With effect from 1st June 2020, following the introduction of the new Section 17A of the Malaysian Anti-Corruption Commission Act 2009 (“MACC Act”), strict liability is imposed on a Commercial Organisation for its failures to prevent a person associated with it from committing corrupt practices for its benefit. The Commercial Organisation shall be liable, irrespective of whether the person associated with it is eventually liable for the corrupt practice. The only defence for the Commercial Organisation is to establish that it had implemented a set of adequate preventive measures suitable for its organisation at the time the corrupt practice was committed.
As the publication of our last article in the series coincides with the first day Section 17A of the MACC Act is enforced, we attempt to derive some lessons based on cases decided under Section 7 of the United Kingdom Bribery Act 2010 (“UKBA”) – the origin of our Section 17A of the MACC Act.
What are “adequate preventive measures”?
The mere setup of preventive measures in accordance with the T.R.U.S.T principles, as outlined in the Guidelines on Adequate Procedures, does not necessarily mean that a Commercial Organisation has put in place adequate preventive measures for the purposes of establishing the defence under Section 17A(2) of the MACC Act. Since Section 17A of the MACC Act is principally modelled upon Section 7 of the UKBA, the following case studies under Section 7 of the UKBA may provide useful pointers for the establishment and implementation of the adequate preventive measures envisaged under Section 17A(2) of the MACC Act.
Case Study #1: R v Skansen Interiors Ltd
The Transaction
R v Skansen Interiors Ltd is the first contested prosecution case under Section 7 of the UKBA. Skansen Interiors Ltd (“SIL”), a small refurbishment company with approximately 30 employees, was a subsidiary within the Skansen Group. The prosecution alleged that the Managing Director of SIL paid £10,000 to a project manager of a real estate company to secure tenders for two office refurbishment contracts worth £6 million.
A further payment of £29,000 was offered and requested. However, the new Chief Executive Officer of SIL was concerned with the legitimacy of this transaction. He then conducted an internal investigation within SIL and implemented a new anti-bribery policy upon learning that there was no anti-bribery policy in place. Consequently, the £29,000 payment was stopped, and SIL submitted a suspicious activity report to the National Crime Agency and self-reported the matter to the authorities for further investigation.
SIL was charged under Section 7 of the UKBA. At the trial, the prosecution submitted that there was little evidence suggesting that SIL’s endeavours to instil an anti-bribery culture were adequate in light of the enforcement of the UKBA.
Notably, the failure to revamp compliance controls, assign a designated employee to oversee anti-bribery compliance, communicate and train staff on company policies, and establish a documented independent reporting channel to senior management were highlighted.
To defend its case, SIL argued that sophisticated and substantial anti-bribery controls were unnecessary due to its small operational scale, that it was common sense for its staff not to bribe, contractual clauses prohibited bribery and allowed termination for its occurrence, and multiple approval levels for every transaction were part of its financial control system.
The Decision
Despite the existence of policies and other internal controls to prevent bribery, SIL was convicted on the basis that such measures were inadequate. The prosecution’s submissions provided insight into assessing the adequacy of procedures and policies.
A key takeaway from this case is that the implementation of non-specific policies and normal accounting controls was regarded as inadequate, irrespective of the business size. The prosecution also aimed to ‘send a message’ to other companies that did not have adequate procedures in place.
Case Study #2: Serious Fraud Office v Standard Bank Plc
The Transaction
Standard Bank Plc (“Standard Bank”), a UK-regulated bank, was a subsidiary of Standard Bank Group Ltd (“SBG”) registered in South Africa. SBG was also the ultimate parent of the Dar es Salaam-based Stanbic Bank Tanzania Ltd (“Stanbic Bank”). In 2012, Standard Bank and Stanbic Bank jointly bid for the mandate to raise public funds for the Government of Tanzania (“GoT”) with a combined fee of 1.4% of the gross proceeds.
Stanbic Bank later increased the proposed fee to 2.4%. The additional 1% would be paid to a local Tanzanian company (“Local Partner”), whose Chairman and CEO were, respectively, a serving member of GoT and a past office bearer of the Tanzanian Capital Markets and Securities Authority. Despite an apparent conflict and risk, Stanbic Bank did not address such issues.
The involvement of the Local Partner and the increased fee were only disclosed to Standard Bank after Stanbic Bank proposed the arrangement to GoT. The mandate signed by the two banks and the Ministry of Finance did not mention any third party’s involvement. The fee letter, however, indicated collaboration with the partner.
The arrangement structured public funds to be paid to the Local Partner via Stanbic Bank without direct payment to GoT. Stanbic Bank allowed the opening of the account without examining its connection with politically exposed persons, even though the regulatory checklist flagged the account as high risk.
While Standard Bank had implemented applicable policies, they were unclear regarding checks and due diligence over the Local Partner. Despite obvious red flags, Standard Bank’s deal team neither conducted due diligence nor raised concerns. They relied entirely on Stanbic Bank for checks.
Upon completion, the amount raised was substantial. Without evidence of services rendered by the Local Partner, the increased fee was withdrawn in large cash amounts. Concerns were raised by Stanbic Bank staff, and SBG was alerted after an internal investigation. Standard Bank then reported the matter to the Serious Fraud Office (“SFO”).
The Decision
The SFO concluded that the evidence could establish a realistic prospect of conviction for failing to prevent bribery under Section 7 of the UKBA. Standard Bank’s policies were unclear and not effectively communicated or reinforced through training. There was no effective anti-bribery culture demonstrated, particularly regarding joint transactions involving third parties or politically exposed persons.
In approving the Deferred Prosecution Agreement (DPA), the Court required Standard Bank to enhance its policies and processes regarding third parties and improve anti-bribery and corruption training with the assistance of an independent specialist.
Pointers
Both cases illustrate judicial observations on what constitutes adequate preventive measures for a Commercial Organisation:
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The mere existence of preventive procedures is not sufficient; clear, effective procedures are needed to prevent, detect, and respond to corrupt practices.
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Preventive procedures must clearly define the obligations of employees and external service providers.
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A Commercial Organisation should not rely on third parties to perform anti-corruption due diligence and must designate a person for anti-corruption compliance.
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Effective communication and sufficient training must be provided to cultivate an anti-corruption culture.
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Business size is immaterial; preventive measures must address the actual risk of corrupt practices.
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Periodic risk assessment reviews are necessary to ensure preventive measures remain fit for purpose.
The risk assessment should be the cornerstone of preventive measures. Independent professionals such as lawyers or auditors should be engaged to ensure objective and transparent evaluation of risk factors.
This article is authored by:
Gan Khong Aik
Partner, Gan Partnership
E: khongaik@ganlaw.my
Lee Sze Ching (Ashley)
Associate, Gan Partnership
E: szeching@ganlaw.my
DISCLAIMER: This article is for general information only and should not be relied upon as legal advice. The position stated herein is as of the date of publication on 1st June 2020. For any enquiries, please contact Gan Khong Aik (khongaik@ganlaw.my).
