Through two Press Statements (see here and here), Bank Negara had firstly, concluded that 1MDB had essentially acted in breach of some of the relevant exchange control laws. Bank Negara issued a direction to 1MDB to repatriate the USD 1.83 billion to Malaysia and to submit a plan to Bank Negara for this purpose. The Attorney General had declined to initiate criminal prosecution based on Bank Negara’s investigations.
Secondly, but without expressly mentioning 1MDB, Bank Negara emphasised its powers to take administrative actions against parties who acted in breach of the laws. These administrative actions are separate and distinct from any criminal proceedings.
Let us delve deeper into the types of actions that Bank Negara may take under the Financial Services Act 2013 (FSA) against a company such as 1MDB.
To give bite to Bank Negara’s administrative actions, the law allows Bank Negara to file a civil action to ensure compliance of the steps ordered in such administrative actions. In this civil action, the court can make a wide range of orders, for instance for recovery of monies, and to compel compliance with orders made by Bank Negara. The failure to comply with the court order can then result in contempt of court proceedings.
It is also important to emphasise that such court orders need not solely be against a company. The court order can be made against a person who is the director, controller, officer or partner (or who was purporting to act in any such capacity) or anyone who is concerned in the management of the affairs of that company. That widens the net of possible defendants to any such court action.
I will elaborate on these points below.
As referred to in Bank Negara’s press statement, the Attorney General has the prerogative on deciding on criminal prosecution. Ordinarily, Bank Negara’s enforcement actions for breaches of the law would have been carried out through criminal prosecution by the Attorney General. Hence, Bank Negera’s list of cases being investigated or prosecuted shows a long list of criminal prosecutions underway or under investigation.
Nonetheless, independent of criminal proceedings, the provisions under the FSA provide two alternative and distinctive routes for Bank Negara to take action for breaches of the law. Administrative action and civil action.
The first route is through an administrative action. Bank Negara can take any one or more of these actions such as making an order in writing requiring the person in breach to comply, imposing a monetary penalty, and issuing a public reprimand (see section 234 of the FSA). Such actions could be taken against both 1MDB as well as its director, controller, officer or any person concerned in the management of its affairs.
The monetary penalty can be of a very significant amount. The penalty can extend up to three times the gross amount of pecuniary gain made or loss, or up to three times the amount of money which is the subject matter of the breach. This penalty will be paid into the Federal Consolidated Fund. If a person fails to pay the monetary penalty imposed by Bank Negara within the specified time period, the sum may be sued and recovered as a civil due due to the Government (see sections 234(8) and (9) of the FSA).
In this situation, let’s take the example where Bank Negara adopts the administration action route and issues an order for 1MDB to repatriate the USD1.83 billion to Malaysia and submit a plan to Bank Negara for this purpose. What happens if there is non-compliance? Similarly, what if Bank Negara imposes a monetary penalty and there is a failure to pay?
Such administrative actions alone cannot compel compliance. The next step would be to escalate it to the filing of a civil action in the courts.
The Next Step: Civil Action
Firstly, I briefly mention that the civil action route can already be taken independent of the administrative action (see section 239 of the FSA). Bank Negara could decide to institute a civil action when it appears to Bank Negara that there is a reasonable likelihood that any person has contravened or had breached or failed to comply with any provisions of the FSA.
Nonetheless, in addition, if a person has failed to comply with the administrative action taken by Bank Negara (see section 239(e) of the FSA), then such a civil action may also be instituted. It is clear that this civil action can be taken regardless of whether there has been any criminal charge or successful prosecution of that contravention or breach (section 239 of the FSA).
In this civil action, the court is seized with a wide jurisdiction to make various orders. The possible orders include an order akin to disgorgement of three times of the profit made from the breach or non-compliance, a civil penalty of up to RM25 million, and even orders compelling a person to do a certain act.
Specifically, where a person has refused or failed to comply with any action taken by Bank Negara under the administrative action provisions, then the court can make an order directing that person to comply with such action (see section 240(1)(g) of the FSA). This is the specific power to allow actual enforcement of any administrative action taken by Bank Negara.
So again, drawing from Bank Negara’s direction issued to 1MDB, the court could possibly make an order to compel 1MDB to repatriate the USD1.83 billion to Malaysia and submit a plan to Bank Negara for this purpose.
A person who refuses to comply with an order made in the civil action can face criminal conviction (see section 243 of the FSA). But besides criminal proceedings, a failure to comply with a court order can always trigger contempt of court proceedings. Contempt of court proceedings would require the alleged contemnor to attend personally in court and where the court bailiff can assist in ensuring personal attendance (through a warrant of arrest). The range of sanctions for contempt of court would range from fines to even imprisonment.
Similar to the above administrative action provisions, the civil action provisions allow for orders to also be obtained against any director, controller, officer or any person concerned in the management of its affairs.
There are possibly far-ranging orders that can be obtained under the administrative action and civil action routes. If there is non-compliance, the endgame under these provisions would be to seek a court order to ensure compliance with Bank Negara’s direction or order.