on for gain or profit, including the property and rights connected with it. This leaves open difficult questions. For example, is a foreign parent that simply owns a majority of a Malaysian subsidiary carrying on business in Malaysia? What about a foreign group company that only trades with its Malaysian sister company?

Guidance from the UK

Because Section 17A is modelled on section 7 of the UK Bribery Act, the book looks to the UK Ministry of Justice’s Guidance. It suggests:

• a common-sense approach, under which an organisation is caught if it engages in commercial activity, whatever the purpose of its profits, so charitable or educational bodies can be covered too,
• organisations with no demonstrable business presence are not caught, and a listing on the local stock exchange alone is not enough, and
• having a local subsidiary does not automatically mean the parent is carrying on business in the country.

However, the book warns against assuming that a Malaysian subsidiary will always shield a foreign parent. The UK case against Airbus shows why.

Could the Companies Act 2016 help?

Under the Companies Act 2016, a foreign company must register before carrying on business in Malaysia. That Act lists activities that do not count as carrying on business, so a foreign company doing only these things need not register. They include:

• taking part in court, administrative or arbitration proceedings, or settling claims,
• holding directors’ or shareholders’ meetings, or dealing with internal affairs,
• maintaining a bank account,
• making sales through an independent contractor,
• soliciting orders that become binding only when accepted outside Malaysia,
• creating evidence of debts or charges on property, or collecting debts and enforcing related security,
• an isolated transaction completed within 31 days that is not one of a series of similar transactions,
• investing funds or holding property, and
• temporarily importing goods for display or as samples, to be re-exported within three months.

The book notes that these rules were designed for company registration, and it remains to be seen whether the courts will use them to interpret Section 17A.

A common-sense checklist

Each case will be decided on its own facts. Drawing the threads together, the book suggests that a foreign company is unlikely to be treated as carrying on business in Malaysia if it:

• has no branch, office or other demonstrable business presence in Malaysia,
• is not involved in the strategic and management direction of any Malaysian subsidiary,
• is not registered as a foreign company under the Companies Act 2016, and
• only carries out activities that are excluded from carrying on business under that Act.

Even where Section 17A does not reach a foreign parent, the book points out that the parent may still have to answer to the authorities in its own home country, as the UK cases show.

4. Foreign Directors Are Not Out of Reach

Under Section 17A(3), when a company commits the corporate offence, its directors, controllers, officers, partners and those concerned in its management are deemed to have committed it too, unless they prove the offence happened without their consent or connivance and that they exercised due diligence.

According to the book, this deemed liability is not limited to citizens and permanent residents. Because it attaches to an offence over which the MACC already has jurisdiction, it can extend to foreign directors and managers of companies covered by Section 17A. This reflects Parliament’s intention to extend the MACC’s reach over foreign entities and the foreign individuals who control them. At the time of writing, however, there was no reported case on how widely the courts will apply this to foreign-based individuals.

5. How the UK Has Used Its Extra-Territorial Powers

Because Section 17A is modelled on the UK law, the book uses UK cases to show how the offence can reach bribes paid abroad:

• R v Sweett Group plc (2016): The first conviction under section 7 of the UK Bribery Act. A Cyprus-incorporated subsidiary paid bribes to the vice chairman of an insurance company in the United Arab Emirates to win a contract to build a hotel in Abu Dhabi. The UK parent was convicted and ordered to pay £2.25 million, even though it did not know of the bribery. The judge took into account that the subsidiary was not independent but was effectively run by the parent as its Middle East division.
• SFO v Standard Bank plc (2015): A sister company in Tanzania paid US$6 million to a local firm to secure a government mandate. The UK bank paid more than US$20 million for failing to prevent the bribery, even though it all took place in Tanzania.
• SFO v Sarclad Ltd (2016): A small UK company, through agents in several countries, offered or paid bribes to people thought to influence contract awards abroad. The payments were described as “fixed”, “special” or “additional” commission, which the case proceeded on the basis were euphemisms for bribes.

6. Malaysia on the Map: Airbus and Rolls-Royce

Two of the largest UK cases involved bribery connected with Malaysia. Both were resolved in the UK, not in Malaysia, and both were deferred prosecution agreements in which the companies accepted an agreed statement of facts.

These cases show that foreign companies doing business in Malaysia can face enormous consequences in their home countries for bribery involving Malaysian businesses. With Section 17A now in force, similar conduct could also expose companies to prosecution in Malaysia.

7. The Limits: What the KBR Case Teaches

Extra-territorial reach is powerful, but it is not unlimited. The UK Supreme Court showed where the line can fall.

At a Glance: Who Can Be Caught?

Practical Checklist for Cross-Border Businesses

• Map your group structure. Identify which entities are incorporated in Malaysia, which carry on business here, and how much control each parent exercises over its subsidiaries.
• Apply one anti-corruption standard everywhere. A Malaysian company’s liability follows it into every country where it does business.
• Scrutinise overseas agents and intermediaries. Most of the UK cases involved bribes paid through agents, business partners or local firms.
• Watch for disguised payments. Sponsorships, credits, discounts, “special commissions” and consultancy fees were all used to hide bribes in these cases.
• Brief foreign directors. Directors and managers based abroad should understand that Section 17A(3) may apply to them.
• Consider home-country laws too. Foreign parents may face prosecution in their own countries even where Malaysian law does not reach them.
• Keep adequate procedures group-wide. The only defence to Section 17A is proving adequate procedures, and they must cover overseas operations.

Conclusion

A bribe paid in Dubai, Jakarta or Dar es Salaam can still lead to a courtroom in Kuala Lumpur. Section 17A reaches every Malaysian company wherever it trades, and every foreign company that does business here, regardless of where the bribe is paid or who pays it. Individuals who are Malaysian citizens or permanent residents also remain answerable for offences they commit abroad.

At the time the book was written, there was no reported Malaysian case of enforcement action against a foreign company, or against a local company for its business abroad. The book’s view is that it is only a matter of time. The Airbus and Rolls-Royce cases, both involving Malaysian airlines, show what can happen when that time comes.

Cases Referred To

• R (on the application of KBR, Inc) v Director of the Serious Fraud Office [2021] UKSC 2 (UK Supreme Court)
• Director of the Serious Fraud Office v Airbus SE [2020] Lexis Citation 56 (Southwark Crown Court)
• Serious Fraud Office v Rolls-Royce plc and another [2017] Lexis Citation 3 (Southwark Crown Court)
• Eurasian Natural Resources Corp Ltd v Dechert LLP and another [2022] EWHC 1138 (Comm), as described in the book
• R v Sweett Group plc (Southwark Crown Court, 2016), as described in the book
• Serious Fraud Office v Standard Bank plc [2015] Lexis Citation 567, as described in the book
• Serious Fraud Office v Sarclad Ltd [2016] Lexis Citation 686, as described in the book
• Malaysian Anti-Corruption Commission Act 2009, ss 3, 17A and 66, UK Bribery Act 2010, ss 7 and 12, and Companies Act 2016