The Temptation of Corruption in Times of Crisis

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28th Jul 2020

5 min read

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We need the protection of the law now more than ever with the COVID-19 crisis amplifying opportunities for corruption.

Times of crisis bring out the best and worst in us

The 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 have also increased the threat of bribery and corruption within and towards businesses.

It is crucial that businesses recognise and mitigate corruption risks in order to protect themselves from exposure to criminal liability as well as leakages due to corruption.

As businesses navigate the ongoing crisis, corporate leaders are considering business continuity plan to react, recover and reshape their business. Corruption should be recognised as a threat to the 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. 

Increased corruption risks during COVID-19 & mitigating steps

Below are some of the increased corruption risks we have identified during COVID-19 crisis along with proposed mitigating steps for businesses to consider.

1. Ventures into new businesses, products and markets

Some organisations were quick to adapt by venturing into new businesses, production lines or markets amidst the Covid-19 pandemic. Along with these new businesses and markets come new risks 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 take the appropriate steps to tackle them.

2. Engagement with new suppliers or agents 

Lockdowns, border closures and disruptions to supply chains may result in companies having their supply sources halted. Businesses may therefore seek alternative sources or services from new suppliers or agents in order to continue their business.

Suppliers who state they can ‘get things done when others cannot’ should be seen as a major red flag, as such promises may entail breaches of bribery laws where others would not. Some companies may be tempted to turn a blind eye to what can only be illegal practices – as long as they don’t have to personally get their hands dirty. The fact is that if you’re part of a corrupt supply chain, there’s blood on your hands as well

Risks-based due diligence should be conducted before partnering with new suppliers or agents. A proper screening procedure of third parties should never be dismissed regardless of urgency or limited choice available.

3. Charitable Donations 

It is heartening that during this crucial time, businesses are joining the fight and playing their role by making charitable donations. However, companies making monetary donations should ensure corruption concerns have been considered. There are far too many people in this world who seize every opportunity to exploit the kindness of others. 

There are far too many people in this world who seize every opportunity to exploit the kindness of others. 

Some mitigating measures include ensuring donations are made only to legitimate recipients and that such donations will not directly or indirectly benefit a public official or his or her family member. It should go without saying that only official bank accounts should ever be used for donations. 

4. Employee non-compliance

As the 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 employees and refresher training sessions on anti-corruption topics may also act as a reminder of the company’s anti-corruption policy. 

With no vaccines for COVID-19 being found as of yet, the work from home culture will be the new norm for many. These new working arrangements may pose a challenge to how much control companies have over the actions of their employees, specifically with regards to compliance with legal and ethical codes of conduct. This crisis period though disruptive can serve as an opportunity to reflect on how to strengthen your compliance program and adapt to future disruptions. 

Read: Is It Time to Monitor My Remote Team?

5. Restructuring, Mergers and Acquisitions

Given the increased likelihood of businesses faced with insolvency, there can be expected to be more merger and acquisition opportunities on 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 as well. 

Despite business pressures to move expediently and in a cost-effective manner, companies looking to acquire should ensure that they conduct proper risk-based corruption due diligence on target companies in order avoid potential successor’s liability. 

Section 17A of the Malaysian Anti-Corruption Act: date of enforcement and implication for companies

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.  

June 1 2020 marks the anticipated date by which Section 17A comes into force. However, there was initially some concern as to whether Section 17A would come into force in June 2020 as scheduled. One month before the aforementioned date, it was reported that the Malaysian Anti-Corruption Commission was studying a proposal to suspend the enforcement date of Section 17A.

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. 

This proposal appears to have been initiated due to companies ‘experiencing a business slump, following the proliferation of COVID-19’ and ‘being unprepared for the appropriate anti-corruption plan’. 

Nevertheless, the government eventually maintained its original stance and announced that Section 17A would come into force on June 1 2020 as planned. This is a step in the right direction. Businesses are more susceptible to corruption risks due to financial stress. We need the protection of the law now more than ever with the COVID-19 crisis amplifying opportunities for corruption.

Furthermore, many anti-graft regulators worldwide have made it clear that enforcement will continue in the current climate. Malaysia’s anti-graft regulator should not be an exception in taking a step back from enforcement in light of the crisis. 

Survival at any cost?

As of the publication of this article, the Malaysian 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 corruption. 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.

Or else!

See Also: How To Manage Having A Brilliant Jerk for a Boss

Nicole Leong is a practicing attorney and partner at Tay and Partners, a Malaysian law firm specialising in corporate law and services. Nicole is experienced in corporate and commercial transactions and counsels local and international clients from various industries on their business strategies. She is also a regular speaker at seminars on legal compliance topics. To connect with Nicole, contact editor@leaderonomics.com.

Andros Lim is an attorney and associate at Tay and Partners. He practices in the corporate department of the firm and is involved in numerous corporate work and transactions. This includes advising clients on corruption-related issues such as compliance and obligations under the Malaysian Anti-Corruption Commission (MACC) Act 2009. Andros also engages in drafting anti-corruption policies and conducts training on anti-corruption as well as strict corporate liability.

Reposted with permission on Leaderonomics.com

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