Journal of Financial Crime

Corporate crimes in Malaysia: a profile analysis

Normah Omar, Roshima Said, Zulaikha ‘Amirah Johari,
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Normah Omar, Roshima Said, Zulaikha ‘Amirah Johari, (2016) "Corporate crimes in Malaysia: a
profile analysis", Journal of Financial Crime, Vol. 23 Issue: 2, pp.257-272, https://doi.org/10.1108/
JFC-05-2014-0020
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Corporate crimes in Malaysia: Corporate

crimes in
a profile analysis Malaysia
Normah Omar, Roshima Said and Zulaikha ‘Amirah Johari
Accounting Research Institute, Universiti Teknologi MARA,
Shah Alam, Malaysia
257

Abstract
Purpose – Corporate crimes in Malaysia are increasing each year. These issues are bothersome to the
investors, creditors and the public as a whole because of the huge impact on all of them. Employees lose
their jobs, investors do not get optimal return on their investments and creditors are unable to get their
payments, and as a result, the public lose their faith on the legislation. The purpose of this study is to
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analyze the cases charged under Securities Commission and Bank Negara Malaysia.
Design/methodology/approach – This study analyzes the cases in Securities Commission and
Bank Negara under four criteria which are the corporate profiles, details on crime committed,
perpetrators profile and, finally, the offence.
Findings – The findings show that top-level management, especially the directors, usually commit
such crime and many of them are male.
Originality/value – This study looks into the criteria of the cases charged under both institutions,
Securities Commission and Bank Negara, which can be used to create awareness among the
organizations in Malaysia.
Keywords Corporate crime, Bank Negara Malaysia, Securities commission
Paper type Research paper

Introduction
Corporate crime is an ongoing reality and no organization is immune to the destructions
of the fraudster. Its insidious nature seeps into and erodes the core elements on which all
business is built upon: confidence and trust. Baucus and Dworkin (1991) define
corporate crimes as firm’s act that violates the criminal law. Corporate crime, also
known as white-collar crime, is defined as the crime committed by, respectable or at least
respected, business and professional men who belong to the upper class (Sutherland,
1940). In other words, they are the “trust violators”. In layman terms, corporate crime
refers to crimes committed either by a corporation (i.e. a business entity having a
separate legal personality from the natural persons that manage its activities) or by
individuals acting on behalf of a corporation or other business entity.
During the past decade, issues of corporate crime seem to be one of the hottest topics
raised by regulators and enforcement agencies globally. These issues are bothersome to
the investors, creditors and the public as a whole because of the huge impact on all of
them. Employees lose their jobs, investors do not get optimal return on their investments
and creditors are unable to get their payments, and as a result, the public lose their faith
on the legislation. Enron, WorldCom and Bernad Madoff (ponzi scheme) are some of the Journal of Financial Crime
Vol. 23 No. 2, 2016
pp. 257-272
The research was supported by the ARI HICOE research grant of the Ministry of Higher © Emerald Group Publishing Limited
1359-0790
Education Malaysia. DOI 10.1108/JFC-05-2014-0020
 JFC famous cases involved in corporate crimes. Closer to home, there are Transmile Group
23,2 Berhad and Megan Media Holdings Berhad.

Enron corporation (2001)

Enron is the first case that had startled the investors. This is the case that sparked huge
phenomena of the fraudulent financial reporting. Enron corporation, a giant leading
258 energy company in the world which is considered as one of the most innovative and
reliable companies in the USA, had to file for bankruptcy because of financial fraud
which involves the creation of fictitious entities to conceal the losses it suffered. The
share price had dropped sharply because of this incident, and it had a huge effect
towards the investors and the worst part was that the employees were terminated from
their employment, and simultaneously, they lost their savings and pensions (McLean
et al., 2005).

WorldCom inc. (2002)

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Another financial scandal involves the nation’s second largest long-distance

telecommunications company. On June 25, 2002, WorldCom announced that it had
overstated earnings in 2001 and in the first quarter of 2002 by more than US$3.8bn and
manipulated its reserves account in recent years, affecting additional US$3.8bn. This
announcement surprised both the analysts and investors. The same external auditor of
Enron, Arthur Andersen was criticized for their inability to detect the wrongdoings in
WorldCom. The company filed for bankruptcy protection on July 21, 2002 (Lyke and
Jickling, 2002).

Bernad Madoff
Bernard Madoff is an example of an individual who misrepresented himself and his
company to commit corporate crime known as Ponzi scheme. It is a type corporate crime
that lures investment funds from victims and then pays those victims a premium or
interest from the money that is paid by subsequent investors. Without any intervention,
Ponzi schemes will continue to grow until new recruits become unavailable, at which
time the scam is broken down and discovered (Bhattacharya, 2003). Ponzi scheme is also
known as pyramid scheme and called “Skim Pak Man Telor” in Malaysia.

Transmile Group Berhad (2007)

Malaysia also received the same attention when some of the public listed companies
committed financial fraud (Securities Commission, 2013). Transmile and Megan Media
had shocked the investors in Malaysia because of corporate scandals (Krishnan, 2011;
Mohd-Sulaiman, 2008). Transmile Group Berhad is controlled by Robert Kuok, a
billionaire in Malaysia. It was incorporated in Malaysia on January 13, 1996 and was
listed in Bursa Malaysia on June 27, 1997 but was later delisted on May 24, 2011 because
of overstatement of their profits of RM75m and RM158m for two consecutive years of
2005 and 2006, respectively, because in fact, they were experiencing huge losses (Li,
2007; Omar, 2012) .

Megan Media holdings Berhad (2007)

Megan Media was established in early 1994. In 2000, it was listed on the second board of
Bursa Malaysia, and in 2002, it was listed to Main Board. In 2008, it was delisted from
Bursa Malaysia because of its two subsidiaries, Memory Tech and MJC Pte Ltd, which
 had defaulted on their RM47m payment to bondholders. It was also found that Memory Corporate
Tech had paid deposit for 13 fictitious product lines that were related to fictitious crimes in
receivables amounting to RM334.3m. Assets of Memory Tech were also impaired by
RM456m. Payments that should have been made to creditors were actually paid to other
Malaysia
parties through Memory Tech. Megan Media’s losses were RM1.27bn (News Straits
Times, 2007; Omar, 2012).
From Enron to WorldCom, Transmile to Megan Media, corporate crime has 259
dominated the news in the past decade. Based on the reported cases, it could be said that
corporate crime could occur regardless of the size of the corporate entities. According to
Schilit (2010), the most unbelievable case is Symbol Technologies Incorporation, a
comparatively small company, involved in financial statement fraud, and was able to
conceal its fraud using all seven Earnings Manipulation Shenanigans, all four Cash
Flow Shenanigans and both Key Metric Shenanigans. This shows that smaller
corporate entities could also commit corporate crime as much as larger entities could,
and its impact would be equally detrimental. Two of Malaysian cases had justified the
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small corporate entities act as follows.

Noradz travel & services sdn. Bhd

On December 22nd, 2009, Dato’ Adzhar bin Sulaiman and Noradzma were charge
because of illegal deposit taking between July 2006 until October 2008 at No 14-1A, Jalan
3/10, Pandan Jaya. It was believed that they were taking deposit for investment in car
rental services. The amount of illegal deposit taking was more than RM100m. The trio
faced 360 charges because of committing money laundering activities, amounting to
more than RM59m. They were accused for using the illegal money for purchasing some
properties in Perak and Pahang, purchasing insurance products, invest the money and
transferred money into the company’s subsidiary. The offence was committed at several
banks in the city, such as EON Bank Berhad, Malayan Banking Berhad and Ambank
(M) Berhad between August 14, 2007 and January 6, 2009. The Court found all accused
persons guilty of breaching 25(1) of BAFIA. The Court imposed sentences as fine RM5m
and imprisonment for each perpetrator (mstar, 2011).

Pips
On November 18th, 2009, Bryan John Marsden, 59, and his wife Phan Sew Ken, 52, the
directors of the company, were charged with two counts each for allegedly receiving
money amounting to RM650,000 from 18 local depositors more than two years ago in
their capacity as directors of New Mark Business Centres Sdn Bhd and Picpay Dot Com
Sdn Bhd. Marsden and Phan had allegedly accepted the deposits without a valid license
under BAFIA at the companies’ premises at Jalan BBN 1/2E, Bandar Baru Nilai,
Seremban, between April 10 and July 4 2005. On August 30, 2010, the couple claimed
trial in the Seremban Sessions Court to 41 counts of money laundering involving
RM26.7m allegedly received from proceeds of unlawful activities conducted online. On
the same day, Marsden also claimed trial in a Kuala Lumpur Sessions Court to seven
more counts of money laundering. On September 19 2010, the couple also claimed trial in
the Seremban Sessions Court to seven charges of money laundering involving
RM11.78m. The offenses were allegedly committed between August 12, 2003 and
January 4, 2005. According to BNM, the couple was charged under s. 4(1) AMLATFA.
 JFC They received imprisonment for five years because of money laundering activities
23,2 (Bank Negara Malaysia, 2009).
Understanding the patterns of corporate crimes is very important in understanding
why people commit fraud. Despite the cases announced under Securities Commission
(SC) and Bank Negara Malaysia (BNM), little research has been done to analyze
thoroughly on the criteria in terms of gender, position and amount of losses involved in
260 the cases. Thus, this study takes initiatives to analyze corporate crime cases under SC
and BNM. The paper proceeds as follows: the next section reviews relevant prior
research. The third section describes research method. The fourth section is on findings
and discussion. Finally, the last two sections and present the concluding remarks and
future research and limitation, respectively.

Literature review
Increasing fraudulent financial statements among public companies in the past decade
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has focused public attention on the process of preparing financial statements. Research
done by KPMG found that about 78 per cent shows that the number of fraud cases
among companies is expected to arise because of the current financial crisis (KPMG,
2009). As a consequence, the fraudulent financial statements can corrode public
confidence on the reliability of financial reporting as a means to assess a firm’s future
prospects. Research shows that anyone could commit corporate crime. The perpetrators
usually cannot be distinguished from other people on the basis of demographic or
psychological characteristics. Most of the perpetrators have profiles that look like those
of other honest people (Greenlee et al., 2007).
A study by Romney et al. (1980) states that incarcerated corporate crime perpetrators
were very different from other incarcerated prisoners. Those perpetrators were less
likely to be caught, turned in, arrested, convicted and imprisoned. They were also less
likely to be served long sentences. They also were considerably older. In all, 30 per cent
of the corporate crimes were committed by women, while the others were committed by
men. Corporate crimes perpetrators were better educated, more religious and less likely
to have criminal records. They enjoyed more optimism, self-esteem, self-sufficiency,
achievement, motivation and family harmony than other offenders. They also seemed to
express more social conformity, self-control, kindness and empathy than other
offenders.
Donald R. Cressey developed Fraud Triangle Theory in the year 1973 to show the
elements that make people commit corporate crime. This study was developed at first to
examine the embezzlers. However, it is also adopted by researchers to support their
research pertaining to fraud, which is also one of the corporate crimes. Research done by
Skousen (2004); Skousen et al. (2009); Skousen and Wright (2006) had applied the Fraud
Triangle Theory to create fraud prediction model. Meanwhile, the study by Lou and
Wang (2011) relates Fraud Triangle Theory to identify risk factors. Theory behind the
creation of ISA 240 was also based on the Fraud Triangle Theory.
There are three elements that make the fraud triangle. These are: i) pressure, ii)
opportunity and iii) rationalization. Cressey describes pressure as the motivation of an
individual to commit a fraud crime because of financial problem. Most probably,
individuals facing financial pressure want to solve their problems without the
assistance of others. The second element of Fraud Triangle Theory is opportunity.
Opportunity could come in the form of lack of internal control that opens the chance for
 the fraudster to gain access to commit fraud in an organization. The third component Corporate
of the Fraud Triangle Theory is rationalization, where the fraudsters come up with crimes in
reasons to justify their actions. It is sort of a belief that their wrongdoings are not illegal
and, therefore, not morally wrong. Figure 1 presents the Fraud Triangle Theory.
Malaysia
Greed, gambling, financial strain either personal or business and the feasibility of
business under the influence of others are the major factors stimulating illegal behavior
among employees (Goldstraw et al., 2005). In fact, these criteria are related to the fraud 261
triangle elements, where it relates to the reason on people commits crime.
Besides of the three element discussed, another important element should be taken
into consideration to make the element of committing corporate crime complete. It is
called fraud diamond theory (Wolfe and Hermanson, 2004). The said element is
capability. Capability is interpreted as the benefits of having necessary traits and
abilities to be the right person to pull of the string (crime). The persons who have the
capability have the opportunity to turn the crime into reality. This is most likely related
to the power that the person holds. The components of capability are position or
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function, brains, confidence or ego, coercion skills, effective lying and immunity to
stress (Wolfe and Hermanson, 2004). Figure 2 shows the fraud diamond theory.

Research methodology
This study analyzes SC and BNM public releases for period 2000 until 2013. The data
relate to cases investigated for corporate crime obtained from SC and BNM Web site
under the enforcement section. Analysis of data is carried out based on the corporate
profiles which are years since incorporation, industrial sector, type of business, number
of Board of Director and type of audit report. Meanwhile, the details on crime committed
contains type of crime committed, legislation involved, person who commits the crime,
number of people who involved in the crime and financial value loss. The perpetrators
profile consists of relationship of perpetrators with the company, age and gender.
Finally, years taken to detect the fraud, years taken to investigate the fraud, result of
investigation, result of court proceeding and result of court of appeal would be included
in the offence. Table I presents the summary of the variables and the indicators.

Figure 1.
Fraud triangle theory

Figure 2.
Fraud diamond
theory
 JFC Variables Indicators
23,2
Corporate profiles Years since incorporation
Industrial sector
Type of business
Number of Board of Director
262 Type of audit report
Details on crime committed Type of crime committed
Legislation involved
Person who commits the crime
Number of people who involved in the crime
Financial value loss
Perpetrators profile Relationship of perpetrators with the company
Age
Gender
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The offence Years taken to detect the crime

Table I. Years taken to investigate the crime
Summary of the Result of investigation
variables and the Result of court proceeding
indicators Result of court of appeal

Findings and discussion

Descriptive analysis of cases under SC
Corporate profiles. Based on the analysis, 84 per cent of the companies charged under SC
were incorporated before year 2000. Meanwhile, only 16 per cent of the companies were
incorporated within year 2000 until 2004. Figure 3 presents the summary of year of
incorporation.
From the analysis, 27 per cent of the companies charged under SC come from
industrial product industry, 24 per cent from construction, 19 per cent from trading or
services, 16 per cent from consumer products, 5 per cent from finance, 3 per cent for each
properties, REITS and hotels. Figure 4 presents the summary of industrial sector.
Result from the analysis shows that 50 per cent of the business that are run by the
companies charged by SC fall under manufacturing category, while the least involved
type of business is the construction and insurance industries, at 1 per cent each. Figure 5
presents the summary type of business.

Figure 3.
Year of incorporation
 From the analysis, the highest number of Board of Director is five, while the least number of Corporate
Boards of Director is nine. Figure 6 presents the summary of number of Board of Director. crimes in
Most of the audit report produced by the auditor of the company is unqualified audit
report, where the auditors claim that the report is written with a true and fair view. However,
Malaysia
the data to justify whether there is modified audit report could not be obtained because of
missing audit report. Figure 7 presents the summary of type of audit report.
Details on crime committed. Types of crime that are committed by companies 263
charged by SC mostly come from financial statement fraud which is at 71 per cent. This
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Figure 4.
Industrial sector

Figure 5.
Type of business

Figure 6.
Number of Board of
Director

Figure 7.
Type of audit report
 JFC is because the companies have issues of submitting false statement to the SC, as well as
23,2 Bursa Malaysia. Meanwhile, securities fraud and insider trading show a lower
percentage of crime committed by companies charged under SC. Figure 8 presents the
summary of type of crime committed by companies.
From the analysis, 68 per cent of the persons who commit the crime under SC come from
top management level. Middle management level only commits 11 per cent of the total
264 crimes. The second higher for person commit the crime are from the outsiders while
employee holds 5 per cent out of it. Figure 9 presents the summary of persons who commit
crime.
In all, 44 per cent of the legislation involved under SC are SC Act 1993, followed by
Securities Industry Act 1983 at 40 per cent and Penal Code under criminal breach of trust
(CBT) at 11 per cent, while Penal Code under cheating and criminal procedure code is at
2 per cent. Figure 10 presents the summary of the type of crime committed.
Figure 11 shows the summary of number legislation involved in crime. From the
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figure, in about 4 per cent of crimes, only one person is involved; in 35 per cent, two
persons are involved; and in 19 per cent, three persons are involved.
Most of the financial value loss is more than RM1m. However, there is also a possibility
of less than RM1m, but it could not be identified because of limited information. Figure
12 presents the summary of financial value loss.

Figure 8.
Type of crime
committed

Figure 9.
Persons who commit
the crime

Figure 10.
Legislation involved
 Perpetrators profile. Directors show the highest percentage (68 per cent) when it comes to Corporate
the relationship of fraudster with the company, while least comes from operating officer, crimes in
group financial controller and employees, each at 2 per cent. Figure 13 presents the summary Malaysia
of the relationship of fraudster with the company.
In all, in 95 per cent cases, males commit corporate crimes, while in 5 per cent cases,
females commit crimes. Figure 14 presents the summary of gender. Age for this context
is not available because of limited information obtained. 265
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Figure 11.
Number of people
involved in the crime

Figure 12.
Financial value loss

Figure 13.
Relationship of
fraudster with the
company

Figure 14.
Gender
 JFC The offence. Results of the analysis show that in 35 per cent cases, it takes 2 to 3 years
23,2 to detect the crime before being charged; in 25 per cent cases, it takes 4 to 5 years; in 30
per cent cases, it takes less than a year; and in 10 per cent cases, it takes more than 5
years. Figure 15 presents the summary of years taken to detect the crime.
The result is also similar to the years taken to investigate the crime where 33 per cent
show that it only takes 2 to 3 years to investigate and collect evidences, while 3 per cent
266 show that it takes 3 years to investigate the crime. Figure 16 presents the summary of
years taken to investigate the crime.
In all, 80 per cent of the cases under SC are charged after the investigation is
conducted, while 18 per cent of the cases are being discharged and only 2 per cent are
still pending. Figure 17 presents the summary of the result of investigation.
Figure 18 shows the summary of the result of court proceeding, where 41 per cent of the
cases are being compounded, 34 per cent are being compounded and imprisoned, 16 per
cent are being discharged and 9 per cent are still pending.
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Figure 15.
Years taken to detect
the crime

Figure 16.
Years taken to
investigate the crime

Figure 17.
Result of
investigation
 Meanwhile, Figure 19 presents the summary of the result of court of appeal where 50 Corporate
per cent of the cases are still being charged, 28 per cent discharged and 22 per cent crimes in
still pending.
Malaysia
Descriptive analysis of cases under BNM
Corporate profiles. Years since corporation indicators under BNM are left out because
limited information is available. Figure 20 presents the summary of industrial sector for 267
companies charged under BNM. In all, 57 per cent of the companies come from trading
or services, 23 per cent from consumer products, 7 per cent from plantation, 4 per cent
from finance and 3 per cent from technology, REITS and mining each.
Figure 21 shows the summary of the type of business, where 40 per cent of the
companies are involved in providing services, 27 per cent are involved in gold trading,
13 per cent are from the investment activities, 10 per cent are from trading activities,
7 per cent are from farming and 3 per cent are from telecommunication. Number of
Board of Director and type of audit report also are not taken into consideration for the
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analysis because of the limited information.

Figure 18.
Result of court
proceeding

Figure 19.
Result of court
appeal

Figure 20.
Industrial sector
 JFC Details on crime committed. Majority of the cases that are charged under BNM are being
23,2 classified as crime in money laundering. Most of the companies are involved in illegally
deposit taking and turn it to own benefits. Figure 22 presents the summary on types of
crime committed. In all, 50 per cent of the cases that are charged under BNM usually are
charged under Anti Money Laundering and Terrorism Financing Act 2001
(AMLATFA) and Banking and Financial Institution Act 1989 (BAFIA). AMLATFA
268 alone is 20 per cent, Exchange Control Act 13 per cent, Penal Code 7 per cent, 3 per cent
for each BAFIA and Companies Act (CA), BAFIA, AMLATFA, BAFIA and CA.
Figure 23 presents the summary of legislation involved.
Similar to the cases charged under SC, most of the persons who commit crime are
from top management level, which is at 95 per cent. The percentage is higher because
most of the companies that are charged under BNM are private entities, and it is easier
for the top management to commit such crime. Figure 24 presents the summary of the
persons who commit the crime.
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Figure 21.
Type of business

Figure 22.
Types of crime
committed

Figure 23.
Legislation involved
 Figure 25 presents the summary of the number of people involved in the crime and 60 Corporate
per cent of the cases show that two people are together involved in the same crime. crimes in
Figure 26 presents the financial value loss in such cases. In all, 75 per cent cases
show that the financial losses are more than RM1m, while 25 per cent show that the
Malaysia
losses are between RM100,000 and RM1m. The result is similar with the cases
charged under SC.
269

Figure 24.
Person commit the
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crime

Figure 25.
Number of people
involved in the crime

Figure 26.
Financial value loss

Figure 27.
Relationship of
perpetrator with the
company
 JFC Perpetrators profile. Majority of the result in Figure 27 show that directors are the
23,2 perpetrator of the companies. This is because they are the one who are involved in the
daily activities. Figure 27 presents the summary of the relationship of perpetrator with
the company. The result of the analysis also shows that the age that the people usually

270

Figure 28.
Age
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Figure 29.
Gender

Figure 30.
Result of
investigation

Figure 31.
Result of court
proceeding
 involved in crime is between 25 and 40 years, which is at 53 per cent. In all, 27 per cent Corporate
people committing crime belong to the age group of 41 to 55, 13 per cent belong to the age crimes in
group of more than 55 and 7 per cent belong to the age group of below 25. Figure 28
presents the summary of age. Similar with the findings in cases charged under SC, male
Malaysia
are usually involved in this crime. Figure 29 presents the summary of gender, where in
80 per cent cases, males commit the crime, while females commit crime only in 20 per
cent cases. 271
The offence. The result of the investigation in Figure 30 shows that all cases are
being charged after investigation. Meanwhile, the result of court proceedings shows
that 50 per cent of the cases are still undergoing trial, 17 per cent are each discharged
and both compounded and imprisoned, 10 per cent are compounded and 7 per cent
are imprisoned. Figure 31 presents the summary of the result of court proceedings.
Indicators of years taken to detect crime, years taken to investigate crime
and the result of court of appeal are left out from the analysis because of limited
information.
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Conclusion
The number of corporate crime is continuously increasing. Thus, the enforcement
nowadays has no choice but to cope with such increase. Many techniques have been
implemented to curb such crime. The aim of this study is to analyze the cases charged
under SC and BNM enforcement. The findings show that top level of management,
especially the director, is usually involved in these crimes. Most of them are male. It
appears that BNM specifically is facing problems in getting evidence to charge the
perpetrators, as more cases are still under trial.

Future research and limitation

Data for this research only come from enforcement releases from the SC and BNM. As all
the cases are administered by multiple agencies, the research may not provide a
complete view of all the cases investigated. Future research should look at other
agencies, especially the Royal Police of Malaysia.

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Corresponding author
Normah Omar can be contacted at: normah645@salam.uitm.edu.my

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