POTENTIAL CHALLENGES LOOMING FOR THESE REGULATORY BODIES

This article is the second instalment of a two-part series examining

statutory bodies in Malaysia. The first article, titled ‘Tightening Financial

Oversight on Statutory Bodies’ [2024] CLJU (A) xcix, explored the

underlying factors that may contribute to excessive and unwarranted

spending of public funds, with a particular focus on the financial

frameworks underpinning some of these bodies.

In this second article, the focus shifts to the potential challenges that arise

when statutory bodies are empowered to retain the financial penalties they

impose. Specifically, the article discusses the risk of perceived financial

bias, which could subject these bodies to heightened legal scrutiny.

It is important to highlight that these articles do not allege any definitive

wrongdoing by statutory bodies but aim to emphasize potential concerns

stemming from existing legislative frameworks. Readers are encouraged to

critically assess the issues discussed and form their own conclusions, as

these articles are intended to provoke thoughtful analysis rather than serve

as authoritative statements of fact.

INTRODUCTION

A statutory body is typically established by specific legislation that defines

its powers, responsibilities, and scope. When tasked with oversight,

enforcement, or regulatory duties within a particular sector, it functions as

a regulatory authority—such as the Malaysian Aviation Commission

(MAVCOM) and the Malaysian Competition Commission (MyCC).

Functioning as quasi-judicial entities, they have powers similar to judicial

functions, including the authority to impose penalties for sectoral

compliance. Given the significant impact of their decisions on businesses

and industries, it is essential that their operations remain impartial and free

from any financial interest in the penalties they impose.

This impartiality is fundamentally grounded in the principle encapsulated

by the age-old Latin legal maxim nemo judex in causa sua, meaning “no

one should be a judge in their own cause.” This principle, dating from

Roman jurisprudence, highlights the inherent conflict that arises when a

regulatory body’s financial interests are entwined with the penalties it

administers.

While these principles have endured through the ages, legal challenges

against public bodies based on financial interest are notably rare. This

scarcity largely reflects a foundational consensus that public authorities

should not derive financial gain from imposed penalties, as doing so would

be a clear contravention of public policy.

TYPICAL PRACTICE

In most jurisdictions, fines and penalties collected are not retained by the

regulatory authority but are directed to the national Consolidated Fund.

This approach highlights the principle that such sanctions are intended as

corrective measures rather than a revenue source for enforcement bodies.

Malaysia is no exception.

The framework for Malaysia’s Consolidated Fund is set out in Article 97

of the Federal Constitution. Under this provision, all revenues and monies

raised or received by the Federation must be deposited into a single fund

known as the Federal Consolidated Fund in accordance with constitutional

and federal legal requirements.

The phrase “all revenues and monies howsoever raised” in Article 97(1)

encompasses both tax and non-tax revenue, including fines, penalties, and

forfeitures.

The rationale is clear: channelling penalties into the Consolidated Fund

ensures that the public, as the ultimate victims of unlawful conduct, benefit

from these sanctions. The monies in this fund are subsequently allocated

to various national priorities, such as infrastructure development, including

roads, schools, and hospitals, as well as economic initiatives aimed at

fostering growth and improving public welfare.

This established practice not only promotes transparency and public

accountability but also aligns regulatory enforcement with the broader

public interest, reinforcing the fairness and impartiality of oversight.

SITUATION AT HOME

Regrettably, these time-honoured principles appear to have been

compromised by three regulators in Malaysia.

Both MAVCOM and the Civil Aviation Authority of Malaysia (CAAM)

have achieved this through explicit legislative provisions that allow them

to retain the financial penalties they impose as a source of revenue. For

MAVCOM, this is outlined in section 25(2)(b) of the Malaysian Aviation

Commission Act 2015 (MACA).[1] For CAAM, it is detailed in

section 26(2)(b) of the Civil Aviation Authority of Malaysia Act 2017.[2]

On the other hand, the MyCC has explicitly acknowledged in its annual

reports that the financial penalties it imposes serve as a source of

revenue.[3] However, it appears that MyCC may be operating under the

legislative assumption that it has the authority to collect these penalties for

its own use.

This assumption is questionable, as section 27(2) of the Competition

Commission Act 2010[4] does not explicitly authorise MyCC to collect

penalties for its own use, unlike the clear provisions for MAVCOM and

CAAM. While it is worth noting that this section 27(2) is drafted in a

similar fashion to section 27(2) of the Suruhanjaya Perkhidmatan Air

Negara Act 2006[5] and section 24(2) of the Energy Commission Act

2001,[6] both SPAN and the Energy Commission (EC) have refrained from

recognising and recording financial penalties as a source of revenue in its

annual reports.

However, this article does not intend to explore the semantics of statutory

interpretation. It aims to address a broader public concern.

Regardless of any explicit statutory powers or implied interpretations that

justify collecting financial penalties as a source of revenue, there are

significant issues at play. Allowing statutory bodies to financially benefit

from these penalties compromises their integrity and impartiality. It also

raises ethical concerns about the motivations and incentives behind

enforcement actions.

PUBLIC POLICY CONCERNS

Both the Competition Act 2010 (CA) and MACA are designed to balance

regulatory oversight with broader social goals, fostering fair and

competitive markets while protecting consumer interests. The

consequences of anti-competitive behaviour or consumer exploitation,

such as higher prices, reduced choices and unfair practices, directly harm

the public at large.

As such, statutory bodies like these are tasked with enforcing laws to

ensure that markets operate efficiently for the benefit of society as a whole.

It is essential to note that when competition and consumer laws are

violated, it is the public, not the regulators, who bear the brunt of these

violations. Therefore, the regulator’s duty is to act unequivocally and

decisively in the public’s best interest.

However, permitting statutory bodies to retain financial penalties as a

source of revenue introduces the risk of shifting the regulator’s focus from

serving the public interest to prioritising its own financial objectives.

This framework creates incentives—consciously or unconsciously—for

authorities to impose larger fines, as these penalties directly contribute to

their budget, including employee bonuses and other financial benefits.

Such a structure could skew priorities, allowing the regulator to cherry

pick cases that yield higher fines over those that serve regulatory

objectives. Ultimately, this could compromise the very integrity of its role

and purpose.

For instance, both the CA and the MACA empower MyCC and MAVCOM,

respectively, to impose penalties of up to 10% of a business’s worldwide

turnover for violations. With discretion to set penalties within this 10%

range, the regulators’ enforcement and decision-making process may be

vulnerable to the influence of the substantial financial benefits it stands to

gain from imposing maximum fines.

This raises an inherent concern.

While businesses will be afforded due process to present defences and

arguments to reduce penalties or avoid liabilities altogether, one possible

concern cannot be overlooked. These defensive arguments might

potentially be overshadowed by the regulator’s financial incentive to

impose maximum penalties to enhance its own revenue.

Beyond the public policy concerns, this structure risks undermining the

core objectives of the very Acts these bodies are entrusted to enforce. A

cursory review of these laws highlights some of the many issues that

warrant much-needed reforms.

COMPETITION ACT 2010 (‘CA’)

The preamble of the CA states its purpose as fostering economic

development by promoting competition and protecting consumers. To this

end, the CA grants MyCC broad powers to investigate and penalise

businesses that violate its provisions.

Recognizing that investigations can be time-consuming and resource intensive,

Parliament sought to expedite the restoration of fair competition

by introducing a provision that allows MyCC to accept undertakings from

businesses. In simple terms, an undertaking is an agreement by a business

to either take specific actions and/or cease certain practices.

In this context, section 43 of the CA gives MyCC the discretion to accept

undertakings from businesses, allowing them to make commitments that

MyCC deems appropriate. Importantly, if an undertaking is accepted,

section 43 mandates that the investigation be concluded without a finding

of infringement, and no penalties will be imposed on the business.

While section 43 unequivocally grants MyCC the discretion to accept

undertakings from businesses, concerns may emerge about whether this

discretion is being applied sparingly to advance MyCC’s own financial

interests.

As the sole recipient of the fines it imposes, the prospect of receiving

millions of ringgits in penalties as a form of revenue may create a strong

incentive to strategically apply its discretion under section 43. Such

discretion could naturally tilt in favour of fines over undertakings,

potentially compromising the integrity of its role and purpose.

In any case, MyCC’s presumptive legislative power, which enables it to

secure substantial fines as a revenue stream, undoubtedly risks

undermining the intent of section 43. This also threatens to overshadow

Parliament’s original legislative intent: to implement solutions that swiftly

restore competition in the market.

As MyCC marked its 13th anniversary on 1 April 2024, it proudly

announced robust enforcement actions against more than 100 companies,

reporting cumulative penalties of over RM570 million[7]—a stark contrast

to the nine undertakings it had accepted.[8]

While questions may linger on whether any of these companies might have

qualified for an undertaking under the Act, MyCC’s perceived authority to

retain the colossal fines for its own use could arguably offer 570 million

reasons to overshadow any arguments in favour of accepting an

undertaking.

Another noteworthy aspect is that the current legislative framework

governing the MyCC is predominantly inquisitorial in nature, granting the

Commission significant autonomy to direct and control proceedings, unlike

an adversarial system.

However, it is evident that Parliament intended to provide the MyCC with

the flexibility to adopt adversarial elements where necessary. This

intention is particularly clear from section 38 of the CA, which grants the

MyCC the discretion to conduct hearings to determine whether a business

has infringed the Act.

Such a provision was presumably included to ensure that its determinations

are more robust and less susceptible to legal challenge, reinforcing

procedural fairness and the credibility of its enforcement actions.

Despite this, the MyCC has consistently refrained from exercising this

adversarial option. Since its inception, it has never conducted a hearing

under section 38, relying exclusively on its inquisitorial powers.

While it must be emphasised that the MyCC’s right to conduct a hearing is

entirely discretionary, its recent stance raises potential concerns.

In a recent Public Consultation Paper,[9] the MyCC signalled its intention

to repeal section 38 of the CA altogether, reinforcing its preference for a

purely inquisitorial approach. This move certainly prompts broader

questions about its implications, particularly given the MyCC’s dual role

as both investigator and beneficiary of the penalties it imposes.

THE MALAYSIAN AVIATION COMMISSION ACT 2015

Unfortunately, the situation in the aviation sector is no different.

The legislative framework of the MACA, which mirrors provisions in the

CA, including section 43, places MAVCOM at a similar risk of financial

conflicts of interest when imposing financial penalties. According to

publicly available annual reports, MAVCOM collected RM7.3 million in

penalties between 2019 and 2021,[10] all of which are directed into its own

reserves.

As MAVCOM prepares to transfer its statutory responsibilities to the

CAAM, there is little assurance that these issues will be resolved. Under

the current framework, CAAM seems to inherit the same legislative

authority to retain imposed fines, potentially encountering similar conflicts

of interest.

Regardless, one thing remains clear: these explicit legislative powers could

possibly create an incentive for these aviation regulators to selectively

filter enforcement actions to maximise penalty imposition, knowing the

full benefit of the resulting revenue.

OTHER CONCERNS

The current legislative frameworks grant these regulators the authority to

utilise necessary funds to fulfil their functions, including covering legal

costs and fees. While such authority is not uncommon, serious concerns

arise when public funds are used with the underlying aim of retaining

collected fines for the regulator’s own financial benefit.

For instance, due to the hefty fines it imposes on businesses,[11] the

majority of MyCC’s decisions are predictably subject to ongoing appeals

and reviews, resulting in substantial legal expenditures incurred in the

regulator’s defence.

In its 2021 annual report,[12] MyCC reported a sharp increase in its Legal

Division’s expenses, which rose from RM269,000 to slightly over a million

ringgit.

Though MyCC operates well within its statutory power to enlist

external advisors and legal counsels to defend its decision, this situation

creates an ironic and troubling paradox: a public regulator spending

taxpayer money only to ultimately serve its own financial interests—an

arrangement that is fundamentally flawed and unequivocally contravenes

core principles of public policy.

This brings us to the urgent need for immediate legislative reform.

NEED FOR REFORM

The current structure of these regulatory bodies inevitably raises concerns

about the motivations and incentives underlying their enforcement actions.

With MyCC alone poised to secure fines amounting to a significant halfbillion

ringgit for its exclusive use, the inherent risk of financial bias

cannot simply be disregarded.

While these legislative structures were likely crafted with the intention to

ensure the financial independence of these bodies, the current model

intrinsically and fundamentally conflicts with the core principles of natural

justice, regardless of any explicit or implicit legislative authority.

In Singapore and the UK, the laws require that all financial penalties be

directed to the national Consolidated Fund. For example, section 13(2) of

Singapore’s Competition Act 2004 and section 36(9) of the UK’s

Competition Act 1998 explicitly mandate that penalties be remitted to the

Consolidated Fund. This ensures that regulators remain public stewards,

unaffected by financial incentives.

What remains clear is that unless this structural issue is swiftly addressed,

the risk of perceived financial bias will continue to linger, leaving these

regulators perpetually exposed to legal challenges.

The troubling reality is that businesses truly guilty of violating these laws

may exploit these vulnerabilities, ironically wielding the law as a doubleedged

sword by invoking age-old tenets of natural justice to evade liability.

This Article has been published in CLJ Law Journal -[2025] CLJU(A) xxxii

*Suren Rajah is a practicing lawyer at Messrs Rajah Chambers. The views expressed

above are entirely his own.

Endnotes:

[1] Malaysian Aviation Commission Act 2015 s 25(2)(b).

[2] Civil Aviation Authority of Malaysia Act 2017 s 26(2)(b).

[2025] CLJU(A) xxxii 10

[3] MyCC 2021 Annual Report at p 81.

[4] Competition Commission Act 2010 s 27(2).

[5] Suruhanjaya Perkhidmatan Air Negara Act 2006 s 27(2).

[6] Energy Commission Act 2001 s 24(2).

[7] Three Contractors Face Possible Penalty for Bid Rigging Cartel, MyCC (Media

Release, 10 September 2024) <https://www.mycc.gov.my/media-release/threecontractors-

face-possible-penalty-for-bid-rigging-cartel>.

[8] ‘Undertaking’, MyCC (Web Page) <https://www.mycc.gov.my/undertaking>.

[9] ‘Invitation to Participate in MyCC’s Public Consultation on the Amendments to the

Competition Act 2010’, MyCC (Web Page, 26 May 2022) <h􀆩ps://www.mycc.gov.my

/announcement/invitation-to-participate-in-myccs-public-consultation-on-theamendments-

to-the>.

[10] MAVCOM Annual Reports 2019–2021.

[11] ‘RM415 Million Penalty Imposed Against Five Chicken Feed Millers for Price

Fixing Cartel’, MyCC (Media Release, 22 December 2023)

<https://www.mycc.gov.my/media-release/rm415-million-penalty-imposed-againstfive-

chicken-feed-millers-for-price-fixing>.

[12] MyCC 2021 Annual Report.