July 19, 2019
Technical Staff

Those charged with governance of a “natural person” – business entity – are responsible for protecting its assets against loss whether it’s due to theft, fraud, or corruption. The board members are legally liable for their actions and inactions. There is also a legal liability attached to the CEO, CFO, and other officers or employees. However, the locally relevant and applicable laws are the ultimate authority for determining such personal and corporate liability for fraud and corruption. 

Article 26 of the United Nations Convention Against Corruption: Liability of legal persons states [note] Read the United Nations Convention Against Corruption when you click here https://www.unodc.org/documents/brussels/UN_Convention_Against_Corruption.pdf [/note]

1. Each State Party shall adopt such measures as may be necessary, consistent with its legal principles, to establish the liability of legal persons for participation in the offences established in accordance with this Convention. 

2. Subject to the legal principles of the State Party, the liability of legal persons may be criminal, civil or administrative. 

3. Such liability shall be without prejudice to the criminal liability of the natural persons who have committed the offences. 

4. Each State Party shall, in particular, ensure that legal persons held liable in accordance with this article are subject to effective, proportionate and dissuasive criminal or non-criminal sanctions, including monetary sanctions.

In our view, an organization must be held responsible for its board members and officers fraudulent or corrupt acts. When an officer commits a corrupt or fraudulent act, the organization’s management should prove that it did not know about those evil actions. It must also show that it took all the necessary measures to prevent, deter, and detect fraud and corruption acts. 

Section 17(A) of the Malaysian Anti-Corruption Commission (Amendment) Act 2018 [note] Read the details of Section 17(A) when you click here federalgazette.agc.gov.my/outputaktap/20180504_A1567_BI_Act A1567.pdf(opens in a new tab) [/note] sets a good example regarding the corporate liability for corruption. Under Section 17(A), an organization could be prosecuted when one who is associated with it seeks to obtain or maintain business corruptly.  Effectively in June 2020 when Section 17(A) comes into force, Malaysian companies and foreign investors doing business in Malaysia are expected to be ready for compliance with this new law.