In line with Malaysia’s National Anti-Corruption Plan (NACP) to achieve the aspiration of “being known for her integrity and not corruption”, the Section 17A of the MACC Act 2009 which came into effect on 1st June 2020 introduced corporate liability for corruption offences committed by commercial organisations in Malaysia.

“Legal compliance” arising from a development in the law is typically met with dread by SMEs and perceived as a drain of precious resources. This is completely understandable. In this article, however, we share insights on how some business owners, through a simple reframing of their mindset, can benefit from opportunities that others may not immediately see.

In response to this corporate liability provision, many regulatory bodies such as Bursa Malaysia and the Security Commission have since updated their regulations and developed frameworks to ensure that companies within their purview follow through with such anti-corruption compliance obligations. Consequently, companies seeking to list or are already listed on the Main and ACE market will in turn have to ensure that their organisations implement measures in line with the Guidelines on Adequate Procedures issued by the Prime Minister’s Department (“Guidelines”).

More than a year later, the “big boys” in the market such as public listed companies and multinational corporations now have their adequate procedures in place to combat corrupt practices. Bribery and corruption risks in their organisations are usually managed through a mix of internal processes such as conducting due diligence and requiring their vendors and suppliers (especially SMEs) to show documentation that they have actively and meaningfully complied with anti-corruption measures in their organisations, in order to conduct business dealings with them.

An example of a checklist that we have seen being asked by a public listed company issued to its vendors contain a long list of documentation to furnish. This included (i) anti-corruption policy, (ii) gifting & entertainment thresholds, (iii) whistleblowing policy, (iv) communications to third parties of such policies, (v) conducting background checks on external parties & employees during hiring, (vi) scheduled internal review processes, and (vii) anti-corruption training program conducted within the organization.

SMEs who have diligently implemented their adequate procedures are well positioned to satisfy such requests by their clients and can submit their tenders / quotes quickly. Other SMEs who have been slower to act, may now find themselves losing out on businesses from such clients when asked to furnish proof of anti-corruption compliance.

On the other hand, public listed companies and multinational corporations may be forced by their own legal policies to stop dealing with SMEs who are unable to meet such compliance requests, and to find new ones that can.

Benefits for SMEs in adopting anti-corruption measures

Anti-corruption measures in an organisation have been regularly seen as correlating with good company performance. SMEs that have anti-corruption measures in place will benefit from having a reputation of highly ethical and sustainable practices in their business conduct.

When SMEs demonstrate their commitment to anti-corruption, this fosters a strong corporate culture over time, and increases the credibility of the organisation. Such SMEs will be well positioned to attract reputable clients both domestically and globally, as clients would be assured by knowing that business dealings are conducted in a clean and transparent manner.

As businesses around the world are now incorporating “ESG principles” into their business strategies, having strong anti-corruption policies does contribute towards having good and sustainable corporate governance.

Through anti-bribery and anti-corruption compliance exercises, SMEs can also improve their internal controls and mitigate any risks which may cause harmful financial leaks or reputational losses to the organisation. Such exercises may also allow SMEs to reduce operational costs by detecting and addressing any operational loopholes which may result in an improper outflow of funds. This news article illustrates how a boarding school lost RM20mil from false claims and corrupt conduct by its supervisor over a period of 5 years.

What can SMEs do to equip their organisation?

As a start, the top-level management of a SME should set a “tone from the top” commitment against corruption and bribery practices in the organisation. This should be done openly and communicated to all internal and external stakeholders in order to maximise the effectiveness.

The top-level management must also spearhead the organisation’s anti-corruption initiatives and implement actionable measures in the organisation, such as:

  1. Conducting a risk assessment – to identify potential opportunities for corruption risks in business operations
  2. Implementing an Anti-Bribery & Anti-Corruption Policy – to address corruption risks and set out procedures and regulations for associated persons of a SME to comply with
  3. Implementing a Whistleblowing Policy – to establish an accessible and confidential reporting channel to raise concerns on any potential corrupt and bribery practices in the organisation
  4. Conducting due diligence and KYC checks – to conduct background or “know your customer” checks on relevant parties prior to any business dealings or renewal of business relationships
  5. Updating existing policies and documentations – to ensure that the existing documentations and policies (i.e. employment contracts, sales contracts etc.) are updated to reflect the organisation’s stance against corrupt practices
  6. Conducting training on the organisation’s anti-bribery and anti-corruption measures – to provide the SME’s employees with training to ensure awareness and compliance with anti-bribery and anti-corruption measures.

For more details on the actionable measures, please read our previous article here.

Conclusion

Through the implementation and adoption of anti-corruption measures in the organisation, SMEs will not only benefit from the reputation it gains but it also puts these SMEs on a better footing compared to other SMEs who do not have such measures in place.

It might seem be counter-intuitive for business to allocate resources to anti-corruption, but now is the time for SMEs to take anti-corruption exercises seriously and use this investment as a leverage to grow their business in a sustainable and ethical manner.

Implementing adequate procedures does not necessarily need to be expensive or time consuming. If you would like to learn more on how to develop an anti-corruption framework efficiently, effectively and proportionately in your business, feel free to contact us or submit a query here.

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This article was written by Shawn Ho (Partner) and Natalie Ng (Associate) with assistance from You Xian Ng (Intern). Shawn leads the corporate practice group of Donovan & Ho, and has been recognised as a Notable Practitioner, whilst the firm has been recognised as a Notable Firm for Corporate and M&A by Asialaw Profiles 2020 and 2021.  We are also ranked as a Recommended Firm by IFLR1000 2020 and 2021.

Our corporate practice group advises on corporate acquisitions, restructuring exercises, joint venture arrangements, shareholder agreements, employee share options and franchise businesses, Malaysian start-up founders and can assist with venture capital funds in Seed, Series A & B funding rounds.  Feel free to contact us if you have any queries.

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