Covid-19 (13 May 2020)
CORRUPTION RISKS AMIDST COVID-19 & UPDATE ON SECTION 17A
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COVID-19 outbreak is an unprecedented crisis to the world’s economic landscape and undoubtedly a shock to most (if not all) businesses. While the immediate focus of many corporations may understandably be on sustaining the business, the unique and intense commercial pressures from the coronavirus outbreak also have increased the bribery and corruption threat for businesses. It is important for businesses to recognise and mitigate corruption risks in order protect it from exposure to criminal liability as well as leakages due to corruption.
Increased Corruption Risks during COVID-19 Crisis & Mitigating Steps
Below are some of the identified increased corruption risks during COVID-19 crisis and proposed mitigating steps to be considered by businesses.
Venturing into new business invites new risk
Some businesses were quick to adapt by venturing into new businesses, production lines or markets amid Covid-19 pandemic. Along with the new businesses or markets come a new risk of corruption and bribery. A proper corruption risk assessment on the new business, production line or market should be carried out to help businesses understand the possible corruption threats and risks as well as taking the appropriate steps to tackle them.
Engagement with new supplier or agent due to disruption of supply chain
Lockdowns, border closures and disruptions on supply chain may result in companies having their supply sources halted. Businesses may seek alternative source or service from new suppliers or agent in order to continue their business. Suppliers who state ‘they can get things done when others cannot’ should be a red flag, as such promise may entail breaches of bribery laws. Risks-based due diligence should be conducted before onboarding new supplier or agent. Proper screening procedures of third parties should not be ignored altogether on the ground of urgencies or limited choice available.
During this crucial time, businesses are joining the fight by making charitable donations which is encouraging. However, companies making monetary donations should ensure corruption concerns have been considered. Some mitigating measures include ensuring donations are made only to legitimate recipients and such donations will not directly or indirectly benefit a public official or his or her family member who can improperly influence your company’s business.
Managing competing priority between regulatory compliance and survival
As top management navigates unprecedented economic and operational pressures, it can be easy to overlook the importance of regulatory compliance. A timely reminder from the top on compliance with anti-corruption policy despite business pressures has never been more important. Regular communication with the employees and refresher trainings on anti-corruption topics may also act as a reminder on the company’s anti-corruption policy.
With no vaccines for COVID-19 being found as of now, the working from home culture will be the new norm for many. The work-from-home requirements may pose a challenge to the control functions in monitoring compliance by employees. This crisis period though disruptive can serve as an opportunity to reflect on how to strengthen your compliance program and adapt in future uncertain times.
Restructuring, Mergers and Acquisitions Post COVID-19
COVID-19 crisis increased the likelihood of businesses entering into insolvency proceedings. On the other hand, it may present more merger and acquisition opportunities in the market. Generally, when a company merges with or acquires another company, the successor company assumes the predecessor company’s criminal liabilities. Successor criminal liability may apply to corruption liability. Despite business pressures to move expediently and in a cost-effective manner, companies with acquisition appetite should ensure that they conduct proper risk-based corruption due diligence on target companies in order avoid potential successor’s liability.
BCP with anti-corruption in mind
As businesses navigate the ongoing COVID-19 crisis, corporate leaders are considering business continuity plan to react, recover and reshape their business. Corruption should be recognised as a threat to sustainability of any business. Any short-term gains obtained through bribery will have longer-term consequences for businesses. Keeping corruption out of your business should be part of the business continuity plan.
Will the implementation of Section 17A be delayed?
In 2018, the Malaysian Anti-Corruption Commission Act 2009 was amended to inter alia introduce the new Section 17A. Briefly, Section 17A imposes strict liability on commercial organisations for failing to prevent associated persons from committing corruption in obtaining or retaining business or in the conduct of business. For more information on Section 17A, you may refer to our previous article here.
1 June 2020 marks the anticipated date by which Section 17A should come into force. However, the official date of Section 17A coming into operation is subject to the date to be appointed by the Minister in the Prime Minister’s Department (Law) by notification in the Gazette.
It was reported1 that the Malaysian Anti-Corruption Commission is studying on a proposal to suspend the date of Section 17A coming into force. This proposal appears to have been initiated due to companies “experiencing a business slump, following the proliferation of COVID-19” and “were not prepared for the appropriate anti-corruption plan”.
So, is now the time to be lenient? Maybe not. Businesses are more susceptible to corruption risk due to financial stress from the crisis as explained above. In fact, we need this law now more than ever with COVID-19 crisis amplifies opportunities for corruption. Businesses have been given approximately 1.5 years of grace period from the launching of the Guidelines on Adequate Procedures by the Prime Minister’s Department in December 2018 to prepare for the appropriate anti-corruption plan. Furthermore, many anti-graft regulators worldwide have made clear that enforcement will continue in the current climate. Why should Malaysia anti-graft regulator take a step back in enforcement in light of the crisis?
At the publication date of this article, the Government has succeeded in “flattening the curve” of COVID-19 infections in Malaysia. COVID-19 should not be taken as an excuse now to leave Malaysia “behind the curve” in tackling corporate corruptions. With Malaysia now moving towards rebuilding our economy, we need to band together once again to make sure corruption has no place in our COVID-19 recovery plan.
1 The Edge Markets, 5 May 2020. MACC Studying Proposal to Put Section 17A On Hold. [online] Available at: < https://www.theedgemarkets.com/article/macc-studying-proposal-put-section-17a-hold?type=malaysia?> [Accessed 6 May 2020].
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