Fraud at the workplace – key issues affecting employers in Malaysia

February 2015  | SPECIAL REPORT: CORPORATE FRAUD & CORRUPTION

Financier Worldwide Magazine

February 2015 Issue

There are countless fraudulent activities and corrupt practices which can take place within an organisation, from simply falsifying a medical certificate to giving potential bidders inside knowledge of proposals from others. Such activities are no longer confined nor limited to certain industries or professions. The heightened risk for employers has resulted in the need for various measures to be in place to ensure compliance within an organisation. In this article we aim to highlight the important aspects of Malaysian law with regards to the laws of corruption and fraud, and what an employer needs to take into consideration in preventing and managing such situations at the workplace.

Legal provisions

Anti-corruption laws in Malaysia are made up of a number of statutes, among which are the Malaysian Anti-Corruption Commission Act 2009 (MACCA), the Penal Code, Development Financial Institutions Act 2002, Customs Act 1967 and the Election Offences Act 1954.

The MACCA is Malaysia’s main provision and it is applicable to the public and private sectors, agents, trustees and others with fiduciary duties. Section 16 of the MACCA provides that any person who by himself, or by or in conjunction with any other person corruptly solicits, agrees to receive, gives or offer to give any gratification as an inducement to act or refrain to act on any matter or transaction will commit an offence. As such the MACCA applies to both the provider and receiver of such inducements. Furthermore, the MACCA imposes a duty on any person who is given, promised or offered a bribe to report such an incident together with the name, if known, of the giver to the nearest officer of the Commission or police officer and a failure to comply with this duty will result in a fine or imprisonment or both.

The Penal Code, on the other hand, is a compendium of criminal offences in Malaysia and it provides for similar provisions in relation to accepting and providing gratifications. In addition, the Penal Code also makes it an offence relating to cheating and fraudulent actions by an individual.

The Development Financial Institutions Act 2002 even provides that a person receiving gratifications exceeding RM100 in value, or even intangible benefits, to procure credit facilities would be deemed to have committed an offence.

Key challenges faced by employers in managing fraud

In the event an employer suspects fraud or corrupt practices being committed by its employee, this would in itself not be sufficient to dismiss the said employee. This is because of the protection afforded by Section 20 of the Industrial Relations Act 1967 which states that all dismissals must be with just cause and excuse. Therefore, the question an employer should ask before dismissing an employee should be “Do I have sufficient evidence?” If the answer is ‘no’ then an employer should proceed to conduct the necessary due inquiry. Due inquiry would usually encompass the following actions taken by the employer. Firstly, there must be an initial investigation. In most instances this would involve interviewing witnesses and collating documentary evidence. It would be imperative to document it all in writing for evidential purposes. Subject to the terms of the investigation, the employer must also consider whether there is justification to report the matter to the authorities. The employer may choose to suspend the employee. In this regard the employer must consider whether the continued attendance of the suspect at the workplace would jeopardise the investigation process.

In the event the investigation shows that the employee committed an offence, the employee needs to be informed of the detailed charges of misconduct against him by way of a show cause letter and the employee is instructed to provide his written explanation. Thereafter, a domestic inquiry may be carried out. A domestic inquiry is an informal inquiry convened before a panel appointed by the employer. This inquiry would be conducted subject to the explanation provided by the employee to the show cause letter. Based on the findings of the panel of inquiry, the appropriate punishment may be meted out to the employee.

Although fraud and corruption are criminal in nature, the Industrial Courts have held in numerous cases that the burden of proving the misconduct by the employer in a case of unfair dismissal would be on a balance of probabilities, and not the criminal prosecution standard of beyond a reasonable doubt.

An employer combating corruption and fraud at the workplace is likely to face several headwinds and pitfalls. Namely, a delay in conducting an investigation into the potential criminal activity; such delay may amount to the employer condoning the misconduct. The principle of condonation, from an employment law standpoint, simply means that an employer, by its lack of action taken against an employee, is deemed to have waived its right to take action. An employer that has knowledge of corruption or misconduct, but chooses to delay or keep silent on the matter, is deemed to have condoned the corruption or fraud misconduct.

Defective charges framed against an employee can also be problematic for firms. Under the law, employers, when taking disciplinary action against employees, are required to properly frame the charges of misconduct by ensuring that the charges contain sufficient particulars to enable the employee to present a proper defence. In a previous, notable case, an employee was charged with misconduct. However, the court found that the dismissal was unfair, mainly on the basis that the charge framed against the employee was defective in nature. Most employers would find the task of properly framing a misconduct charge to be daunting, as most charges are drafted by human resources personnel who may not be legally trained. As fraud or corrupt practices may amount to a criminal offence, the charges framed must be precise, clear and contain sufficient information such as time, date, place of the offence and the nature of the fraud. A defective charge in itself may also render the entire dismissal unfair.

Privacy concerns can also derail a corruption case. An employee could raise privacy concerns in the methods used by employers to curb or detect such activities. The Personal Data Protection Act 2010 (PDPA), which regulates the collection and processing of personal and sensitive personal data, provides as a general rule that no processing of personal data can be done unless the consent is obtained and a personal data notice is issued to the data subject. The PDPA provides that the personal data notice must contain information such as the types of information collected, the reason for processing the information, and the class of third parties with whom the information could be shared.

Equally, the employer would need to gather the requisite evidence within the confines of the law. Legislation such as the PDPA and the Financial Services Act 2013 (FSA) limit or restrict the collection, usage and disclosure of information. For example, the FSA prevents the disclosure of bank account details, except in limited circumstances.

Furthermore, as with most criminal activities, one would be faced with the issue of concealment of evidence by the perpetrator. In this regard, most employers are simply not equipped with the know-how to deal with the intricacies of an investigation into such forms of misconduct. Therefore, employers should seek the assistance of forensic experts or third-party investigation firms.

Finally, failure to adequately preserve evidence for court hearings can have disastrous consequences for an investigation. Instances such as missing or incomplete documents, or an inability to locate witnesses, can seriously hamper the ability of the employer to defend its case in court.

Recommended proactive steps to be taken by employers to curb corruption misconduct

There are various approaches taken by employers to minimise the risk of fraud or corrupt practices in their organisations. The Malaysian Anti-Corruption Commission had also created a corporate integrity pledge in which a company can make a voluntary commitment to uphold anti-corruption principles.

One step employers should take is to implement internal policies. These policies will take the form of an employee handbook or manual or internal circulars or memos. With the introduction of training and awareness programs, employees must be reminded of their duties and responsibility to act in a manner not detrimental to the employer’s interest. Strengthened whistleblower procedures incentivise and encourage individuals to come forward to report an incident.

The rule of thumb for an employer would be that any policies or procedures should not be formulated in a rigid manner. This is because situations and scenarios can differ from case to case. This would require different forms of action by the employer. In the event the policy is overly rigid and mandates the employer go through a series of procedures, this would inhibit the employer to take immediate steps in a case of fraud or corruption. Therefore, policies should be drafted with a degree of flexibility to allow an employer to react to different scenarios.

 

Wong Kian Jun is a partner at Shearn Delamore & Co. Mr Wong can be contacted on +603 2027 2654 or by email: wongkj@shearndelamore.com.

© Financier Worldwide

BY

Wong Kian Jun

Shearn Delamore & Co. 

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