Global Investigations Review - The law and practice of international investigations

The Asia-Pacific Investigations Review 2016

Anti-Corruption

22 September 2015

Hogan Lovells

Geckos, crocodiles and paper tigers – anti-corruption enforcement in South East Asia

Corruption remains a significant problem in South East Asia. This is starkly reflected in Transparency International’s 2014 Corruption Perception Index (CPI).1

Out of nine ranked ASEAN countries, only Singapore (ranked seventh-least corrupt out of 175 countries globally) is given an acceptable ranking. Looking at the CPI, Malaysia comes a distant second (ranked 50th), followed by Thailand and the Philippines (ranked joint 85th). Indonesia, Vietnam, Laos, Cambodia and Myanmar are all ranked below 100th. Transparency International is always quick to make the point that their index is about perception, rather than objective analysis. However, based on our experience in the region, the index represents one of the few useful metrics – particularly in comparative and directional terms.

Against the sobering backdrop of these rankings, anti-­corruption efforts have been, at least on paper, at the top of the political agenda in most ASEAN jurisdictions. However, the reality on the ground is that, despite some isolated legislative and enforcement improvements in certain jurisdictions, the region has seen few truly significant successes in the fight to eradicate corruption.

The past 12 months have been a period of contrast between the collective concern – and occasional outrage – of the increasingly affluent and accountability-minded people of the ASEAN nations, and the often questionable effectiveness of the anti-corruption efforts of their governments. That concern is inevitably amplified when individuals within those governments are themselves accused of being directly involved in corruption.

In this article we will examine recent developments in anti-­corruption enforcement in a number of the key ASEAN jurisdictions as well as international enforcement concerning ASEAN.

Singapore

Consistently ranked at the very top of Transparency International’s CPI rankings, Singapore is undoubtedly the anti-corruption ‘shining light’ in South East Asia. It rightly deserves its reputation as a country where corruption is not the norm and is aggressively prosecuted when found. It has a sophisticated legislative framework that criminalises both public and private-sector bribery. Its primary anti-corruption enforcement agency, the Corruption Practices Investigation Bureau (CPIB), has extensive investigative powers and has historically been widely perceived as independent, active and effective.

There have been, however, some recent bumps in the road for Singapore, which dropped two places (from fifth to seventh) in the 2014 CPI ranking, having held the number-one spot with Denmark and New Zealand as recently as 2010. Singapore’s standing on anti-corruption may have been harmed following the jailing in 2014 of the CPIB’s former assistant director, Edwin Yeo Seow Hiong, who was found guilty of misappropriating S$1.75 million to cover personal debts.

In addition, there have been a number of other notable cases of public sector corruption, including the jailing of Lim Cheng Hoe, the former protocol chief of the Ministry of Foreign Affairs. Mr Lim was found to have submitted false expense claims totalling approximately US$70,000 (reportedly relating to wine and pineapple tarts given to visiting foreign dignitaries).

In January 2015 Singapore’s government announced a number of proposed measures intended to bolster the city state’s anti-corruption regime and strengthen public trust, including:2

•    a review of the Prevention of Corruption Act (PCA);

•   an increase of manpower at the CPIB; and

•   the creation of a ‘one-stop’ Corruption Reporting Center.

More recently, in April 2015, the Singapore High Court laid down guidelines for the sentencing of individuals convicted of private sector bribery in the case of Public Prosecutor v Syed Mostafa Romel. Mr Romel, a marine surveyor, was arrested following a ‘sting’ operation by Singapore authorities after he threatened to classify a vessel as defective unless he was paid US$3,000.3 Mr Romel pleaded guilty to two counts of corruption under the PCA (with a third charge not pursued but taken into consideration for sentencing) and was initially sentenced to two months’ imprisonment. Following an appeal, Chief Justice Sundaresh Menon found the two-month sentence to be manifestly inadequate and increased his sentence to six months, holding, among other things, that instances in which a party demands a bribe and threatens to deprive the other party of its legitimate rights will generally lead to a significant custodial sentence.

It remains to be seen whether these initiatives and the stricter sentencing guidelines outlined in Romel will repair the slight damage to Singapore’s still very strong reputation. The Singapore government has, true to form, taken the admirable position that there is never room for complacency on such matters.

Indonesia

With a population of 252 million, Indonesia is Asia’s third-largest market after China and India and ASEAN’s biggest economy by GDP.4 An abundance of natural resources left it well placed to profit from the past decade’s commodities boom, contributing substantially to a healthy US$24.5 billion of foreign direct investment in 2014 across all sectors (putting it in second place in ASEAN, behind only Singapore).5

However, corruption has doggedly remained an issue for all central governments since the Reformasi of 1998. Although there have been some marginal improvements in Indonesia’s CPI rankings in recent years (now ranked 107th – down from 118th in 2012 and 114th in 2013),6 and despite the recent election of Joko Widodo as Indonesia’s president (coming to power on an anti-corruption platform), real concerns remain both onshore and in the international community as to whether any real progress has, and can, be made.

The establishment of Indonesia’s Corruption Eradication Commission (KPK) in 2003 by Act No. 30 of 2002 on the Corruption Eradication Commission, marked what appeared to be a turning point in the fight against corruption. As an independent state body with broad investigative and prosecutorial powers, the KPK was able to secure an impressive – possibly in hindsight overly impressive – 100 per cent conviction rate in its first decade. Among the 371 convictions secured by mid-2015 were numerous parliamentarians, high-ranking local politicians, civil servants and members of the judiciary – including the former head of Indonesia’s Constitutional Court, Akil Mochtar, who was sentenced to life imprisonment in June 2014 for accepting bribes totalling almost US$5 million. 

However, operating in a segmented political landscape, the KPK has come under attack from various quarters and must navigate political and legal obstacles that hamper its effectiveness. Most notably, the KPK has been embroiled in a bitter political battle with Indonesia’s police force for a number of years. Despite efforts at the highest political levels to mediate and resolve what has become known as the ‘gecko v crocodile’ dispute – including interjections by both President Widodo and his predecessor Susilo Bambang Yudhoyono7 – no resolution appears to be in sight.

Matters came to a head again in January 2015 when the KPK named Budi Gunawan, at the time President Widodo’s nominee for the position of police chief, as a suspect in a bribery investigation. This was followed by a number of KPK staff being named as corruption suspects in police investigations and the arrest of deputy KPK chairman Bambang Widjojanto for (allegedly) inciting witnesses to provide false testimony to Indonesia’s Constitutional Court in an election dispute hearing in 2010, when he served as counsel for one of the parties.8 These developments prompted Widodo to withdraw Mr Gunawan’s nomination as police chief and suspend both Mr Widjojanto and the head of the KPK, Abraham Samad, who was being investigated in a separate probe. Mr Gunawan’s corruption case has since been dismissed (a decision itself not without controversy) by the South Jakarta District Court in a pretrial motion,9 and the selection process for a new KPK boss remains on foot.

Other setbacks for the KPK include a recent controversial ruling of the Constitutional Court that held that the KPK’s use of ‘non-government investigators’ was unconstitutional, potentially calling into question the legality of most, if not all, of the 371 cases prosecuted by the KPK to date. In addition, there has been a recent legislative push to strip the KPK of wiretapping authority, an investigatory tool that has delivered crucial evidence over the years. Despite the KPK’s track record of aggressive enforcement, these challenges may be insurmountable for one of the most active – if controversial – anti-corruption bodies in the region.

Despite the controversy, it remains clear that the government relies heavily on the KPK as the sole institution directly tasked with fighting corruption. In the meantime, the rivalry between the two law enforcement agencies rages on, hampering anti-corruption enforcement.

The KPK’s recent woes and, in particular, President Widodo’s attempts to ‘split the baby’ in the agency’s dispute with Indonesia’s police, may be seen as indicative of the considerable political challenges faced by Mr Widodo and his administration in tackling corruption. Whether he will be able to effectively and efficiently overcome these challenges remains to be seen.

Malaysia

Malaysia was ranked 50th in the 2014 CPI rankings, making it the second-least corrupt jurisdiction in ASEAN. However, there remains a sense both within and outside Malaysia that corruption exists at the highest levels and the persistent allegations of corruption engulfing the current administration in relation to Malaysian sovereign wealth fund 1MDB serve as a reminder that Malaysia continues to face significant bribery and corruption problems.

Malaysia’s primary anti-corruption enforcement agency, the Malaysian Anti-Corruption Commission (MACC), is an independent body that investigates and prosecutes corruption in both the public and private spheres. In 2012, for example, the MACC arrested over 700 people for corruption related offences and according to the agency’s head, Tan Sri Abu Kassim Mohamed, the MACC’s conviction rate has increased to more than 80 per cent.10

One of the MACC’s most notable cases involved 12 customs officers who were suspected of operating a smuggling syndicate that allegedly cost the Malaysian government more than US$300 million in lost customs duties.11 Another prominent case was that of Radziah Ani, a former regional manager of the French telecommunications equipment company, Alcatel, who was found guilty in 2013 of bribing an assistant manager of Telekom Malaysia Berhad in order to secure a project. The manager was fined US$38,000 and sentenced to two years in prison.12

Malaysia’s most recent major corruption scandal, the 1MDB case, implicates several government officials at the highest level – including Prime Minister Najib himself. The investigation into the affair has highlighted shortcomings of and challenges faced by the MACC and other investigative agencies, including police investigations and transfer of MACC investigation officers involved in the 1MDB probe, moves suggesting that the government intends to stifle the MACC in its 1MDB investigation.

The MACC’s investigation into the 1MDB affair is ongoing (along with a series of related probes by other domestic and international agencies) and the full facts are yet to be established. However, it is already clear that, no matter what the outcome of the investigations, this case is likely to have a profound impact on Malaysia’s political future given the global attention and criticism it has generated and may well have a considerable adverse impact on Malaysia’s image as a comparatively ‘clean’ jurisdiction in the region.

The Philippines

The Philippines has seen an impressive climb in CPI rankings from 129th place in 2011 to jointly holding the 85th place in 2014 with Thailand.

Anti-corruption has been a high political priority under President Benigno Aquino III’s administration after he was elected on an anti-graft platform in 2010. However, notwithstanding the implementation of a number of legislative and executive initiatives – such as the introduction of new rules for government procurement in 2014 – and increased enforcement efforts by the Philippines’ anti-graft authorities – Aquino’s fight against corruption has faced challenges. 

Despite early popularity, Mr Aquino has seen his personal approval ratings drop to 47 per cent in the first quarter of 2015 – down from 63 per cent in December 2014.13 This appears to have been, at least in part, due to his government’s failure to secure convictions in respect of the ‘pork barrel scam’ relating to the alleged misuse by several members of Congress of their Priority Development Assistance Fund, a lump-sum discretionary fund granted to each member of Congress to spend on priority development projects. It is estimated, for example, that 10 billion pesos of public funds may have been diverted to fictitious NGOs allegedly established by Janet Napoles, a local businesswoman, in conspiracy with a number of members of Congress.

In addition to the above, the ongoing case against former president Gloria Macapagal Arroyo on charges of the misuse of 900 million pesos has given rise to claims by some commentators of selective enforcement against Aquino’s political opponents. Aquino has also received significant public criticism for his role in the creation of the 177-billion-peso Disbursement Acceleration Program (DAP). The programme, which was designed to stimulate the Philippines’ economy, allowed the executive to transfer funds from different agencies and branches of the government into other projects that were favoured by the executive. However, Senator Jinggoy Estrada claimed that the DAP was used as a source of funds to allegedly bribe senators to impeach former Chief Justice Renato Corona.

Investors, attracted generally by the rejuvenation of the Philippines’ economy, will be watching closely to determine whether the initiatives in place continue to improve the corruption position, or whether those gains are disastrously offset by politics and nepotism.

Thailand

Similar to the Philippines, Thailand has been making positive strides in the fight against corruption. Having been ranked in 102nd place in Transparency International’s 2013 CPI rankings, Thailand jumped to 85th place in 2014 (holding this spot together with the Philippines).14

This improvement is likely tied to widely publicised anti-corruption enforcement efforts by the National Anti-Corruption Commission (NACC). While the NACC investigations into alleged corruption into the political elite remain relatively frequent and highly visible in the media, investigations and enforcement against individuals and organisations in the private sector remain rare. The majority of corruption cases brought by the NACC involve local political party members and government employees. As part of these actions, for example, two senior government officials were found guilty of corruption in September 2013 in relation to a US$207 million contract for the purchase of fire trucks and related equipment.15

On the legislative front, new laws were passed in July 2015 by Thailand’s military government to strengthen the Thai authorities’ ability to manage cross-border investigations and remove the statute of limitations for convicted individuals who flee the country – previously, individuals could return after 10 years and avoid detention. Although generally publicised as a reform to bolster Thailand’s anti-corruption regime, the new legislation is widely seen as targeting the former prime minister, Thaksin Shinawatra, who was ousted in 2006 and convicted of corruption charges in absentia after having left the country. Notably, Mr Shinawatra’s sister, Yingluck, who led Thailand’s government between 2011 and May 2014, now also faces charges of negligence and corruption in relation to the management of her government’s rice subsidy programme. This programme, which was devised to purchase rice at above-market rates from low income farmers and increase the price of rice globally, ended up costing the government billions of dollars.16

Both Thaksin and Yingluck Shinawatra argue that the charges brought against them are politically motivated – which their political opponents, unsurprisingly, deny. Mr Shinawatra continues in self-imposed exile and the case against Ms Shinawatra remains pending, Thailand’s political stability, and the effectiveness of the efforts of the country’s anti-corruption regime, remain in the balance.

Although it is fair to say that the perception of enhanced transparency reflected in the improved CPI rankings is shared by foreign investors, the transparently political motivations of major anti-corruption efforts in Thailand remain a basis for longer term concern.

Vietnam

With GDP growing at an average rate of over 6 per cent over the past decade,17 Vietnam is one of the fastest-growing economies in South East Asia. However, this growth has been accompanied by endemic corruption in almost every sector of the economy. Having seen only marginal net success from its anti-corruption efforts over the past five years, Vietnam is the only major ASEAN economy where the consistent assessment is that corruption overall has significantly worsened – an assessment reflected in its CPI ranking where Vietnam was ranked at 119th place in 2014, a drop from its 2010 ranking of 116th.18

The Vietnamese government is mindful of this issue, and has undertaken a number of steps to bolster its anti-corruption regime and enforcement efforts. On the legislative front, the government revised the country’s anti-corruption legislation consolidating it into a single Law on Anti-Corruption in December 2012 that criminalises, among other things, passive and active bribery, and money laundering. One key requirement under the revised law is the requirement for public officials to not only publicly disclose their assets, but also account for any significant changes from the previous year’s asset declaration.

On the enforcement side, in 2005 the government established the Central Anti-Corruption Steering Committee (CACSC) under the chairmanship of the Prime Minister in order to oversee and direct the work of the various agencies tasked with investigating and prosecuting corruption offences, including the various specialised anti-corruption units belonging to the Prosecution Office, the Public Security Ministry and the State Inspection Office.19 In order to support the work of the CACSC, the government created the Office of the Central Anti-Corruption Steering Committee (OACSC). The State Audit of Vietnam has responsibility for auditing agencies using state funds, while the Government Inspectorate is tasked with organising and guiding the observance of anti-corruption laws and regulations.

According to official figures released by the CACSC in May 2014, 275 criminal corruption cases were instituted between 2013 and May 2014.20 Prominent cases included the conviction of two former executives of state-owned Vietnam National Shipping Lines for embezzlement of US$474,000 and the charging of six government officials for allegedly receiving kickbacks from Japan Transportation Consultants in relation to the granting of government contracts.

However, despite the seemingly positive enforcement data, some commentators have expressed concerns that the official reports may be masking the true extent of Vietnam’s ongoing corruption problems.21 There has also been a degree of criticism levelled at the effectiveness of enforcement agencies, most notably perceptions of a lack of impartiality and improper funding of the OACS22 and recurring concern that the centralised government lacks real enthusiasm or motivation to tackle the problem. Vietnam’s comparatively low position and lack of significant upward movement in CPI rankings over recent years (despite a nominal improvement in 2014) would seem to support this contention.

ASEAN and international enforcement

Multinational corporations across the globe have increasingly been targeted by sophisticated regulators for their activities in emerging markets. In ASEAN, the combination of rapidly growing economies and inadequate anti-corruption regimes has made the region a regulatory ‘hotspot’. In addition, the often subtle challenges of internal compliance in ASEAN and the relatively limited resources often made available to enforce compliance multiplies the risks corporations face.

Given the ‘long-arm’ reach of the Foreign Corrupt Practices Act and the UK Bribery Act, problems originating in ASEAN are now more than ever coming home to ‘bite’ corporates in their countries of origin.

Set out below are examples of investigations, findings and penalties lodged against multinational corporates for their activities in ASEAN.

A US manufacturer of ATMs and security services was fined US$25 million in October 2013 for providing ‘gifts’ totalling US$1.75 million to Indonesian government officials between 2005 and 2010.

In 2012, the former CFO of an Australian bank subsidiary was sentenced to six months in prison for approving payments to local agents in Malaysia, Indonesia, Vietnam and Nepal in order to secure contracts between 1999 and 2005.

In July 2014, a US manufacturer of firearms agreed in an out-of-court settlement with the Securities and Exchange Commission to pay US$2 million for allegedly paying bribes in Indonesia, Pakistan and other countries to win sales to military and police forces.

In November 2014, a California-based company agreed to pay a total of US$55 million to settle DoJ and SEC allegations that subsidiaries made improper payments to foreign officials in Vietnam, Thailand and Russia to secure contracts.

A French multinational company pleaded guilty in December 2014 to bribing officials in Indonesia, Saudi Arabia, Egypt and the Bahamas. It paid US$772 million in criminal penalties.

ASEAN as an investment destination is attractive to corporates with global ambition. However, the examples above illustrate the financial and reputational risk corporates face when operating in the region. The vigilance and commitment required by corporates in markets with challenged anti-corruption regimes must be much greater than is required in more mature jurisdictions. This is a compliance lesson many corporates are learning the hard way.

Notes

  1. www.transparency.org/cpi2014/results#myAnchor1.
  2. www.pmo.gov.sg/mediacentre/transcript-speech-prime-minister-lee-hsien-loong-integrity-action-public-service-values.
  3. www.singaporelaw.sg/sglaw/laws-of-singapore/case-law/free-law/high-court-judgments/16017-public-prosecutor-v-syed-mostofa-romel-2015-sghc-117 ; Johnson, Soh and Alam, Singapore’s Chief Justice clarifies guidelines for private sector bribery, Global Investigations Review, June 2015.
  4. http://data.worldbank.org/country/indonesia?display=default.
  5. http://data.worldbank.org/indicator/BX.KLT.DINV.CD.WD/countries?display=default.
  6. www.transparency.org/research/cpi/overview.
  7. www.thejakartapost.com/news/2012/12/07/sby-concerned-over-unsettled-kpk-police-quandary.html.
  8. https://globalinvestigationsreview.com/article/3625/infighting-indonesian-enforcers-undermining-corruption-investigations.
  9. https://globalinvestigationsreview.com/article/3625/infighting-indonesian-enforcers-undermining-corruption-investigations.
  10. www.themalaymailonline.com/malaysia/article/maccs-conviction-rate-up-to-more-than-80pc-chief-says.
  11. Global Bribery and Corruption Review 2014, February 2015 Issue, Hogan Lovells.
  12. www.fcpablog.com/blog/2013/3/5/alcatel-sales-exec-convicted-in-malaysia.html.
  13. www.ft.com/intl/cms/s/0/dae524c0-e4b2-11e4-9039-00144feab7de.html#axzz3jinpSwfY.
  14. www.transparency.org/cpi2014/results ; www.transparency.org/cpi2013/results.
  15. www.fcpablog.com/blog/2013/9/12/thai-officials-jailed-for-fire-truck-scam.html.
  16. www.ibtimes.com/thailand-rice-subsidy-scheme-what-it-how-it-toppled-thai-leader-yingluck-shinawatra-1792788.
  17. World Bank data.
  18. www.transparency.org/cpi2014/results#myAnchor1.
  19. www.iaaca.org/AntiCorruptionAuthorities/ByCountriesandRegions/V/Vietnam/201202/t20120215_805417.shtml.
  20. Global Bribery and Corruption Review 2014, February 2015 Issue, Hogan Lovells.
  21. Ibid.
  22. www.transparency.org/files/content/corruptionqas/315_Overview_of_corruption_and_anti-corruption_in_Vietnam.pdf; Global Integrity Report (2009 and 2011).

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