Corruption Trends in 2016: Southeast Asia’s Governance Plight

[Bridget Welsh highlights persistent corruption trend in Southeast Asia through revealing data, including the Asia Barometer Survey. Indeed, 2016 reveals that corruption remains a major challenge for the region emerging economies. (This article is published in Thinking ASEAN 2016 Kaleidoscope special issue)]

Serious corruption scandals continued to plague Southeast Asia as the monies involve reach record levels. In December 2015 Indonesians were riveted by the US$4 billion extortion attempt of Freeport McMoRan involving the Speaker of the House of Representatives Setya Novanto. He later resigned amidst ethics concerns. Next door in Malaysia, the multi-billion 1MDB scandal has made headlines since July 2015. At issue are kleptocracy allegations against Prime Minister Najib Tun Razak involving the deposit of nearly USUS$700 million deposited into his personal bank account, through an investment vehicle that has been tied to money-laundering and embezzlement being investigated in six international jurisdictions. The actual losses involved extend beyond US$3 billion. Najib clings to power to avoid international prosecution. In mainland Southeast Asia an assessment this year by Global Witness alleges that Prime Minister Hun Sen of Cambodia has taken at least US$200 million for his own personal use and claims that the actual amount pilfered may extend to above US$1 billion. He too appears to be using his office for protection and wealth. The amounts in the abuse of office for personal gain is just one of the many worrying trends involving corruption across the region.

This year, the International Monetary Fund estimated that USUS$1.5 to 2 trillion is being lost to corruption globally, equivalent to 2% of the world’s GDP. In Southeast Asia, the costs of corruption are debilitating to economic growth. An estimated 1% of economic growth annually is lost to corruption in ASEAN, as most Southeast Asian countries rank high for corruption practices. Billions of funds that would have fueled the region’s prosperity have gone into the hands of greedy politicians and bureaucrats, facilitated by unscrupulous businessmen. The 2015 Transparency International assessments that measures bribery perceptions of businessmen puts four Southeast Asian countries in the lowest tier worldwide– Cambodia, Myanmar, Laos, and Vietnam. The others largely fall in the shameful middle with only Singapore ranking near the top in performance. Singapore’s supposed non-corruption is challenged in other assessments, however. The Economist’s 2016 Crony Index, which measures the level of political embeddedness in business ranks Singapore 3rd in the world They join other top contenders for cronyism in the region, including Indonesia, Malaysia, Thailand and the Philippines.

TI Corruption

Perception Ranking 2015
Economist Crony

Index 2016
Cambodia 150
Indonesia 88 7
Laos 139
Malaysia 54 2
Philippines 95 3
Myanmar 147
Singapore 8 4
Timor Leste 123
Thailand 76 12
Vietnam 112

The close nexus between political elites and business is exacerbated by large roles of the public sector in Southeast Asian economies. Politicians play decisive roles in the allocation of funds/contracts and granting of permissions to engage in business. This is especially the case in leading sectors of the economy, namely infrastructure, natural resources, land administration and defense – all areas were corruption practices are rife. According to Transparency International in 2015, East Asia’s US$8 trillion spending for infrastructure, a sector without strict anti-corruption standards, will provide greater opportunities for further turpitude. China’s deepening role in Southeast Asian economies is also seen to enhance corruption, as they are perceived to be less demanding of good governance. China is even seen to endorse corruption, as exemplified in their bailout of Najib in the 1MDB debacle.

It is not a coincidence that Southeast Asian countries featured prominently in the April 2016 release of the Panama Papers, leaked documents that show efforts to hide funds in tax havens. Indonesia led the count with 6500 citizens, followed by Malaysia at 1784, but no Southeast Asian country was spared. Prominent among the list were Najib’s own son Mohd Nazifuddin Najib, Cambodia’s Minister of Justice Ang Vomg Vathana and Thailand’s Chirathivats, the family that operates the powerful Central Group of Companies worth an estimated US$11.7 billion. Singapore was showcased as the region’s epicenter of cloaked investments with 5,869 offshore entities linked to the island nation, and listed by the International Consortium of Investigative Journalism (ICIJ) that leaked the documents as one of 21 global tax havens.

Varied Public Perceptions: Acceptance and Acquiescence

The use of public office for personal wealth – the standard definition of corruption – has been a long standing serious problem in Southeast Asia. In surveys year after year, corruption is the most important governance issue identified by the public. It has served as rallying call for protests and voters. Historically, corruption contributed to the fall of Suharto in 1998-1999. This year anti-corruption promises helped put ‘punisher’ Rodrigo Duterte into office in the Philippines’ May election. Ironically, Duterte gave a hero’s burial to the country’s most corrupt politician, former president and strongman Fernando Marcos this November, six months after assuming office. In the same month anger with corruption also brought people out to the streets in the thousands in Malaysia, as part of the repeated calls for clean government in the Bersih movement. While the levels involved have reached record heights and the scandals exposed broadening, broad public concern with corruption remains consistent.

What is not appreciated, however, is the variation in the region in public perceptions of corruption. Drawing from the 4th wave of the Asian Barometer Survey (ABS) conducted in eight Southeast Asian countries from 2013-16, there is considerable variation in how corruption is seen. Significant majorities perceive “most” or “all” officials as corrupt in Cambodia and the Philippines, with only a slim majority holding this view in Indonesia. In the rest of the region’s countries surveyed, significant pluralities believe their officials are corrupt, expect in Singapore and Vietnam. Corruption perceptions are higher at local levels than in the national center, with specific institutions such as the police and judiciary seen to be particularly affected by corruption. The figures hide something that is not often acknowledged, that a share of Southeast Asians support corruption and in some cases do not see bribery and use of public office as immoral, inappropriate or even as corruption at all. For example, a 29% of Malaysians surveyed believed that it is okay to use public office for personal wealth. These norms and practices counter anti-corruption efforts. Not only do they undercut moral pressure, the point to accomplices in the system of elite abuse of power and their selective patronage allocations.

Elite Erosion of Anti-Corruption Efforts

It is thus no wonder that the region has seen an undermining of anti-corruption efforts. Much of the undermining is coming from the top, the political elites. These privileged attacks on the Indonesian Corruption Eradication Commission (Komisi Pemnerantasan Korupsi or KPK) have been ongoing for the past two years, but during 2016 have extended to weak appointments to the commission and perceived weakening of the commission’s authority. Charges of favoritism in prosecutions abound. Similar trends were seen in Malaysia and Thailand, where anti-corruption bodies have been seen to be politically manipulated. Officials that supported a more robust prosecution of 1MDB in the Malaysian Anti-Corruption Commission (MACC) were summarily transferred. The Anti-Dynasty Bill in the Philippines, which would have limited the terms powerful families that have controlled power, was not surprisingly defeated in the Congress in February this year. This defeat allows political dynasties comprising of 200 elite families to continue to dominate power – including the Duterte family. In Myanmar, where the new leadership of Aung San Sui Kyi and her party the National League of Democracy assumed office in April, one of the biggest challenges has been to clean up the military’s control of the economy and the entrenched practices of corruption that have evolved in its business dealings.

Where the undercutting of anti-corruption is being most eroded is in the courts. Getting cases prosecuted is hard enough, especially given the limited enforcement power of anti-corruption bodies across the region. There are examples of tough enforcement. For example, this July in Vietnam thirty-six officials in the Viet Nam Construction Bank (VCB) were put on trial for a case involving the loss of US$405 million and convicted in September with sentences ranging from 22 to 30 years. This has been followed by indictments in six high-profile corruption cases, involving government-linked companies and millions of misappropriated funds. Vietnam has the death penalty for corruption, but it has not been enforced in the high profile cases involving party-linked officials. The government’s tough anti-corruption effort is seen to be selectively enforced, and done so out of political necessity rather than a meaningful drive to end corruption practices.

Elsewhere in the region, corrupt offenders are getting off lightly. Consider Singapore’s actions in the 1MDB scandal. One banker has been jailed – Yak Yew Chee- receiving a paltry sentence of 18 weeks and fine of SUS$24,000. Four banks involved have been fined – Standard Chartered Bank (US$3.7 million), Coutts (US$1.7 million), UBS (1.3 million) and Singapore’s DBS (US$1 million) in amounts that pale in comparison to the flows involved. Singapore has also imposed an entry ban for ten years on former Goldman Sachs director Tim Leissner who fixed up the dodgy 1MDB bond deals involving US$6.5 billion. While these measures contrast sharply with the denials of wrongdoing across the Causeway, they are mere slaps on the wrists for serious ethical breeches. They also do not go after the main players or those that bought bonds, as the focus is on the facilitators rather than the beneficiaries. Implementation of anti-corruption laws has long been a problem. As significant is the lack of judicial and political will to punish corrupt offenders.

Growing Political Risks for Exposure

At the same time, the risks of exposing corruption remain higher. Cambodia’s political commentator and anti-corruption activist Kem Lay was assassinated in broad daylight in Cambodia in July. He was a leading critic of the Hun Sen government’s corruption. In March, Vietnam convicted seven activists, including the 73-year old anti-corruption blogger Dinh Tat Thang. In November, Malaysia did a double-whammy against anti-corruption advocates. It convicted parliamentarian and whistle blower Rafizi Ramli for leaking documents associated with the 1MDB scandal under the Officials Secret Act and imprisoned activist Bersih chairwoman Maria Chin Abdullah in solitary confinement for eleven days under an anti-terrorism law. Within the region, the risks for exposing corruption remain higher than ever. This should not be a surprise given the amounts and scope of graft involved.

Yet, ironically, anti-corruption efforts are being boosted by global developments. First of these has been the rise of hacking and leaks, often tied to intensive in-depth investigative reporting. The Panama Papers is a sign of future trends, as politicians and businessmen cannot assume that they are not going to be exposed. Second, has been a toughening of anti-money laundering enforcement coupled with stronger international corporate integrity agreements (CIA’s) that report bank accounts to tax revenue authorities and tighter counter-terrorist financing measures. These have led to an increase in cross-border investigations and prosecutions as well as fostered greater financial transparency at large. Corrupt leaders and businessmen can no longer rely on their control of domestic levers of power to protect themselves. Increasingly, they can no longer run or hide.

This is perhaps the irony of anti-corruption developments in 2016; within the region anti-corruption efforts are being undermined, but internationally they are being exposed. This is in spite of China’s corrosive regional influence on corruption. Southeast Asia’s corrupt leaders now face greater risk and in the competitive environment for investment more potential losses in sources of income. At the same time, domestic challenges to anti-corruption remain serious and worrying, from the elite attacks on anti-corruption bodies to those on activists. Gaining meaningful traction in anti-corruption in Southeast Asia remains largely elusive as the problem continued to be the region’s plight.

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