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Bray and Cheng: A strategic approach to compliance in today’s Malaysia

Political developments in Malaysia should provide a governance “wake up call” for international companies operating in the country, which urgently need to review their relationships with local business partners. If they did not conduct integrity due diligence before entering these relationships, they should consider doing so now.

Following Dr. Mahathir’s dramatic return to power in the May national elections, the new Alliance of Hope (Pakatan Harapan) coalition-led government has launched investigations into business deals executed or initiated across a range of commercial sectors during the term of former prime minister Najib Razak (2009 to 2018).

Some deals that were in place have already been cancelled due to the lack of transparency in the tender process, and the government has promised more will come under scrutiny.

The prospect of a series of spectacular but potentially contentious investigations raises two questions for international companies. First, how can they minimize their risk of direct or indirect entanglement in these ongoing controversies?

Second, what can they do to strengthen their defenses for the future?

In working out their strategies, companies need to assess what has changed under the new administration, and what has not changed. This task requires commercial and political judgment, as well as governance nous.

In the immediate future, political considerations will continue to influence the pace and direction of anti-corruption investigations. The task of strengthening Malaysia’s institutional integrity will be a long-term process at best. Companies need to step up their monitoring of political developments that will affect the governance agenda, not only at a national level, but also in their regions and specific sectors.

Investigations into past procurement decisions are among the areas where international companies could be implicated. The pharmaceutical sector is just one example. Minister of Health Dzulkefly Ahmad is reportedly investigating allegations that international companies appointed politically connected Malaysian firms as “tender agents” to rig government tenders for medical supplies, particularly between 2013 and 2016. If the allegations turn out to be founded on fact, these international companies could fall foul of their own countries’ laws against foreign bribery — as well as Malaysian law.

More broadly, recent developments provide compliance officers with an opportunity to institute a thorough review of their companies’ integrity programs — to do what they should be doing anyway. In the past such reviews might have met with the dismissive response that it is necessary to be “pragmatic” or to act in accordance with “realities on the ground.” It should be much easier to overcome such objections in the face of clear evidence that local conditions are changing, even if only in part.

Finally, companies need to step up their monitoring of political developments that will affect the compliance agenda, not only at the national level but also in their own regions and specific sectors.

For all its recent drama, Malaysia has important strengths, and local and international companies have the opportunity to build on them. In particular, it has a significant foundation of human capital, including a stratum of middle class professionals for whom the word “governance” is much more than a platitude. Now is the time for companies operating in Malaysia to demonstrate their businesses thrive on quality and professionalism, and not simply on connections.

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John Bray, pictured above left, is a director at the Singapore office of Control Risks, the international business risk consultancy. Harrison Cheng, above right, is also based at Control Risks’ Singapore office where he’s a senior analyst specializing in Malaysia and Thailand.

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