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The Asia-Pacific Investigations Review 2017

Anti-corruption enforcement in the ASEAN region

20 September 2016

Hogan Lovells

Reflections and mirages – the perception and reality of anti-corruption enforcement efforts in South-East Asia

When one looks at the wave of anti-corruption messages broadcast throughout South East Asia, it would be easy to conclude there is an inexorable move towards better anti-corruption enforcement across the region. However, when it comes to the war on corruption, propaganda, perception and reality rarely align.

This is perhaps most evident when reviewing Transparency International’s 2015 Corruption Perception Index (CPI).1 Singapore, which posts South East Asia’s best ranking of eighth out of 175 countries globally, is perceived – correctly – as a respected, dynamic and well-regulated financial centre. This reputation may be to an extent at risk – not because of any relaxation of Singapore’s excellent anti-corruption efforts but because of the prospect of tainted funds entering the jurisdiction from less transparent neighbours.

Malaysia has made great efforts to describe itself as having a vibrant and transparent economy with a robust rule of law and political stability, but the 1MDB scandal raises the possibility of serious corruption at the highest political levels.

In other South East Asian jurisdictions (notably Indonesia, Philippines, Thailand and Vietnam), anti-corruption efforts are frequently at the top of the public’s agenda, but generally only slight improvements year-on-year to their respective CPI rankings belie the fact that on many levels – political, judicial, institutional and commercial – much remains to be done to truly eradicate corruption.

While there have been some recent isolated legislative reforms and enforcement successes in the region, South East Asia continues to be a politically volatile region where corruption is never far from the headlines. We see that such headlines may adversely affect the perceptions of corruption in the short term, but often result in increasing public outcry over corruption issues and, in turn, provide a catalyst for further reform and improvements in anti-corruption enforcement.

In this article, we will examine the latest developments in anti-corruption enforcement in key South East Asia jurisdictions, as well as enforcement activities of international regulators in ASEAN.

Singapore

Singapore is consistently ranked near the very top of Transparency International’s CPI rankings, and it rightly deserves its reputation as a country where corruption is not the norm and is aggressively prosecuted when found. Singapore’s sophisticated legislative framework criminalises both public and private-sector bribery, and 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 once again this year dropped (from seventh to eight) in the 2015 CPI ranking, having held the number-one spot with Denmark and New Zealand as recently as 2010.

Singapore’s transparency standing has likely been tainted as the investigation into the 1MDB corruption and money laundering scandal continues to touch Singapore’s financial institutions. In April 2016, it was reported that at least 40 banks operating in Singapore were a part of Singapore’s investigations into 1MDB’s activities, and criminal investigations into complicit bankers remains ongoing.2 As part of its investigations, Singapore has:

  • ordered the closure of Swiss private bank BSI AG’s operations in Singapore;
  • brought criminal charges against at least two complicit bankers; and
  • seized roughly US$240 million of assets related to 1MDB.3

Despite Singapore’s link to 1MDB issues, there have been no allegations to suggest that any Singapore public officials are involved. This is in stark contrast to Malaysia where the scandal directly concerns the Prime Minister.

This is unsurprising as public sector corruption in Singapore remains remarkably rare. In its 2015 annual report, the CPIB noted that private sector corruption accounted for 89 per cent of all cases registered for investigation by the CPIB.4 In 2013 and 2014, this number was only slightly lower at 84 per cent and 85 per cent respectively.

Given the low level of corruption in the country, Singapore will likely be able to recover from any damage caused by its links to the 1MDB issue. The Singapore government has, true to form, already taken steps to strengthen the system by making the necessary changes to certain laws and regulations.

Nonetheless, Singapore’s role as the centre of financial activity in the region means that transparency issues will never be far from Singapore’s doorstep.

Malaysia

Malaysia is typically known as the ‘second-least corrupt jurisdiction in ASEAN’ next to Singapore – ranking 54th in the 2015 CPI rankings. However, the 1MDB scandal has suggested that corruption, money laundering and influence-peddling may exist at the highest levels of government. More worrying is the possibility that Malaysian officials bringing these issues to light will be ignored or suppressed.

Throughout the 1MDB scandal, the independence and integrity of Malaysia’s primary anti-corruption enforcement agency, the Malaysian Anti-Corruption Commission (MACC), has been publicly questioned. It should, however, be noted that Mr Abu Kassim Mohamed, the outgoing leader of MACC, asked the Malaysian Attorney General to bring charges against the Malaysian Prime Minister following the revelation that he had received over US$14 million in his personal accounts from entities linked to 1MDB. Despite that recommendation, Malaysia’s Attorney General declined to press charges because ‘there was no proof that the Prime Minister was aware of or had given approval for the transfers to his account to be made.’5

Despite these issues, which threaten to undermine MACC’s legitimacy, the MACC is quite active – especially compared to other South East Asian countries. On its website, which is by any measure unusually transparent and easy to use for those looking to report corrupt activities and find detailed enforcement statistics, MACC’s arrest reports show that it arrested roughly 70 public officials and private citizens for bribery and corruption offences each month during 2015.6 The pace of arrests has increased through the first half of 2016 with MACC arresting on average over 90 individuals each month.

The effectiveness of future MACC enforcement activities has been questioned by observers following the resignation of Mr Abu Kassim. Many view his resignation as a result of political pressure from the Prime Minister and his allies. However, Mr Abu Kassim insists that he did not face any pressure to resign. Regardless of the reason, the Prime Minister must now select his replacement, and observers question whether the Prime Minister will face any further scrutiny from domestic regulators in relation to 1MDB.

While the 1MDB scandal has brought significant unwanted attention to MACC and the country as a whole over the last two years, the scandal has shown that MACC takes its role as an independent anti-corruption investigative agency seriously as it has been willing to work with foreign regulators, including from Singapore, Hong Kong, the United Kingdom and the United States, to conduct a full investigation into 1MDB. Whether those findings will ultimately be acted upon when significant political issues are at play remains an open question.

Indonesia

Natural resource-rich Indonesia is now 88th in the CPI rankings – an improvement over its 118th ranking in 2012. Real progress has been made, but concerns among Indonesians and the wider international business community remain in relation to the scale and depth of corruption in Indonesia.

As we reported previously, Indonesia’s Corruption Eradication Commission (KPK) secured a very impressive 100 per cent conviction rate in its first decade since its establishment in 2003 and stood out as an independent state body with broad investigative and prosecutorial powers. Among the 371 convictions secured by mid-2015 were numerous parliamentarians, high-ranking local politicians, civil servants and members of the judiciary.

However, the KPK has recently come under sustained attack from various quarters and must navigate political and legal obstacles that hamper its effectiveness. Most notably, there is a perception that the KPK has been weakened from its bitter feud with Indonesia’s police force despite efforts at the highest political levels to mediate between their differing interests.7

There are fears that a proposed amendment to the current Anti-Corruption Law will further undermine the KPK’s power and independence. There has been significant popular opposition to the proposed amendment which ‘focuses more on graft prevention rather than enforcement’,8 and it remains to be seen if and when this amendment will be enacted.

Further indicative of the uncertain enforcement landscape is a recent bribery case sentencing a former director of an Indonesian company to four years’ imprisonment despite cooperating with the authorities.9 The KPK appealed the decision arguing that the court had seemingly ignored legislation which stipulates that sentences can be reduced when a witness has cooperated (and is deemed a ‘justice collaborator’).This case suggests that this new whistleblower-type concept under Indonesian law is not being taken seriously by the judiciary.

However, the KPK have gained some traction in targeting judicial officials and the companies who bribe those officials. In a concerted effort to fight corruption in the Indonesian courts, the deputy chairwoman of the KPK announced that the KPK plans to deploy a permanent KPK unit at Indonesia’s Supreme Court.10 This follows on from the KPK’s investigation in April 2016 into allegations that Agung Nurhadi, the Supreme Court Secretary General, and Edy Nasution, Clerk of the Central Jakarta District Court, who are alleged to have abused their high-level judicial positions by taking bribes.11 Secretary General Nurhardi has since been banned from travelling overseas pending further investigation.

While there certainly has been high-profile action by the KPK, whether this will impact high-level corruption in Indonesia’s court system in the long term remains to be seen.

Vietnam

Amidst a global economic slowdown, Vietnam’s GDP growth has outpaced all other South East Asian countries over the past year.12 However, this growth is in spite of the corruption that various observers suggest can be found in every part of the economy. Indeed, Vietnam has the second lowest CPI ranking (112th in 2015) of South East Asian countries ‘beaten’ only by Cambodia, which has a far less advanced economy and government.

The Vietnamese government is mindful of this issue and has undertaken a number of steps recently to bolster its anti-corruption regime and enforcement efforts. On the legislative front, the government introduced the New Penal Code which went into effect on 1 July 2016. The New Penal Code extends the application of certain corruption-related offences to those working in the private sector and criminalises the giving of a bribe to foreign officials and officials of public international organisations.

Under the New Penal Code, a company (including its subsidiaries) can also be subject to criminal liability for specific crimes listed in the New Penal Code, but importantly, bribery and corruption offences are excluded from corporate criminal liabilities under the New Penal Code. We note that this could change in the future as a number of other omissions or errors have been spotted by legal commentators, and it seems at least likely that some of these will be addressed in further amendments or legislative guidance memorandums.

According to official figures released by the Vietnam’s Central Anti-Corruption Steering Committee (CACSC) at the end of 2015, investigation agencies brought criminal proceedings against 460 people as a result of 216 corruption cases from 1 December 2014 to 30 November 2015.13 Prominent cases include the convictions of former bank officials of the state-owned Bank for Agriculture and Rural Development (Agribank) and officials for the state-owned Vietnam National Shipping Lines (Vinalines) who were found to have misappropriated funds amounting to millions of US dollars. Lengthy prison terms were given to all individuals who were found to have been involved in the corruption scandals, and two top former Vinalines executives were even sentenced to death.14

Despite the seemingly positive enforcement data, there is still a widespread belief that officials are masking the true extent of Vietnam’s corruption problems. A recent survey of nearly 10,000 Vietnamese companies found that 66 per cent of the respondents said they frequently paid additional, informal payments to government officials.15 This suggests that there is still much to be done from an enforcement perspective if improper payments are being made to government officials at such a high rate.

Given these sobering statistics, multinational corporates operating in Vietnam – particular those who are subject to the FCPA and UK Bribery Act – must remain vigilant of corruption risks.

Philippines

The Philippines has made good progress in recent years in relation to corruption enforcement in the country, but as the 95th place in the CPI rankings indicates, much remains to be done.

Earlier this year, Rodrigo Duterte, the tough-talking mayor of Davao, triumphed in the national elections to become the new President of the Philippines with promises to ‘quash’ organised crime and tackle corruption at every level of society. Among the business community and the wider Filipino population, there appears to be a mixed sense of anticipation, caution and concern for President Duterte’s plans.

Recent corruption cases pursued by the Ombudsman, the primary anti-corruption authority in the Philippines, indicate an increasing willingness to take on high-profile corruption cases, and these enforcement activities are having a positive impact on corruption. For example, the Ombudsman filed corruption charges against Jejomar Binay, outgoing President Aquino’s Vice President, in relation to the alleged rigging of the procurement process for the 2.28 billion pesos Makati Parking Building II construction project.16 Further accusations of falsifying public documents extinguished Mr Binay’s chances of becoming President.

There are still reservations that enforcement of anti-corruption laws is not effective enough and that the Ombudsman is too slow and lacks resources to properly investigate and prosecute corrupt parties. In light of this, President Duterte is planning a raft of anti-corruption policies including the establishment of an anti-graft call center, which reports directly to the Malacañang, the Presidential Palace. It is envisaged that the call center will stay operational for 24 hours a day and be able to process complaints, determine courses of action and ‘punish’ any guilty parties.17

However, there are deep concerns that President Duterte, popularly nicknamed ‘Punisher’ and ‘Duterte Harry’, will deploy the same extrajudicial means to crack down on corruption and crime that marked his two decades as mayor of Davao. While many Filipinos applaud his hard stance against organised crime, there are fears that the rule of law will be eroded to an extent that business confidence – which has grown considerably in recent years – may be affected. President Duterte has openly advocated for vigilante killings of suspected criminals and was reported to have said in a meeting with Peter Lim, a well-known Chinese-Filipino businessman and suspected Cebu drug lord, ‘I will execute you… I will finish you off’.18 He has also publicly indicated that ‘corrupt’ journalists are legitimate targets of assassination.

Observers have commented that President Duterte will adopt a markedly different approach to his predecessor, the ‘dull-but-sound’ President Benigno Aquino.19 Investors will be watching closely to see whether President Duterte can replicate his success of converting Davao from a crime-ridden city to a business-friendly, safe city on a national scale without eroding the powers of the Philippines’ still-fragile political and legal institutions.

Thailand

Thailand has historically suffered from endemic corruption, but there are signs that the anti-corruption environment is improving under the military government as FDI inflows continue to increase; the CPI now ranks Thailand 76th in its rankings, having been ranked 85th in 2014 and 102nd in 2013.

The primary anti-corruption legislation in Thailand, the Organic Act of Counter-Corruption 1999 is in fact relatively strong compared with international standards. For example, the legislation contains an absolute prohibition on facilitation payments and includes wide definitions of what constitutes a ‘bribe’, ‘public official’ and ‘associated persons’ acting for or on behalf of a company. However, the issue of enforcement remains problematic despite recent efforts by the National Anti-Corruption Commission (NACC).

The NACC has recently invested significant resources in media awareness programmes and has investigated several high-profile cases of alleged corruption into the political elite. Most prominently, the authorities continue to pursue corruption charges against former Prime Minister, Yingluck Shinawatra, in relation to the management of her government’s rice subsidy scheme. In the latest twist to the long-running case, the Appeals Court upheld the dismissal of Ms Shinawatra’s countersuit against Attorney General Trakul Winitnaiyapak and three prosecutors for alleged malfeasance in their handling of the corruption charges brought against her.20

In light of the above, commentators are concerned that high-profile corruption cases are being pursued for political motivations by the military government rather than to actually rout out corruption in the public and private sphere. This is especially true as Thailand is set to hold a referendum on yet another new, military-endorsed constitution. A general election later this year is also expected to be hotly contested. With such political events on the horizon, the military government has further pushed its own anti-corruption credentials – claiming that 175 government officials suspected of corruption have been transferred from their official positions.21 Observers do note, however, that the NACC has refrained from conducting investigations into alleged spending irregularities in the military.

The majority of corruption cases brought by the NACC involve local political party members and government employees, and investigations and enforcement against individuals and companies in the private sector remain rare. Even where the NACC does carry out investigations, they seldom lead to successful prosecutions due to the extremely lengthy prosecution process. Indeed, what could be perceived as a more transparent business environment might actually reflect a tightly controlled political environment rather than any actual anti-corruption improvements on the ground.

Although it is fair to say that the perception of enhanced transparency reflected in the improved CPI rankings is shared by foreign investors, the reality is that the apparently political motivations of the Thai government’s major anti-corruption efforts remain a cause for longer-term concern.

ASEAN and international enforcement

Multinational companies have been increasingly targeted by sophisticated regulators for their activities in emerging markets. In ASEAN, the combination of rapidly growing economies and inadequate anti-corruption enforcement has made the region a key regulatory ‘hotspot’. In addition, it remains challenging for companies operating in ASEAN to establish and maintain internal compliance, particularly where there is relatively limited resources and oversight to tackle bribery and corruption risks on the ground.

Given the extraterritorial reach of the Foreign Corrupt Practices Act and the UK Bribery Act, problems originating in ASEAN are increasingly exposing companies to regulatory censure in the United States and United Kingdom.

Set out below are examples of penalties lodged against multinational corporates on bribery charges while operating in ASEAN:

  • A US construction management company entered into a deferred prosecution agreement (DPA) with the DoJ in July 2015 to resolve charges that US$3.9 million was paid in bribes to foreign government officials in India, Indonesia, Vietnam and Kuwait. It paid US$17.1 million in criminal penalties.
  • In May 2015, a global resources company agreed to pay a US$25 million penalty to settle charges brought by the SEC that it had sponsored the attendance of foreign government officials from Africa and Asia at the 2008 Beijing Olympics.
  • 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.
  • In July 2014, a US chemicals company paid US$27.5 million to the SEC and US$12.7 million to the SFO after being found guilty of bribing Indonesian officials up to US$17 million to buy the company’s gasoline additive. Two former executives of the company were later found guilty on individual charges by the SFO.
  • In March 2014, a Japanese trading company pleaded guilty to paying bribes to high-ranking government officials in Indonesia to secure a lucrative power project and agreed to pay a US$88 million fine.

For companies with global ambition, ASEAN is certainly an attractive investment destination. However, given the serious consequences of prosecution – which includes operational, reputational and financial harm – companies operating in this region must remain vigilant and committed to robust anti-bribery and corruption compliance programmes. It appears that, for some companies at least, this lesson is learnt the hard way.

Notes

1    www.transparency.org/cpi2015#results-table.

2    www.straitstimes.com/business/companies-markets/1mdb-probe-mas-asks-singapore-banks-to-give-information.

3    www.mas.gov.sg/News-and-Publications/Media-Releases/2016/Investigations-into-1MDB-Related-Fund-Flows-through-Singapore.aspx.

4    https://www.cpib.gov.sg/sites/cpibv2/files/CPIB_AnnualReport2015_.pdf.

5    www.wsj.com/articles/chief-of-malaysian-antigraft-body-investigating-1mdb-to-step-down-1466674466.

6    www.sprm.gov.my/index.php/en/enforcement/statistics-on-arrests.

7    www.asiasentinel.com/politics/indonesia-jokowi-weaken-anti-graft-watchdog/.

8    http://jakartaglobe.beritasatu.com/opinion/editorial-policy-shift-graft-prevention-joke/.

9    http://jakartaglobe.beritasatu.com/news/kpk-appeal-sentence-justice-collaborator-abdul-khoir-damayanti-bribery-case/.

10  http://jakartaglobe.beritasatu.com/featured-2/antigraft-agency-plans-permanently-deploy-unit-supreme-court/.

11   www.thejakartapost.com/news/2016/06/10/kpk-set-to-question-supreme-court-official-again.html.

12   www.channelnewsasia.com/news/business/why-vietnam-s-economy-is/2384118.html.

13   http://en.vietnamplus.vn/anticorruption-steering-committee-calls-for-stronger-effort-next-year/86865.vnp.

14   http://aecnewstoday.com/2016/battling-corruption-vietnam/#axzz4FaiZf5hT.

15   http://thediplomat.com/2016/02/vietnams-corruption-problem/.

16  http://cnnphilippines.com/news/2016/07/14/ombudsman-files-corruption-charges-jejomar-binay.html.

17   http://anticorruptiondigest.com/anti-corruption-news/2016/06/27/philippines-duterte-installs-24-hour-hotline-vs-graft/#axzz4G3zRjfB9.

18   www.thetimes.co.uk/article/i-will-execute-you-president-warns-xxw0d53lz.

19  www.economist.com/news/leaders/21698648-return-bad-old-ways-under-rodrigo-duterte-dangers-duterte-harry.

20  www.bangkokpost.com/news/politics/1034133/yingluck-again-loses-case-against-attorney-general.

21   www.bbc.com/news/35887624.

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