Changes made to the laws on corruption in 2020 have generally gone unnoticed by private higher educational institutions and other providers in the private sector of higher education. The new provisions are directed at commercial organizations which clearly include the companies that establish and manage private higher educational institutions under the Private Higher Educational Institutions Act 1996 (Act 555).[i] The implications of the changes on the operation of private universities and colleges are too serious to be ignored.
Liability under s. 17A
The changes introduced through a new s. 17A of the MACC Act
2009 came into operation in June 2020, just as the Covid-19 pandemic was
beginning to take hold in the country. The
new provisions make a commercial organization (a term defined by the Act to
include registered companies or partnerships) strictly liable for the corrupt
conduct of its officials, agents, and other service providers of the
organization even if those acts were done without the knowledge of the
organization or its officers. Any director, controller, officer, partner, or
manager of the commercial organization is deemed personally liable for the same
offence.
The penalties are severe. The commercial organizations and
its officers are liable to a fine of not less than 10 times the value of the
gratification, or RM1 million, whichever is the higher; imprisonment for a term
of not more than 20 years; or liable to both fine and imprisonment.
Adequate procedures to prevent corruption
To counter the severity of the offence and the penalties
attached to it, s. 17A provides commercial organizations a complete defence to
a charge under the section if they can show that they had ‘adequate procedures’
in place to prevent corruption in their operations. Guidelines issued by the Minister
indicate what constitutes adequate procedures. Generally, they require commitment
at the top level of management and their involvement in the prevention of
corruption. The procedures include risk assessment, undertaking control
measures, carrying out systematic reviews of those measures, the monitoring and
training of staff and the setting up of whistleblower procedures.
It is a defence for directors and officers to prove that the
offence was committed without their consent and that they had exercised due
diligence to prevent the commission of the offence. The due diligence defence
available to directors, controllers and partners is linked to the establishment
and monitoring of adequate procedures.
The rationale of s. 17A
The provisions of section 17A reflect a worldwide trend to
shift the responsibility of preventing corruption from enforcement agencies to
the business organizations themselves. The carrot and stick approach imposes
heavy penalties on businesses that benefit from the corrupt behaviour of employees
and associates whilst giving them complete protection if they can show that
they had instituted adequate procedures in their operational space to prevent
corruption. The section will require businesses to be vigilant of corruption risks
not only from people within their organizations but of those outside the
organisation who fall within the definition of associates.
Who are associates?
The term associates cover a very wide class of persons
including those with tenuous links to the organisation such as those who
perform services for the organization. Under the section, the question of
whether a person performs services for the organization is to be determined not
simply by reference to the nature of the relationship between that person and
the organization but by reference to all relevant circumstances. The range of
persons who would fall within the definition will have to be determined by the
courts but the way the section defines associates will require businesses to
review how their businesses are affected by agents, suppliers, and others in
their supply chain.
Why PHEIs must be concerned
The risk of corruption has been observed to be highest among
businesses whose dealings include regular interactions with government
agencies. If the normal operation of a business is subject to obtaining regular
official approvals and permissions, the corruption risk becomes greater.
PHEIs are creatures of law that are subject to tight
regulation by government agencies. They can only be established with the
approval of the Minister of Higher Education. The application process involves
the submission of many documents to the Ministry and responding to different
official inquiries. Once established, the PHEI must then enter another series
of interactions with the same Ministry to register the institution. This in
turn requires approvals from the local fire department and the local council
where the institution is located. Once the institution is in operation, approvals
must be obtained from the Ministry to teach a course of study or training
programme. Applications must be made to the Malaysian Qualification Agency for
accreditation and if foreign students are involved, applications must be made
to the Ministry of Internal Affairs (KDN) and Immigration Department. Interactions
with different government agencies will continue over the life of the
institution. According to a MOHE circular, the Ministry alone processes 23 different
types of applications from PHEIs. One of the risks that PHEIs face is the
likelihood of government approvals being withdrawn or modified. Act 555 creates uncertainty in many of its provisions where an approval that has been
previously granted to a PHEI is withdrawn.
High-risk industry
The range of interactions with government agencies makes the
private sector a textbook case of a high-risk industry. This position is
compounded by the multitude of contracts that the PHEI typically makes in the
ordinary course of its business. These include contracts with marketing and
recruiting agents, funding agencies, and foreign universities and their agents,
advertisers, newspapers, and the list goes on. These arrangements bring with
them people whose actions may not always be within the control of the PHEI but
may yet fall within the class of persons defined as associates of the PHEI.
Protecting Senior Officials
Another reason why PHEIs must be concerned with the new law
is the exposure of a category of its senior officials to liability under s. 17A.
These are officials who are employed because of their academic standing and their
role in the management of the institution is limited to the educational processes
of the institution. However, because they are concerned in the management of
the institution, if an offence is committed under the section they would be
caught in the dragnet of the section and be held liable for that offence, even
if it was committed by persons far removed from their area of responsibility.
PHEIs must also be concerned because of the heavy penalties
the section imposes, which may have a terminal impact on the business.
For these and other reasons not explored here, it would be
prudent for PHEIs, whether large or small to institute corruption proofing
procedures as a shield against liability under the new law.
Espact’s team of legal and other
specialists can assist you to assess your organization’s current position
vis-à-vis the Act and develop adequate procedures in line with the Ministerial
Guidelines. Espact’s team also provides briefings for directors and training
for staff at all levels to meet the requirements of the defence. For a free
consultation, please call 03 7865 5062 during office hours.
[i] Under Act 555, only a registered
company may apply to the Minister of Higher Education to establish a private higher
education institution, whether a university, university college or a college
(s.6)
