ON December 8, 2021 the Court of Appeal handed down their decision rejecting the appeal of the former prime minister (the appellant ) in his attempt to overturn the decision of the High Court which held the appellant guilty on total of seven charges relating to i) receipt of gratification of RM42 million by involvement in decision-making as public officer of the government of Malaysia in breach of section 23 of the Malaysian Anti-Corruption Commission Act 2009; ii) breach of section 409 of penal code that as an agent of SRC and in capacity as PM, finance minister and adviser emeritus committed a criminal breach of trust as in those capacities as being entrusted with dominion over RM42 million belonging to SRC; and iii) money laundering charges under section 4(1) (b) of the Anti–Money Laundering, Anti-Terrorism Financing  and Proceeds of Unlawful Activities Act 2001 (AMLA ) by receipt of total of RM42 million into his personal bank account.

Significance of case for public body officer

A controller shareholder and also board of director of a corporation, including a government-linked (GLC) ought to take heed of the court’s affirmation of Justice Nazlan‘s Mohd Ghazali’s High Court decision.

A director-cum-dominant owner is now fastened with fiduciary duties which in the event of found misconduct may be exposed to not only civil liabilities under company and capital market laws and regulatory regime, but also severe sanctions under criminal law in the form of custodial penalties.

Finding on corruption charges

The court held that there are two main elements for an offence of illegal gratification under the MACC Act i.e. i) the accused was an officer of a public body; and ii) the accused had used his office or position for gratification for himself, his relative or associate.

The appellate court upheld the High Court ruling that the ex-PM, being a member of administration and a member of Parliament, and in receipt of public funds in being remunerated from such is a “member of public body”.

As for use of position for gratification, the court notes that there are statutory presumptions under section 23(2) of MACC Act upon the prosecution proving that an accused has taken part in the making of any decision or taking any action and such a decision or action concerned a matter in which the appellant had either a direct or indirect interest.

The appellant’s presence at two cabinet meetings approving government guarantees in favour of pension fund KWAP when read with Kod Etika Bagi Anggota-Anggota Pentadbiran (D599 and D599-A) which precludes a holder of public office to ensure that no conflict of interest arises between his holding the public office and personal interest. When such a situation arises a public officer must not only declare his interest but also leave the meeting and his non-attendance during the meeting or deliberations be recorded. The appellant in this case failed to comply with the above stated ethical norms.

The critical issue of whether the appellant had an interest in the subject matter of the executive decision made in the cabinet was also found to be so and the Court of Appeal observed that, “there is overwhelming evidence which established a glaring personal interest ….” in the cabinet decision to issue the two government guarantees which unlocked a flow of funds from KWAP to SRC.

It is of interest that the prosecution is not required to prove receipt of gratification and that it suffices under section 23(2) of the MACC Act that there has been use of position to obtain gratification

The finding that appellant is not an officer of SRC and a representative of the government

This part of the appellate court’s ruling throws up an interesting facet. It was the appellant’s defence case that section 23(4) of the MACC Act which provided that “this section shall not apply to an officer who holds office in a public body as a representative of another public body, which has the control or partial control over the first mentioned public body in respect of anything done in his capacity as such representative for the interest of that other public body.

The court held that this exemption from the strictures of offence of gratification is not applicable to the appellant as the appellant could not be deemed as an officer of SRC and a representative of government.

The finding that appellant is not an officer is interesting. The term “officer” of a corporation has been defined under the Companies Act 201(CA )6 to include (a) any director, secretary or employee of the company…” The reference that appellant cannot be deemed to be representative of the government also raises questions. The court is cognizant that the appellant played a dominant role in SRC by virtue of his being the PM at the material time. We must also draw attention to the fact that the court in another section affirmed the finding that the appellant is a shadow director of SRC (see below) section 4 of the Companies Act defines a “director” to include a shadow director as it states “a person in accordance with whose directions or instructions the majority of directors are accustomed to act…”

That the exemption under section 23(4) is not available to the appellant could be justified on separate analytical grounds of construction of the provision and not be finding that the appellant is not an officer of SRC nor that he is not a representative of the government. With respect to the finding that the appellant is a shadow director brings him within the compass of the Company Act director and though the term representative is not defined it does appear that surely a PM or the MOF is a representative of the government of Malaysia. The exemption under section 23(4) of the MACC Act is meant to provide a defence “to a holder of office in a public body which merely at a holding level in a group enterprise and acts or decision done solely for the interest of a member of that group shall not be deemed to have been a commission of offence of gratification under section 23(1) of the MACC Act.

Finding of director and agent under the penal code: The Court of Appeal referred to hansard of speech by then law minister Syed Hamid Syed Jaafar Albar that a purposive construction be made on scope of what constitutes “director” and “agent” under the penal code. Reference to hansard as an aid to statutory construction, though not determinative of judicial decision-making, is salutary. The court agrees that with such an approach (i.e. purposive) mere technicalities resulting in acquittals being secured for white collar crimes will be obviated. For lawyers, this ruling will bring clarity over issues thrown up by Justice Peh Swee Chin in the Yap Seng Hock case decades ago where the learned judge made distinctions between the definitions under the Companies Act 1965 and the penal code (then without section 402A).

Shadow directors

For corporations and GLCs, the affirmation of who may be caught within the scope of being a shadow director is instructive and cautionary.

Section 402A of the penal code’s definition is a director is similar to that under section 4 of the Companies Act. The Court of Appeal observed that “shadow directors” usually lurk in the shadow without any formal position in the company seeking shelter behind others, and seldom hold themselves out as directors of the company. They operate clandestinely and without showing their hands. But the when the evidence is closely scrutinised, we will find their hidden hands instructing the directors to act in the manner that the shadow directors want them to.

While reference to “shadow” suggests that the observation is the opposite, it must be pointed out that recent common law decisions do not require the so-called “shadowy element” and that it suffices if the majority of board acts or is accustomed to act in accordance with directions or instructions of such a person.

In fact, the SRC case is such a case and the finding of the High Court affirmed by the Court of Appeal is that the appellant being also PM and adviser emeritus is such a shadow director notwithstanding lack of clandestine aspects. Again article 67 of SRC, which grants authority to the PM to appoint and remove any director makes him a directing mind and having authority to hire and fire de jure directors.

GLCs where the government, whether through MOF Inc or ministries, hold a golden share with negative veto or appointing and dismissal power must take heed of this aspect of the ruling.

Finding on criminal misappropriation and instructions to banks 

This aspect would be of interest to finance institutions. The Court of Appeal affirms the High Court’s ruling that there has been criminal misappropriation with movement of funds of RM27 million, RM5 million and RM10 million from SRC accounts to the appellant‘s personal bank account. The appellate court dismissed the appellant’s contentions that scanned digital signatures and instructions do not suffice by reference to the fact that subject to “the bank can act on scanned or electronic instructions” as long as the signatories agree to the transfer and for their digital signature to be used, also so long as other requirements by the bank imposed by the bank in respect of such instructions are fulfilled.

The court further affirmed that the High Court finding of dishonest misappropriation and that, “actual knowledge of SRC monies being deposited into his personal bank account” is not contradicted.

The Arab donation

The Court of Appeal carefully evaluated the appellant’s contentions and agrees that the so-called letters from Arab purportedly written by a member of Saudi royal family is a fabrication is a “concoction that is completely bereft of credibility”. The court held that funds in the appellant’s personal bank account came from SRC is well established.

The court also observed that “… all evidence negates the appellant’s contention that he was motivated by national interest and not personal gain when he participated in cabinet meetings that approved the two government guarantees”. It was in that context the court made the observation that it is “national embarrassment” a description within province judicial language.

The AMLA and willful blindness

The appellate court affirmed that AMLA charges have been rightly proved and it also affirmed that there are elements of willful blindness. The court observed that “the appellant had deliberately shut his eyes and chose not to verify the origins of the funds, but instead relied wholly on others, while at same time spending the RM42 million for his own purpose and benefit.”

Corporate social responsibility

A concluding observation that the Court of Appeal also dismissed the connection that funds were expended for corporate social responsibility (CSR) activities. Ex-post facto justification of “reason or purpose of expenditure after dishonest misappropriation” is not relevant to a criminal breach of trust charge. In any event, the evidence did not bear out the monies were expended for CSR nor were any authorised by SRC.

Conclusion

For criminal appeals from Court of Appeal to Federal Court where the case is tried in the High Court, there is no need to obtain leave of Federal Court – section 87(1) Courts of Judicature Act 1964 (CJA) (unlike civil appeals to Federal Court which do not involve effect of provision of Federal Constitution – section 96(a) CJA). – December 9, 2021.

* Philip Koh Tong Ngee is an adjunct professor at University Malaya and a High Court of Malaya advocate and solicitor.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.