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Michael Barney R. Almazar

Coming clean and the economics of bribery

With the recent promotion by the Paris-based Organization for Economic Cooperation and Development (OECD) of the Philippines to its list of countries that have substantially implemented internationally agreed tax standards -- more commonly known as the "white list" -- tax evaders now face greater scrutiny from revenue authorities.

It may be recalled that our country has been on the gray list -- consisting of those countries that have committed but have not yet fully complied with internationally agreed tax standards -- since April 2009, following its removal from the black list of uncooperative havens for suspected tax cheats.

Although the Philippines is not a member of the OECD, it is a signatory to the Anti-Corruption Action Plan for Asia and the Pacific as well as the 2003 UN Convention Against Corruption which set the international benchmark for anti-bribery legislation.

Another anti-corruption mechanism in the international arena is the US Foreign Corrupt Practices Act (FCPA), which also finds substantial application in the Philippines due to the presence of a number of American multinational companies. The FCPA empowers the US authorities to prosecute US companies for paying bribes to foreign officials.

In US alone, as many as 120 companies have been investigated on suspicion of FCPA violations. In February 2009, an oil services company and its subsidiary were fined a penalty of $579 million -- the largest fine ever paid in an FCPA case.

Supply and demand

So, let us examine the economics of bribery for better understanding.

A bribery transaction will always involve a supply side and a demand side. Companies that might otherwise be tempted to bribe represent the supply side, while corrupt public officials occupy the demand side of the equation.

In a competitive market, the price of bribe will vary until it settles at a point where the quantity demanded by bribe receivers will equal the quantity supplied by the bribers. Theoretically then, corruption has an equilibrium point, as illustrated by the four basic laws of supply and demand:

  • An increase in demand with supply remaining constant will result in higher equilibrium price and quantity;
  • A decrease in demand with supply remaining constant will result in lower equilibrium price and quantity;
  • An increase in supply with demand remaining constant will result in lower equilibrium price and higher quantity; and
  • A decrease in supply with demand remaining constant will result in higher price and lower quantity.

Making corruption more costly will reduce the incidence of corruption but will at the same time make it more lucrative for those who engage in high-level corrupt practices.

To prevent this situation, the shift to the left of the supply curve must at least be equaled by a corresponding left shift in the demand curve.

Applying these principles to the area of corruption, the aggressive steps of the government together with multifaceted support from international bodies as well as private companies themselves must combat both the supply and demand sides of bribery.

In the international arena, the OECD -- composed mostly of industrialized European countries -- imposes wide range of penalties against their citizens and companies found violating the Convention.

Its OECD Council Recommendation on Improving Ethical Conduct in Public Service has been put into action to ensure well-functioning institutions and systems for promoting ethical conduct in the public service.

US companies charged with FCPA offenses face the prospect of heavy fines, including disgorgement of the profits that they make as a result of bribe payments.

On the national level here at home, with the new administration’s heightened political commitment to curb bribery, government agencies are responding to development challenges posed by corruption by strengthening transparency and accountability as well as reengineering the role of bureaucracy in economic activities.

For example, an online feedback system to the Department of Finance, called "Pera Ng Bayan" (www.perangbayan.com), can now be utilized by the public to report illicit activities by tax evaders, smugglers and erring officials. The system also solicits commendations on exemplary service rendered by employees of the department.

Another agency -- the Bureau of Immigration -- is currently reviewing its operations to limit the activities immigration officers control or regulate, thereby reducing opportunities for corruption.

Moreover, congressional investigations are being held to aid legislators in appraising proper salaries of civil servants, their rewards for performance, security of tenure and other incentives to encourage them to serve the public rather than their own personal ends.

The Bureau of Internal Revenue (BIR) should be credited for recently issuing Revenue Regulations (RR) 10-2010, which somehow regulates and monitors the supply side of bribery.

The RR implementing Republic Act (RA) 10021 requires banks and other financial institutions to open the accounts of taxpayers suspected of cheating on their tax payments.

RA 10021 mandates the BIR to provide foreign tax authorities with information they are seeking on bank deposits of high risk taxpayers for the purpose of exchanging information pursuant to international tax treaty agreements.

Furthermore, the BIR -- with the support and initiative of the Tax Management Association of the Philippines, a tax professional organization -- has launched the "Search for Exemplary Revenue Employee" program to encourage excellence, integrity and honesty within the bureau.

Likewise, the BIR intensified its efforts in chasing high-profile taxpayers through the enhanced "Run After Tax Evaders" program.

Finally, at the private companies’ level, corporate citizens must do their part to strengthen anti-bribery actions and promote integrity in business operations.

A good starting point is to address the practice internally by changing the corporate culture that enables furnishing and solicitation of bribes.

The following OECD guidelines on internal controls, ethics, and compliance may be adopted:

  • Institute a clear and visible anti-bribery policy that is strongly supported by senior management;
  • Instill a sense of responsibility for compliance;
  • Maintain regular communication and training on foreign bribery for all employees and business partners; and
  • Encourage observance of anti-bribery compliance measures and disciplinary procedures to address their violations.

Every payment of bribe is a violation of shareholder trust and larceny of stockholder profits.

Companies must realize that keeping clean and putting into place the compliance measures needed to keep their operations bribery-free will work to their self-interest and in the interest of economic efficiency and fairness.

An ounce of prevention is worth a pound of cure. The success of President Benigno Simeon C. Aquino III in promoting integrity within the bureaucracy requires leadership support from the private sector and active citizen participation. Certainly, fostering synergies among government, private sector and nongovernment organizations will nurture long-term economic growth, extending the benefits of prosperity to every Filipino.

FROM:  http://www.bworldonline.com/main/content.php?id=20609

The author is a tax consultant at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PricewaterhouseCoopers global network. Readers may call 845-2728 or e-mail the author at michael.barney.r.almazar@ph.pwc. com for questions or feedback.


Graft and corruption has been a fact of national life since post-Liberation days. Almost every administration has had its big and sensational graft cases. At every presidential election, one major issue that is always raised is graft and corruption. Opposition leaders denounce the graft being committed by the administration, but once they take over the reins of government, they also commit graft. It’s just a case of different sets of people pigging out at the trough that is the national treasury at different times.

Starting with the Ferdinand Marcos dictatorship, the Philippine crisis has been characterized not only by corruption and poverty but also by human rights abuses and a culture of impunity. Bruce Van Voorhis, a member of the Asian Human Rights Commission, said that these aspects of the life of the nation are linked: “People are poor to a large extent because of widespread corruption; those who wield political power violate people’s rights to attain and maintain that power; a lack of judicial punishment in the courts ensures impunity that permits corruption and human rights violations to continue. The cycle has sadly repeated itself for years.”

Corruption retards economic and social development, lowers the quality of public services and infrastructure and raises the prices of goods and services. In all these aspects, it is the poor who suffer the most because they cannot avail themselves, for instance, of the services of private doctors and hospitals or buy expensive goods. In some cases, corruption literally kills: for instance, a ship sinks and hundreds of people die because a coast guard officer was bribed to allow the overloaded, non-seaworthy vessel to leave port.

In 2000, the World Bank estimated that the Philippines had lost $48 billion (P1.968 trillion) to corruption from 1977 to 1997. Think how many kilometers of roads and bridges and how many schoolhouses and hospitals that money could have built. Think of the other public infrastructure and public services that could have been improved with that kind of money. But all that public money went into the private pockets of corrupt, greedy government officials.

Click on underlined headlines to read the articles below:

Making headway in fight against corruption, 18 November 2009

Most corrupt in East Asia and the world. Inquirer: 5 July 2008

State Dept assails Manila corruption, 27 Feb, 2009

90% of journalists slain since 2001 exposing graft, Oct. 12, 2007

WEBLIOGRAPHY: Graft and Corruption in the Philippines >>> Scope and Definition: This webliography on Graft and Corruption in the Philippines covers selected articles, researches, working papers, studies and reports on graft and corruption in Philippine government. The sites were extracted on the third week of July 2005.


National Integrity System Study of the Philippines Released

Berlin, 31 January 2007

Transparency International (TI) and Transparency International Philippines (TI Philippines) today released a National Integrity System (NIS) Study finding that despite a flurry of anti-corruption efforts in the country, the problem of corruption remains prevalent in the Philippines.

The NIS consists of the key institutions, laws and practices that contribute to integrity, transparency and accountability in a society. When it functions properly, the NIS combats corruption as part of the larger struggle against abuse of power, malfeasance, and misappropriation in all its forms. The NIS approach provides a framework with which to analyse both the extent and causes of corruption in a given national context, as well as the adequacy and effectiveness of national anti-corruption efforts. By diagnosing the strengths and weaknesses of a particular integrity system, an evaluation based on the NIS can help inform anti-corruption advocacy and reform efforts.

The NIS study of the Philippines found that although the government advocates zero-tolerance for corruption and follows best practice by adopting a three-pronged approach against it through promotion, prevention and enforcement, a lack of compliance and implementation on the side of the public and a lack of prosecutions, convictions and enforcement on the side of the authorities persists. It suggests that in a country with institutionalized corruption, integrity pillars themselves are compromised by systemic corruption compounded with difficulties to operate efficiently and effectively. Collusion, state capture, leadership incapable of crushing vested interests and a lack of a focal point are issues that still need to be addressed. The study showed that a bifurcation remains between catching ‘small fry’ and ‘big fish’; between rhetoric and reality, and promise and performance. Stakeholders pointed out the lack of will power to stamp out corruption, the nagging problem of morality in leadership and the absence of respect for the rule of law.

The study suggests that these problems may be tackled by reviewing constitutional law, particularly in areas concerning appointments and the excessive power of the executive, strengthening institutional restraints against political interventions, building capacity within institutions, supporting demand for adherence to democratic principles in the public domain, ensuring independence and fiscal autonomy of accountability bodies and promoting moral standards and ethical values. Several priority recommendations are made in the study to this end: regulatory reform should decrease the use of regulatory powers to curb corruption and instead focus on increasing the use of incentives and opportunities to achieve zero tolerance for corruption; the political party system and campaign financing need strengthening; and independence of oversight bodies should be enhanced. As an immediate follow up measure to the study’s release, Transparency International Philippines aims to conduct an assessment forum and bring together stakeholders interests in pursuing reasonable implementation of recommendations in the NIS Study Report.

The NIS study of the Philippines is one of more than 55 country studies undertaken worldwide, and was completed in the framework of a regional project to analyse the NIS of 9 countries in East and Southeast Asia including Cambodia, China, Hong Kong, Japan, Korea, Singapore, Thailand and Vietnam.

World Bank:
Corruption in RP worst in East Asia

By Doris Dumlao
Philippine Daily Inquirer - 06/25/2008

Corruption in the Philippines is perceived to be the worst among East Asia’s leading economies and the country has sunk even lower among those seen to be lagging in governance reforms, a World Bank study suggested.

The bank’s 2008 Worldwide Governance Indicators (WGI), based on new research released Tuesday, showed that many developing countries were making important gains in controlling corruption, and some even matched rich-country performance in overall governance measures.

The Philippines, however, was not among them.

The country is now at the bottom of the list of East Asia’s 10 largest economies when it comes to control of corruption, edged out by Indonesia which scored the worst in the region in the previous year’s survey...


‘Graft and corruption’

That’s the name of the game in the Philippines

The biggest problems facing the Philippines today are massive poverty, endemic corruption and worsening violence and criminality, according to one of the island nation’s most venerable statesmen.

     Jovito R. Salonga, an 86-year-old former Filipino senator, retired attorney and son of a Presbyterian minister, recently met with the Rev. Joan S. Gray, moderator of the Presbyterian Church (U.S.A.)’s 217th General Assembly.

     Salonga, long known here as a champion of democracy and human rights, served four decades in public office, including a stint as senate president, under three different administrations — Diosdado Macapagal, Ferdinand Marcos and Corazon Aquino.

     Salonga, who opposed the Marcos dictatorship, discussed the upcoming elections in his country and the impact of United States policy on the Philippines. He also railed against U.S. President George W. Bush and cheered the emergence of Democratic presidential candidate Sen. Barack Obama of Illinois.

     “I think that there are three main problems of Philippine society today,” Salonga told Gray. “Number one: poverty. Number two: Corruption in government and society. We usually call it graft and corruption. And number three: Ever-rising, increasing criminality including extra-judicial killings.”

     Since President Gloria Macapagal-Arroyo took office in 2001, hundreds of human rights activists, journalists, clergy and other church workers have been slain, sparking accusations of a systematic, nationwide campaign to silence those who challenge the status quo. 

     In all, there have been 835 reported cases of extra-judicial killings since Arroyo assumed power. Of those, 25 are church workers — 15 of them from the United Church of Christ in the Philippines (UCCP), which hosted Gray’s visit, April 5-9.

     “I think this extra-judicial killing involves the basic human right to live and to live with dignity,” said Salonga, who is a UCCP member. “So this is really a gross violation of the fundamental right to live. We also have the Bill of Rights. No one shall be deprived of life, the number one liberty, or property without due process of law. But this is more than just life under the due process clause. This involves a violation of ‘Thou shall not kill.’ The number one commandment.”...  Referring to government credibility and corruption, Salonga said he believes the Philippines supreme court “is still reputable and credible but the two political departments of the Philippines government, the executive and the legislative (branches) are way down below.”...   “Elections in the past were based on merit,” Salonga said. “But today, I cannot say that elections are based on merit. To win an election here, in this city, one has to spend a lot of money, millions. I think the same thing could be true in all places here in the Philippines.”


Ombudsman holds “eye-opening” anti-graft seminar for teachers

The Council for the Restoration of Filipino Values-Corruption Prevention Unit (CRFV-CPU) Ombudsman Office conducted a two-Dday Seminar on Anti-Graft and Corruption Prevention for 3,116 teaching and non-teaching employees of the Department of Education recently.

The seminar, intended to clarify and enhance the importance of Filipino values and to equip the participants with knowledge and competence on the Constitutional Laws on Anti-Graft and Corruption Practices, was held Feb. 17-18 at the Virac Sports Center.

Presenting the status of the Philippines vis-ā-vis graft and corrupt practices as the "Sick Man of Asia", lecturer Jeannie Escolano said the cost of corruption reaches P21 billion yearly and DepEd is one of the agencies which contributes to this severe societal illness. "Therefore," he emphsized, "there is a need of moral renewal among us to eradicate graft and corruption."

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The Philippines after 2010

The famous Pepsi advertisement years ago said " We are a product of the choices that we may make."

Translating that to today's forthcoming polls: We deserve the kind of government that we elect.

The right to determine one's destiny – by participating in free elections is a right not determined by the generosity of the State but by the grace of the Almighty. Freedom of choice is one of man's inalienable rights which should find expression in people making a democratic choice on the May 10, 2010 polls.

It is important that the choice is made, not under duress – for the newly elected men and women will determine our fate in the next six years till 2016.

"Bread and freedom" – as in the Marcos years – have been compromised in the decade of the GMA watch. Thirty percent of Filipinos fall below the poverty line and political and individual justice remains elusive.

The same "bread and freedom" issues would face the next man who would take Malacaņang after the May 2010 polls.

The horrifying budget deficit of P300 million is a fiscal nightmare that must be addressed immediately. It can determine the credit rating and further capacity to the country to finance its growth from external sources in the future.

The choice between adding direct value-added tax on the consumers' back or favoring investors with tax benefits has to be calibrated with extreme caution.

But as the budget nationalists have pointed out – all one needs to do (really) is the plug the loopholes in the P1.6-trillion budget from the slippages to corruption (20-30% of the entire budget) and we may not need that kind of huge budget after all. And therefore limit the budget deficit.

But that cannot operate in a vacuum. The justice system must work so that there are enough deterrents to keep the rascals from emptying the government coffers into their pockets. The Office of the Ombudsman, the CoA and the PCGG must be revamped top to bottom.

Cases filed to collar the corrupt are stalled "if the price is right" and justice litigation in the country grinds completely only after a long 6 years on the average.

The PCGG is so discredited, it has even lately initiated a P140-billion settlement with the Marcos family while Imeldific crows that in Citibank New York accounts alone, the Marcoses have US$1 trillion. The Truth Commission must not just touch on GMA issues but the humongous Marcos hidden wealth as well.

Two legislative measures would give impetus to this anti-corruption campaign, namely, the passage of the Freedom of Access to Information Act and the Anti-Trust Act along with increasing into a bigger budget those for the judiciary and the consitutional bodies like the Ombudsman and the Comelec to make their denizens less vulnerable to the temptation of the gold. What about "bread?"...

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China vows cooperation in fight vs corruption
By Aurea Calica (The Philippine Star) Updated May 28, 2010

Chinese Ambassador Liu Jianchao assured yesterday presidential frontrunner Sen. Benigno “Noynoy” Aquino III that China is ready to cooperate with the incoming administration in making sure that contracts between China and the Philippines would be “transparent and clean.”

After his courtesy call on Aquino at his residence on Times street in Quezon City, Liu admitted they talked about controversial issues when asked what could be done to avoid anomalies in deals between the two countries.

President Arroyo canceled the controversial $329-million national broadband network (NBN) contract between the government and Chinese firm ZTE Corp. in 2007.

The ZTE deal was nullified following public outcry over alleged bribery and anomalies involved in the contract.

Liu said they did not specifically discuss the NBN-ZTE deal but only general issues.

Liu said anomalies involving commercial deals could be avoided in the future through effective implementation of the laws of both countries.

“Yes, we are very candid with that. As I said I told the press many times that everybody involved should be learning a lesson now, and in the future we do things right. So I think this is the right approach, we don’t want (the things) that took place in the past to hamper or hinder our relations. We are very positive about our future relations,” Liu said in a press conference with Aquino.

Asked whether China conducted its own investigation regarding Chinese projects in the Philippines that were allegedly overpriced, the ambassador said: “I do hope the page will be turned over and we open up to a new stage for future development.”

“As far as the Chinese government is concerned, we are determined to have transparent and clean contracts,” Liu said, adding that China is ready to offer a helping hand in the construction sector of the Philippines.

Aquino said the two countries “have a learning curve that we have to undergo.”

“We have both learned lessons from that past, and there is groundwork for resolving all these issues (that) have already been put forward. We’ll work out the mechanics. There is a pledge of cooperation in all of the investigation if necessary to put a closure on all of these issues. There have been other ventures and activities that are not controversial because they have benefited from the lessons learned from that previous transaction,” Aquino said.

'Half of funds for infrastracture projects go to corruption'
By Dennis Carcamo (philstar.com) Updated June 02, 2010


A former government financial officer said half of the public funds for infrastructure projects and programs go to graft and corruption.

Prof. Leonor Briones, former chairperson of the Commission on Audit, said 20 percent of funds for government projects goes to unscrupulous government officials and employees.

"But it goes up as much as 50 percent during election time," Briones told a media forum this morning in Greenhills, San Juan City.

She also said citizens’ groups, as well as the media, should be vigilant in monitoring government projects to ensure that the money intended for them remain intact.

As of the result of the too much spending on infrastructure projects, many of them have been unfinished, she added.

"Sometimes only 18 percent of the original fund is left for the project," she said.


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