This site uses cookies to provide you with a more responsive and personalized service. By using this site you agree to our use of cookies. Please read our cookie notice for more information on the cookies we use and how to delete or block them.

Bookmark Email Print page

How not to win a corruption pageant?

Author: David Lehmann

dlehmannLast year, Malaysia's Transparency International Corruption Perceptions Index rating declined significantly from 5.1 to 4.5. In other words, the perception is that Malaysia is becoming more corrupt. Why is this significant? Given the increasing penalties being legislated in many countries around the world, this may have a direct impact on decisions to invest in Malaysia.


A World Bank study estimates that the cost of corruption to Malaysia could cost in the vicinity of RM10 billion per year, an amount equivalent to 1 or 2 percent of GDP. In the Port Klang Free Zone (PKFZ) debacle alone, the cost to taxpayers was RM4.6 billion[1].


Globally, the anti-corruption movement is gathering momentum. The Organisation for Economic Cooperation and Development's Convention on Combating Bribery of Foreign Public Officials (OECD Convention) and the United Nations Convention against Corruption (UN Convention) have placed the onus on signatory nations to deal with the issue of corruption. Most signatory countries have enacted legislation that prohibits the payment of bribes to foreign public officials to win or retain business and significant pressure is being exerted by the OECD and UN to increase enforcement and prosecution activity.


The US leads the way with high levels of enforcement activity under the Foreign Corrupt Practices Act 1977 (FCPA) and recent developments have seen some countries enhance their legislation. The soon to be passed UK Bribery Act 2010 Act, arguably even more stringent than the FCPA legislation, now provides for the offence of 'failing to prevent bribery' and the courts can now levy unlimited fines on businesses, and individuals face fines and jail terms of up to 10 years. Under Australian legislation, an individual can now be sentenced to a maximum term of imprisonment of 10 years, a fine of up to $1million or both and for corporations; the maximum penalty has been significantly increased from $330,000 per violation to the greater of:

  • $11 million
  • three times the value of any benefit that the corporation has directly or indirectly obtained that is reasonably attributable to the conduct constituting the offence (including the conduct of any related corporation)
  • if the court cannot determine the value of that benefit, 10 per cent of the annual turnover of the corporation during the 12 months preceding the offence.


An effective anti-corruption programme needs to be a priority and regular measurement of its effectiveness is a requirement. Under US Sentencing Guidelines and commentary, an effective compliance programme is one that is periodically evaluated by external resources and can help to limit the amount of a criminal fine imposed. Under UK legislation a corporation will not be guilty of an offence if it can show that 'adequate procedures' have been put in place to prevent bribery by those associated with the organisation. The GC100, a group of general counsel from leading UK companies, has published draft guidance, which in its view, may amount to adequate procedures, including:

  • Establishing board level responsibility for the anti-corruption programme
  • Ensuring that a senior officer is directly accountable for overseeing the anti-corruption programme
  • Designing a code of conduct which includes an anti-corruption element
  • Vetting employees
  • Implementing a gifts and entertainment policy
  • Conducting appropriate training
  • Carrying out appropriate due diligence on foreign partners, agents, consultants and entities
  • Establishing financial controls to minimise risks
  • Procedures for minimising corruption by sub-contractors and suppliers
  • Developing whistleblowing procedures and implementing an anonymous reporting mechanism.


How can Malaysia deal with corruption?


In addition to measures that have already been implemented, the government should impose obligations on Government Departments and businesses to implement comprehensive corruption control frameworks. In order to tender for government projects, businesses should be audited to ensure that a benchmark control framework is in place. These businesses should also be periodically audited to ensure the ongoing effectiveness of implemented measures.     


To maintain the integrity of large government procurement, an independent monitor should be engaged to oversee or manage the tender process and contract delivery. This measure is being used in a number of locations around the world to minimise the risk of corruption and error leading to financial loss. It could be effectively argued that if such a process was implemented for PKFZ, the enormous losses that ensued would have been much less likely to have occurred.


Another area that would help improve Malaysia's perception in respect of corruption is to ensure that law enforcement agencies have the capability to deal with the issue. The conviction rate for serious corruption events has been very low. PEMUDAH, the government’s special task force to facilitate business, indicates that the number of people convicted of corruption between 2000 and 2006 was 0.7% or 524 of those suspected of corruption[2].  


Increasing the number of investigation officers will not itself improve corruption enforcement efforts. To illustrate its commitment in dealing with corruption, the government should provide the MACC with legislation to assist investigation efforts and increase prosecution success. Investments should also be made to increase the capability of existing officers through training as well as providing the latest technological tools and capability. Personnel should also be appropriately compensated to reflect the specialist nature of the task and reduce the risk of corruption within MACC ranks.


The benefits of doing something positive about corruption are many. As well as making Malaysia a more attractive location for business to invest, monies saved through prevention initiatives, could be returned to tax payers in the form of services and infrastructure, especially to those who need it most.


David Lehmann is the Head of Deloitte Forensic at Deloitte Malaysia. Prior to joining Deloitte in 2004, he completed 23 years of service with the Victoria Police, Australia, with a majority of that time dedicated to the investigation of fraud-related incidents.   


[1] Transparency International Global Corruption report 2009, p.274

[2] Transparency International Global Corruption report 2009, p.272




Contact the author
Deloitte Malaysia
Job Title:

Related links

Stay connected:
More on Deloitte
Learn about our site