An academic study has exposed significant gaps in the implementation of corporate criminal liability (CCL) provisions within Malaysia’s Islamic banking sector. Despite having comprehensive legal frameworks—including the Islamic Financial Services Act 2013 (IFSA)—that impose severe penalties, including imprisonment of up to eight years and fines reaching RM25 million, authorities have rarely pursued criminal prosecution against Islamic banks for Shariah non-compliance violations.
The research, published in the ISRA International Journal of Islamic Finance, identifies four major obstacles preventing effective CCL enforcement: ignorance of the law among financial institutions, a heavy reliance on administrative penalties rather than criminal sanctions, complex procedural requirements for bringing corporate offenders to court, and the higher burden of proof demanded in criminal cases compared to civil proceedings.
These findings carry significant implications for Malaysia’s position as a global Islamic financial hub. While the study reveals no reported court cases involving CCL against Islamic banks, unreported enforcement actions against major institutions like CIMB Islamic Bank demonstrate that regulatory penalties—primarily administrative monetary penalties—have been imposed for various breaches. Bank Negara Malaysia’s enforcement actions in 2025 against Bank Islam Malaysia Berhad (RM3.445 million) and Maybank Islamic (RM1.2 million) further highlight this trend.
The study concludes that effective implementation of CCL provisions requires stronger cooperation between regulators and Islamic banks, enhanced compliance programs, and a shift from administrative remedies toward criminal prosecution when warranted. This research provides crucial insights for policymakers seeking to strengthen Malaysia’s Islamic finance regulatory framework and maintain investor confidence in the nation’s financial system.
Introduction
Malaysia has established itself as a premier international Islamic financial hub, with the sector experiencing remarkable growth over recent decades. The Islamic Financial Services Act 2013 (IFSA) introduced a comprehensive regulatory framework, including provisions for corporate criminal liability (CCL) specifically designed to address Shariah non-compliance and financial crimes within Islamic banks (IBs) . However, a newly published study reveals significant challenges in implementing these provisions effectively.
This research, conducted by Nur Yusliana Yusoff from the Federal Court of Malaysia and Rusni Hassan from the International Islamic University Malaysia, provides the first comprehensive examination of CCL implementation in Islamic banking . The study employed qualitative methodology, combining normative legal research with semi-structured interviews involving legal practitioners, regulators from Bank Negara Malaysia (BNM), Securities Commission officers, and legal department representatives from Islamic banks .
The study’s findings are particularly timely, given recent enforcement actions by Bank Negara Malaysia. In 2025 alone, the central bank imposed administrative monetary penalties on multiple Islamic financial institutions. Bank Islam Malaysia Berhad (BIMB) faced a RM3.445 million penalty for prolonged service disruptions and sanction screening failures, while Maybank Islamic received a RM1.2 million fine for regulatory breaches . Additionally, CIMB Islamic Bank Berhad was penalised alongside its conventional counterpart for service disruptions affecting e-banking channels .
These enforcement actions, while significant, represent administrative penalties rather than criminal prosecutions. This aligns with the study’s central finding: despite robust legal provisions, criminal prosecution against Islamic banks for Shariah non-compliance remains virtually non-existent. The research explores why this gap persists and what it means for Malaysia’s position as a global Islamic finance leader .
Understanding Corporate Criminal Liability
Corporate criminal liability refers to the legal responsibility imposed on corporations for criminal acts committed by their representatives . For Islamic banks, this concept holds particular significance because they operate as corporations under Malaysian law, making them subject to criminal liability for regulatory breaches.
The legal framework treats corporations as distinct legal entities separate from their shareholders and directors . This principle, established in the landmark case Salomon v Salomon & Co Ltd [1897], affirms that companies possess their own legal personality . Consequently, when Islamic banks violate criminal provisions, they can face corporate criminal liability regardless of individual wrongdoing.
Every crime consists of two essential elements: actus reus (the prohibited act) and mens rea (the guilty mind or intention) . For corporations, proving mens rea traditionally required identifying the “directing mind and will” of the company—typically senior directors or managers who controlled corporate decisions . However, Malaysian courts have also applied vicarious liability principles, holding companies liable for employee actions committed within the scope of employment .
The concept of CCL has generated considerable scholarly debate. Opponents argue that corporations lack the capacity for criminal intent and that imposing fines unfairly punishes innocent shareholders . Nevertheless, the English Court recognised CCL in the 1846 case The Queen v Great North of England Railway Co, establishing a precedent that influenced common law jurisdictions including Malaysia .
Malaysia’s Legal Framework for Islamic Banks
The Islamic Financial Services Act 2013
The IFSA 2013 serves as the primary legislative source governing Islamic banks in Malaysia. This landmark legislation introduced specific provisions imposing criminal liability on financial institutions and their associated persons for Shariah non-compliance .
Section 28 of IFSA establishes the duty of Islamic institutions to ensure compliance with Shariah principles. Under Section 28(5), breaching this statutory duty attracts criminal liability with penalties including imprisonment of up to eight years and fines reaching RM25 million . Similarly, Section 29 mandates compliance with BNM’s standards on Shariah matters, with identical penalties for non-compliance .
The legislation also addresses specific offences beyond Shariah compliance. Section 15 criminalises unauthorised business activities by authorised persons, carrying penalties up to eight years imprisonment and RM25 million fines . Additionally, Section 259 targets false entries in banking documents, imposing comparable sanctions . The Central Bank of Malaysia Act 2009 (CBMA) supplements these provisions, with Section 59(3) imposing fines up to RM3 million for non-compliance with BNM’s Shariah-related circulars, guidelines, and notices .
Corporate Governance and Shariah Governance
Effective corporate governance and Shariah governance serve as essential safeguards against criminal liability for Islamic banks. The Islamic Financial Services Board emphasises that good governance in Islamic financial institutions should align management actions with stakeholder interests and ensure compliance with Islamic Shariah principles .
Malaysia has implemented various governance mechanisms to protect against CCL exposure. The Shariah Governance Framework for Islamic Financial Institutions (SGF), effective from April 2020, institutionalises sound Shariah governance to strengthen public confidence in Islamic financial institutions’ integrity, management, and operations . Part IV of IFSA 2013 (Sections 28-38) specifically addresses Shariah requirements, while Part VII of CBMA 2009 (Sections 51-58) covers additional governance provisions .
These governance frameworks prove critical for preventing criminal liability. As the Federal Court held in JRI Resources Sdn Bhd v Kuwait Finance House (Malaysia) Bhd [2019], Shariah compliance constitutes the backbone of the Islamic banking industry and represents the raison d’être of all Islamic financial contracts . This judicial recognition reinforces the importance of maintaining robust compliance systems to prevent CCL exposure.
Penalties Under Malaysian Criminal Law
The Malaysian legal system imposes severe penalties for corporate criminal conduct across various legislative instruments. Under the Penal Code, offences such as criminal breach of trust (Section 405) carry imprisonment up to ten years, whipping, and fines . More recently, provisions targeting terrorist financing and organised crime impose even harsher penalties, including imprisonment of up to 30 years and substantial fines .
The Companies Act 2016 establishes specific CCL provisions for corporate misconduct. Section 168 criminalises misstatements in prospectuses, carrying up to five years imprisonment and RM1 million fines . Sections 591 and 592 address false statements and fraudulent inducement of investments, with penalties reaching RM3 million fines and ten years imprisonment .
In a significant development, Section 17A of the Malaysian Anti-Corruption Commission Act 2009 introduced corporate liability for corruption offences by commercial organisations. This provision holds directors and management responsible for corrupt acts committed on behalf of the company, with penalties up to RM10 million fines or ten years imprisonment . This represents a major expansion of CCL principles in Malaysia, extending liability beyond traditional regulatory offences to substantive criminal conduct .
Challenges in Implementing Corporate Criminal Liability
Ignorance of the Law and Zero Prosecutions
One of the study’s most striking findings concerns the absence of criminal prosecutions against Islamic banks for Shariah non-compliance . Despite robust legal provisions, there have been zero reported cases within CCL provisions relating to Shariah non-compliance by Islamic banks in Malaysia .
This deficiency reflects a broader ignorance of CCL provisions among Islamic financial institutions. Theoretically, Islamic banks qualify as corporations under Malaysian law and thus should implement CCL provisions by applying criminal law principles . However, the study reveals that Islamic banks rarely exercise or implement CCL provisions in cases of Shariah non-compliance .
The research indicates that this failure stems partly from a reluctance to pursue criminal sanctions. Even when non-compliance is identified, enforcement authorities typically choose alternative courses of action rather than initiating criminal proceedings .
Administrative Penalties versus Criminal Sanctions
A significant gap exists between legal provisions and enforcement practice. The study found that formal sanctions imposed by regulatory authorities are predominantly administrative rather than criminal . Criminal penalties rarely materialise, even where strong evidence of legal infringement exists .
This trend is confirmed by recent BNM enforcement actions. While the central bank has imposed substantial administrative monetary penalties, criminal prosecution remains elusive. For instance, Bank Islam Malaysia Berhad faced a RM3.445 million administrative penalty in 2025 for prolonged service disruptions and sanctions screening failures . Similarly, Maybank Islamic received RM1.2 million in administrative penalties for regulatory breaches .
The reliance on administrative penalties rather than criminal sanctions suggests that enforcement authorities view these as more practical and efficient tools for addressing regulatory breaches. However, this approach may undermine the deterrent effect of criminal sanctions and fail to adequately signal the seriousness of Shariah non-compliance.
Procedural Complexity
Corporate crime prosecutions face significant procedural hurdles. The study identified challenges in bringing company offenders before the court, including determining who represents the corporation in legal proceedings . Unlike natural persons, corporations cannot physically appear in court, requiring identification of legal representatives to address charges .
The identification doctrine presents particular difficulties, especially for large multinational institutions where decision-making occurs at various levels of corporate hierarchy . As noted in academic commentary, the doctrine may disadvantage small and medium corporations while allowing large and multinational organisations to escape liability .
These complexities are compounded by evidentiary challenges. Prosecuting corporate criminals often requires internal assistance from company officers and staff, creating conflicts of interest . Furthermore, investigations into complex financial crimes demand specialised expertise and resources that may not be readily available to enforcement authorities .
Higher Burden of Proof in Criminal Cases
Criminal proceedings require proof “beyond reasonable doubt,” a substantially higher standard than the “balance of probabilities” applicable in civil cases . This elevated threshold can deter prosecutors from pursuing criminal sanctions, particularly where evidence may be circumstantial or difficult to obtain.
The study suggests that this evidentiary standard helps explain why enforcement authorities prefer civil or administrative remedies. Criminal prosecution demands stronger evidence and presents greater risks of acquittal, potentially undermining enforcement credibility . Consequently, even where criminal sanctions would be legally available, prosecutors may choose safer enforcement routes through administrative penalties.
This preference for administrative remedies also reflects practical considerations. Administrative proceedings typically require less time, fewer resources, and lower evidentiary standards than criminal prosecutions. For regulatory authorities facing resource constraints, administrative penalties offer a more efficient means of enforcing compliance.
Recent Enforcement Actions: A Closer Look
Bank Islam Malaysia Berhad Penalties
Bank Negara Malaysia imposed significant administrative monetary penalties on Bank Islam Malaysia Berhad (BIMB) in 2025, demonstrating ongoing enforcement of regulatory requirements for Islamic banks .
The first penalty, amounting to RM1.745 million, addressed prolonged service disruptions between June 2023 and December 2024. BIMB experienced multiple unplanned downtimes affecting e-banking channels, debit card systems, and online payment transactions. These disruptions breached the thresholds specified in paragraph 10.32 of the Risk Management in Technology Policy Document, which requires critical systems to maintain high availability .
A second penalty of RM1.700 million was imposed for sanctions screening failures. BIMB violated paragraphs 27.4.2 and 28.3.2 of the Anti-Money Laundering, Countering Financing of Terrorism, and Targeted Financial Sanctions for Financial Institutions Policy Document by failing to adequately screen customers against domestic and UN sanctions lists .
Combined with other regulatory penalties, BIMB faced total administrative fines of RM3.445 million. This enforcement action highlights the increasing scrutiny facing Islamic banks regarding technology resilience and anti-money laundering compliance .
CIMB and Maybank Islamic Penalties
The central bank also imposed penalties on CIMB Bank Berhad, CIMB Islamic Bank Berhad, Malayan Banking Berhad, and Maybank Islamic Berhad in August 2024 for prolonged service disruptions affecting e-banking channels . CIMB Bank and CIMB Islamic Bank received administrative monetary penalties of RM760,000, while Maybank and Maybank Islamic faced RM4.3 million in penalties for similar offences .
These enforcement actions underscore the regulatory focus on operational resilience across both conventional and Islamic banking institutions. While the penalties were administrative in nature rather than criminal, they demonstrate the central bank’s willingness to impose significant financial sanctions for regulatory breaches.
The Path Forward: Recommendations for Effective CCL Implementation
Strengthening Compliance Programs
The study recommends that Islamic banks implement robust compliance programs to prevent CCL exposure . Such programs should include procedures for reporting misconduct or Shariah non-compliance to relevant authorities, conducting internal investigations, and ensuring cooperation with regulatory bodies .
Effective compliance programs must be appropriately resourced and supported by senior management. Directors and officers should receive training on CCL provisions and their personal liability for corporate misconduct . Furthermore, banks should regularly review and update compliance procedures to address emerging risks and regulatory developments.
The importance of compliance programs is reinforced by Section 17A of the Malaysian Anti-Corruption Commission Act 2009, which provides a defence for companies that can demonstrate they had “adequate procedures” in place to prevent corrupt conduct . However, recent research indicates uncertainty persists regarding the interpretation and application of ‘adequate procedures,’ creating challenges for corporate compliance .
Enhancing Regulator-Industry Cooperation
The study emphasises that effective cooperation between regulators and Islamic banks is essential to ensure adequate implementation of CCL laws . This cooperation should include regular dialogue, information sharing, and collaborative approaches to identifying and addressing compliance weaknesses.
Regulators should provide clear guidance on CCL provisions and enforcement expectations. The publication of enforcement actions, such as BNM’s Enforcement Action Publication Notice PN 01/2019, helps establish transparency and demonstrates regulatory commitment to enforcement .
However, the study suggests that regulators must balance cooperation with robust enforcement. Excessive reliance on administrative remedies may weaken deterrence and fail to adequately penalise serious misconduct . Criminal prosecution should be considered where appropriate to reinforce the seriousness of regulatory breaches.
Refining the Legal Framework
The research identifies the need for legal reform to address implementation challenges . Specifically, considerations regarding the adequacy of existing penalties, jurisdictional limitations, and procedural hurdles warrant further examination.
Academic commentary has suggested that Malaysia could benefit from adopting international best practices such as deferred prosecution agreements, which allow companies to avoid criminal prosecution by agreeing to remedial actions . This approach has proven effective in jurisdictions like the United States and the United Kingdom, enabling enforcement while offering companies an opportunity to reform internal controls.
Additionally, clarification of the ‘directing mind and will’ concept could address difficulties in prosecuting large organisations. Some scholars advocate adopting a ‘corporate culture’ test to prove mens rea, focusing on corporate practices rather than identifying individual directors’ intent . However, Malaysia’s legal system has generally maintained the identification principle, as reaffirmed in Yue Chi Kin v PP [2019] .
Fostering Cultural Change
Beyond legal reform, the study suggests the need for cultural change within Islamic banks. A compliance-focused culture, where employees understand and prioritise regulatory requirements, can substantially reduce CCL exposure.
Leadership commitment proves essential for cultural change. Directors and senior management should demonstrate a visible commitment to compliance, establishing “tone from the top” that reinforces the importance of regulatory adherence . Regular communication about compliance obligations and consequences of non-compliance can help embed this cultural shift.
Corporate Criminal Offences Under Malaysian Legislation
| Legislation | Offence | Punishment |
|---|---|---|
| Penal Code Section 405 | Criminal breach of trust | Imprisonment up to 10 years, whipping, and fine |
| Penal Code Sections 463, 465 | Forgery | Imprisonment up to 2 years, fine, or both |
| Penal Code Section 130N | Providing or collecting property for terrorist acts | Imprisonment 7-30 years and fine |
| Companies Act Section 168 | Misstatement in prospectus | Imprisonment up to 5 years, fine up to RM1 million, or both |
| Companies Act Section 591 | False and misleading statements | Fine up to RM3 million |
| Companies Act Section 592 | Fraudulently inducing persons to invest money | Imprisonment up to 10 years, fine up to RM3 million, or both |
| MACC Act Section 17A | Giving and accepting gratification by commercial organisation | Fine at least 10 times the value of gratification or RM1 million (whichever higher), imprisonment up to 20 years, or both |
| Capital Market Services Act Section 317A | Prohibited conduct of director/officer causing wrongful loss to company | Fine not less than RM10 million or imprisonment up to 10 years |
| Anti-Money Laundering Act Section 4 | Money laundering | Fine up to RM5 million, imprisonment up to 5 years, or both |
| IFSA 2013 Section 28(5) | Breach of Shariah compliance duty | Imprisonment up to 8 years, fine up to RM25 million, or both |
Recent Enforcement Actions Against Malaysian Islamic Banks
| Institution | Provision Breached | Penalty | Year |
|---|---|---|---|
| Bank Islam Malaysia Berhad | Section 58(1)(a) IFSA (RMiT PD – service disruption) | RM1.745 million (administrative) | 2025 |
| Bank Islam Malaysia Berhad | Section 58(1)(a) IFSA (AML/CFT – sanctions screening) | RM1.700 million (administrative) | 2025 |
| Maybank Islamic Berhad | Section 155(3)(b) IFSA (CCRIS requirements) | RM1.2 million (administrative) | 2025 |
| CIMB Islamic Bank Berhad | Section 133(1) FSA (service disruption) | RM760,000 (administrative) | 2024 |
| CIMB Islamic Bank Berhad | Section 48(1)(a) FSA (MCIPD Policy Document) | RM3.4 million (administrative) | 2019 |
Conclusion
The research on corporate criminal liability in Malaysian Islamic banks reveals a significant gap between legal provisions and actual enforcement. While comprehensive laws exist with severe penalties for Shariah non-compliance and financial crimes, criminal prosecution against Islamic banks remains virtually non-existent. Regulatory authorities have relied primarily on administrative penalties, which may prove insufficient to deter misconduct.
The study identifies four major obstacles to effective CCL implementation: ignorance of the law among financial institutions, administrative reliance on non-criminal sanctions, complex procedural arrangements for corporate prosecution, and the higher burden of proof in criminal cases. Addressing these challenges requires a multi-faceted approach involving compliance program enhancement, regulator-industry cooperation, legal framework refinement, and cultural change within financial institutions.
Recent enforcement actions against Islamic banks highlight the increasing regulatory scrutiny facing the sector. The RM3.445 million penalty against Bank Islam Malaysia Berhad and other administrative fines demonstrate the central bank’s willingness to impose significant sanctions for regulatory breaches. However, the absence of criminal prosecution suggests that further efforts are needed to ensure the full implementation of CCL provisions.
The implications of these findings extend beyond Malaysia’s borders. As a global Islamic financial hub, Malaysia’s regulatory approach serves as a model for other jurisdictions. Failure to effectively implement CCL provisions could undermine investor confidence and damage the reputation of Malaysia’s Islamic finance industry. Therefore, strengthening CCL enforcement should remain a priority for policymakers and regulators seeking to maintain Malaysia’s leadership position in the sector.
