Saturday October 9, 2010
Too little punishment for too much
A QUESTION OF BUSINESS
By P. GUNASEGARAM
If directors continue to get away with a mere slap in the wrist for major offences, you can kiss corporate governance goodbye.
POOR Securities Commission! It goes to all that effort and pain to bring corporate miscreants to book and what happens, they go free – more or less. For what is a hefty fine when the amount they defrauded is many times more than that?
That is an affront to the public which sees white-collar criminals get away with far less in terms of sentences although many millions of ringgit are involved. Comparable common thefts see much more punishment.
Then, there are the corollary effects. The confidence and integrity of the market itself becomes affected when the investing public, both local and overseas, become disillusioned with standards of corporate governance here. What incentive is there to behave when you can get away with so much for so little?
For corporate crime to be seriously reduced, two things need to happen immediately. First, the courts must realise the seriousness of these crimes and mete out the necessary punishment, even when the plea is guilty.
Second, agencies responsible for enforcing legislation must do their part to investigate and bring to book those who break the law. The Securities Commission seems to be doing its part when it comes to securities laws but the same cannot be said of the Companies Commission of Malaysia when it comes to enforcing the Companies Act.
If these two things don’t come together, we can pretty much say goodbye to the attempts by some of our regulators and enforcement agencies to increase corporate governance standards and bring about a much higher standard of behaviour among our corporate chieftains, standards which are abysmally low right now.
Let’s take the latest such case. It was reported earlier this week that a former director of a de-listed company, Pancaran Ikrab, broke down and wept when a judge handed down a custodial sentence of one day (yes, that’s right) and a fine of RM2mil for fraud involving millions.
Former managing director Ngu Tieng Ung committed two counts of financial fraud involving RM15.5mil 13 years ago. Sessions Court judge S.M. Komathy Suppiah allowed Ngu, 43, to pay the fine in 12 instalments starting next month, to be paid by the fifth of each month or a 30-day jail sentence if he fails.
“Are you crying because you are happy or sad?” she asked a sobbing Ngu, who did not respond. At this juncture, Ngu’s counsel Ng Aik Guan went up to the dock to speak to him and later told the judge that Ngu was “too emotional”, The Star reported.
Meantime, the Securities Commission only thinly disguised its disappointment with the sentencing. It said in a statement on Oct 5: “Datuk Lybrand Ngu Tieng Ung was convicted by the Kuala Lumpur Sessions Court today for two counts of securities fraud.
“He had utilised RM15.5 million of Pancaran Ikrab Bhd’s (PIB) funds in October 1997 to finance his entry into the company. The monies financed his purchase for the controlling shareholding in PIB. PIB was then listed on the Second Board of the Kuala Lumpur Stock Exchange.
“When he resumed the post of director of PIB, he had caused in total RM37 million to be transferred out of the company. This amount was never recovered and was written off in its accounts. This resulted in PIB being financially distressed and its listing status was taken over by DCEIL International Bhd on July 19, 2004.
“The penalty for securities fraud is a minimum fine of RM1 million and imprisonment of not more than 10 years. Sessions Court judge, Puan S.M. Komathy Suppiah sentenced Ngu to 1 day imprisonment and a fine of RM1 million for each offence. The imprisonment terms to be served concurrently.”
Now, the scale of the offence becomes much clearer. Ngu used RM15.5mil to finance his purchase of shares in Pancaran Ikrab and caused RM37mil to be transferred out of the company, making in all a massive RM52.5mil.
And all he got was a day’s jail and a fine of RM2mil. Why? And there was nothing said about restitution or return of the monies.
If you think this was an isolated instance of a person committing corporate fraud receiving a light sentence, you are wrong. Just this year alone, there have been a number of light sentences given.
In March this year, the Kuala Lumpur Sessions Court convicted Chan Kok Suan, the former managing director of Granasia Corporation Bhd for submitting false statements to the Securities Commission as part of the application for an initial public offering.
Chan was convicted under section 32B(4) of the Securities Commission Act and was fined RM500,000, in default 10 months imprisonment, according to the SC.
In February, the Kuala Lumpur Sessions Court convicted Ooi Boon Leong and Tan Yeow Teck for knowingly authorising the furnishing of a misleading statement by MEMS Technology Bhd, a company listed on the then Mesdaq market, to Bursa Malaysia Securities Bhd.
The Sessions Court sentenced each accused to a fine of RM300,000 (in default two years imprisonment).
Last November, the Securities Commission secured a conviction against Datuk Tan Hooi Chong for abetting Kiara Emas Asia Industries Bhd in the misappropriation of the rights issue proceeds amounting to almost RM17mil between Dec 16 and 31, 1996.
Tan pleaded guilty to the offence under section 32(6) of the Securities Commission Act 1993 read together with Section 40 and Section 109 of the Penal Code. Tan had also admitted to misutilising the rights issue proceeds for his personal benefit. He was fined RM600,000.
The common thread through all these convictions, and many earlier higher profile convictions, is that none of them was custodial (except for the latest one-day custodial sentence) even though the offences were serious and in many cases involved millions of ringgit.
But let’s look at another case. In March, former Perbadanan Komputer Nasional Bhd chief executive officer Zulkifli Amin Mamat was sentenced to four years’ jail and three strokes of the rotan for criminal breach of trust involving RM1.61mil.
Why the anomaly? Is criminal breach of trust very different from what these other directors were doing? Obviously not.
That must mean, if we take other more sinister conclusions out of the equation, that judges don’t seem to understand the seriousness of corporate crime and the extremely deleterious effects they have on the capital markets and thousands and millions of shareholders of public-listed companies.
The only way that such lack of understanding or otherwise can be overcome is for the Chief Justice, Tun Zaki Azmi, himself to step in. Zaki has been working tirelessly to reduce backlogs and has taken strong, controversial steps in this direction. But the lack of punishment of corporate crime is one area that demands immediate attention too.
It will be no exaggeration to say that the future of the country depends on it because no country has been able to reach the pinnacles of progress and achievement without a healthy corporate sector. And you can’t have that without adequate punishment of the bad hats.
● Managing editor P. Gunasegaram does not only believe that justice delayed is justice denied. He also believes that justice denied is, well, justice denied. Period.
http://thestar.com.my/columnists/story.asp?file=/2010/10/9/columnists/aquestionofbusiness/7191225&sec=A%20Question%20Of%20Business
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