Corporate Law and Political Economy in a Kleptocracy

Abstract

Described by the US Attorney-General as ‘kleptocracy at its worst’, 1MDB, a Malaysian state-owned company, was a vehicle for theft of billions by the former prime minister for nine years. Malaysian corporate law is largely aligned with international standards, raising questions as to why it failed to effectively safeguard against the expropriation of corporate property. The article investigates empirical evidence of the strength and implementation of Malaysian corporate law that ostensibly protects shareholders from expropriation. It examines the translation of global norms into local practice, and highlights the contextual influences that have impeded effective enforcement.

The analysis draws on broader theoretical approaches to illuminate the evolution of Malaysian shareholder protection and explain the gap between law in the books and law in practice. While Malaysian corporate law has been modelled on benchmarks of international standards, its corporate ownership structures, political economy and form of political governance have developed in a distinctly different manner from institutions in Western developed countries. This research explores the limitations of prescribing formal law based on global standards, highlighting the need to consider the implications of political economy. Broader implications for the discourse on legal transplants and global norms for corporate law are considered, along with potential reforms.

Keywords: Corporations, state ownership, politics, legal transplants, global norms