Anti-corruption enforcement in the ASEAN region

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What does ASEAN anti-corruption enforcement look like under the microscope?

What happens when you look under a microscope? Sometimes what appears homogeneous on the surface turns out to be anything but on closer inspection. In our age, there are not too many shocks. But under a lens ASEAN, presented as a seemingly homogeneous commercial trading bloc of emerging markets is in fact a hugely diverse and energetic environment capable of ‘shock and awe', particularly in the area of anti-corruption enforcement. Homogenous it is not; the difference between ‘best' and ‘worst' ASEAN nations on Transparency International's Corruption Perceptions Index (‘CPI') ranking is greater than the difference between the UK and Angola.

Many commentators cite CPI rankings as gospel when categorising different ASEAN jurisdictions' corruption risk. The 2016 CPI rankings show that with the exception of Singapore, Laos and Myanmar, all other countries in the region have suffered a drop in global ranking. However, a closer look at the scores indicate that only three countries scored fewer points than in the 2015 rankings; indeed Indonesia and Vietnam have a lower global ranking despite improving their scores. When dissecting anti-corruption enforcement in key ASEAN jurisdictions, they do not always correspond to general perception. While there have been some recent legislative reforms and enforcement successes in the region that accompany sustained economic growth, South East Asia continues to be a politically volatile region where the pattern of corruption is non-uniform and never far from the headlines. And perception is not always reality; heightened awareness of corruption in a jurisdiction does not necessarily mean things are getting worse, and vice versa.

Singapore undoubtedly leads the way in terms of effective anti-corruption enforcement in the region, but there have been recent tremors concerning money laundering in the financial sector. Malaysia is still perceived to be the second-least corrupt country in the region, but the 1MDB scandal continues to taint the country's relatively clean image and question whether institutional anti-corruption efforts are being supported at the highest levels of government.

Further afield, Indonesia's anti-corruption enforcement efforts have become more internationalised and sophisticated but its primary anti-corruption body still faces significant political challenges to maintain its independence and prosecute well-connected individuals with powerful vested interests. And amid continuing political volatility and security concerns, the Philippines has struggled to enforce against corruption despite President Duterte's strong anti-graft rhetoric, particular when it comes to interactions with public officials, administrative processes and high-value, high-risk public projects. Thailand has similarly experienced political instability - most notably with the death of King Bhumibol Adulyadej - which has affected the perception of anti-corruption enforcement, despite its efforts to press on with a wide raft of legislative reforms influenced by international best practice.

The sections below examine in detail the latest developments in anti-corruption enforcement in key South East Asia jurisdictions, as well as enforcement activities of international regulators in ASEAN.

Singapore

In the last few years Singapore has consistently ranked near the top of the CPI index (7th in 2016), and is consistently the only Asian country in the top 10. Although its score of 84/100 is one point lower than 2015, it has gained one place in the rankings, which suggests that Singapore - even when it faces heightened fraud and money laundering challenges - has been able to maintain its reputation for transparency better than other developed countries and certainly far better than its ASEAN neighbours.

The Singapore investigations into 1MDB have formally closed and have led to a trend of even stronger anti-corruption and money laundering enforcement in the country. Singapore's image as a transparent place to do business is supported by a sophisticated legislative framework concerning both public and private-sector bribery including corporate liability. And the primary anti-corruption enforcement agency, the Corruption Practices Investigation Bureau (CPIB), has extensive investigative powers and has been widely perceived as independent and successful in achieving high convictions rates for corruption offences. The Singapore authorities have not been complacent.

The CPIB has embarked on further new ventures to improve anti-corruption measures. In May 2017 it opened a CPIB Corruption Reporting & Heritage Centre in a convenient midtown location for citizens to lodge corruption complaints in-person. The CPIB also launched in April 2017 the Singapore Standard of ISO 37001 on Anti-Bribery Management Systems, setting a new voluntary, global best practices standard for companies to benchmark their anti-corruption compliance programme.

However, Singapore's spectacular growth as a financial hub has - maybe inevitably - required it to be reactionary on some financial crime and money laundering-related issues. The 1MDB scandal led to a continuation of a trend in Singapore law enforcement to use anti-money laundering laws in connection with corruption offences. In the latest series of penalties against banks, the Monetary Authority of Singapore (MAS) fined Credit Suisse S$700,000, and United Overseas Bank S$900,000, for breaches of anti-money laundering rules and control lapses in March 2017, citing ‘weaknesses in conducting due diligence on customers and inadequate scrutiny of customers' transactions and activities'.¹ There is little doubt that for financial institutions headquartered in Singapore and regulated by the MAS, there is a risk that a Singapore jurisdictional nexus will exist even if the original corrupt conduct took place elsewhere in ASEAN.

While financial issues may have required the attention of Singapore regulators, domestic corruption issues have not, with a particularly low number of cases involving the public sector. In 2016, the CPIB received a total of 808 complaints, 14.6 per cent of which were registered for investigation, and 104 individuals were eventually prosecuted in court for offences investigated by the CPIB - figures that are generally lower than previous years. Private sector cases continue to form the majority (85 per cent) of all the cases registered for investigation by the CPIB, and of these private sector cases, 10 per cent involved public sector employees rejecting bribes offered by private individuals. All the indications are that Singapore will continue to set an example to its ASEAN neighbours in this space.

Malaysia

The 1MDB sovereign wealth fund continues to be the most significant bribery and corruption headline in Malaysia. The 1MDB scandal has triggered, to date, investigative and recovery efforts by a number of foreign regulators, including from the United States, United Kingdom, Singapore, Switzerland, Hong Kong and Australia. For example in the United States, the Department of Justice (‘DOJ') filed civil proceedings seeking to recover US$1 billion of assets, including US property, paintings and other assets from funds misappropriated from the 1MDB fund.

On the domestic front, accusations of political interference into the 1MDB investigation have had a profound and adverse impact on the image of Malaysia's key regulatory bodies, including its primary anti-corruption enforcement agency, the Malaysian Anti-Corruption Commission (‘MACC'). Despite the intense media scrutiny surrounding the 1MDB scandal and international enforcement actions to date confirming that 1MDB funds have been misappropriated, the Attorney General appears to have closed down the investigation in Malaysia and cleared Prime Minister Najib Razak of any wrongdoing.

This has cast a dark cloud over the regulatory bodies such as the MACC, and affected the public's perception of corruption and the government's willingness to fight corruption. According to the 2017 Global Corruption Barometer (‘GCB') released by Transparency International, Malaysia, along with Vietnam, performed the worst across the Asia Pacific region. In particular, the GCB report highlighted that 59 per cent of Malaysians believed that corruption had increased in Malaysia in the last 12 months (only 11 per cent suggested that corruption had decreased), with 62 per cent indicating that the government was not performing well in fighting public sector corruption.

Despite continued question marks over the credibility of the MACC, enforcement activity continues to be strong, especially in comparison to other South East Asian countries. Recently appointed Chief Commissioner of the MACC, Datuk Dzulkifli Ahmad has publicly declared a ‘war on corruption' as part of a three-year plan to increase Malaysia's corruption index ranking. Some of the more notable recent enforcement actions include:

MACC recently commenced an investigation into several company officials at Felda Global Ventures Holdings Berhad, the world's third-largest palm plantation operator and whose biggest shareholder is the government owned Federal Land Development Authority (Felda), for alleged misconduct and abuse of power.

Earlier in the year, MACC arrested the Rural and Regional Development Ministry Secretary-General Mohd Arif Ab Rahman and his two sons for alleged abuse of power, corruption and money laundering. The arrest of Mohd Arif Ab Rahman and his two sons followed the arrest in October 2016 of two senior officers of the Sabah Water Department for alleged abuse of power in relation to water development project contracts. To date, the MACC has seized cash and assets totalling US$27 million, which has been reported as the largest seizure in the history of the MACC.

While the efforts of the MACC to openly fight bribery and corruption should be applauded, Malaysia continues to be plagued by the overseas exposure of the 1MDB scandal. In particular, despite successful international enforcement and recovery actions to date, the unwillingness to pursue the matter locally continues to raise questions around the independence and integrity of the MACC and other investigative agencies in Malaysia.

Indonesia

Indonesia is indeed ‘open for business' as its economy strives to maintain GDP growth of over 5 per cent, a status supported by continued improvement in the area of anti-bribery and corruption enforcement. Judging from the World Justice Project (WJP)'s Rule of Law Index, Indonesia's regulatory enforcement regime is fast improving with a global ranking of 53rd (out of 113 countries), but its ranking of 84th for absence of corruption in the same index indicates that corruption risks facing multinationals operating in Indonesia remain very real.

Corruption in the public sector continues to pose a particular challenge, despite President Joko Widodo making anti-corruption one of his key policy objectives since being elected in 2014. Recent investigations have seen senior-ranking politicians and officials embroiled in corruption. For example, in the high-profile investigation into procurement arrangements for the electronic identity card (e-KTP) project, a number of House of Representatives members as well as other elite politicians have been called to testify.

The Corruption Eradication Commission (commonly known as the KPK), Indonesia's primary anti-corruption authority - and an organisation with a complicated history - continues to improve its standing as an independent agency investigating high-profile corruption cases. Ongoing cases include an investigation into the ex-President Director of Garuda Indonesia (who allegedly accepted monetary bribes of €1.2 million and US$180,000, and assets worth US$2 million); and alleged high-value bribery in relation to a project in Tanjung Batu, East Kalimantan. These cases also appear to show the KPK's willingness to cooperate more closely with foreign regulators; it has been reported that the KPK has recently worked with the UK's Serious Fraud Office (SFO), and Singapore's CPIB. For example, a long dormant investigation has been reopened in relation to suspected irregularities surrounding liquidity support provided by the country's central bank to Sjamsul Nursalim, the majority owner of Bank Dagang Nasional Indonesia, in the wake of the Asian financial crisis. In this investigation, the CPIB is involved in assisting the KPK with its enquiries.

The KPK have also introduced the Professional with Integrity programme (Profit), a programme to encourage the private sector to participate in the fight against corruption. The Profit programme provides a forum for companies to cooperate with government agencies on corruption issues. In particular, the programme will allow companies to explain problems with permit issuances and other administrative delays that encourage bribes and hinder clean business practices.

On the legislative front, there have been numerous reforms to bring clarity to and strengthen anti-corruption enforcement. One of the headline reforms has come in the form of decision No. 25/PUU-XIV/2016 from the Constitutional Court to amend articles 2(1) and 3 of Law No. 31 of 1999 (as amended with Law No. 20 of 2001 on the Eradication of Corruption Crime), which now makes it mandatory for legal enforcement agencies to prove the element of ‘state economic or financial loss'. Will this make enforcement more difficult? Commentators suggest the increased prosecutorial clarity outweighs the additional burden on the KPK.

On any account, other recent reforms have bolstered the KPK's ability to prosecute corruption offences, particularly against corporates. The Indonesian Supreme Court has issued Supreme Court Regulation No. 13 of 2016 regarding Procedure in Handling Corporate Crime Cases, which is designed to provide the KPK with guidance on investigating, prosecuting and enforcing corporate crime offences. Regulation No. 13/2016 has also introduced possible defences against corporate criminal liability. Article 4 paragraph (2) in particular, requires courts to consider whether the relevant corporation has taken sufficient precautionary measures to prevent the relevant offence; profited from the relevant offence; or allowed the relevant offence.

It remains to be seen whether such a defence would be akin to the ‘adequate procedures' defence for strict corporate liability under the UK Bribery Act, but this is a significant indication of the KPK learning from the approaches taken by overseas anti-corruption regulators.

Thailand

Despite Thailand echoing its neighbours' economic growth, corruption risk continues to be a real issue for businesses operating there. The latest CPI index shows that Thailand suffered a 25-place drop to 101th rank out of 176 countries, and earning only 35/100 points.² This is despite promises made by the ruling military junta to fight corruption after the civil government was overthrown in 2014. This downgrading is not reflected in public perception, however, with only 14 per cent believing that corruption increased in the last year according to a separate survey commissioned by Transparency International.³ It also remains to be seen if the enthronement of the new king in December 2016 will have any effect on Thailand's anti-corruption efforts.

The enforcement of Thailand's main anti-corruption legislation, The Organic Act of Counter-Corruption 1999 (OACC), remains an issue despite the 2015 amendments to the law. With the introduction of corporate liability, penalties for bribery of foreign officials, and higher overall penalties, the OACC, in form at least, now surpasses the minimum best-practice standards set by the UN Convention Against Corruption (UNCAC) and seeks to emulate the robust legislation set out in the UK Bribery Act. For example, similar to the UK Bribery Act, the OACC provides for a defence for corporate liability offences if companies can prove they have ‘appropriate internal control measures to prevent the offence'. It should also be noted, that in the Thai Criminal Code both active and passive bribery is prohibited, but similar to the US Foreign Corrupt Practices Act, a narrow exception is made for facilitation payments.⁴

However, the prosecution and enforcement of cases under this law has remained inconsistent so far, with the National Corruption Commission (NACC) - the independent government agency for the persecution of corruption - not always having sufficient resources to act promptly and decisively on corruption investigations. However, the NACC is making progress; it recently published a handbook advising companies on how to avoid corruption and bribery by making recommendations regarding the implementation of standard anti-bribery compliance measures such as risk-based due diligence of business partners and internal control guidelines. Together with a further September 2016 law addressing judicial corruption, these measures are a sign that Thailand is improving its anti-corruption enforcement practices.

The introduction of separate ‘corruption courts' has also been welcomed but it remains to be seen whether it will have an effect on anti-corruption enforcement. These courts are reported to have jurisdiction over the majority of individual criminal cases related to bribery and corruption and - by virtue of a new procedural rule - can adopt an inquisitorial approach, allowing the court to be more actively involved.⁵ Due to the Central Corruption Court only recently opening in October 2016 and most regional corruption courts opening slightly earlier in April 2016, no court decisions have yet been publicised - so it still remains to be seen how effective these courts will be.

There have, however, been some headline corruption cases in the regular criminal courts. For example, a recent case saw a former Thai tourism official, Juthamas Siriwan, and her daughter sentenced to 50 and 44 years in prison respectively and ordered them to repay US$1.81 million in bribes. The official received these bribes due to her role in awarding the management contract for the Thai film festival from 2003 to 2006. In March 2017 the NACC seized all assets from the convicted persons.

However, it remains to be seen if the levels of corruption ‘on the ground' in Thailand will be affected by these reforms. For companies operating in Thailand, a robust internal compliance programme is strongly recommended as the corruption role remains significant.

Philippines

Amid continuing political volatility and security concerns, the Philippines continue to struggle with anti-corruption enforcement at various levels. The Philippines' latest CPI ranking of 101st out of 176 countries (with the same score as last year of 35/100 points and coming in just above Egypt and Ethiopia)⁶ and WJP Rule of Law Index ranking of 70th out of 113 countries⁷ shows bribery and corruption from a political and commercial perspective remains a deeply ingrained and significant issue.

President Duterte, elected in May 2016, started his term in office with an aggressive ‘war on drugs' and anti-corruption campaign, but recent developments suggest there are significant hurdles still to be navigated. In early 2017, Duterte announced an indefinite halt to his ‘war on drugs' campaign amid concerns that corruption was endemic within the Philippine national police that headed the campaign. Matters came to a head when it emerged that Jee Ick-Joo, a South Korean businessman accused of being involved in the illegal drug trade, was allegedly kidnapped and strangled to death by members of the Philippine national police after failing to pay a ransom of 8 million Pesos. Duterte has also recently imposed martial law in the southern region of Mindanao amid security risks posed by Islamist extremists, which some commentators have suggested will lead to a further erosion of the rule of law.

Despite these challenges, there have been some isolated successes in combatting high-level political corruption. The most prominent example saw Ismael Sueno, the Interior Minister, removed from his position after allegations emerged of overpriced purchases of fire trucks by the Interior Ministry and the collection of ‘grease money' from illegal gambling rings through Mr Sueno's grandson.^8,9 In addition, Pedro Bacani, the former governor of Quirino province, and two company managers were charged with corruption offences relating to the procurement of fertiliser by the provincial government without competitive bidding.¹⁰ A further case saw the illegal donation of property from the local government to a company punished by prison sentences of six to 10 years for the ex-Mayor of Pampganga and the president of that company.¹¹

Observers are quick to point out that businesses should still exercise caution when interacting with government agencies. This is particularly the case in sectors such as construction, energy, telecoms and logistics where high-value, strategically important and large-scale public sector projects increase corruption risk.¹²

The Anti-Graft and Corrupt Practices Act, the primary anti-corruption legislation, currently penalises corruption offences committed by individuals (including public officials and any abetting a private individual) with imprisonment for six to 15 years. Therefore, charges can be brought against representatives of a company, but generally speaking, there is no corporate criminal liability.

Pressure for companies to upgrade their compliance systems and avoid culpability for corruption has instead come from another avenue - the revised Code of Corporate Governance for Publicly Listed Companies, which took effect on 1 January 2017. While the revised Code is only applicable to companies regulated by the Securities and Exchange Commission of the Philippines, companies operating in the Philippines increasingly see it as good practice to comply with the Code's anti-corruption-related provisions. This includes the implementation of whistleblowing mechanisms and anti-corruption policies and the disclosure of the company's related party transactions.¹³

Overall, there have been small advances in anti-corruption legislation and enforcement. But fundamental weaknesses in the enforcement framework remain because there is no unified definition of public officials, there is no private sector bribery offence, inter-agency coordination and resources are limited, and asset/income disclosures are not routinely reviewed.¹⁴ The UNCAC is scheduled to conduct an Implementation Review in 2018; it remains to be seen whether there will be any political pressure to improve enforcement standards before further international scrutiny of the issue arising from the Implementation Review.¹⁵

Vietnam

Vietnam has posted another year of strong economic data as capital investment for inbound projects totalled US$36.6 billion last year despite the Trans-Pacific Partnership agreement being scrapped by the US.¹⁶ The continued optimism for Vietnam's economic potential has not translated into more robust anti-corruption enforcement, however. Despite an improvement of two points to 35/100, Vietnam remains a lowly 113th in the CPI rankings - consistent with the views of observers and participants who say there is still significant corruption risk when doing business in the country.¹⁷

From the legislative front, Vietnam is striving to introduce new laws to strengthen its anti-corruption enforcement framework. Provisions under the much-anticipated New Penal Code 2016 provided for (i) the criminalisation of private sector bribery; (ii) intermediaries and associated parties to be liable for corruption offences; and (iii) corporate criminal liability. However, the implementation was stayed by the Vietnam National Assembly in June 2016, and it is not known whether and when it will be implemented.

There is a new draft anti-corruption law that is being reviewed by the Vietnamese legislature, which, further to the New Penal Code, seeks to introduce a number of significant changes to the current regulations. The new draft law proposes that the scope of individual liability for corruption offences be expanded to include ‘heads and managers of non-state enterprises'. Further sections on ‘conflict of interest' and ‘transparency and control of assets and income' have been drafted in the new law, which provides that there are various obligations for state-owned and private companies to disclose conflicts of interest and for certain high-level managers and public officials to declare their assets and income. This follows recommendations from a notable United Nations Development Programme (UNDP) conference that stricter regulations on asset declaration and the verification of those declarations should be implemented.¹⁸The draft law also provides that all companies must create codes of conduct and internal control mechanisms to prevent corruption in their business. Despite the significant changes in the draft law, it is still uncertain whether it will be implemented in its current guise.

The Vietnamese government has recognised the reality of the corruption issue and has - despite the limited resources available - strived to implement a number of practical measures to improve anti-corruption enforcement. For example, under Plan 64-KH/BCDTW and Decision 65-QD/BCDTW recently signed by party general secretary and head of the central steering committee for anti-corruption, Nguyen Phu Trong, eight new anti-corruption inspection teams have been set up to inspect and supervise the investigation, prosecution and trial of serious corruption and economic cases related to the standing boards of 20 provincial party committees. This new initiative aims to assess the leadership role played by local party committees and their performance in terms of detecting and handling corruption cases and indications of ‘ideological, ethical and lifestyle degradation', ‘self-evolution' and ‘self-transformation' inside party organisations.¹⁹

There have also been a number of notable, high-profile cases, which suggests that some progress is being made with local anti-corruption enforcement. For example, Nguyen Thi Kim Xuyen, former Deputy Director General of Dong A Bank, was prosecuted on corruption charges. Ms Nguyen is alleged to have abused her position by instructing employees to falsely close various loans in order to corruptly expropriate money for her personal benefit - causing losses totalling over 350 billion dong to Dong A Bank.²⁰ At the time of writing, she is currently awaiting sentencing for these offences.

A further high-profile case saw Trinh Xuan Thanh, a provincial vice chairman, expelled from the party and subjected to criminal charges of embezzlement for allegedly being responsible for the loss of more than 3 trillion dong while he was in charge of PetroVietnam Construction Joint Stock Corporation.^{21, 22}

ASEAN and international enforcement

Multinational companies have been targeted by sophisticated regulators for their activities in ASEAN, a key regulatory ‘hotspot' where there is a potent mix of rapidly growing economies and insufficient resources for local anti-corruption compliance and enforcement. Given the attraction of SEA for investment and the extraterritorial reach of the US Foreign Corrupt Practices Act (US FCPA) 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 global manufacturer of wire and cable products entered in December 2016 into a non-prosecution agreement with the US Department of Justice for a period of three years. The company agreed to pay monetary sanctions of US$55.3 million. The relevant charges had been for improper payments of approximately US$19 million to government officials in Indonesia, Angola, Thailand, China, Bangladesh and Egypt, and generated over US$51 million profits on sales derived from those payments.²³

A US corporation that designed and manufactured medical and security technology systems settled an administrative action for violations of the books and records as well as internal controls provisions of the US FCPA by participating in hundreds of suspicious transactions in Vietnam, Russia, Ghana, Israel, Kazakhstan and Ukraine, involving overpayments based on inflated invoices. The corporation was ordered to pay US$11.5 million²⁴ and its subsidiary entered into a non-prosecution agreement with the US Department of Justice and agreed to pay a criminal fine of US$3.4 million.²⁵

In July 2016, the Senior Vice President of a privately-held engineering consulting firm was sentenced to two years' probation and to a fine of US$10,000 for conspiracy to violate the anti-bribery provisions of the US FCPA and direct and aiding and abetting or causing violations of the anti-bribery provisions of the US FCPA.²⁶The senior vice-president of the same company was sentenced to a year and a day in prison for concealed corrupt payments to foreign officials in India and Vietnam in order to obtain and retain contracts with government entities in those countries and to enrich the company and his co-conspirators, including himself.²⁷

A UK-based bank is facing an investigation by the US Department of Justice concerning one of their subsidiaries in Indonesia for paying bribes to secure contracts. According to news reports, irregularities were detected in an internal audit at the subsidiary Indonesian company and US officials are investigating the bank's knowledge of and culpability for bribes paid to Indonesian officials between 2012 and 2015.

For companies with global ambition, ASEAN is an attractive - and increasingly unavoidable - investment destination. However, given the serious consequences of prosecution - including operational, reputational and financial loss and damage - companies operating in this region must remain vigilant and be committed to implementing robust anti-bribery and corruption compliance programmes. Whilst real progress has been made in some jurisdictions, a ‘culture of compliance' is often missing in some jurisdictions and businesses.

When it comes to compliance, act early and frequently. Given the reality of self-reporting and extraterritorial reach, it is simply too late to consider remedial action at the point when a serious breach is found.

Anti-corruption enforcement in the ASEAN region

What does ASEAN anti-corruption enforcement look like under the microscope?

Singapore

Malaysia

Indonesia

Thailand

Philippines

Vietnam

ASEAN and international enforcement

Notes

Maurice Burke

Wataru Kawai

David Gargaro