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TAN SRI HJ ABU KASSIM MOHAMEDConsultant / Expert Advisory

Governance & Integrity Centre, UiTM

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BUSINESS ETHICS & INTEGRITY:FIGHTS AGAINST CORRUPTION

AND MONEY LAUNDERING

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A graduate of Social Science from University Science of Malaysia and

Masters in Criminal Justice from Michigan State University, USA.

Had a total of 32 years of experiences as an anti-corruption

practitioner, with more than 6 years as the Chief Commissioner at the

Malaysian Anti-Corruption Commission.

Is now the Consultant at the Governance, Integrity & Anti-

Corruption Centre at MARA University of Technology (UiTM)

Had a stint as the Chief Integrity Officer at a corporate sector in

Malaysia. Actively involved in anti-corruption work domestically and

internationally.

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BUSINESS ETHICS &

INTEGRITY

Why it is very important to fight corruption

and money laundering ?

Business Ethics & Integrity 3

THE PRACTICE

• BUSINESS ETHICS – “O Negative blood syndrome”

Unwritten policy:

“It is OK to give bribe to anybody if necessary but cannot accept any valuable gift or reward from others except from own company”

Business Ethics & Integrity 4

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UNETHICAL VALUES

• It was defined as not unethical business conduct.

• Giving bribe (especially to the undeveloped and

developing countries ) is the reality in the business world.

• Prior to 1977, many companies around the world

including US, have or practices this unwritten policy.

FACTS

• U.S. Securities and Exchange Commission

Investigations in the mid-1970s, over 400 U.S.

companies admitted making questionable or illegal

payments in excess of $300 million to foreign

government officials, politicians, and political parties.

Business Ethics & Integrity 6

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Foreign Corrupt Practices Act

• Foreign Corrupt Practices Act (FCPA) is to make it

illegal for companies and their supervisors to

influence foreign officials with any personal payments or rewards

Business Ethics & Integrity 7

OECD Anti-Bribery Convention

• The OECD Anti-Bribery Convention (officially Convention on Combating Bribery of Foreign Public Officials in International Business Transactions)

• Is a convention of the OECD aimed at :

Reducing corruption in developing countries by encouraging sanctions against bribery in international business transactions carried out by companies based in the Convention member countries. Its goal is to create a truly level playing field in today's international business environment.

Business Ethics & Integrity 8

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Level of ethical behavior and integrity:

NOW ?

• Global Fraud Survey 2016

Global Fraud Survey 2016Global Fraud Survey 2016Global Fraud Survey 2016

GlobaGlobal Fraud Survey 20162016

Survey

• The 14th Global Fraud Survey by EY

provides powerful insights from over

2,800 senior executives in 62 countries

and territories across the world.

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there remains a persistent level of unethical behavior

It shows that, while many businesses

have made significant progress in tackling fraud and corruption,

Justifying unethical behaviour and

misconduct

51% of respondents in emerging markets

consider bribery and corruption happens

or due to happen widely in their country

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Ethics vs Financial Targets

Almost half of the business entities were

able to justify unethical behavior to meet financial targets.

Willingness to act unethically

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THE KPMG MALAYSIA

FRAUD, BRIBERY AND CORRUPTION

SURVEY 2013

THE MOST COMMON TYPES OF FRAUD, BRIBERY

AND CORRUPTION EXPERIENCED

• Based on our survey results:

CASH PAYMENTS (94%),

ENTERTAINMENT (86%) and GIFTS (81%)

were regarded as the most common forms of payment of

bribery. THE KPMG MALAYSIA FRAUD, BRIBERY AND CORRUPTION

SURVEY 2013

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FACTORS THAT TRIGGERED FRAUD, BRIBERY

AND CORRUPTION

• Poor internal controls

• The inherent nature of the industry

• Poor communication of organization’s values or code of ethics

• Poor example shown by senior management

• Poor ethical culture within the organizationTHE KPMG MALAYSIA FRAUD, BRIBERY AND CORRUPTION SURVEY 2013

MOST COMMON MOTIVATORS FOR FRAUD, BRIBERY

AND CORRUPTION

• Respondents revealed that the two most common underlying

motivators for bribery and corruption were to win or retain

business (82%) and to get routine administrative approvals

from government agencies (81%).

THE KPMG MALAYSIA FRAUD, BRIBERY AND CORRUPTION

SURVEY 2013

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FRAUD, BRIBERY AND CORRUPTION PREVENTION

AND DETECTION STRATEGIES

• Less than half of the respondents (48%) believe

that their organization’s anti fraud policies,

procedures and controls are adequate to prevent,

detect, and respond to fraud incidences.

PREVENTION

AND DETECTION STRATEGIES

• An even smaller percentage of the respondents

(26%) believe that their organization has adequate

anti-bribery and corruption control measures.

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PREVENTION

AND DETECTION STRATEGIES

• An alarming 61% of the respondents indicated that

their company does not have adequate procedures

to monitor the compliance of anti-bribery and

corruption procedures/steps.

AWARENESS OF ANTI-BRIBERY

AND CORRUPTION LAWS

• 33% of the respondents are largely unfamiliar with the

Malaysian Anti-Corruption Commission Act 2009.

• More that half of the respondents were not aware if their

organization was subject to the US Foreign Corrupt

Practices Act 1977 (52%) and the UK Bribery Act 2010

(53%).

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BELIEVE

Combatting corruption as a global priority

91% of respondents believe it is important to

know the ultimate beneficial ownership of the

entities with which they do business

Lesson Learned

Case 1

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Between 12 March 2001 and 30 September,

2007, Siemens violated the US Foreign Corrupt Practices Act (“FCPA”)

by engaging in widespread and

systematic practice of paying bribes to foreign government officials to

obtain business.

Siemens created elaborate payment schemes to conceal

the nature of its corrupt payments, and the company’s inadequate internal controls allowed the

illicit conduct to flourish.

The misconduct involved employees at all levels of the company including

former senior management, and reveals a corporate

culture that had long been at odds

with FCPA.

Siemens

WHERE & WHY

Design and

build metro

transit lines in

Venezuela

Metro trains and

signalling devices in

China

Power

plants in

Israel

High voltage

transmission

lines in China

Mobile

telephone

networks in

BangladeshTelecommunication

s projects in Nigeria

National

Identity cards

in Argentina

Refineries in

Mexico

Power

stations in

Iraq

Equipment to

Iraq under the

U.N. Oil for

Food Program

4283 PAYMENTS

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Malaysia

Lesson Learned

• 1981 - 1982, unsecured loans

US$800m made by Bumiputra

Malaysia Finance Ltd to Carrian

Group of Companies base in

Hong Kong.

• Carrian Group of Companies is a

public-listed company.

• Bumiputra Malaysia Finance Ltd is

the Hong Kong subsidiary of

Bank Bumiputra Malaysia Berhad.

BUMIPUTRA/CARRIAN CASE (BMF SCANDALS)

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George Tan

Lorraine Esme Osman

Carrian Group companies engaged in the business of real

estate markets and currency exchange.

This Scandal involves fraud and unsecured loans made by

Bumiputra Malaysia Finance Ltd., the Hong Kong Subsidiary

of Bank Bumiputra Malaysia Berhad, to the Carrian Group

during the year 1981-1982.

In the year 1981 and 1982 the real estate market in Hong

Kong crashed which caused Carrian Group to incur

massive losses.

Chairman of Carrian, Goerge Tan have notified the request

for the loan to Rais Saniman, Director of Bumiputra

Malaysia Finance Ltd (MBF).

Two BOD from Bumiputra Malaysia Finance Ltd Lorraine

Esme Osman, Chairman and Mohamed Hashim

Shamsuddin, Executive Director have endorsed the request for

the loan.

These 3 individuals knew that the loan wont be approved

due to Carrian’s Group lack of capacity to repay the loan.

1982 Ibrahim bin Jaafar, Senior Manager of Bank

Bumiputra Malaysia Berhad (BBMB) have approved a loan

amounting US$800. The total unsecured loan obtained by

Carrian Group was RM1.5 billion.

1982, Ibrahim bin Jaafar, Senior Manager of Bank

Bumiputra Malaysia Berhad (BBMB) have approved a loan

amounting US$800. The total unsecured loan obtained by

Carrian Group was RM1.5 billion.

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Lorraine Esme Osman was alleged to hold stake in Carrian

Group. He was sentenced 7 Years in the UK and 12

months in the Hong Kong prison.

Mohamed Hashim Shamsuddin was convicted to receive

bribery amounting to RM1.1 million. He Sentenced to 10

years of imprisonment.

Rais Seniman was alleged to be involved in the conspiracy

to defraud the bank of a total of US$238million. He

Sentenced to five years in prison.

George Tan was sentence to a prison term of 7 years

Lesson Learned

Case 2

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According to the Securities and Exchange Commission (SEC) complaint, Alcatel’s bribes went to

government officials in Costa Rica, Honduras, Malaysia, and Taiwan between December 2001 and

June 2006.

The US Securities and Exchange Commission and the Department of Justice had charged the French

company earlier this year for violating the Foreign Corrupt Practices Act.

It said two Malaysian consultants were paid a total of US$700,000 for “non-public information”related to competitors’ pricing and bids, believed to be related to TM’s subsidiary back then,

Celcom Malaysia for the 3G mobile services which was launched in 2005.

Between October 2004 and February 2006, Alcatel Malaysia

personnel paid bribes to employees of Telekom Malaysia in

exchange for non-public information. This nonpublic

information included important documents and budget

information relating to ongoing bids and competitor pricing

information.

Alcatel Malaysia’s management consented to these payments,”

the filing said, adding “these bribes assisted Alcatel Malaysia in

obtaining a contract with a potential value of US$85 million.”

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The filing said the TM employees who received bribes were ‘foreign officials’

within the meaning of the US Foreign Corrupt Practices Act and “were in a

significant position to influence the policy decisions Telekom Malaysia made.”

It added the Basel-based Alcatel Standard made significant lump-sum

payments through U.S. bank accounts to two consultants labelled

“Malaysian Consultant A” and “Malaysian Consultant B”, purportedly formarket research.

“Alcatel Standard paid $200,000 to Malaysian Consultant A in 2005 for a

series of ‘market reports’ describing conditions in the Malaysian

telecommunications market. Similarly, Alcatel Standard paid $500,000 to

Malaysian Consultant B in 2005 for a ‘strategic intelligence report.

2011- TM conducted internal

investigations and cooperate with

authorities Malaysia Anti-Corruption

Commission (MACC) to investigate the

allegation.

A former employee of

telecommunications company Alcatel

Network Systems (M) Sdn Bhd was

charged with giving bribe to a Telekom

Malaysia (TM) officer, in a case linked to

the French company’s admission last year

that it had bribed government officials to

win a US$85 million (RM255 million)

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Former Alcatel Network Systems regional customer

account leader Radziah Ani was accused today of giving

bribe to TM Manager on February 17, 2006 to obtain

information on a tender related to TM’s then-subsidiary

Celcom Malaysia’s 3G mobile services.

The Sessions Court here but prosecution she faces 2 years’ jail

and a fine RM125,000.

In March 2011, the Malaysian Anti-Corruption Commission

(MACC) had recommended TM to either blacklist or suspenddealings with Alcatel-Lucent over the bribery case involving the

GLC and the French telecommunications giant.

Alcatel Network Systems after the merged with Lucent

Technologies in December 2006 and is now known as Alcatel-

Lucent (Malaysia) Sdn Bhd, which is the local subsidiary of the

French telecommunications giant.

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Arcatel-Lucent was ban will last a year and covers tenders, contracts and joint ventures. The

suspension from Axiata began February 18 while

Telekom Malaysia’s was effective January 5.

Alcatel-Lucent and three of its subsidiaries paid $137

million to settle the charges in the US.

• En. Ray was a Manager (Licensing & Enforcement) at Procurement Department of a Company. His duty was to verify

information of Contractors and conduct audit on the related area.

• 22 February 2008 - he was instructed by his superior to verify information and conduct audit on KTSB

• 1 March 2008 - KTSB was suspended for failing to submit latest audited annual report to Company.

• 14 March 2008 - Yusof, MD of KTSB realised about his Company’s suspension

• 5 March 2008 - En. Ray conducted audit at KTSB and found that KTSB failed to declare information on Management staff,

Staff information and Head office.

• 21 March 2008 – En. Ray recommended suspension of KTSB’s license. His superior decided KTSB were should be given

Show Cause letter before Company decided to suspend the licence

• 16 June 2008 - Show Cause letter was issued to KTSB; deadline given was 23 June 2008

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• 22 June 2008, Yusof contacted requesting for

assistance to review his reply

• It was a Sunday morning and En. Ray agreed

to meet at Bangi Kopitiam.

• At Bangi Kopitiam, they discussed about the

reply and Yusof had made amendments as a

result of their discussion.

• Yusof submitted the reply on 23 June 2008.

• At noon the same day, he contacted En. Ray to invite him for a lunch.

• After lunch, they went to Mercedes Benz Showroom together.

• En. Ray expressed interest to buy one of the cars, and whispered to Yusof that he planned to pay

RM50,000 as down payment.

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• En. Ray attempted to contact Yusof for few times which went

unanswered.

• En. Ray then sent the following message to Yusof:

"‘Your suspension continue, call you many times, Not answer, u not

serious to solve this“

• 24 June 2008 – AA decided to accept KTSB's explanation.

• KTSB had also submitted their Audited Annual Report (AAR)

hence their license was reinstated.

• 27 June 2008, Yusof continued to receive SMS from En.

Ray informing that KTSB’s license will be activated

pending on the completion of AAR

• Later, En. Ray requested RM50,000 from Yusof.

Yusof however decided to report this matter to the

Company.

• After the due inquiry as per Disciplinary Action, Process

and Procedure, En. Ray was dismissed from the

employment.

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CAUSE OF DOWNFALL

• business organisations do not expose their problems because they fear the adverse publicity would affect their competitive edge

FUTURE DEVELOPMENTS

LIABILITY OF LEGAL PERSONS – SENDING STRONG MESSAGE THAT COMPANIES WHOSE STAFF/AGENTS CAUGHT INVOLVING IN CORRUPT PRACTICES WILL ALSO BE HELD LIABLE (IN LINE WITH ARTICLE 26 OF THE UNCAC)

ESTABLISHMENT OF ETHICS DIVISION IN ALL GOVERNMENT MINISTRIES/DEPARTMENTS – CERTIFIED INTERGRIY OFFICERS

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What steps should businesses taken

Adequately resource compliance and investigations functions, so that they

can proactively engage before regulatory action is taken

Establish clear whistleblowing channels and policies that not only raise awareness

of reporting mechanisms, but encourage employees to report misconduct

Undertake regular fraud risk assessments, including an assessment of

potential data-driven indicator

CIP

Not, through any of its employees, agents or subsidiaries commit any corruption

offence under any law, such as the MACC Act 2009 or Penal Code; Not conduct

any business practices or activities that would require or encourage any of its

employees, agents or subsidiaries to commit such offences; and Work together

with its business partners, regulators and law enforcement agencies to create a

business environment that is free from corruption, and Uphold the Anti-

Corruption Principles for Corporations in Malaysia in the conduct of its business

and in its interactions with its business partners and the Government.

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CONCLUSION

• Corruption often grows in the absence of good work ethics or

an understanding of the concepts of accountability and

responsibility. Integrity can be developed through:

-regulations and codes of conduct;

-professionalism among officials;

-a sense of integrity among staffs and officers;

CONCLUSION…

The ethical environment must be owned, policed, adapted and updated throughout the private sector.

The environment must be reviewed, periodically with new means of accountability being introduced or existing means upgraded and reinforced;

Sustaining the ethical environment requires leadership to inspire confidence and trust.

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THANK YOU