Malaysia Corruption Report

Last updated: November 2020

Snapshot

Corruption in Malaysia is relatively low in comparison to the rest of East Asia. One of the main sectors subject to corruption is public procurement, with Malaysian companies sometimes being favored over foreign companies and with political connections still playing an important role in the outcome of public tenders. Anti-corruption laws are mainly contained within the Malaysian Anti-Corruption Commission Act, which covers a range of offenses (including active and passive bribery, extortion and abuse of office) and penalties for private and public sector corruption. However, a lack of capacity and technical skills in some areas mean the level of enforcement is sometimes lacking. Local laws do not make an exception for facilitation payments, which should, therefore, be considered unlawful.

Risk key
Low
MODERATELY LOW
MODERATE
MODERATELY HIGH
HIGH

Judicial System

Corruption in the Malaysian judiciary carries a medium risk for business. Bribes and irregular payments are sometimes exchanged in return for obtaining favorable court decisions (GCR 2015-2016). Nonetheless, only a small percentage of companies perceive the courts to be a constraint to doing business in Malaysia (ES 2015). Companies perceive the courts to be efficient in settling disputes and challenging government regulations (GCR 2015-2016). Despite that the judiciary is independent and well-functioning, the institution is subject to increased influence from the political elite (BTI 2016).

Malaysia is a member of the International Centre for Settlement of Investment Disputes (ICSID) and has acceded the New York Convention 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.

Police

The security apparatus does not present business with significant corruption risks. In fact, businesses perceive the police to be reliable in relation to enforcing law and order and in protecting companies from crime (GCR 2015-2016). Authorities have mechanisms in place to investigate and punish abuse among the security forces and the Human Rights Commission of Malaysia (SUHAKAM) investigated alleged abuses within the police (HRR 2015). Notwithstanding, Malaysians perceive the police as the most corrupt institution in the country (GCB 2013). Long-standing allegations of corruption within the police force have created a state of antagonism between the force and the Malaysian public over the years (TMI, Apr. 2015).

Public Services

Corruption in Malaysia’s public services carries a moderate to high risk for companies. Despite that bribes and irregular payments in return for public utilities are not reported as widespread by companies, more than a third of business expect to offer a bribe to officials to ‘get things done’ (GCR 2015-2016, ES 2015). While almost three in every ten companies also expect to give gifts to officials to secure an operating license (ES 2015).

It has become more difficult to start a business in Malaysia as the government requires companies with annual revenue of more than MYR 500,000 to register as a GST payer (DB 2017). Nonetheless, the process is still less time consuming compared to regional averages (DB 2017).

Land Administration

Property rights in Malaysia are generally well-defined and protected by Malaysian courts, however, the lack of enforcement curb the effective protection of these rights (ICS 2016). Registering property in Malaysia requires more procedures than in other countries in the region, but the time needed to complete registration is relatively low (DB 2017). Corporate lawsuits with regard to private property still face lengthy delays (BTI 2016).

Tax Administration

Corruption is unlikely when dealing with Malaysia’s tax authorities. Bribes and irregular payments are not commonly exchanged in meetings with tax officials (GCR 2015-2016). Similarly, only a little more than two in every ten surveyed companies report that gifts are expected during encounters with the tax administration (ES 2015).

Paying taxes is less time-consuming in Malaysia compared to regional averages (DB 2017). The government made paying taxes easier by implementing an online filing system for paying the Goods and Services Tax (GST), yet has placed some difficulties on businesses by replacing sales tax with GST (DB 2017).

Customs Administration

Corruption poses a moderate risk for businesses trading across Malaysia’s borders. Transparency at the border administration is moderately high and bribes and irregular payments are not perceived to be widespread (GETR 2015-2016, GETR 2014). However, almost half of companies expect giving gifts to officials in return for an import license (ES 2015).

Public Procurement

The public procurement sector presents businesses with high corruption risks. More than half of business expect to offer gifts to officials to secure a government contract or licenses (ES 2015). Bribes and irregular payments are also sometimes offered for the same purposes (GCR 2015-2016). Companies may witness favoritism towards well-connected companies or individuals in the process of awarding contracts (GCR 2015-2016). In fact, political connections continue to be one of the main criteria in the awarding of important infrastructure projects and state contracts (BTI 2016). The Malaysian government has passed procurement reforms to stamp out corruption (ICS 2014), but the awarding of major infrastructure and public works contracts is often done without competitive bidding or open tenders (WSJ, Dec. 2013).

In 2015, the 1Malaysia Development Berhad (1MBD) corruption case unfolded triggering a crisis of confidence in the government as the fund missed payments of USD 11 billion it owed to banks and bondholders. Investigations have so far revealed that Prime Minister Najib Razak alone allegedly siphoned USD 1 billion from the state-run 1MBD coffers, and the Department of Justice (DOJ) alleges that USD 3.5 billion in all have been misappropriated from the 1 MDB (BBC, Jul. 2016). The US DOJ is suing for the return of USD 1 billion in assets (The Diplomat, Nov. 2016). In relation to the case, Singaporean authorities shut down the Swiss bank BSI in the city-state and fined the banks DBS and UBS for breaking money-laundering laws in dealings with the 1MDB (Fortune, Oct. 2016). Falcon Private Bank’s Singapore branch was also ordered by the authorities to cease all activities due to breaches of anti-money laundering laws (Fortune, Oct. 2016).

Natural Resources

Malaysia’s logging industry has been the subject of a number of recent allegations of corruption, and the government has done little to tackle the problem (Reuters, Jan. 2015). In one case, Chief Minister of Sarawak Taib and his family allegedly received kickbacks from private companies in return for logging and plantation permits as well as purchasing land for a small fraction of its commercial value through directives from the Ministry of Resource Planning and Environment (which is headed by Taib) (GW, Mar. 2013).

Legislation

Malaysia’s anti-corruption legislation is mainly contained within the Malaysian Anti-Corruption Commission Act, which created the Malaysian Anti-Corruption Commission (MACCA) and which provides for offences and penalties for private and public sector corruption, including active and passive bribery, extortion, attempted corruption, abuse of office, corruption through agents, corruption in public procurement and electoral corruption. Facilitation payments are generally considered akin to bribery payments and thus constitute an offense under the MACCA (Norton Rose Fullbright, Sep. 2014). Gifts and hospitality are regulated under Malaysian law: Gifts of any value must be declared if the intention is deemed uncertain. However, these regulations are often poorly enforced and when they are, it is mostly focused on small-scale, low-level crime (HRR 2015). The Anti-Money Laundering Act criminalizes money laundering and contains provisions for the freezing and seizing of assets obtained through corruption. In particular, the Act aims at strengthening the anti-corruption body to combat the system of political patronage in which well-connected Malay businesspeople are favored for state contracts. Public officials are not subject to any financial disclosure laws (HRR 2015). A new Whistleblower Protection Act came into force in December 2010, but it does not protect informants who reveal information to a third party, such as the media (ICS 2016). Malaysia is a State Party to the United Nations Convention against Corruption.

Civil Society

The Malaysian Constitution provides for freedoms of speech and press. However, freedom of expression is often restricted through intimidation into self-censorship or exertion of a series of tough censorship laws (FotP 2016). Among others, the Printing Presses and Publications Act (PPPA) gives the Malaysian government the authority to suspend or revoke licenses without judicial review, while the Official Secrets Act (OSA) reduces transparency in governance as freedom of information has been curbed due to the classification of all government documents as ‘secret’ (FotP 2016). In effect, opposition leader Rafizi Ramli was sentenced to 18 months under the Officials Secrets Act for disclosing part of the Auditor General’s report into the 1MDB corruption case to journalists (The Diplomat, Nov. 2016). International NGOs perceive the sentencing as a serious setback to freedom of free speech in Malaysia (The Diplomat, Nov. 2016). The 1MBD corruption case involving Prime Minister Najib also prompted several other defamation charges (FotP 2016). The Internet is subject to supervision, and political speech is restricted by several laws (HRR 2015). Instances of physical threats and intimidation against journalists have been reported (FotP 2016). Malaysia’s media environment is considered ‘not free’ (FotP 2016).

Although the Constitution provides for the rights of association and assembly, the government has limited these freedoms in practice (through the Public Order Ordinance and the Police Act) on grounds of maintaining security and public order (HRR 2015). Civil society activity has recently increased and strengthened in some areas, especially through groups that monitor human rights, the environment, and government reform agendas. However, overall, civil society tradition remains weak, and citizens in urban areas play a marginal role (BTI 2016).

Sources

World Bank & IFC: Doing Business 2017.
US Department of State: Investment Climate Statement – Malaysia 2016.
Bertelsmann Foundation: Transformation Index – Malaysia 2016.
Freedom House: Freedom of the Press – Malaysia 2016.
Fortune: ‘Singapore Fines Two Big Banks and Shuts Down Another Over 1MDB Scandal’, 11 October 2016.
The Diplomat: ‘Malaysia Silences 1MDB Whistleblowers in Blow to Rights’, 17 November 2016.
BBC: ‘1MDB: The case that has riveted Malaysia’, 22 July 2016.
World Bank Group: Enterprise Surveys – Malaysia 2015.
US Department of State: Human Rights Practices Report – Malaysia 2015.
Malaysian Insider: ‘Corruption, public distrust plague police force, says Low’, 8 April 2015.
Reuters: ‘Graft slows Cameroon, Malaysia fight against illegal logging – thinktank’, 21 January 2015.
Norton Rose Fullbright: Business ethics and anti-corruption laws: Malaysia, September 2014.
World Economic Forum: The Global Enabling Trade Report 2014.
US Department of State: Investment Climate Statement 2014.
Malay Mail Online: ‘Eight Customs officers charged over monthly bribes from smuggling syndicate’, 19 September 2014.
Wall Street Journal: ‘Corruption in Malaysia Shows Little Improvement’, 3 December 2013.
Global Witness: ‘Corruption in Malaysia laid bare as investigation catches Sarawak’s ruling elite on camera’, 13 March 2013.
Transparency International: Global Corruption Barometer 2013.