Part 2 - Keep your Entertainment Expense in check

Companies of various industries in Malaysia are rising up to the challenge in implementing adequate procedures to prevent corruption from occurring within their business activities. Part of these on-going efforts include identifying the activity hotspots where corruption or bribery may be able to thrive in, and then reviewing relevant anti-bribery or anti-corruption (ABC) control measures into policies that provide the employees with clear guidelines and processes.

Some of the more perennial hotspots can be traced back to how and what the `Entertainment Expense Account’ is used for. A Business Gifts & Hospitality Policy can help a company keep an eye on the ball – by propagating to all employees on how to make decisions with diligence.

Enforcement tends to focus on the furtherance of corrupt conducts with the intent to obtain or retain business, or gain business advantage unfairly, whether directly or through third party intermediaries, rather than the success (or failure) of the intended outcome.

Scenario 1

A liaison was prepared to influence a tender committee into awarding a project tender to a participating company, XYZ, and he solicited the company’s senior executive for an advance in return for `a service rendered’. Should the tender be awarded to XYZ, the liaison was promised a commission. The executive approved the advance in the form of a high-valued watch, documented in the books as `a gift under the entertainment expense’.

Are these individuals violating anti-corruption laws? Clearly, yes.

Is XYZ violating anti-corruption laws? Yes. The management of XYZ is vicariously liable for the executive’s act, even to the extent of the executive’s promise to pay the commission upon the tender being awarded.

Scenario 2

Prior to launching a new line of security devices, an executive of company XYZ and XYZ's external business partner were seen to be dining at an exclusive members’ club every Thursday with an influential key opinion leader in the industry. This VIP had connections with the Ministry of Domestic Trades, the latter with whom XYZ was having negotiations with for a nationwide procurement. Whilst the occurrence of corruption may not be so clear here, yet under those circumstances, the company may be perceived to be unduly influencing the VIP for the purpose of securing a procurement deal. ABC policies should have to recognise the risks of perception as well and therefore set out guidelines to be bribery-counterintuitive.

Failure of companies to circumvent bribery can be an offence, according to Subsections (3), (4) and (5) of Section 17(A) under the Malaysian Anti-Corruption Commission Act (Amendment) 2018.

On conviction, the fines are nothing less hefty than:

a) RM 1 million or at least 10 times the value of the gratification (where the gratification is capable of being valued), whichever is higher; or

b) imprisonment of up to 20 years; or

c) both.

The intricacies of setting thresholds in providing entertainment, gifts or hospitality may be daunting at first to any company that has generous pockets to `win businesses’. But a new normal is just as easily embraced once the leadership team of the company understands and accepts their exposure to liability under the regulatory landscapes in Malaysia, in the region and even globally. Their consistent cadence to ABC-proof their organization is a prelude to their ambition to be known as a company of high ethics and integrity.

Post Tags:  Section 17A MACC (Amendment) Act 2018, corporate liability, entertainment policy

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