30 July, 2012
Overview
Malaysia has sustained strong economic growth over recent years through market diversification policies and has attracted significant levels of foreign direct investment, particularly in the industrial, service and high-tech sectors.
Corruption in the public and private sectors remains a significant challenge for companies doing business in Malaysia. Despite the implementation of various initiatives designed to reduce corruption such as the establishment of a government e-procurement system and a corruption hotline, the latest Transparency International survey notes that Malaysia has slipped nearly 30 places over the past decade.
Recent international corruption cases
An international telecommunications firm
In 2010, an international telecommunications firm settled DOJ and SEC enforcement actions relating to alleged violations of both the anti-bribery and books and records provisions of the FCPA.
The DOJ alleged that between 2004 and 2006, a Malaysian joint venture, in which the company owned a majority share, made improper payments to the entity responsible for awarding telecommunications contracts. The improper payments were alleged to have been made in exchange for non-public information relating to ongoing public tenders, some of which the joint venture ultimately won.
Separately, the SEC complaint alleged that between October 2004 and February 2006, the company’s agents and/or subsidiaries paid bribes to Malaysian government officials to obtain or retain a telecommunications contract valued at approximately US$85 million. The SEC further claimed that such payments were improperly recorded as consulting fees in the books of the company’s subsidiaries and then consolidated into the company’s financial statements.
The DOJ enforcement action was resolved through a plea agreement and deferred prosecution agreement whereby the company agreed to pay a criminal fine of US$92 million. The SEC civil complaint was settled by a disgorgement payment of US$45.4 million.
Recent domestic corruption cases
A French power firm
In December 2011, the Malaysian Anti-Corruption Commission (“MACC”) announced that it had commenced an investigation into allegations that a French power firm paid kickbacks to a former Malaysian official relating to a power project in the 1990s.
Malaysian media reports note that the investigation appears to have stemmed from actions taken by the Swiss Attorney General’s office in November 2011, ordering the power company to pay 31 million euros in fines as a result of allegations that it offered bribes and kickbacks in Malaysia, Latvia, and Tunisia. The company has reportedly agreed to co-operate with the MACC.
Zaki Othman
In April 2012, Md Zaki Othman, a former senior general manager of a Malaysia-based multinational conglomerate, was sentenced to 27 years in jail and fined approximately US$280,000 on five counts of corruption. Specifically, he was found to have violated Malaysia’s private-sector anti-corruption laws by accepting over US$55,000 in bribes in the form of luxury watches and furniture. These bribes were alleged to have been paid in order to expedite payments and issue letters of intent to contractors in relation to engineering projects.
Recent developments in domestic anti-corruption legislation
Whistle-blower protection
Malaysia’s Whistleblower Protection Act came into force in December 2010. The Act provides whistleblowers with confidentiality protections as well as immunity from civil or criminal action. It also gives whistleblowers rights if any retaliatory action is taken against them. This was an encouraging development in Malaysia’s anti-corruption landscape. However, one of the main criticisms of the legislation is that it only gives protection to informants who provide confidential information to the government. If the information is disclosed to a third party, the protection is withdrawn immediately. The stated rationale for this provision is to protect an accused person if a report is proven false and to avoid prejudicing the integrity of an investigation. Notwithstanding this potential limitation, it has been reported that more than 6,000 reports of improper conduct have been made since the introduction of the legislation.
For further information, please contact:
Mark Johnson, Partner, Herbert Smith