Watchdogs That Do Not Bite, Nets That Do Not Catch and “Perps” Policing Themselves: Why Anti-Corruption Multi-Level Governance Efforts Fail in the Philippines

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Watchdogs that do not Bite, Nets that do not Catch and “Perps” Policing Themselves: Why Anti-Corruption Multi-Level Governance Efforts Fail in the Philippines.

A dissertation submitted to the

Graduate School

Of the University of Cincinnati

In partial fulfillment of the

Requirements for the degree of

Doctor of Philosophy

In the Department of Political Science Of the College of Arts and Science By

Grace Yllana

B.A. University of Cincinnati

March 2013

Committee Chair: Laura Jenkins, Ph.D

ABSTRACT

The transnational nature of grand corruption in developing countries, and its resistance to the onslaught of Anti-Corruption Multi-Level Governance (ACMLG) efforts over the past two decades, has been an increasing source of concern for the international community. More disturbing is why, despite vast resources devoted to such efforts, have corruption levels not gone down, particularly in the Philippines, a country celebrated for its return to democracy with the advent of the People Power Revolution that ousted the Marcos dictatorship. The hypothesis that

ACMLG does not lower levels of corruption is tested by comparing and contrasting one country, the Philippines with five other countries of similar background to see what may account for similarity or differences in ACMLG outcomes. Quantitative and qualitative analyses are used in comparing the presence and activities of AC MLG such as international and national legal frameworks, government programs and agencies, and civil society participation to corruption indices reported by Transparency International’s Corruption Perception Index, World Bank

World Governance Indicator for Control of Corruption, Global Financial Integrity’s Flow of

Illicit Funds Index, Global Integrity Scorecard corruption score and the Bertelsmann

Transformation Index. In addition, Philippine economic, social, and political correlates of corruption are compared and contrasted with select countries.

This research finds the economy and not politics or culture, to be the biggest predictor of corruption. Differences in elite behavior are also a predictor of corruption and area for more research. This answers in part why intensive political institution building has not produced the intended results in the short term. Moreover, this research found that ACMLG efforts did not factor in the reality of state capture by predatory elites in developing countries. It lacks logic to

ii expect the main beneficiaries of corruption to themselves take action against their own interest.

This research contributes to the body of knowledge by mapping and correlating relevant

ACMLG efforts with measured levels of corruption to answer the question of whether or not and why such efforts have failed. The gaps in the body of knowledge in current anti-corruption strategies unearthed by this research brought forth new solutions. For example, the use of US qui tam laws, also known as Lincoln’s law, enabling private citizens to have standing in filing suit on behalf of the state, may help curb corruption in developing countries.

Since this research found the core problem to be the unlikelihood of having the most powerful and corrupt to file suit against themselves, qui tam laws can potentially be the solution to this fundamental problem. Adam Smith’s and James Madison’s “greed to counter greed” formulation inspires this research’s idea of “bounty hunters” tracking and recovering illicit wealth, cost being the biggest reason for failure. This research prescribes pre-emptive actions by reallocating resources from information and self evaluation strategies to successful litigations by shifting the burden of responsibility to multinationals, banks and financial institutions in first world countries, which are often the harbingers of and havens for stolen wealth. Also prescribed is an economic thrust to ACMLG efforts, such as debt forgiveness and restructurings as overlooked prescriptions and possibly the most effective anti-corruption initiatives.

iii

ACKNOWLEDGEMENTS

My undergraduate and graduate professors have been valued mentors and friends in this challenging intellectual journey. To them I owe my ability to distinguish opinion from reasoned arguments. The truth, I learned from them is not opinion or belief but reasoned arguments based on evidence that can stand the scrutiny of challenge. My academic life at the University of

Cincinnati taught me that a true scholar pursues knowledge with the acceptance that he might be in error. Dr. Thomas Moore emphasized the difference between advocacy and critical reporting and analysis of facts. He always advised in favor of allowing the facts to take one to the conclusion and not make the data fit a pre-determined outcome. I embarked on my topic wishing for an outcome to be proven right. My scholarly training in the hands of my professors gave me the discipline to follow the data where it might lead. Consequently, the result has been surprising, more exciting and satisfying. Dr. Stephen Mockabee inspired in me a love for finding patterns in numbers and statistics, their uses and limits.

The use of statistics in my research was an invaluable starting point which gave me a framework to search for what events may have influenced the numbers and what insights and conclusions may be drawn from them. Dr. Laura Jenkins, my committee chair inspires me to do impeccable work and submit to the review process of revisions as part of the scholarly process.

She also instilled in me a devotion for the pursuit of scholarly work not for its own sake alone, but always with the thought of how it may be put in the service of improving the human condition in real time and the real world. Last but not least, I thank my husband Florencio Rafael

Yllana, who makes my life as a scholar possible by allowing me the space and resources vital to independent and critical thinking.

TABLE OF CONTENTS

ABSTRACT ii ACKNOWLEDGEMENTS v CHAPTER ONE 1 I. Introduction II. Research Question III. Methodology IV. Literature Review V. Anticipated Results References CHAPTER TWO 65 Causes, Correlates, Costs and Consequences of Corruption References CHAPTER THREE 97 The Multi-Level Governance Response to Corruption References CHAPTER FOUR 184 I. Comparing, Contrasting, and Connecting the Dots: The Philippines II. Philippines with Chile III. Philippines with Indonesia IV. Philippines with Singapore V. Philippines with China VI. Philippines with Pakistan References CHAPTER FIVE 427 Conclusions and Prescriptions Acronyms and References 480 Charts Graphs Tables I

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Chapter I

Introduction

Given the Philippines’ celebrated return to democracy 25 years ago with the People

Power Revolution ousting a corrupt dictator, it is puzzling that persistent bad corruption scores continue to plague it. According to international institutions like the World Bank and

Transparency International, the Philippines enjoys a greater number of international and national anti-corruption initiatives when compared to other countries with the same corruption scores 15 years ago, yet paradoxically shows increasing outflows of illicit funds after what is generally known as the Marcos “kleptocracy”. (Global Financial Integrity Illicit Outflows of Funds Report

2000-2010).

There is a sense of urgency to the problem of transnational corruption. The World Bank

(WB) estimates that 1 trillion USD or 3% of world GDP goes towards bribes annually

(Svensson, 2005, p.20). Weak institutions make it difficult for countries to increase the cost of corruption on its practitioners. Paul Collier writes “ if someone who is seen as a big fish is successfully prosecuted and punished, then those lower down the system may decide that the future will indeed not be like the past”(Collier, 2000, p.203). This hunt for the “big fish” extends to the concept of prosecuting not just the bribed but the briber. Each year, $40 billion in bribes and ill gotten wealth from poor and former communist countries, $20 billion of which is from

Africa, find their way to Swiss bank accounts (Singh, para.29).

Sixty percent of the world’s money is now held offshore. Switzerland, Luxemburg,

Cayman Islands and the Bahamas all figure in this lucrative business. Although most countries have well developed laws covering seizure of assets, their usefulness is negated without

1 disclosure provisions (McLachlan, 1998, p.5). These secrecy havens or non-cooperative territories are identified in a black list by the Financial Action Task Force (FATF), an intergovernmental organization whose ultimate regulation would be to “restrict, condition, or even prohibit financial transactions with such countries. Whether these sanctions will be applied will depend on whether Financial Action Task Force (FATF) strategy of naming and shaming is successful” (Stessens, 2001, p.207).

The nexus between corruption and money laundering is clear. For over two decades, countries have been engaged in a multitude of treaties, conventions, and agreements to enhance financial transparency. This rise in activity appears not to be reflected in the positive results intended. The small successes in recovering Marcos’ ill gotten wealth, and the non-conviction of the Marcoses in about a hundred cases filed against them, are good examples of where the loopholes are in these anti-corruption Multi-Level Governance (MLG) efforts (Chaikin &

Sharman, 2009, p.191). This research will inquire into what has stymied the efficacy of these agreements and what if any action can be done to strengthen them.

Research Question

Why have millions of dollars devoted to anti-corruption research and capacity building programs failed to reduce levels of corruption in the Philippines? Does Anti-Corruption Multi-

Level Governance lower levels of corruption? What are the impediments to its success? The answers to these questions are important because they point the way to needed changes in strategy and application of anti-corruption initiatives. Resources have been devoted to this problem for over two decades because high levels of corruption correlate with high levels of poverty, human rights abuses, political unrest, and threats to national and international security

(World Governance Indicators 2011). It is imperative that developing countries with no authentic institutional checks to power, be aided to prevent the looting of aid and national treasures by the ruling predatory few, united in an unholy linkage which is a “mutually reinforcing impunity”

(Carranza, 2008, p. 314).

It is the hypothesis of this research that anti-corruption MLG in its present iteration does not lower levels of corruption. While there is an abundance of literature on the costs and causes of corruption and progress evaluation of anti-corruption programs based on compliance and institution building, research that asks and answers whether or not anti-corruption responses have measurably lowered levels of corruption is difficult and yet to be found by this researcher. This research steps into that gap in existing literature. This research compares the total number of international and national anti-corruption MLG institutions, organizations, and rules

(Independent Variable) to corruption scores posted by international organizations like

Transparency International and the World Bank (Dependent Variable).

Method

I will answer my research questions by testing the hypothesis that anti corruption MLG does not lower levels of corruption. I will test this hypothesis by using the Single Case Study

Research method presenting a mix of both quantitative and qualitative evidence. The case study method is defined as “the intensive study of a single case with the aim of generalizing across a larger set of cases” and can be qualitative or quantitative (Gerring, 2007, p.115). The subject of the case study is the Philippines which I selected because it falls into two types of case study research. 1. Outlier Type. The Philippines stands out because it shows the high presence of anti- corruption initiatives with some of the worst corruption scores. Although the Philippines will be

3 compared to other countries of interest, it will be the focus of this research and analysis. 2.

Special Researcher Experience. As a former journalist during the Marcos regime, I am in a unique position to report on the research subject.

Operationalization and Measurement

I will not be reporting correlation coefficient statistics because the sample size is too small to make inferences. I operationalize and measure my data by: first defining terms and setting the scope of research. I define MLG as the coordination among private and public, national and international formal and informal “actors” and “actions” around specific issue areas, in this case the issue of corruption. I define corruption as the use of public funds for private gain.

I limit the time frame to the past 15 years as they offer the most consistent available data for comparison. Second I identify and describe my Independent Variables to be Multi-Level

Governance indicators and my Dependent Variables as corruption scores from international and national organizations.

Independent Variable: Anti-Corruption MLG actors’ and actions’ presence, number, and characteristics

While looking at the Philippines as a single case study, I will be comparing it to other countries in order to see patterns of similarities or differences. For example I will be looking at corruption scores over the past 15 years to see the correlation or lack thereof between these scores and the number and characteristics of anti-corruption laws, programs, and organizational presence. I will be focusing on anti-corruption laws, programs, and organizations that are global in reach. I will then look at the Philippines and see if these correlations can explain the failure of the numerous and increasing number of anti-corruption laws and programs over those 15 years.

I will be looking at the total number of formal and informal, national and international, public and private “actors” as well as “actions” taken in the field of corruption. Operationalizing my Independent Variables (IVs) is made clearer by separating actors (organizations) from actions (laws and programs) when measuring my anti-corruption MLGs and correlating them to my Dependent Variable (DV). Separate tables will reflect this. I count the number of actors engaged in anti-corruption initiatives which may engage in formal (such as laws and programs enacted by government) and or informal arrangements (such as those enacted by civil society). I will then count the number of actions taken by these organizations and compare them with levels of corruption. These actors cooperate around specific issue areas, in this case corruption.

These anti-corruption laws and programs are enacted by the following actors.: 1.

International Governmental Organizations (IGOs) like the a.United States Agency for

International Development (USAID), b.the World Bank (WB), c.United Nations Convention on

Corruption (UNCAC), d. Organization for Economic Cooperation and Development and

Cooperation (OECD), 2. International Non-Governmental Organizations (INGOs) like a.

Transparency International (TI), 3. Non-Governmental Organizations like a. Transparency and

Accountability Network (TAN) in the Philippines and 4. Governmental Organizations (GOs) like the Office of the Ombudsman and the Anti-Money Laundering Agency in the Philippines. I will be using studies and reports from the Business Anti Corruption Portal country reports, publications from the World Bank, Global Financial Integrity, and Global Integrity among others as my sources. Counting the presence of anti-corruption organizations and actions they have taken is one portion of the study. I will also look behind the numbers and analyze the quality of laws and programs that may or may not show a correlation to levels of corruption. Among these

5 qualities are: 1. Arrest and detention powers 2. Powers to freeze property 3. Whistle blower protections 4. Coordination with foreign regulators (Smith, 2010, p.11).

Dependent Variables: Corruption Scores, Illicit Flow of Funds, Suspicious Activity Reports

These anti-corruption MLGs laws and programs over the past 15 years will be compared to my Dependent Variable represented by corruption scores from the following: 1. TI’s

Corruption Perception Index, 2. Global Financial Integrity’s Illicit Flow of Funds Index, 3.

World Bank’s World Development Index (WDI) on control of corruption index, and 4. Global

Integrity Index on corruption among others. A Table listing these comparisons is provided.

Simple regression analysis will show the correlation between the total number of public and private, national and international anti-corruption initiatives and corruption scores of the countries under study. An indirect measure I use to quantify effects of anti-corruption MLG efforts is the flow of illicit money to and from FATF black listed countries, including the

Philippines (Kurdle, 2009, p. 45). I also look at the “robustness of compliance” on Suspicious

Activity Reports or SARs as a way of assessing if there is any correlation between MLG anti- corruption coordination and compliance rates (Roule & Kinsell, 2002, p.151).

Case Selection

I selected the Philippines and compare it to Singapore, Chile, China, Pakistan and

Indonesia. I arrive at the choice of these countries to compare the Philippines to by first getting an overview of the research problem by looking at a global map of corruption indices using

Transparency International’s oldest original sampling of 41 countries in 1995 and how they have performed over the past 15 years. Although other countries have been added to the rankings over the years, this yearly monitoring of the same 41 countries over a sustained period of time, gives comparisons I make greater validity. I want to know if there are patterns and insights that may indicate whether or not corruption decreased in these countries over the past years as a consequence of MLG efforts (Transparency International Corruption Perception Index).

I tease out the most interesting patterns I find, namely how Singapore and Chile consistently ranked in the top 10 best scores usually dominated by European, and first world economies. This is intriguing because it challenges the implication in the TI rankings which tend to demonstrate a correlation between better corruption scores and maturity of economic and democratic institutions. (Sung, 2004). Singapore is a first world economy yet Chile is not.

Neither can be considered “mature” democracies with both having been under authoritarian systems with Lee Kwan Yew in Singapore and Pinochet in Chile. The Philippines shares this authoritarian history with them due to the Marcos dictatorship yet does not share the same success in battling corruption. China, Pakistan, and Indonesia add to the puzzle because they were ranked in the bottom eight poorest corruption scores of the original 41 TI sampling along with the Philippines, yet managed to post better scores today, with remarkably lower numbers of anti-corruption MLG laws and programs present when compared to the Philippines. These puzzles add to the richness of my research inquiry.

I analyze the Philippine case by quantifying its MLG activities through a matrix comparing its anti-corruption and money laundering regulations to select countries in terms of the following:

Anti-Corruption MLG descriptors: (Smith, 2010, pp. 49-54).

1. Legislation on anti-corruption: Anti-corruption legislation comes from Article XI of the 1987

Philippine Constitution on the accountability of public officers, relevant provisions of the

Revised Penal Code, the Anti-Graft and Corrupt Practices Act or (RA 3019), Code of Conduct and Ethical Standards for Public Officials and Employees (RA 6713), Act Declaring Forfeiture of Ill Gotten Wealth of Public Officers and Employees (RA 1379), Act Punishing the Giving and

Receiving of Gifts by Public Officers and Employees (PD 46), and the Anti-Plunder Act (RA

7080).

2. Government agencies in charge of corruption issues: the Office of the Ombudsman, Philippine

National Police through its Criminal Investigation and Detection Group (PNP-CIDG), and the

Anti-Money Laundering Council

3. Powers of investigation: AMLC has the power to investigate money laundering and other suspicious transactions. It can cause the filing of complaints and civil forfeitures and administrative sanctions. The Office of the Ombudsman has the power to punish through contempt, investigate and prosecute illegal and unjust acts, recover ill gotten or unexplained wealth, and initiate impeachment for serious offenses. PNP has the power to investigate and turn over prosecution to the Ombudsman or the Department of Justice for further investigation.

4. Penalties for non-compliance. The Ombudsman and AMLC only have the power to impose administrative sanctions. Only a proper court can convict crimes of corruption and money laundering as well as impose sentence of imprisonment, fine, or forfeiture of assets.

5. Powers of arrest and detention. The PNP has the power of arrest and detention but only if caught if the perpetrator is caught in the act. AMLC has no power of arrest and detention.

6. Powers to freeze property. The AMLC has no power to freeze property but only apply ex parte to a regular court to do so.

7. Interactions with overseas regulators. This describes interactions with overseas regulators like the FATF. The AMLC is authorized to give to and seek assistance from overseas regulators unless the request goes against any provision of the constitution or negatively affect national interest. This is an area of difficulty right now because Philippine lawmakers are invoking due process clause provisions to protect banking secrecy laws and invoking national interest concerns because they do not want to the Philippines to lose its status as the new Switzerland.

8. Whistleblower protection. Presidential Decree 749 grants immunity to all those who voluntarily testify to bribery and corruption charges, even those who did the bribing themselves.

The Ombudsman may also grant immunity to all those who can provide testimony or evidentiary documents proving corruption.

Discussions on Philippine Case Study

I analyze the Philippine corruption terrain by using secondary sources like books, from

Filipino as well as international scholars, scholarly journal articles, Philippine newspaper articles, international institution reports and studies like those produced by the Asian

Development Bank, United Nations Convention Against Corruption, the World Bank, and

United States Agency for International Development, and the Financial Action Task Force. I also use reports and analysis found in international non-governmental institutions like Transparency

International and Global Financial Integrity. I access my sources through the library facilities of the University of Cincinnati and the University of Arizona. I construct a matrix that will show the different anti-corruption laws and programs in the Philippines and their counterparts in high performing countries like Singapore. I then look closely into how different or similar Singapore’s laws and programs are from the Philippines. Could those differences explain the Philippines low corruption rankings? One of the biggest preliminary findings of this investigation is that

Singapore’s banking secrecy law means their banks are much more open and porous to government investigation than those of the Philippines. Singapore officials can start an investigation into government officials’ bank accounts upon seeing probable cause that a crime is being committed. Philippine secrecy laws are much tighter and less transparent. Some scholars say that part of the problem is law enforcement is pre-occupied with establishing predicate crimes and not in the seizing, and tracking of ill gotten wealth. Swift freezing of accounts is necessary so as not to alert the perpetrators. Asia/Pacific Group on Money Laundering (2009) reports:

Powers of Search and Seizure under Section 22 of the PCA: Director, CPIB may, by warrant directed to any CPIB officer, empower them to enter any place by force if necessary and to search, seize and detain any document, article or property relating to the commission of any corruption offence, or a conspiracy/attempt to commit or an abetment of any such offence. If the CPIB officer has reasonable grounds to believe that any delay in obtaining the search warrant is likely to frustrate the object of the search, he may exercise the powers of search mentioned above without a search warrant (p.58).

At the core of this difference is the “presumption clause” that Singapore law has. The accused government official is presumed guilty until he can prove himself innocent. This goes directly against Philippine law patterned after US Bill of Rights which highlights presumption of innocence of the accused. Section 8 of PCA is a presumption section which states :

Where in any proceedings against a person under section 5 or 6, it is proved that any gratification has been paid or given to or received by a person in the employment of the Government or any department thereof or of a public body by or from a person or agent of a person who has or seeks to have any dealings with Government or any department thereof or any public body, that gratification shall be deemed to have been paid or given and received corruptly as an inducement or reward as hereinbefore mentioned unless the contrary is proved (CPIB: Corruption Practices Investigation Bureau, Government of Singapore). This effectively shifts the burden to the corrupt offender, who has to prove to the Court that the gratification involved is not given or received corruptly.

Note the draconian overtones of search and seizure powers of Singapore’s CPIB.

Significant is how it says that suspects may be searched and arrested “without a warrant”.

Warrantless searches can be based on “reasonable complaint or suspicion”. The law is written to give officers great latitude to arrest perpetrators. Philippine corruption laws are replete with definitions of crimes, creation of agencies combating corruption, description of penalties, but say little about powers of arrest and investigation. The power to investigate and collect evidence is a pivotal difference. “I can tell you as a fact that Office of the Ombudsman in the Philippines is the only ACA (anticorruption agency) mandated to investigate corruption but with no investigative power at all,” said Tony Kwok Wan-Wai, former deputy commissioner of Hong Kong’s

Independent Commission on Anti-Corruption (ICAC). Kwok added that the Ombudsman does not have the mandate to arrest corrupt officials, unlike the ICAC in Hong Kong. A corrupt official in the Philippines can even walk openly on the street with dirty money and not get arrested by the Ombudsman, he added. (Cayabyab, 2011). Another difference is Singapore’s dual goal of going after both public and private corruption. Philippine law has a protection for those in the private sector guilty of corruption but willing to testify against a government official.

CPIB reports that;

All special investigators of CPIB are issued with certificates of appointment (similar to the warrant cards used by some local law enforcement agencies). CPIB officers may exercise the following powers of investigation: Powers of Arrest under Section 15 of the PCA. The Director or any special investigator may without a warrant arrest any person who has been concerned in any offence under this Act or against whom a reasonable complaint has been made or credible information has been received or a reasonable suspicion exists of his having been so concerned. The Director or a special investigator arresting a person under subsection (1) may search such person and take possession of all articles found upon him which there is reason to believe were the fruits or other evidence of the crime, provided that no female shall be searched except by a female. Every person so arrested shall be taken to the Corrupt Practices Investigation Bureau or to a police station. (CPIB, Government of Singapore).

An interesting real time application of my research interest is the impeachment trial of the

Philippines’ Supreme Court Justice. The Philippines is currently engaged in impeaching its

Supreme Court Chief Justice. Philippine banking secrecy laws, which have one of the strictest standards of secrecy and impenetrability of foreign deposits protected by the Foreign Deposit

Act, have prevented the prosecution from presenting evidence of the respondent’s foreign account deposits that they claim will prove the case of non-disclosure of assets by the Chief

Justice. Mariano et al write “Intended as a measure to increase international reserves of the country, the said law is now being used as a convenient tool to mask ill gotten wealth.”

(Mariano, Bonoan, & Palarca, 2002, p.442). The Aquino administration succeeded in impeachment the Chief Justice as part of their anti-corruption program. Aquino deemed it important that his allegedly corrupt predecessor Arroyo who appointed most of the sitting

Supreme Court justices, including the Supreme Court chief justice, and who Aquino fears will frustrate any attempts to bring Arroyo to justice on corruption and other abuse of power cases.

What Aquino sees as a feather in his cap is seen by his detractors as strong arming and abuse of executive prerogatives to influence the Senate with alleged gifts and outright threat of pork barrel withdrawals. Objective observers are waiting to see if Aquino uses the same reformist agenda on

12 his own supporters, without which anti-corruption acts become merely another means of persecuting political opponents.

The beneficial offshoot of the impeachment trial is the revisiting by law makers of the country’s banking secrecy laws. The prosecution presented documents of the defendant that were illegally procured against the banking secrecy laws because it could not circumvent existing secrecy laws. In 2001 the Philippine Anti-Money Laundering Act was passed. This was intended to comply with international standards in combating money laundering and terrorism funding. In

2003 amendments to AMLA were signed into law. This included lowering the threshold for oversight to P500, 000 (Banko Central ng Pilipinas. Anti Money Laundering, retrieved 2012).

The Philippine senate is concerned with the leakage of the defendant’s bank account information thereby violating banking secrecy laws. It is alleged that one of the means with which the leakage occurred was the audit conducted by the Central Bank and AMLC auditors.

Suspicion is rife that President Aquino himself ordered the audit on Chief Justice Corona as he is viewed a barrier to the prosecution of plunder cases against former president Gloria Arroyo who appointed Corona in a controversial “midnight appointment”. Senate President Enrile is now inclined to tighten access to the bank records instead of loosen them (Sy, 2012). This is a step back for the proponents of MLG avenues of curtailing corruption. On the other hand, the house of representatives is studying the possibility of passing a bill allowing access to foreign deposits of government officials when requested by an impeachment court (Ricalde, 2012).

Meanwhile, President Aquino is urgently asking for the passage of two bills required by the FATF (Financial Action Task Force) in order not to downgrade or black list the Philippines.

This is an example of MLG at work. FATF has the power to apply pressure on corrupt countries

13 to pass measures that will prevent the laundering of illicit and criminal wealth across national borders. Sanctions against recalcitrant countries may include but are not limited to slower remittances of funds from overseas workers, which the Philippine economy depends on. “These sanctions include “delayed (overseas Filipino workers’) remittances, higher charges and intermediation costs on financial transactions of Philippine banks and citizens, and thorough scrutiny of Philippine-based transactions, among others.” (Yamsuan, 2012). Theoretically, this is great as MLG steps into the vacuum in institutional checks and balances existing when a developing country is held captive by a ruling predatory elite. Under state capture, the ruling predatory elite supports as system that encourages corruption. Corruption scholars see corruption as a cost benefit analysis made by people who make a conscious determination that the opportunity and risks of corrupt behavior rewards and seldom punishes. “In short, corruption persists because it often rewards and rarely punishes the corrupt” (Bhargava & Bolongaita, 2004, p.145). The main argument against external regulation is it that it is abused by the party in power to look into accounts of political opponents exclusively. A solution to this dilemma is yet to be found. This research hopes to provide valuable insight and recommendations in its conclusions.

This points to one of the main preliminary findings of my research: Despite progress in anti-corruption initiatives such as compliance with the 40 + 9 Recommendations by the Financial

Action Task Force, the Philippines has been able to evade fully implementing their provisions.

Brillo (2010) writes about the struggle to compel Philippine lawmakers into passing money laundering laws without the threat of international financial sanctions. He writes;

The sudden change of attitude by the legislators and the executive branch, from disinterested to committed actors, in passing the AMLA reveals the inexorable influence an international organization can have in the policymaking process. The involvement of the FATF was the principal impetus that moved the institutional actors to prioritize the

law. Both in the initial action to enact and in the amendment of the law, the threat of sanctions was utilized by the FATF to determine the policy outcome. The fear of sanctions, in particular the apprehension with regard to the possible economic repercussions and ramifications of the countermeasures, was the primary moving factor from the beginning to the end of the policymaking process (p.120).

A big barrier to anti-corruption legislative reform is the fear of irresponsible use of investigative powers to look into the accounts of PEPs (Politically Exposed Persons-high government officials) for political witch hunts. Another is the country’s desire to buttress its image as the new Switzerland, meaning as a destination of secret and secreted wealth. The

Philippines has been able to do this through a clever writing of laws that makes it look like description and penalties of the offense are strict, when in reality, the law does not give its anti- corruption agencies the adequate powers of investigation and seizure to enable it to do its job properly. Singapore’s presumption of guilt predicate would be useful here because the challenge is to provide evidentiary material to build the case against the accused. This evidentiary burden is placed on the accused and left up to him or her to produce evidence to explain the discrepancy between income generated in the course of the performance of his or her duties, and visible or hidden wealth (Kofele-Kane, 2006, p.915).

However, there is a firestorm of controversy about shifting the burden of proof to the accused as being abrogative of the basic tenets of the presumption of innocence and due process rights embedded in constitutional law and international human rights agreements. It is difficult to balance individual rights with the right of the collective to enjoy the benefits of justice, particularly when evidence is near impossible to gather as in the case of ill gotten wealth and banking secrecy laws that keep it hidden. Compelling public interest is what international and national laws, including Philippine laws, provides as a basis for derogating the burden of proof

15 and presumption of innocence protections. Kofele-Kane (2006) writes, “States have often used the threat to the security of the state, whether real or perceived, as a justification for the temporary abrogation of fundamental human rights. It could be argued that the threat imposed on most states serves as justification for suspending some individual rights including that of presumption of innocence” (p. 930). Kofele-Kane further asserts that society must accept limits to individual rights protections when the abrogation of due process is proportionally less injurious to the individual than it is to the interest of the state. This doctrine on “proportionality” is what Kofele-Kane invokes as the basis for shifting the burden of proof away from the state and on the accused as to “how they came about their stupendous wealth” (p.944).

The irony of having the Philippines seeking the stature of financial “haven” much like

Switzerland, escapes no one. Senator Miriam Santiago’s objection to the piercing of banking secrecy laws during the Corona impeachment trial was based mainly on a fear of losing the trust of the business community and causing the drying up of capital investment. She vociferously objected to looking into Corona’s foreign deposit accounts based on the strict prohibition guaranteed under Philippine banking secrecy law. She further stated that she is afraid that far from the Philippines being the new Switzerland, as in the new haven for secret accounts, she fears Singapore, which has iron clad banking secrecy laws, will be the new Switzerland at least in the region (N.A. 2012, para. 4 and 7). Singapore’s banking secrecy laws easily yield when charges of corruption by government officials are involved. New tax havens and havens for secret and illicit wealth have begun mushrooming in Asia and elsewhere, particularly among the developing countries, understandably driven by economic pressure to encourage foreign investment and currency, in the wake of greater scrutiny of more historic havens like Switzerland by OECD, G20, and US pressure to prosecute tax evaders beginning 1998 and 2009 (Ladd, 2011,

16 pp. 548-550). This partly explains why Philippine laws and statutes served largely as window dressing to appease foreign stake holders. The Anti-Money Laundering Act and Anti-Money

Laundering Council were instituted during the Arroyo presidency. Yet after 11 years since the

Act’s inception, the Philippines is still struggling with the same issues of lack of investigative and evidentiary tools due to banking secrecy laws. Pressure from the FATF to amend AMLA regulations and to criminalize money laundering activities and threats of blacklisting and sanctions during the Arroyo administration, included a variety of arm twisting scenarios needed to pressure reluctant and recalcitrant law makers into compliance. Brillo (2010) writes,

In March of 2003 the report was ratified in both chambers, and the resulting law, Republic Act 9194 was signed into law by the President on 7 March 2003.Thus, Congress formally amended RA 9160. As FATF (2003a: 9-10) reports: [RA 9194] amends the AMLA and addresses the legal deficiencies. It requires the reporting of all suspicious transactions, grants the BSP (the banking supervisor) full access to account information to examine for anti-money laundering compliance, and allows the AMLC to inquire into deposits and investments made prior to the AMLA coming into effect. (p.120).

Interestingly enough, since the passing of AMLA, Arroyo is now incarcerated without bail awaiting trial for plunder charges. The obvious question is why did AMLA provisions not prevent the looting of funds alleged against former president Gloria Arroyo? How did she manage to be guilty of plunder under the very programs and laws she championed under the

Millennium Challenge? How then one might ask, have the corrupt been able to skirt or evade these labyrinth of anti-corruption programs and laws? Why is success in the retrieval of ill- gotten wealth and prosecution of plunder charges, so miniscule? Singapore’s story is instructive here. Singapore equates high economic growth with good governance. They believe that only leadership by example can give them the moral authority to expect discipline from the people.

Leaders are willing to subject themselves to scrutiny. Enhanced detection and harsh and swift penalties characterize their attitude towards corruption. Kee (2003) writes:

Tough penalties imposed by our laws deter corruption simply by making it a “high risk, low return” undertaking. The punishments cover not only those receiving bribes or “bribe-takers” but also those offering the bribe, or “bribe givers.” Indeed, the penalties go beyond fines and jail sentences. The courts can order the disgorging of the ill-gotten gains through confiscation orders (p.270).

My preliminary finding is the Philippines have refused to put laws like relaxed banking secrecy on the books. Hence laws on the books are “toothless” and have no investigative and evidentiary powers of search, seizure and collection. It therefore fails to convict the guilty or retrieve illicit wealth. In addition, laws are used only on the “small fish” and never on the big fish. Former US ambassador to the Philippines Kristie Kenney worries that “institutional challenges and poor protection of whistle blowers” are barriers to anti-corruption efforts.

(Swinnen & Lubac, 2012).

These laws include the Foreign Deposit Act of the Philippines also known as Republic

Act 6426 which prevents inquiry into deposits without written consent from the depositor. The other law is Republic Act 1405. “RA 1405 declares all deposits absolutely confidential, with the exceptions of: written consent of the depositor; in cases of impeachment; upon order of a competent court in cases of bribery or dereliction of duty of public officials; or in cases where the money deposited or invested is the subject matter of the litigation” (Swinnen, 2012).

Subsequent Philippine Supreme Court Rulings have upheld these banking secrecy laws. In the

Eugenio case, the high court ruled against the Anti-Money Laundering Council (AMLC) and supported banking secrecy laws which allows inquiry into account deposits only in the cases of drug trafficking, terrorism, and kidnapping. Account holders must be given prior notification when their account is being investigated. The US worries that this will result in the destruction of evidence and the concealment of ill gotten wealth, which is injurious to anti-corruption

18 measures. This is a cycle that produces no deterrent effect as the ones engaging in the looting in the present are protected by state capture mechanisms. Only when they are out of power are they held accountable. Meanwhile the looting has already been done.

There is a bill pending in the Philippine senate that could have circumvented the issue of disclosure of foreign account deposits. It is Senate Bill 107 sponsored by Senator Escudero. This would have required all high government officials to sign a waiver allowing the state to have full access to their local and foreign accounts. “Back in 2010, Sen. Francis Escudero filed Senate Bill

107 bill that would require government employees to provide the Office of the Ombudsman with written permission to look into their bank accounts if they are accused of crimes” (Swinnen L. &

Lubac M., 2012). Predictably no one wants to pass it including the current President, who ran and won on the issue of anti-corruption enforcement. One area of hope is how US anti corruption laws like the US Foreign Corrupt Practices Act, can be brought to bear on the corrupt in the

Philippines. The Philippine Amusement and Gaming Corporation (PAGCOR) chairman Naguiat is under investigation by the US Securities and Exchange Commission for violations of the

Foreign Corrupt Practices Act. What this implies is that if Philippine laws are too weak and its judicial system too undeveloped for proper accountability, the guilty can still be held accountable in foreign tribunals. It appears that there may be hope that external pressure from international financial regulatory agencies could influence the policy making process. Brillo (2010) writes:

The steps taken spoke of the tremendous influence an international organization can have on the institutional actors and the policymaking process, as the absence of serious effort among the policy actors was offset by the resoluteness of the FATF. This condition was made possible primarily by the utilization of the threat of sanctions. The effort to avoid sanctions was the moving force from the beginning to the end of the policymaking process (p.123).

Initial findings from my research point to financial agreements and instruments playing leading roles in the curtailment of corruption. There is no study to date however that measures whether or not these efforts have borne fruit in terms of lowering levels of corruption. This research hopes to find some answers to what combination of MLG actors and actions over the past decades and which areas deserve more resource allocations.

Literature Review

I will answer my research question and test my hypothesis by analyzing and citing scholarly literature, articles, books, and journals along with studies produced by anti-corruption organizations. My research builds on the philosophical and theoretical foundations set by previous multilevel governance and corruption literature. Literature on layering governance in multiple ways, namely private and public, national and international, formal and informal, to reduce corruption is limited because this is a relatively new field of study. One goal of my study is to map what, who and where these anti-corruption organizations are. There are so many of them going off in so many different directions, often overlapping in programs and prescriptions.

The literature related to this research falls under two major categories, the multilevel governance literature and corruption literature. Corruption is defined for the purposes of this paper as

Transparency International defines it: “the use of public resources for private gain”. Existing publications on corruption are divided among those that mainly delve into a) its causes and costs, b) the myriad programs designed to combat it, c) attempts to quantify it with rankings and statistics and d) implications of solutions (such as legal and quasi legal initiatives and their impact on national security and sovereignty concerns) (Leigh & Evans, 2006, para.1).

Kevin Jackson (1998) is a scholar examining the implications of possible solutions to corruption for national sovereignty. “Some nation states (or groups that influence national policy) are reluctant to relinquish control over legal prosecution and adjudication” (Jackson,

1998, p. 764). According to Jackson, the day will come when an international court will not only be organized consensually but will be compulsory. He argues that the march to greater interdependence assures this. This is important especially in economic cases like money laundering. The question is who will fall under its jurisdiction? Nation states are not ready to submit. Jackson argues that all should be and will be under its jurisdiction, nation state, corporations, and individuals. “The process of freezing assets, attaching property, obtaining and securing evidence, and apprehending those aiding, abetting, and participating in the wrong doing are thwarted if the legal entity itself is beyond the court’s purview” (Jackson, p.768).

The literature is further divided between scholars who believe rule making can combat corruption and those who argue that corruption is a natural part of business and a cultural reality in many countries. This literature review will tour all of these categories, but my dissertation fits into the literature on the following question: “have multilevel stakeholders” advocacy of and partial implementation and enforcement of anti-corruption initiatives like anti-money laundering laws and anti-bribery conventions, resulted in levels of corruption improving, deteriorating, or staying the same?” Some organizations argue that these efforts have made a difference

(Financial Action Task Force, 2009, p.25). “The work of FATF, covering more than 170 jurisdictions has had significant impact on the global detection and prevention of money laundering and terrorist financing” (FATF, p24). This research will examine such claims using multiple data sources.

Falling within the literature on solutions is work on multi-layered stakeholder governance, which comes in many guises, the most common of which is globalization research

(Rosenau, 1998, p. 49). It is also called MLG or multilevel governance, regional or transnational governance, and complex interdependence. James Rosenau was the first to describe the globalization dynamic as more than interaction among state and governmental organizations.

(Rosenau, p. 49). He described the departure from a state centric to a multi-centric configuration, which includes private and public non-hierarchal coordination, which he calls fragmentation (Rosenau, p. 31). This devolution of authority from the state is named by Rosenau as SOA (Spheres of Authority), which may or may not include states in what may be temporary or more enduring authorities. Rosenau (1992) writes:

At the core of the new order are redefined criteria for political legitimacy and a relocation of authority that have transformed the capacities of governments and the conduct of public life. Put more succinctly (and for reasons adduced later), just as legitimacy is increasingly linked to the performance of officials rather that to traditional habits of compliance, so has authority been relocated in the direction of those political entities most able to perform effectively (p.256).

Spheres of Authority may include multi-level governance, but I will use the more specific definition of multilevel governance offered by Elke Krahmann: “sets of actors who share an interest in a specific issue area and are linked to each other through stable formal or informal relations” (Krahmann, 2005, p. 14). I measure anti-corruption MLG by counting both the actors and actions they have taken. I also count specific characteristics of laws and programs present and how they correlate with levels of corruption. Hooghe and Marks in their seminal work not only define multilevel governance but also establish its typology (Hooghe & Marks, 2003, pp.

236-237). Hooghe’s description of Type II MLG (Multi Level Governance) fits in with this paper’s definition as the layering dynamic of many private and public, national and international

22 organizations and institutions around a specific issue area. My research produces new knowledge by generating hypothesis around the issue of MLG and corruption.

Type I MLG describes formal federalism with non-intersecting jurisdiction and interaction among lasting institutions. It adheres to boundaries in “Russian Doll nested jurisdictions that remain stable for decades” (Hooghe, 2003, p. 236). Type II is non- hierarchal and non-linear in its organizational structure. My research combines elements of Type I (the stability of formal agreements) along with Type II’s issue specific organizational flexibility, which includes both private and public sectors. Hooghe sees this as “Type II governance being embedded in Type I governance” (Hooghe & Marks, 2003, p. 238). Matthew Flinders provides a theoretical underpinning for Type II MLG with his PPP (Public Private Partnerships) theory about the blurring between the private and public spheres and boundaries of the state (Flinders,

2006, p.238).

Although Flinders does not discuss how this applies to anti-corruption efforts, he does provide a theoretical framework for how public and private actors have combined in flexible arrangements that have transcended state boundaries (Flinders, 2006, p. 224). Flinders’s layering of public and private interactions describes the multi-layered coordination I observe among different actors coordinating in combating corruption (The Global Program Against Corruption,

2004, pp.17-19). This horizontal and vertical networking can be found in the sphere of banking and finance where the European Central Bank and the European Investment Banks find a two way governance function; a downward coordinating and regulatory role in relation to national independent central banks and an upwards role in relation to global financial actors including the

World Bank, International Monetary Fund, and the OECD (Flinders, p.233). Where my theory departs from his is the idea that not only is there a downward, upward motion but a sideways

23 motion towards non-governmental organizations and their role in accountability and transparency. This literature answers my research question indirectly in terms of progress made by MLG efforts in institution building, but does not offer an answer as to whether or not such efforts have lowered levels of corruption.

There is no scholarly literature that directly answers the question of whether anti- corruption MLG has lowered levels of corruption. There is literature that answers it indirectly such as whether blacklisting has affected tax havens. This literature measures the flow of investment in tax havens that have been blacklisted. It presents a gloomy picture that shows that there is no measureable impact on the flow of investments despite the blacklisting. Kurdle (2009) writes:

Considering all of the results together, the evidence does not suggest that blacklisting made an important systematic difference in the volume of banking system-related tax haven fortunes. This does not mean that the fear of the impact of blacklisting on capital flight may not have provided part of the impetus for the early acceptance of OECD or FATF prescriptions or the willingness of some jurisdictions to cooperate later on. It is also possible that the blacklisting had general effects too subtle to register immediately, but the burden of proof lies with those trying to make such a case. A more likely interpretation appears to be that investors based their behavior largely on factors other than whether or not a jurisdiction had been officially castigated abroad. Reputation, of course, can be both damaged and bolstered in other ways. Nonetheless, much participant testimony and careful scholarship about it suggested that blacklisting was very important for reputation and likely produced negative effects. These results must raise doubts about the direct importance of "speech acts" on the ability of tax havens to attract and hold foreign financial investment when such acts are not directly linked with something more tangible - either real developments in the havens or policy action beyond rhetoric from abroad. The havens remain highly vulnerable to the sticks and stones that foreigners might ultimately deploy, but both participants and academic commentators may have overstated the power of words alone to inflict harm (p. 45).

Literature on measuring the efficacy of MLG includes measuring the robustness of compliance in reporting of Suspicious Accounts and Transactions through suspicious activity

24 reports (SARs). One finding is that bureaucratic and legislative barriers serve as impediments to

SARs regimes. SARs are an important part of the anti-money laundering strategy providing many benefits such as the prosecution of and detection of money laundering concealment. Roule

& Kinsell (2002) write;

The implementation of stringent reporting procedures for suspicious or unusual financial transactions is an integral part of a comprehensive anti-money laundering regime, and the submission of suspicious activity reports (SARs) produces a number of significant benefits. For instance, banking regulators, law enforcement personnel, and representatives of intelligence agencies routinely utilize SARs to aid in the identification of terrorist finance schemes, indictment and prosecution of alleged launderers, and detection of emerging money laundering trends, such as the abuse of telephone card sales and money order transmitters to facilitate or conceal money laundering.1 The number of SARs filed per annum also provides a means of assessing the robustness of efforts by individual jurisdictions to combat money laundering.2 A comparative analysis of anti- money laundering efforts in more than twenty jurisdictions, however, indicates that the ultimate utility of SARs is routinely impeded by significant legislative and bureaucratic deficiencies (p.151).

The tracking of SARs is an integral part of any anti-corruption effort. As with any crime, the best investigative tool is to follow the money. For almost two decades, anti-corruption efforts have been skirting, avoiding, or unable to either put this strategy on the table or implement it.

Victims of endemic corruption know intimately its intricacies and are often in tacit compliance with the perpetrators. Countries where corruption is both systemic and endemic appear impervious to education campaigns via conventions, meetings, and studies funded for the benefit of government employees. Education campaigns on corruption have been the one activity receiving the most funding from relevant organizations. An example of this would be the incongruence of having a Philippine delegation lead other countries in an anti-corruption convention during the time of Arroyo. All the lip service and window dressing of programs, agreements in seminars and conventions of which the Millennium Challenge Corporation is just one example (http://www.mcc.gov/pages/countries/program/philippines-threshold-program) and

Asian Development Bank sponsored seminars such as The Regional Seminar on Political

Economy of Corruption September 10, 2009, held in Manila on mitigating corruption in the natural resources sector.( http://www.oecd.org/site/adboecdanti- corruptioninitiative/meetingsandconferences/44442421.pdf), are as yet to produce results in real time. While the studies, seminars, agreements in conventions went on at full pace, continuing abuse of power, particularly in the mining and logging sectors, remained unchecked.

(Ihttp://phys.org/news/2012-12-contributed-philippine-disaster.html). Original to me are the following question: If a culture of corruption assists a population cognizant of corrupt practices and machinations into tacitly participating in the unholy bargain, dire economic conditions provide the fertile environment for its persistence. If the population itself does not have the moral and political will to resist corrupt acts, could and should external factors, like anti- corruption MLG strategies, be used to compel them?

Any discussion on MLG and coordination among national and international actors, must necessarily involve discussions of international law. Agreements, whether binding or non- binding among various actors, are impacted by questions of sovereignty and domestic resistance to global regulatory control. As the line between national and international space becomes less distinct, national actors are ever more subject to compliance regulations from external actors, even though there are no formal treaties binding them to compel compliance with such regulations. “Individuals or private entities are in some cases directly subject to binding international decisions; and domestic courts are perhaps beginning to assert stronger powers of review over global regulatory action. Thus, the ordering functions performed by the domestic/international dichotomy in international law may become attenuated” (Krisch &

Kingsbury, 2006, p.11).

For any agreement to have the “force of law”, it must be seen to be “legitimate”. The increasing overlap between domestic and international law raises the important question of legitimacy. National laws are predicated on the consent of the governed. How do international laws manifest that consent? Does elected leaders’ compliance to global regulation manifest that legitimacy? What if the global regulation run counter to domestic laws? This is evident in the

Philippine case of “due process” questions covering banking secrecy laws and search and seizure requirements demanded by international financial institutions. Moreover, the question of sovereignty weighs heavily among these actors. The inequality in status of countries is manifest in the stronger members’ influence on regulatory functions, making non-binding rules

“mandatory” among weaker states. This is most evident in the FATF’s acts directed at changing practices in these states. Krisch & Kingsbury (2006) write:

And since the global order increasingly performs traditional state functions, individual state governments and mobilized groups seek to have the exercise of these functions governed by their own ideas of political justice. On most specific issues, no single domestic model will fully determine the shape of the global order. Carol Harlow’s discussion of differences between administrative law traditions points to the likelihood of future struggles to meld hybrid approaches, comparable in technical terms to recent efforts to craft law for international criminal tribunals, but reaching far more deeply into socio-economic life and engaging with many more regulatory regimes (p.11).

My research on anti-corruption MLG treads on the issues brought up by Krisch & Kingsbury particularly when it comes to international regimes on corruption interfering or intervening as the case may be, in domestic law and local economic and political systems. My research measures the extent to which some of these international regimes on corruption have impacted local processes and whether there is evidence that it actually succeeded in lowering levels of corruption.

Corruption literature includes scholars who study the proliferation of anti-corruption programs and funding over the past decades and produce literature on annual rankings of how corrupt countries are and progress reports on project objectives by various institutions (The

Global Program Against Corruption, 2004, p.473). I have found no literature on the subject that assesses how and if this explosion of anti-corruption strategies has been successful in actually lowering levels of corruption. There is, however a panoply of annual progress reports reporting on compliance to, and enforcement of, conventions by member countries. Among them is

Heimann & Dell’s 2009 Annual Progress Report of the OECD Anti-Bribery Convention. It reports “there is active enforcement in only four countries and little or no enforcement in 21 of the parties” (Heimann & Dell, 2009, p.6). Whether compliance correlates with lower levels of corruption is a subject for this dissertation’s inquiry. The two main organizations that provide empirical measurements, Transparency International and the World Bank, are always “careful to caution readers not to read too much into their numbers” . “Unbiased, hard data continue to be difficult to obtain and usually raise problematic questions with respect to validity” (Lambsdorff,

2007, p.2).

Michael Johnston belongs to a group of scholars who, while acknowledging the march towards international anti-corruption consensus, even the need for it, asks a question similar to that posed in this dissertation: Johnston asks “where do we stand after a generation of this advocacy, research, and reform? Does the global economy show more corruption now, less of it, or corruption of different kinds?” (Johnston, 2005, p.425). Johnston argues that corruption cannot be measured and that “treating corruption as the same everywhere else is a prescription for irrelevance, lost opportunities, and in some instances, real harm” (Johnston, p.426). Johnston states that we simply do not know whether corruption is in decline (Johnston, p.428). He,

28 however, joins other scholars’ worry about the insidious effects of corruption in the global economy. Johnston asserts that Neo-patrimonial ties are so strong in some countries that they defy anti-corruption initiatives. Internal stakeholders being so enmeshed in patronage politics can make no independent analysis for fear of repercussions from culturally entrenched power brokers. Johnston lists them as influence makers, elite cartels, oligarchs and clans, and official moguls. “Official moguls are top political figures or their favorites who use state power to plunder the economy” (Johnston, 2008, pp.427-428).

Johnston crystallizes the problem as a matter of allocation and distribution of wealth and power and who gets to decide for whom. He observes that because corruption is conducted in secrecy, anti-corruption strategies only succeed in driving it in the shadows and “beyond the reach of democratic rules” (Johnston, p.428). He observes that better corruption indices are produced over time and by groups asserting and protecting their own interests in fighting corruption through social networking as seen historically in advanced democracies. He concludes that this is the only way corruption can be controlled and that corruption is “worth worrying about” (Johnston, p.429). While I disagree with Johnston’s conclusion that social networking is the only way to control corruption, I agree that technological advances and the speed with which information is driven and circulated by interest groups, would have great impact on outcomes of anti-corruption efforts. My research differs from Johnston’s by asking whether technological advances, particularly in communication and international legal and civil societal networking that lower levels of corruption can be accelerated. Increasing awareness and experience of the cost of corruption may also contribute to a heightened pace of cooperation. Corruption literature includes those studying areas of hope, like the use of financial instruments that choke off the flow of dirty money which the FATF refers to as “choke points”. This is where dirty money is

29 most vulnerable to detection and would be analogous to cutting off corruption’s life’s breath.

This would have the effect of depriving bribees and bribers the fruits of their predation.

Vickers (2005) writes “The FATF on Money Laundering has identified certain “choke points” in the money laundering process that the launderer finds difficult to avoid and where he is vulnerable to detection. The choke points identified are entry of cash in the financial system, transfers to and from the financial system, and cross border flows of cash” (p. 170). According to

Vickers (2005), financial institutions are bound by the “know your customer” good practice standard. Financial professionals in the field rely heavily on local legislation like the UK

Proceeds of Crime Act of 2002 and international treaties and conventions, for compliance and enforcement of good practices (p.167). Some strategies like education campaigns are helpful but largely cosmetic and easily eluded. Others like passing laws that carry powers and penalties, are evolutionary and take time. Johnston (2005) asserts that “too great an emphasis on civil society in high corruption societies may amount to little more than expecting the weak to restrain the strong” and “should reform prove unsuccessful, victims of corruption may be blamed for failing to control their abusers” (Johnston, p.427). Yet despite this finding, June et al (2008) insist that bottom up or internal stakeholder assessments of corruption are more trustworthy than are external pressures (June et al, p.24).

Corruption literature is teeming with solutions, such as holding officials more accountable through civil service reform raising pay and merit standards (June et al, 2008, p.40).

June et al’s suggestions “do not answer the question of what will motivate” government officials in a captive state to institute and enforce anti-corruption reforms. Often, talk of accountability and integrity is used to mask non-functioning legal institutions. Quoting Oluwu, Doig (1995) writes, “The rhetoric in countries like Nigeria underlines their cosmetic nature” (p.157). I will

30 inquire into whether or not multilevel governance can motivate officials to reform and to move beyond rhetoric by exposing continuing corruption. Other corruption literature focus on finding out what causes corruption and reversing the causation in order to establish a solution, in some cases by copying what works for other countries.

As to what causes corruption, Collier (2000) asserts that Africa’s slide in corruption came in these routes: “over regulation of private activity, expanded public sector employment, expanded public procurement, and weakened scrutiny” (p.194). Collier argues that the reverse would be the cure. It is posited that less opportunity to extort bribes through over regulation and public procurement, greater scrutiny through transparency via a free press and watchdog organizations, and penalties for transgressions would work in lowering levels of corruption

(p.197). Collier concludes that in order to bring this about there has to be a “big push” “operating on all fronts at the same time” through a “ coordinated massive effort, using all feasible strategies together” (p.200). Missing in Collier’s argument is the answer to corollary questions my research question asks, and those are what and who will make government and civil society make the big push? He makes an argument in part by stating that raising the profile of corruption will bring this big push about. (Collier, p. 205). Whether multilevel efforts to raise the profile of corruption have resulted in lower levels of corruption is an inquiry for my dissertation and remains a fertile ground for research.

Another branch of corruption literature is composed of scholars who view corruption measurements with suspicion, particularly as they pertain to poor countries. Bukovansky (2006) quotes Samuel Huntington who says that corruption is normal and sometimes desirable. (p. 205).

It is argued that corruption is sometimes desirable in poor countries because it speeds up the pace of development by circumventing red tape when speed money is used. As such targeting poor

31 countries as more corrupt is problematic and anti-corruption measures must be designed by local communities in order to be fair (p.205). Hindes (2005) agrees that poor countries have a built in disadvantage (p. 1390). Citing David Kennedy, Hindes argues “the moralizing stance of the anti- corruption movement leads rather to the stigmatization of the developing world” (p. 1392). In addition, he notes deep skepticism about the role of international actors in a tutelary role, with a private sector outside the realm of scrutiny (p.1392). He asserts that anti-corruption efforts appear not to have corralled the big fishes in the kleptocratic ocean. Hindes (2005) contends:

The strategy of building coalitions between government agencies, NGOs and the private sector enables anti-corruption measures to be put in place without directly confronting powerful individuals and political forces. The advantages of this strategy are clear, yet it risks allowing corrupt activities of the powerful and well connected to continue unchecked (p.1395)

This is where multiple interests checking each other become critically important in providing the most objective analysis. Chaikin (2007) quotes Article of 51 Chapter 5 of

UNCAC: “The lesson that so called “grand corruption” can only be fought through international and concerted efforts based on genuine commitment on the part of government has been learned and this lesson is expressed in UNCAC” (p.67). Scholars may disagree on the efficacy of MLG in its present form but there are those who like Vinod (1999) argue that institution building takes time and requires the maturation of well-defined codes of cooperation. Vinod (1999) writes;

Mere dissemination of information about human rights abuses such as torture of political dissidents or child labor has helped reduce the abuses in recent years. The taxpayers in developed countries who help give the foreign aid and shareowners of multinational corporations need to be made more aware of the rampant corrupt practices in many countries. We refer to innovative proposals to use the World Wide Web to expose corruption. The long-term benefits of competitive politics, active media, informed civil society, and better economic allocations are large and compounded over time (p.602).

“The past two decades have seen the proliferation of studies and initiatives against corruption” (Transparency International). It is a slow process that given one perspective, the time frame of years or decades, may reveal little progress. Global social media, the speed with which people around the world can connect and exchange information may hasten this process. As yet the Philippines does not have a counterpart to India’s ipaidabribe.com, where Indians can exchange their experiences with bribery, the Philippines has one of the largest facebook users in the world with a 30% penetration of population. (http://www.socialbakers.com/facebook- statistics/philippines). As such, topics that Philippine mainstream media would avoid receive an airing on facebook and by driving the discourse, compel captured media to address the topic in order to be relevant. There is not one answer to this problem and that is why multiple solutions from multiple levels of governance are applied to combat it. Whether or not or to what extent this approach has been effective, is the subject of this research.

Anticipated Results Formatted: Left, Tab stops: 3.25", Centered + 6.5", Right

Preliminary Tables and Charts

Transparency International’s first sampling of 41 countries’ CPI from 1995. This chart shows the same countries’ performance after 15 years. Note that the bottom six countries in 1995 show only the Philippines and Venezuela without improvement among those ranking below the

Philippines.

I designed the table below containing corruption scores from Transparency International

(TI) covering the period 1995-2010. I want to find where the Philippines ranks and scores on levels of corruption when compared to other countries. I particularly wanted to find out what experiences the Philippines shares with and differ from countries in the bottom rung of this ranking. Occupying the bottom six of these TI ranking with the Philippines are Pakistan, China and Indonesia. I selected these three countries in order to observe the trajectory of their ranking over the past 15 years. I hope to find some answers to my research question as to whether

ACMLG efforts contribute to these countries improvement or lack thereof. Also of interest are

Singapore and Chile, which consistently rank highly in TI scoring and ranking. I want to find out what experiences they have that differ from the low performing countries like the Philippines,

Pakistan, China, and Indonesia. All six countries under study share some history of authoritarian regimes as the experience common to all of them.

Table 1 Transparency International CPI (Corruption Perception Index) from 1995 to2010

Country 1995 2010

New Zealand 9.55 9.3

Denmark 9.32 9.3

Singapore 9.26 9.3

Finland 9.12 9.2

Canada 8.87 8.9

Sweden 8.87 9.2

Australia 8.8 8.7

Switzerland 8.76 8.7

Netherlands 8.69 8.8

Norway 8.61 8.6

Ireland 8.57 8

UK 8.57 7.6

Germany 8.14 7.9

Chile 7.94 7.2

USA 7.79 7.1

Austria 7.13 7.9

HK 7.12 8.4

France 7 6.8

Belgium/Luxem 6.85 7.1

Japan 6.72 7.8

South Africa 5.62 4.5

Portugal 5.56 6

Malaysia 5.28 4.4

Argentina 5.24 2.9

Taiwan 5.08 5.8

Spain 4.35 6.1

South Korea 4.29 5.4

Hungary 4.12 4.7

Turkey 4.1 4.4

Greece 4.04 3.5

Columbia 3.44 3.5

Mexico 3.18 3.1

Italy 2.99 3.9

Thailand 2.79 3.5

India 2.78 3.3

Philippines 2.77 2.4

Brazil 2.7 3.7

Venezuela 2.66 2

Pakistan 2.25 2.3

China 2.16 3.5

Indonesia 1.94 2.8

The tables below are examples of how I will organize and analyze the information I collect on ACMLG in the six countries of interest. My ACMLG Independent Variables (IVs) will be represented as actors and actions involved in anti-corruption efforts. I will compare and contrast Philippine ACMLG actors and actions with those in Singapore, Chile, Pakistan, China and Indonesia. I hope to be able to represent those causal variables quantitatively and qualitatively and draw some inferences that will help answer my research question.

Table 2 Sample table of Anti-Corruption Multi-Level Governance Independent Variables

Anti‐Corruption MLG IV Philippines Singapore China Pakistan Indonesia Chile

Actors (Organizations

Public/Private,

National/International)

Actions (Laws, Programs

National/International

Public/Private

Below is a table I designed that will help organize my IVs further. I do this by identifying them to be international legal frameworks, intergovernmental organizations, international non- governmental organizations, domestic governmental organizations, domestic legal framework, and non-governmental organizations. Note that some of the laws predate my research’s time frame. We are listing laws that are in existence, so that would include those older laws. The time frame I set covers the 1986 to 2008 period. I picked this time frame because there are available scores and rankings through that time period measuring levels of corruption designed by various anti-corruption organizations that I can use as my outcome or Dependent Variables (DVs) with which to compare my IVs.

Table 3 Philippine Anti-Corruption Multi-Level Governance Indicators from 1986 to2008

Date IGO NGO (Non GO Laws (Governmental GO Agencies

(International Governmental Organizations) (Governmental

Governmental Organizations) Organizations)

Organizations)

1986 AusAID * Title 7 Crimes Committed by PCGG (1986)

Australian Public Officers, Revised Penal *Presidential

Agency for Code Commission on

International Good Government EO no.62 11/7/1986 Development

1986 *Republic Act 3019 Anti Graft

& Corrupt Practices Act

(08/17/1960)

*Republic Act 1379 Forfeiture

Law (06/18/1955)

*Presidential Decree 46

Unlawful Gifts (11/10/1972

*Presidential Decree 749

Whistle Blower (07/18/1975)

*Presidential Decree 1606

Sandigan Bayan (12/10/1978)

1987 1987 Constitution Article XI

Accountability of Public

Officers

1988

1989 *Republic Act 6770 The Constitutionally

Ombudsman Act of 1989 Independent

Bodies *Republic Act 6713 Code of

Conduct for Public Officials & *Office of the

Employees (02/20/1989) Ombudsman

) * Civil Service

Commission

*Commission on

Audit

Sandiganbayan

Other Agencies

*Department of

Justice

*National Bureau

of Investigation

*Philippine

National Police

*Department of

Finance Revenue

Integrity

Protection

*Anti‐Money

Laundering

Council

1990 FATF (1990) CODE NGO

05/1990

1991 *Republic Act 7080 Plunder

Act (06/12/1991)

1992

1993

1994

1995

1996

1997

1998

1999 TAG (1999)

2000 CIDA Canadian TAN(2000)

International

Development

Agency

2001 ADB (2001) *Republic Act 9160 Anti‐

Money Laundering Act

09/29/2001

2002

2003 World Bank *Republic Act 9184 The

StAR (Stolen Government Procurement

Asset Recovery Reform Act

initiative *Executive Order 259 Revenue Marcos asset Integrity Protection Service forfeiture 12/17/2003 (2003)

United Nations

General

Assembly

Adopted

UNCAC (2003)

2004 USAID (2004‐ COA Coalition *PD 1069 Extradition Law 1975

2010) Against amended 06/30/2004

Corruption *MCC Makati Business Millennium Club 09/21/2004 Challenge

Corporation

Jan 2004

2005 AMLC member

Egmont Group

2006 UNCAC

Ratification

2007 European National Anti‐ *Republic Act 9485 Anti Red

Commission Corruption Tape Act 09/05/2008

Program of

Action, the body

created in 2007

*Philippine

Public

Transparency

Project

2008 Center for Asian

Integrity –

Ombudsman, UP,

international

donors‐ MCC

funded

2012 RA 10167 Anti‐Money

Laundering Act

RA 10168 Anti‐Terror Funding

2013 RA 10365 Act Strengthening

Anti‐Money laundering

The table below is an example of how I intend to quantify my IVs and DVs. Numeric scores representing my IVs will be compared to corruption scores from TI, Global Financial

Integrity, World Development Index, and Global Integrity Index. I then plan to chart the data to see if there are patterns of interest in DV and IV relationships.

Table 4 Independent and Dependent Variables for 6 countries under study

Country (Independent (Dependent (Dependent (Dependent (Dependent

Variable) Variable) Variable) Variable) Variable)

Total Number Corruption Corruption Corruption Global

of Anti‐ Score from Score from Score from Integrity

Corruption Transparency Global World Corruption

MLG (1995‐ International Financial Development Index

2010) Corruption Integrity Illicit Index

Perception Flow of Fund Control of

Index Index Corruption

Philippines

Singapore

Chile

China

Pakistan

Indonesia

The table below is another way I intend to answer my research question. I intend to compare the six countries under study’s quality of ACMLG IVs. I do this by identifying how they differ or are the same in terms of government agencies, legislation, and power to freeze illicit wealth, arrest and detention powers, and investigative powers, interaction with foreign regulators like the FATF, among others. By minutely describing the characteristics of these variables, I intend to find patterns of relevance that would explain similarities and differences and whether or not they impact levels of corruption.

Table 5 Sample table for MLG Independent Variables for 6 countries

Anti‐Corruption MLG Philippines Singapore China Pakistan Indonesia Chile

Government Agencies

Legislation

Agency Freeze Power

Agency Arrest/Detention

Powers

Agency Power to Impose

Penalties

Foreign Regulation

Interaction

Investigative Powers

Whistleblower Protections

Civil Society organizations/Independent

Press

The table below is a sample of how I will organize my outcome variables or DVs.

Numeric data from Global Financial Integrity of Illicit Outflows of funds is one measure I will use to find out if ACMLG efforts have any correlation with levels of corruption. The empty boxes will be filled with dollar amounts and numerical scores.

Table 6 Sample table of MLG Dependent Variables for 6 countries

Dependent Philippines Singapore China Pakistan Indonesia Chile

Variable

(Outcomes)

Illicit Fund

Outflows

Suspicious

Activity

Reports

Other tables and charts may be added according to the availability of quantifiable data.

The examples above may not be the final form my tables will look like. I may add other explanatory variables such as existence of a freedom of information act, procurement act, free media, active civil society, (Gross Domestic Product) GDP per capita, Foreign Direct Investment

(FDI), and compliance with international financial agreements such as the FATF 40 + 9 recommendations. While this is an in depth study of one case, the Philippines, this research also uses comparative analysis comparing statistics. By comparing the Philippines with five other countries, I get a more nuanced answer to my research question. I may find contrary evidence to the hypothesis I am testing that says that ACMLG has not always worked and explain where it has and has not, in what ways it has or has not worked, and why.

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Department of Justice: Republic of the Philippines. http://www.doj.gov.ph/index.php?id1=16&id2=4

Financial Integrity and Economic Development Task Force. http://www.financialtaskforce.org/2010/10/26/15-years-of-the-corruption-perceptions-index/

Global Integrity Report. http://www.globalintegrity.org/report

Human Development Index 2010. http://hdr.undp.org/en/media/HDR_2010_EN_Table1.pdf

Index of Economic Freedom 2011/ http://www.heritage.org/index/explore?view=by-region- country-year

International Chamber of Commerce. http://www.iccwbo.org/policy/anticorruption/

International Monetary Fund. http://www.imf.org/external/np/gov/guide/eng/index.htm

Retrieved September 15, 2011

OECD Anti-Corruption Network for Eastern Europe and Central Asia. http://www.oecd.org/document/17/0,3746,en_36595778_36595861_37187921_1_1_1_1,00.html

Procurement Watch Inc. http://www.procurementwatch.org/

Singapore Anti-Corruption Statutes. http://statutes.agc.gov.sg/non_version/cgi- bin/cgi_retrieve.pl?&actno=Reved-241&date=latest&method=part Retrieved September 15,

2011.

Stolen Asset Recovery Initiative. http://www1.worldbank.org/finance/star_site/ Retrieved

September 15, 2011.

StAR World Bank and UNDOC. (2009). Asset recovery legal library and knowledge management consortium. Retrieved September 15, 2011 from http://siteresources.worldbank.org/INTSARI/Resources/ConceptNoteLegalLibrary.pdf

The Asia Foundation. http://asiafoundation.org/

The Egmont Group of Financial Intelligence Units. http://www.egmontgroup.org/international- organizations

The World Bank World Governance Indicators. http://data.worldbank.org/data- catalog/worldwide-governance-indicators Retrieved September 15, 2011

Transparency International. http://www.transparency.org/policy_research/surveys_indices/cpi/2010

United Nations Global Compact. http://www.unglobalcompact.org/AboutTheGC/TheTenPrinciples/anti-corruption.html

World Economic Forum. Partnering against corruption. http://www.weforum.org/issues/partnering-against-corruption-initiative

Chapter II

Causes, Correlates, Costs and Consequences of Corruption

Causes and Correlates of Corruption:

The potential causes can usually be divided in to four groups: Economic and demographic factors, political institutions, judicial and bureaucratic factors and geographical and cultural factors (Aidt, 2011, p.17).

Research on corruption is replete with the question of causation as pivotal in the search for solutions and cures. The study of what causes corruption leads to the question of what makes it more prevalent in some countries but not in others. Researchers have found that there is no one cause or correlate to corruption. Some variables are more correlated to corruption than others. It is found for instance that countries that are economically developed and have mature institutions have lower levels of corruption. The search for causes also leads to the question of what conditions and experiences are held in common by those who labor under high levels of corruption. As can be expected, conditions and practices held in common by successful countries are studied for the possibility of replication. The matter of replicating successful practices is much more complex given that historical and cultural experiences as well as levels of development vary. Shahabuddin (2007) cites Sandholz, Wayne, and Koetze who observe that corruption is correlated to certain political and economic policies and specify that democratic rules and trade and cultural interdependence with other countries lower corruption while state controlled economies, large bureaucracies, and a culture accepting of corruption drive then up (p.

306).

The goal of this chapter is to review known causes and correlates of corruption in the hopes that doing the opposite would bring up its solutions. It also aims to inquire into known costs and consequences of corruption, which often cycle back as causes themselves in order to generate some ideas on how best to fight it. The sections of this chapter include discussions on cultural and historic experiences and systemic correlates like political and economic institutions.

I examine what scholars have to say on the subject and add my own insights and comments on their arguments, using the Philippine experience as a framework for examples of causality and consequences of corruption.

Cultural and Historic Experiences:

Some scholars have found that countries which suffer from endemic corruption share cultural and historical experiences that predispose them to a culture of corruption.

Underdeveloped and developing countries often share the colonial experience of the plunder of their natural resources for the benefit of the “master class” or colonizing country. After the colonizers left, this practice of the strong preying on the weak continued with the colonizers’ agents in the form of the country’s social and economic elite who then continued with this system of predation with government policies that left the economic infrastructure feudal, rural, and in service of the economic elites’ interests. Therefore, the two strong correlates of low corruption scores, economic and political development were never really allowed to gain footholds in these countries. Randall and Theobald (1998) write, “It was argued that the legacies of colonial rule- economic, social, political- were largely harmful to development” (p.11).

It could be argued though that many of the advanced economies with low corruption levels also share the colonial experience so what conditions and practices allowed them to escape the fate other countries suffer? Notably in this category are Singapore and Hong Kong, both of which were colonies. Some argue that there are not just historical experiences at play but also cultural ones. Some claim that religion is predictive, since non-Catholic countries appear to consistently share the top 10 rankings, maintaining positive scores in corruption indices over the years. In the case of Singapore, Buddhist ethics is given some credit for the discipline the populace appears to practice. Others credit the Protestant religion for the success of the European countries like the Netherlands, Austria, Switzerland, and Denmark for perennially being in the top ten of the best performing corruption scores recorded by Transparency International.

What is it about the Protestant religion that may hold some answers to what set the successful countries apart in terms of combating corruption? Some say the Protestant work ethic, industriousness and entrepreneurial spirit underpins most of the economic success stories in the globe. Others say that Protestantism has always had the spirit of reform and activism that holds accountability as important. Pellegrini & Gerlagh (2008) write, “Another hypothesis which has been put under scrutiny in previous literature, is that Protestant religion, being relatively less hierarchical when compared to other churches and religions such as the Orthodox and Catholic churches and Muslims, is less prone towards power abuses and corruption. Furthermore, the

Protestant church has traditionally been apart from the state and played a role of opposition to the abuses of the government” (p.249).

It could be argued that historical and cultural imperatives have been found to cause the resistance of countries to anti-corruption programs. Although people from such countries openly decry the ills of corruption, most of them tacitly support the historic ties and arrangements they

67 enjoy and culturally find acceptable and useful. In the Philippines, there is much denunciation of corruption, yet patron-client relationships in a patrimonialistic/clientelistic system prevail.

“Historical influences are important to the extent that history shapes the cultural norms that dictate corrupt acts. Due to historical precedents, bribe giving and bribe taking might be socially acceptable in one country, while similar acts might be frowned upon in another country. Further, over time both bribe givers and bribe takers are able to develop efficient mechanism to engage in corrupt practices” (Goel, 2010, p.434).

Patron-client relationships have deep roots in societies’ past. Tribal relationships were often organized around a powerful “patron” to whom the villagers (clients) ran to for help and protection of every kind. The clients in turn are expected by their “patrons” to support their patron’s interests. This close embrace is tight, enduring, and endemic in countries like the

Philippines. Randall & Theobald (1998) write “The institution of clientage is probably one of the most basic outside of kinship. In fact, it is a relationship which appears when kinship alone is unable to guarantee the necessities of existence: subsistence and security” (p. 71). This explains in part why Filipinos publicly denounce corruption but privately boast to each other about their

“connections” to the powerful. Influence peddling is a way of life as is the expression “what are we in power for?” that they gleefully regal each other with whenever they perceive themselves as having been able to use influence to skirt the laws or gain unfair advantage. Barr & Serra (2010) write;

Why do some people choose corruption over honesty, while others not? Is it only the economic costs and benefits associated with a corrupt act that are important or do intrinsic motivations also play a determining role? And if intrinsic motivations are important, are they culturally determined? Intrinsic motivations originate from the internalization of social norms existing within a society. Norms are “social when the values underlying the norms are shared, so that deviation from the norm triggers social disapproval and, if the norm is internalized, generate feelings of shame and guilt.” Thus,

cultural values justify and guide the ways that social institutions function, their goals and modes of operation. Social actors draw on them, evaluate people and events, and explain or justify their actions and evaluations (p. 862).

Many people in the Philippines consciously cultivate these patron-client relationships by literally lobbying people in power to stand as patrons; “ninongs or ninongs” or “madrinos and padrinos” (mothers and fathers) in weddings and baptisms. It is a sign of a family’s status how high a government official they can invite to stand as padrino (literal translation: father). Within this cultural experience, corruption is something their own patrons are never guilty of. Only political opponents are guilty of that. Rose-Ackerman (2010) writes,

Similar ambiguity exists in China around the concept of guanxi, which literally means “social relationship” or “social connections.” Official pronouncements equate guanxi with bribery that undermines the public interest. However, embodied in popular discourse is the contradiction of the condemnation of guanxi on the one hand, and admiration on the other. Even as they condemn its prevalence, people brag about how they used guaxi to obtain benefits and refer to the ethics of obligation and reciprocity. (p. 130).

By this standard of ethics, favor seeking and favor giving when practiced by one’s patron is not corruption. It is only corruption when the same acts are practiced by political opponents.

This is largely why anti-corruption laws have had little deterrent effect. Anti-corruption laws are useful to persecute political opponents and not one’s network of friends and allies.

When the patrimonialist/clientelist system becomes embedded in the culture, a condition called state capture prevails. “The concept of state capture was developed by the World Bank primarily for explaining the reality of political life in transitional economies. The underlying assumption is that policies are decisively influenced by the bribing of legislators by a few oligarchs-very powerful business people. In other words policies are inevitably formulated to

69 favor the oligarchs, not the public” (Begovic, 2005, p. 4). People wonder why no matter who takes power in the Philippines, the same problems of corruption exists. This is because the state and its officials are held captive by an economic elite that controls all levers of power. Hellman

& Kaufmann (2001) write “We define state capture as the efforts of firms to shape the laws, policies, and regulations of the state to their own advantage by providing illicit private gains to the public officials”. Sometimes employees of multinational corporations excuse bribing public officials as culturally driven, a way to pay deference to public leaders to honor their gift giving traditions (Rose-Ackerman, 2010, p.132).

The problem with state capture is it enables a predatory oligarchic elite to continue the status quo because they themselves hold elections captive, the media captive, and even co-opt members of the judiciary and . This inability to self regulate is highlighted by Ionescu (2011) who writes “Political corruption thrives in strongly concentrated political systems. International cooperation has been beneficial in anti-corruption campaigns in European countries bordering the EU. Governments corroded by political corruption have little motivation to self regulate”

(p.118). It is a situation where the “perps” are in charge of policing themselves. Why would those benefitting from the system be willing to dismantle that system with reforms? This is why anti-corruption initiatives end up as window dressing for international agencies’ approval. It is unrealistic to expect those collecting the golden egg to kill the goose that lays it. Hechler et al

(2011) write,

The patron client system, which is at the heart of the governance problem, is based on partisanship. In the absence of an effective state, these patron-client relationships function as safety nets for large parts of the population. This safety functions needs to be considered and substitute mechanisms found- for instance, the introduction of a functioning welfare system-if one is to reduce reliance on informal patron-client systems” (p. 39).

Klitgaard (1998) asks the question of how anti-corruption programs would work in the common scenario when the people at the very top, are themselves the monopolists and discretionary power holders in collusion with local and international business people, and are unwilling to give up the rents they enjoy. The result is a corrupt equilibrium where bribing is the winning strategy and corrupt officials and favored businesses win but society loses (Klitgaard,

1998, p. 5). Although Klitgaard does not dodge this important question of state capture, he offers no real answer to his own question other than that it is more likely that high government officials will comply with international standards than not. He offers no explanation as to what would bring about this sea change in behavior.

Curiously enough, in February 2012, Philippine President Benigno Aquino, acquired the services of Klitgaard as a consultant and expert to assist him in his anti-corruption campaign.

This move is reminiscent of his now much maligned predecessor Gloria Macapagal Arroyo

(GMA)’s own procurement of her own anti-corruption expert from Hong Kong Tony Kwok.

Klitgaard was quoted as saying that Aquino is making significant progress in his campaign.

There is no mention of the fact that Aquino is non compliant with one of his main recommendations that the “first big fish to be fried must come from the party in power”

Klitgaard (1998) powerfully asserts that;

Powerful strategies begin by frying a few big fish. When there is a culture of engaging in corrupt acts with impunity, the only way to begin breaking it up is for a number of major corrupt figures to be convicted and punished. The government should quickly identify a few major tax evaders, a few big bribe givers, and a few high level government bribe takers. Since campaign against corruption can too often become a campaign against the opposition, the first big fish to fry should be from the party in power (p.4).

By targeting only his political opponents, like former president Gloria Macapagal

Arroyo, for prosecution in corruption cases, Aquino falls short of this Klitgaard maxim of beginning with one’s own backyard. “This is important because this is the main” reason Lee

Kwan Yew of Singapore succeeded in his anti-corruption campaigns where others continue to fail. Lee began in his own backyard, allowing for the prosecution of including his own closest family members.

What the Philippines has is a system of what I have coined “hawak sa bulsa” (held by the purse strings) politics. This means actors are held captive through their pocketbooks by the ruling elite. The same economic elite contribute to candidates’ campaigns for the purpose of holding them by the neck. The elected officials then distribute campaign funds and pork barrel benefits to their political machine in a skewed version of “trickle down economics”. It is puzzling that despite citizens’ knowledge of corruption’s cost, the problem remains resistant to almost every effort to contain it. The interaction between formal rules and informal social structures provide a kind of equilibrium based on historical experience (Kingston, 2008, p.100).

Human beings tend to repeat behavior that works. This system of patronage politics has worked for them for centuries. Reform then simply means replacing one set of oligarchic agents enjoying and distributing largess, for another. I call this the “taking turns at the trough” politics.

“Some literature is not so much interested in the background or motives of the corrupt official, but in the culture and structure of the organization within which the agent is working. For the first time, we are looking not at micro level of individual corrupt agents, but the meso level of their respective organizations” (De Graff, 2007, p.51).

In this system, there is no sense of “national interest” or “the greatest good for the greatest number”. This kanya kanya (each to his own) system is often seen as the only means of

72 survival in the economic food chain. Some scholars attribute this lack of unity and inability to act on solutions as one people to ethno-linguistic fractionalization. “The underlying hypothesis is that countries with a more varied social landscape and having more competing social groups will be less able to enforce a cooperative solution, and the competing social groups will use corrupt practices in their rent seeking activities. Most of the empirical work finds that countries having greater ethnic diversity tend to have higher levels of corruption” (Hallagan, 2010, p. 30). The

Philippines has over seven thousand islands, thirteen languages and over 150 dialects.

Regionalism is pointed out as a root cause of corruption because this kind of identification and affiliation is sometimes more persuasive than the state. Public officials may exploit these ethno linguistic identity markers to favor those from the same groupings (Pellegrini and Gerlagh, 2008, p. 250).

Systemic Correlates:

“Observers of Third World societies will attest to the fact that the situation vis-à-vis corruption can change for worse in the space of a few years. For instance, Burki (1999), Theobald (1990), and Klitgaard (1988) detail how rapidly, within a generation, systemic corruption replaced isolated corruption in Pakistan, the Philippines, and Nigeria” (Feisal, 2008, p. 21).

Corruption can best be understood as a function of monopolies, discretion, and accountability. This is expressed as the formula Klitgaard (1998) makes, “C=M+D-A.

(Corruption equals Monopoly plus Discretion minus Accountability), Whatever and wherever the activity is, corruption thrives when people or groups of people have monopoly over the distribution of goods and services, and absolute discretionary power over who benefits from

73 them and how, without being held accountable for their actions by any formal or informal system of checks and balances” (p. 4). Feisal (2003) asserts convincingly that “a system of checks and balances like that in the US” is best because the system of separation of powers means having power bases that the executive has little control over. This system of countervailing powers increases the likelihood that corruption, even grand corruption, can be detected and punished (p.31).

A democratic system is more likely to curb corruption because public officials serve at the pleasure of the people who can keep or remove them in regularly held elections and as such are expected to serve the electorate’s interests. A democratic system also allows for the kind of transparency that can expose wrong doing and extract penalties formally or informally. In order to be ingrained in individual and social values, and permeate the majority of the population, long term democratic rule must prevail (Shahabuddin, 2007, p306). “In the case of countries with continuous democracy since 1950, Mauro found a small effect of democracy on corruption.

Countries with uninterrupted democracy (45 years or more) had a corruption level 1.5 points lower (on a 10 point scale) than democratic countries with fewer than 45 years” (Shahabuddin,

2007, p. 308).

For under developed countries, patronage politics or crony economics are seen as the major stumbling blocks to curbing corruption. Patronage politics, particularly in its common form of crony capitalism, is seen as causal to underdevelopment. Development is the desired outcome as it often correlates to better corruption scores. Development is not necessarily enough as when corruption is endemic and embedded; it permeates all organizations, gender and age groups and is seen as permanent and deep rooted. “Countries suffering from endemic corruption are those countries least advanced in marketization and institutional reform” (Inonescu, 2011, p.

118). Systemic corruption is almost impossible to overcome and has a lasting effect on the economy when it becomes part of a country’s culture, behavior, attitudes, rules and institutions

(Myint, 2000, p.41).

Systems drive behavior. There are systemic correlates common to corruption. Weak institutions where political, legal, and administrative institutions allow for and incentivize public officials to take advantage of their powers to extract or create opportunities for lagay (rent), are correlates of corruption. Aidt (2011) found that perhaps the main culprit is the level of discretionary powers enjoyed by public officials in order to create opportunities to extract rents

(Aidt, 2011, p. 16). Begovic (2005) writes “Deregulation means abolishing government intervention that is prohibitive, thus allowing market forces to function effectively” (p.5). The more laws and regulations a country has, the more opportunity for bad behavior. This is because restrictions incentivize people to get ahead in line with the right “influence” from public officials who have unchecked and unlimited arbitrary discretionary powers. This leads to high incidences of corrupt behavior (Myint, 2000, p. 40). According to Ionescu (2011), there are two drivers of corruption, the first being political institutions and the second being economic policies.

“Accordingly, more government regulation ceteris paribus (all things being equal), results in fewer free market operations, and therefore more corruption” (Begovic, 2005, p.5).

Although Aidt, Begovic, Myint, and Ionescu argue that more regulation result in more corruption, I think there is a middle ground to be argued for here. I would argue that some regulations are necessary and Begovic’s free market solution has not been the panacea for corruption it has been thought to be. Deregulation, privatization, and liberalization simply shifted from public monopoly to private sector monopoly of certain industries by cronies of the leadership. I would assert that a few correct and well placed regulations that are implemented

75 efficiently are better than too many regulations or too few. A few regulations that are subject to checks and balances, transparency and accountability would be ideal. Although this paper focuses on public corruption, more specifically grand corruption, I do bring up the issue of private corruption, which is a big loophole in Philippine law. Philippine law only punishes public officials and not the briber in the private sector. An example of the damage this loophole makes is the possibility that former president Arroyo will escape conviction because it was her husband, who is in the private sector, who allegedly made the nefarious transactions. It is still too early to tell if there is a smoking gun that will tie the former president directly to the corrupt acts she is being accused of.

Political institutions set up procedures for accountability on the part of the briber and the bribee. The second component is economic as this has to do with wealth and goods distribution.

The finding is that the more level the playing field is with regards to how goods are distributed, the less opportunity for corruption (Ionescu, 2011, p.119). According to Aidt (2011), specifically, political systems with effective governments, rule of law, good regulatory policies, and voice and accountability are less prone to corruption. Countries with economic policies for economic freedom, and higher wages as percent of GDP, higher GDP per capita have less incidences of corruption (p.17). Ionescu (2011) asserts that political institutions in a democratic country provides for effective checks and balance to contain corruption. Democratic political institutions modeled after the parliamentary system along with press freedom are found to promote stability that decreases levels of corruption. Decentralization and fiscal autonomy are found to reduce corruption (p.119).

Political institutions that provide for transparency, matter in the fight against corruption.

Lack of transparency in the form of extra budgetary accounts, or unaudited accounts, even if set

76 up for legitimate purposes, are ripe for plundering opportunities. Most disturbing is how foreign aid received from donor countries or proceeds from the sale of oil, minerals and other natural resources, find their way to secret accounts that do not go through budgetary controls. (Tanzi,

1998, p.569). Tanzi found that there are discretionary powers more vulnerable to abuse. They are in the areas of taxation, such as incentive foreign trade taxes, zoning laws manipulating land values, permits to government owned property such as logging, mining and other natural resources, rights of extraction to natural resources, decisions on foreign investment, monopoly of export/import activities. All these activities are prime opportunities for trading on influence. A government system that allows for those discretionary powers increase the occurrence of corrupt behavior. (Tanzi,1998, p. 570).

Ades and Di Tella (1999) as cited in Hallagan, 2010, find that there are three main correlates to high levels of corruption namely; country fixed effects, economic policy, and political system. Human beings do a cost benefit analysis of choices in behavior. If the benefits of corrupt behavior outweigh the risks, then the behavior will continue unabated. “The expected costs for government employees for engaging in corrupt conduct are related to job compensation and the probability of detection” (Hallagan, 2010, p.29). Tanzi (1998) observed that the more merit based the system of government hiring is, the lower the levels of corruption (p.571). Cost benefit analysis of corrupt behavior includes how large the size of the rents is compared to the likelihood of detection, capture, or penalties. Prosecution and conviction are generally slow and unsuccessful. Due process requirements to adhere to the rules of evidence, which is often not available or difficult to procure, becomes major obstacles to the application of behavior deterring penalties (Tanzi, 1998, p.576). The imposition of harsher penalties may be counter- productive

77 as penalties are often used selectively by the party in power as a weapon against political opponents (Tanzi, 1998, p. 589).

Political institutions that provide for independent and fiscally autonomous accountability agencies manned by people of high integrity, that have the power to enforce penalties, matter in curbing corruption. Independence from the chief executive or prime minister of the country is a must in these agencies. This is so that the process is not politicized and used for political witch hunts and vendettas by the party in power. This is not the case in some countries as these agencies often report to the president or prime minister (Tanzi, 1998, p. 575). “When top political leaders do not provide the right example, either because they engage in corruption or, as is more often the case, because they condone such acts on the part of relatives, friends, or political associates, it cannot be expected that the employees in the public administration will behave differently” (Tanzi, 1998, p.576). Popular legitimacy is eroded by endemic corruption.

“One of the most basic functions of government is to” provide public goods and services.

Corruption in this area can cast serious doubts about the government’s competence to govern

(Rose-Ackerman, 1999, p.26).

Jain (2011) notes that there are three conditions necessary for corruption to exist, the first being the close link between a government’s use of regulatory powers and rent extraction opportunties. The losers in the corrupt bargain between government officials and entrepreneurs often do not have the legal and political clout to challenge or prevent the loss this arrangement visits on them. Well developed public institutions are seen to be able to coordinate the responses of the losers which in turn are a preventive measure against corruption. Competitive markets are necessary to conditions for curbing corruption (p. 4). Although increased competition is by no

78 means a guaranteed antidote to corruption, increased competition means that those who have monopolistic control over the economy lose it (p.5).

Jain (2011) adds that the second condition for corruption to thrive is to institutionalize it in government bureaucracy. Institutions of government allow corrupt bureaucrats the ability to function independently from any controls from inside or outside the bureaucracy. The more successful corrupt bureaucrats are in circumventing controls, the more others follow suit in the same mold (p. 5). The third requirement for corruption to flourish according to Jain, is for public institutions intended to curb corruption, like a free and independent media, judiciary, and civic groups, which can expose and extract moral and legal retribution for wrong doings, to be weak and ineffective (p.5).

Lederman et al (2001), agree that the more restrictions there are in the economy, the more opportunity for public officials to extract rents or lagay (speed money). Studies indicate a strong correlation between lower levels of corruption and free trade policies (Lederman et al. 2001, as cited in Hallagan (2010). “It is also clear that certain forms of government intervention in the economy, namely in the regulatory area, do promote corruption by creating greater opportunities for bribe taking and bribe giving behavior” (Goel, 2010, p. 443). Regulations are intended to protect public interest from private greed. They are also intended to benefit the industry they are regulating. Corruption enters the regulatory equation when investors purchase preferential treatment in term of getting away with not complying with regulations in exchange for a bribe.

The more regulations there are in an industry, the more “free passes” corrupt officials have to dangle to businesses in exchange for a bribe. It is no accident that the Philippine Bureau of

Customs is reported to be one of the most corrupt. The more restrictions and tariffs on goods coming into the country, the more opportunity for corrupt officials to extract rents from

79 businesses in exchange for avoiding complying with restrictions. Another example is the restriction on foreign imports of luxury cars. The corrupt outcome of this regulation is that the

Philippine Senate President himself, Juan Ponce Enrile, is implicated in vast smuggling operations in the region he represents. (http://www.rappler.com/nation/21826-miriam-wants- enrile-probed-on-port-irene), Only those with access to power can then bring in restricted items for vast profits. These are some of the reasons why Foreign Direct Investment remains sluggish in the Philippines despite some gains in Gross Domestic Product. In state controlled economies, high government officials decide all issues of success and wealth. The size of the public sector therefore has direct bearing on the size of corrupt activities (Shahabuddin, 2007, p.306).

An example of this in the Philippine setting is the contentious issue of the 60/40 restriction on foreign ownership. Foreign Direct Investment is stymied by this restriction to 40 percent of ownership of their investment. The rent seeking behavior this encourages is for foreign investors to pay nationals and government officials for the privilege of investing in the country. They would rather go to Singapore and other prosperous countries like it who allow 100 percent ownership. Pellegrini and Gerlagh (2008) write;

Natural resources are a common source of high rents, available to those that have obtained the rights for their exploration and extraction. These rents promote activities aiming at influencing policy makers who have power on the distribution of exploitation rights, drawing away resources from other productive activities. Thus natural resources abundance would be associated to higher corruption, though we cannot take this effect for granted since revenues from natural resources could also be used in order to produce goods, decreasing the need to revert to bribing in order to access them (p.251).

Natural Resources, like logging, mining, and oil explorations, provide vast opportunities for corruption. The reason for this is how central many facets of it remain. These range from granting of coveted licenses, which are usually given out to big election donors and supporters,

80 manipulation of prices for greater profit, and not enforcing standards like environmental or safety standards. These mean greater profits and greater rents. This industry is an example of where laws and regulations can actually do some good. Laws that would require the involvement of other institutions so that there is greater transparency and accountability. (http://14iacc.org/wp- content/uploads/AlexandraGillesNaturalResourcesIACC.pdf).

Pelligrini and Gerlagh (2008) observe that the consensus in the literature is that wealthy countries have better institutions. This is partly because prosperity brings with it some conditions that correlate with lower levels of corruption. These are access to education, health care, mass media, urbanization, all of which come with development which has been found to increase a population’s intolerance for corruption. The wealth corruption causality may go both ways, each contributing to the other (p.250). “The question of causality is particularly pressing in the case of the corruption-development nexus. Does the strong and robust correlation between GDP per capita and the various corruption indices tell us that development reduces corruption or does it tell us that corruption is an obstacle to development? Both directions of causation are plausible”

(Aidt, 2011, p.18).

In addition, Aidt (2011) finds that corruption acts like a tax on human capital and decreases economic growth. Consequently, there is less national income. Inefficient economies are fertile ground for predatory public officials to make hay. It is also possible that corrupt officials would want to combat corruption in order to bring about bigger pay offs in the future

(p.18). “Streamlining procedural legislation and making it simple and transparent is also important because it minimizes the uncertainty of economic agents, reduces the discretionary power of civil servants, and increases the visibility of corruption cases” (Begovic, 2005, p.6).

Shahabuddin (2007) asserts that the reason free trade helps lower levels of corruption is because it takes the power away from government officials to control price and trade. As such there is no incentive for business to bribe officials if market forces and not government officials dictate prices. Another consequence of this is the inefficient traders drop out when they are unable to control markets instead of being propped up artificially by government officials.

Integration in international trade is important in curbing corruption as most western businesses have norms of operation which preclude corruption morally and legally. Further, most international trade is dominated by developed countries, mostly in the persons of “western” business people. They conduct business based on their norms. These norms prohibit corruption on both a moral basis as well as a legal basis. People who deal with western businessmen will learn to behave within western rules and parameters (p. 306). Shahabuddin uses the word

“western” to describe what may actually be better called multinational corporations involved in international trade.

Not everyone agrees with this rosy assessment of the west’s involvement in corruption. It is a fact that the supply side of the corruption equation is dominated by businessmen from the west. Bribe givers are intrinsically part of the equation but given less attention as causal to the problem of corruption. Many of them come from large multinationals from countries that score very highly in corruption indices. These scores are usually generated from surveys of business people, experts, academics, scholars inside and outside of the country on their perception of and experience with corruption. Then scores from different organizations are factored in to come up with a cumulative score. Both the demand and supply sides of bribes are equally culpable yet underdeveloped countries get penalized for it in corruption scores. The presumption is that the bribed is the one initiating the unlawful exchange. It is also true that firms factor in the bribes as

82 a “cost” of doing business. “Hence, there is growing realization in the industrialized world that to help poor countries fight corruption, it is not sufficient to view the matter only from the demand side and to be advising them to launch campaigns against corrupt officials and systems in their countries. For a more realistic and balanced approach to the problem, industrialized countries must also direct attention to the supply side, to bribe givers, who often turn out to be business firms with head quarters in their own backyard” (Myint, 2000, p. 43).

Income level is a corruption correlate that is both cause and effect. People with low income are much more vulnerable to opportunities for higher income presented by corruption.

The more the need for additional income, the more the risk of illegal acts becoming acceptable.

Hence the creation of and access to government jobs are extremely attractive for low income countries (Shahabuddin, 2007, p. 306). Quoting Ulnser, Shahabuddin (2007) writes that the unequal distribution of wealth and resources in society is at the root of corruption. Income inequality results in those who have influence over those in power accumulating even more income (Shahabuddin, p. 306). Income inequality is another corruption correlate that goes in both causal directions; it is both a cause and an effect of corruption.

Costs and Consequences of Corruption

“Corruption violates the rule of law, and the rule of law is a prerequisite for the market economy. If there is no rule of law, there is no protection of private property rights and no contract enforcement” (Begovic, 2005, p. 5).

The causes and correlates of corruption often overlap as costs and consequences of corruption. In other words, the causes are often also the consequences. Therein lays the difficulty in measuring or quantifying causes and effects. The consequences of corruption on the body

83 polity are immense. In the Philippines, the theft of 50 percent of the national budget is money that does not go to job creation programs, wealth creation, and education, health care, and livelihood programs. Corruption’s corrosive effect destroys trust in government and encourages a free for all chaos that contributes to the cycle of instability which then cycles back as lack of development which then cycles into even more corruption. The strong correlation between economic indices and corruption makes the problem even more intractable. These variables feed off of each other and strengthens each other. Lack of development strengthens even more predatory corruption. In Chapter IV, I will show more fully, with charts and indices how economic indices, such as GDP and FDI, correlate with levels of corruption, and performance in the economy more predictive of better or worst corruption scores among the countries under study.

Impact on Political/Social Development:

Secrecy and inequality are by products of corruption. Both are incompatible with democratic institutions which are created and survive along non-personalistic, impartial, and legal applications of the law. Corruption blurs the lines between formal and informal standards of behavior “to the extent that it is excused in some cultures despite universal laws to the contrary”. The outcome of corruption’s favor giving and the arbitrary transferring of resources from one group to another, benefits those groups to the detriment of society in general. This system of favor giving and resources shifting threatens market and democratic forces

(Shahabuddin, 2007, p. 305). Corruption prevents the development of social and political institutions as it requires for its survival the suppression of dissent particularly by those opposed to it. (Jain, 2011, p. 6).

Klitgaard (1998) agrees that it is an uphill battle facing anti-corruption adherents. He writes, “But when corruption becomes the norm, its effects are crippling. Such systemic corruption makes establishing and maintaining internationally acceptable rules of the game impossible, and is one of the principle reasons why the least developed part of our planet stays that way” (p.4). Corruption subverts the rules of the game, which is devastating to the justice system, banking and credit, property rights which consequently impact political and economic development. Socially corrosive forms of corruption include polluters being allowed to pollute rivers and hospitals being allowed to demand exorbitant prices from patients (Klitgaard, 1998, p.

4). A perfect example of how corrosive corruption can be to the environment and welfare and security of the people is illegal loggers being allowed to denude the forests in the Philippines which then cause massive flooding and human destruction when the rains come.

Impact on Resource Allocation and Human Development:

Corruption affects how the national budget is used. The theft of the national treasury leads to a loss of revenue that could have been used to finance government programs. The result is the government having to rely on the difference between the value of the gold bullion and the value of the coin made from it. This means the government relying on the profit between the cost of production of currency and its real value in gold as a source of revenue to offset what was stolen. By devaluing the currency, the profit in seigniorage is higher. Seigniorage refers to the difference between the value of gold and the cost of producing currency. This then results in devaluing the currency and increasing the price of goods and services otherwise known as inflation.“This raises inflation which acts as a tax on both consumption and investment by virtue of a cash in advance constraint. The result is a fall in capital accumulation and growth”

(Blackburn, 2011, p.225). Revenues generated through taxation become distorted as corrupt

85 bureaucrats may have an incentive to lower taxes for the benefit of their partners or may be part of the overall bureaucratic inefficiency. Human development is negatively affected because corruption promotes rent seeking activities instead of productive activities. (Jain, 2011, p.8).

Another consequence of corruption on how the budget is spent is it encourages large projects where “commissions” or rent are difficult to trace as they are often declared by bribers

“as part of the cost of doing business” often entering the books as public relations and promotions expenditure. Low priority projects, such as cosmetic edifices used for show are given more importance in budget allocation. An example of this in the Philippine experience is how the former first lady Imelda Marcos, was able to prioritize the construction of buildings for culture and art over other projects that may have induced more investment. The kickback on these low priority projects are reported to have been as high as 25 percent of project cost. That is the incentive to corrupt officials to prioritize said projects. “It should come as no surprise” that programs through which no one stands to make a profit, either legitimately as a business investment, or illegitimately as rent, do not gain much traction in national budgets. Education and healthcare expenses, such as teachers’ salaries, school buildings, books or illness prevention programs , universal health care insurance, or jobs training programs are more likely to end up on the chopping block of national budgets in corrupt countries. Although corruption can also exist in the health care and education sectors, no one stands to make the kind a profit on them that will allow for as much as 25 percent of service or material cost. No shortage of funding in military hardware exists in corrupt regimes’ budgets. Bitzinger ( 2012) writes “corruption in arms sales persist because of the lack of transparency. Since there is no sticker price for weapons, cost are negotiable, permitting bribes and kickbacks to be factored in secretly.” (para.

10).

Large, untraceable rents are always available in these kinds of purchases. Education, healthcare, and livelihood programs which could ease the hardship experienced by the majority do not fall in these rent generating expenditures (Myint, 2000, p.50). “Top officials may select projects and make purchases with little or no economic rationale. For example, if kickbacks are easier to obtain on capital investments and input purchases than on labor, rulers will favor capital intensive projects irrespective of their economic justification” (Rose-Ackerman, 1999, p.30)

Public expenditures and investments are favored by corrupt regimes rather than private investment. White elephants which have little economic value but high opportunities for rent are given priority (Rose-Ackerman, p.30). “This has reduced the productivity of such expenditure and has resulted in projects that would not have been justified on objective criteria of investment selection such as cost benefit analysis” (Tanzi, 1998, p.568). Corruption in government procurement can result in sub standard quality of materials in public infrastructure and services

(Mauro, 1996, p.8). When a 40 percent bribe is factored into expenses, corrupt officials or businesspersons have to guarantee their profits by cutting cost (quality) of the materials used on a project.

The impact of corruption on human development, which education is an integral component of, is gargantuan. Power without restraints is unlikely to promote the general development of humanity and that is why good governance is critical to human development.

(Ackay, 2006, p.35). “An educated population results in higher economic growth that causes equal distribution of resources among people. Tanzi found a significant relationship between spending on education and corruption. He found that a one standard deviation increase in the

87 corruption index (a 2 point increase) requires increasing spending on education by half a percent of GDP” (Shahabuddin, 2007, p.306). Berkman et al (2008) lists the costs of corruption:

Corruption undermines development projects in three primary ways. First, the world’s poor often do not receive the full benefit of development aid because as much as 10, 20, 30 and even higher percentages of development loans are siphoned off –often in the form of bribes- by corrupt actors, such as government officials, contractors, and in rare cases, by employees of international organizations. Bribe payers in turn short-change the project by, for example, using substandard materials or performing below specification, in order to pay these bribes. Second, even though aid recipients may consequently receive only a fraction in benefits from every dollar or euro spent for development aid because of corruption, they nonetheless have to pay back the full amount of the development loan, often with interest. The resulting debt burdens placed on the world’s poor stifle any chance they may have of freeing themselves from the vexing cycle of poverty and debt. Worse still, the poor in developing nations have grown cynical of international organizations that lend money to corrupt leaders while providing little or no oversight to ensure these loans are used for the purposes intended. Third, corruption leads to donor fatigue. Taxpayers from donor countries, along with their elected representatives responsible for approving development aid budgets, are increasingly skeptical that development aid is being used for legitimate purposes or that development projects are being effectively implemented. Pleas from international aid agencies that more aid is needed for development projects or famine relief are increasingly falling on the deaf ears of tax payers, who perceive that international organizations either ignore, or do little to stop, the corruption that makes a mockery of international aid” ( pp.126-127).

Impact on Income Inequality:

It should come as no surprise that corruption causes a great disparity in income distribution. This is because those connected to the powerful are better able to take advantage of economic rents. Cronies are able to enjoy monopoly control of businesses, resulting in gargantuan profits that they otherwise would not enjoy had they not been so well connected.

Wealth begets wealth so the tendency of this arrangement is to concentrate wealth creation and accumulation on the wealthy (Myint, 2000, p. 47).

High government officials and their multinational cohorts are members of the economic elite who benefit from the big ticket corrupt deals. This elite includes the highest government officials and executives in multinational corporations who engage in contracts sizable enough to impact the country’s development and budget (Rose-Ackerman, 1999, p.27). Tanzi (1998) writes that; the effects of corruption include creating monopolies for private interests that increase market failure and block democratization. “It functions as an arbitrary tax, distorts government role in the enforcement of contracts, reduces the legitimacy of the market economy, reduces the legitimacy of the market economy and democracy and blocks the movement to democracy” (p.

583).

The net effect is that the poor are the primary victims of corruption as it reduces their earning potential (Tanzi, 1998, p.584). Shahabuddin (2007) quotes Meon et al who found that weak governments are more vulnerable to corruption than those that are strong. The poor are the first victims of corruption because they do not have the political or moral resources to resist. It is a trap that destroys trust and builds helplessness and hopelessness as people resign themselves to their fates. World Value Survey reports that systemic corruption encourages people not to better their lot (Shahabuddin, 2007, p. 306). This finding of hopelessness is not shared by the

September 2012 surveys on corruption done by Social Weather Stations (SWS) on the

Philippines. The SWS (2012) reports that 65% of the general public believes that government can be run without corruption as opposed to 33% who think that corruption is part of the way the government works (p. 15). On the question “A person like me cannot do anything to reduce corruption in government” people in the Philippines disagreed with that statement at a rate of

66% majority. Based on these survey results, Filipinos, despite the existence of systemic corruption, do not believe they are helpless against the problem.

Jain (2011) agrees that there is a strong correlation between corruption and income distribution. Citing Gupta, Davoodi, and Alonse-Terme (2002), he writes that the Gini coefficient for income from 1980 to 1997 of a sampling done of 40 countries, reveals that a worsening of corruption scores can raise the Gini coefficient by 11 points, for every one standard deviation (2.5 on a scale of 1-10 in the corruption index). Given that the average Gini value is

39, this finding is significant (p. 7). Corruption affects the whole economy but its most vulnerable victims are the poor. Corruption lowers the growth rate and hence disproportionately hurts income distribution and the poor in particular. (Jain, 2011, p.6).

Impact on Investment:

Corruption is correlated to higher monetary growth which drives up inflation because of the negative effect it has on economic development. Corruption impedes long term economic growth because it gives government little choice but to rely on inflationary finance, which acts like a tax on capital formation. The lack of liquidity that this causes is harmful to capital formation and investment. (Blackburn, 2011, p.227). Egger (2005) writes that there could be a short term “helping hand” effect of corruption on foreign direct investment. There could be a rise in investment with multinational corporations seeing the cost of “speed money” as an efficient way of doing business and lowering the transaction cost of doing business in a foreign land. This is opposed to the long term “grabbing hand” effect of corruption emphasized by other analysts.

“The positive relation between FDI and corruption suggests that administrative controls and bureaucracy are used to allow government officials to share in the profits from foreign investment” (Egger, 2005, p. 949). Unclear and inconsistent policies are big deterrents for FDI which looks to make long term decisions based on those policies (Myint, 2000, p. 49).

Business likes certainly and will purchase as much certainty it can. It thinks it is doing this by buying off government officials particularly in foreign lands. Rose-Ackerman (1999) writes, “Firms pay bribes to obtain certainty, but the certainty may be illusory because they cannot enforce corrupt deals” (p.17). Tanzi (1998) writes that corruption reduces investment because it raises the cost of doing business by raising uncertainty. Lower growth rates are the outcome of lower investments. Growth is a function of investment (p.585). The greater the variance in corruption levels, the greater the impact on foreign direct investment (p.586).

Business not only tries to buy certainty, it likes to buy favorable treatment. It wants rules and regulations lightened or interpreted in its favor. This creates a win- win situation for both business and public official who want to trade on their ability to bend regulations in the bribes favor (Rose-Ackerman, 1999, p.18). This arrangement has a short term advantage for investors as the “greasing the wheel” effect of corruption does improve efficiency by shortening procedures (Aidt, 2008, p.213).

Investors, particularly foreign investors want assurance that property rights are protected.

Corruption decreases this assurance. They also compare the bottom line, so added costs, as in the

20 to 40 percent in bribes sometimes required to win a bid, can have serious negative effects on their investments and cash flows into corrupt countries. Bribes decrease their profits. This will often decide where their money is going (Begovic, 2005, p.7). The arbitrary nature of corrupt regimes raises the concern that contracts will or will not be honored depending on the rulers’ whims or what was agreed upon will change with new demands and conditions after money has changed hands. Investors are also concerned that a corrupt regime can be overthrown which can mean that the new regime will not honor old contracts (Rose-Ackerman, 1999, p. 34).

Shahabuddin (2007) cites Trainman’s finding that corruption affects economic growth in the sense that a tenfold increase in GDP can significantly lower corruption by 4.16 to 4.76 points on a scale of 1 to 10 with 10 being most corrupt. This research will discuss more fully in Chapter

IV how economic growth affect corruption. In a different study, Reihman et al’s (as cited in

Tanzi,1998)), found that a 2.15 increase in GDP meant a 1.7 reduction in the corruption index.

Even a 1.2 point reduction in corruption scores increases growth rate by 1 to 6 points. Tanzi found that an increase of .5 percent in economic growth rate means a one standard deviation improvement in corruption scores. One standard deviation means a two point increase or 4 out of

10 to a 6 out of 10 improvement. Foreign Direct Investment increases by 1.2 percent points for every 1.2 points decrease in corruption. The Reihman findings provide strong evidence that the social and economic life of a country is adversely affected by corruption (Shahabuddin, p. 308).

Tyler (2011) writes;

Bribery also leads to a host of problems in the country where the bribe is received, including: reduced growth, market distortion, price distortion, reduced domestic and foreign investment, increased poverty, shoddy or dangerous products, damaging environmental practices, increased human rights violations, social destabilization, and domestic unrest. For these reasons, corruption and bribery are increasingly condemned by all stakeholders, including governments, corporations, nongovernmental organizations, multinational organizations, the World Bank, and the International Monetary Foundation” ( p. 140).

Foreign Direct Investment increases by 4 percent for every one standard deviation improvement in corruption scores. This makes it all the more obvious that in order to improve the economy, corruption levels must be lowered. Investment is also positively affected by an improvement in bureaucratic efficiency. Mauro as cited in Shahabuddin, 2007, found that a 4.75 percent increase in investment against the GDP corresponds with an increase in bureaucratic

92 efficiency. Mauro also found that a one point increase in GDP corresponds with a one point increase in bureaucratic efficiency. It is only logical that companies would invest more in countries where the bureaucracies are efficient. This Mauro found more significant in terms of investment rates no matter what the country’s ethnic, colonial or political stability may be

(Shahabuddin, 2007, p. 308).

This chapter gave a tour of existing scholarship on the causes and consequences of corruption, using the Philippine experience as an example in identifying what they are. Scholars appear to agree that corruption has multiple causes and consequences. They organize them according to cultural, political and economic factors. They support the close correlation between economic policies with political institutions as drivers of levels of corruption. Political institutions that have checks and balance capacity and a high degree of transparency tend to lower incidences of corruption. There appear to be a consensus of opinion that a deregulated and liberalized economy offering the least uncheck discretionary powers to government officials, provides less opportunity for rent collection. I will show in Chapter IV how some data contradict that conclusion. The literature appears to divide along the lines of being for a strong state or weak state in efforts to contain corruption. I would argue that there is another way to look at it. A strong state that is held captive by a predatory oligarchic elite would be unable to enforce laws that a strong state like Singapore can. To weaken the state that is under state capture by said elite, further erodes any check and balancing dynamic necessary in promoting lower levels of corruption. Although I would argue that systems drive most behavior, a culture that tacitly accepts corruption as a form of trickle down economics or wealth distribution will be resistant to any attempts at reform.

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Chapter III

The Multi-Level Governance Response to Corruption

The borderless nature of grand corruption has necessitated an unprecedented level of coordination and cooperation among stake holders addressing it. International anti corruption laws and treaties underpin regulatory reforms and provides the legal framework. There was a growing realization that solutions can no longer be unilateral in a borderless crime like corruption. A multilateral solution, which will be referred to in this research as MLG or Multi-

Level Governance, had to be crafted. The results have been sketchy at best with varying degrees of compliance and non compliance from participants. The denunciations of corruption have been loud and vociferous globally but compliance with measures to curb it does not match the rhetoric of support given it. This chapter will give a closer look at what these measures are and who are tasked to implement them.

Below is a flow chart that shows what and how the different levels of governance interact with each other. Note that IGOs and INGOs flow from UN Convention Against Corruption and

OECD anti bribery convention as the animating laws for ACMLG.

Flow chart shows coordination between international and national anti-corruption governmental

and non-governmental bodies. UNCAC and OECD anti bribery convention are classified in this

flowchart as the controlling anti-corruption international legal framework and not as IGOs.

Multi Level Governance Anti‐Corruption Flow Chart

International Legal Framework

United Nations Convention Against Corruption (UNCAC) OECD Anti‐ Bribery Convention

Anti‐Corruption International Non‐ Anti‐Corruption

Governmental International Governmental Organizations (INGOs) Organizations (IGOs)

Global World Bank Transparency Financial Financial Stolen Assets International Action Task Integrity Recovery Force (FATF) (StAR) Initiative

Philippine Anti‐Corruption Domestic Legal

Anti‐Money Laundering Act (AMLA)

Domestic Anti‐Corruption Domestic Anti‐Corruption Non‐Governmental Governmental Organizations (GOs) Organizations (NGOs)

Anti‐ Transparency Money Office of the and 98 Laundering Ombudsman Accountability Council (OMB) Network (TAN) (AMLC)

This research focuses on the Anti-Corruption MLG initiatives that zero in on the flow of illicit money. Legitimizing and empowering these efforts is an international legal framework consisting of anti-corruption treaties and conventions like the UNCAC (United Nations

Convention Against Corruption) and OECD (Organization for Economic Cooperation and

Development) Anti-Bribery Convention. For the purpose of the understanding the MLG flow chart, UNCAC and OECD anti bribery convention are the “actions” taken and not as intergovernmental organizations. These treaties and conventions brought into being INGOs

(International Non-Governmental Organizations) like the GFI (Global Financial Integrity) and

TI (Transparency International) and IGOs (International Governmental Organizations) like the

World Bank StAR (Stolen Assets Recovery) initiative and the FATF (Financial Action Task

Force). This international legal framework has counterparts in domestic legal frameworks like the AMLA (Anti-Money Laundering Act) and domestic NGOs like TAN (Transparency and

Accountability Network) and GOs (Governmental Organizations) like the AMLC (Anti-Money

Laundering Council) and OMB (Ombudsman). Some of these entities have coercive powers to secure compliance. “Overall, the OECD Anti-Bribery Convention and UNCAC were considered the most influential” (Carr and Outhwaite, 2011, p.637) . These conventions are considered the most influential because they have the widest number of countries that ratified them and are participating in the crafting and monitoring of agreement compliance. The Philippines is a signatory of UNCAC but not of the anti bribery convention. These conventions give intergovernmental organizations like FATF the legal framework to work from. Unlike the two conventions, FATF use the threat of sanctions in cases of non-compliance.

Legal Framework: Anti-Corruption International Treaties and Conventions

United Nations Convention Against Corruption (UNCAC) 2003, ratified by 100 countries as of

October 2011, is the first and most coordinated effort of the international community to codify anti-corruption measures to include laws that affect nations’ regulatory measures involving the criminalization of corruption and bribery, tracking seizure and repatriation of stolen wealth, and technical assistance and cooperation among agencies. It entered in force in December 2005. As of 2009, it has 140 signatories and 129 ratifications and ascensions. “UNCAC is the first genuinely global, legally binding instrument on corruption and related matters, that is the first to be developed with an extensive international participation and with a broad consensus of signatory states and international private sector and civil society organizations” (Chaikin and

Sharman, 2009, p.121). Because of the dizzying array of anti-corruption treaties and conventions, Carr (2007) wonders whether any good is being done by having so many of them in force. Having one comprehensive Convention will avoid confusion in substance and procedure.

According to Carr, there is no need to draw up yet another one which many countries will resist doing. UNCAC has all the qualities of an umbrella Convention and any additions or amendments may be done 5 years after entry into force as provided for in Art. 69 (p. 142).

UNCAC provisions are ground breaking because they include mandatory as well as non mandatory measures. In its 8 chapters and 71 articles, it describes its main areas of concern as 1.

Prevention 2. Criminalization 3. International Cooperation 4. Asset Recovery 5. Technical

Assistance and Information Exchange. The key aim of UNCAC as stated in article 1(b) is “to

100 promote, facilitate and support international cooperation and technical assistance in the prevention of and fight against corruption, including in asset recovery” (Chaikin and Sharman, p.122). Chapter I articles 1 to 4 outlines the scope of the provisions which specifically provides for protection of sovereignty rights of nations. In this self imposed limitation may lay the seed of its limited results. This chapter also defines terms but curiously, does not include a definition of corruption which again is a built in weakness. Webb (2008) points out that “In addition, a majority of UNCAC provisions are weakened by leaving implementation subject to domestic law. Already during the negotiations, the chairman of the Ad Hoc committee expressed his concern about the repeated references in the text of the Convention to its conformity with domestic law; Such references should be the exception rather than the norm, because international law was not meant to be a mere reflection of national laws” (Webb, 2005, p. 228 as cited in Hechler, (2011), p.17). Hechler et al (2011) agrees and cautions that “Such qualifying clauses provide an escape route for recalcitrant governments” (Hechler et al, 2011, p.17).

UNCAC did not emerge from a vacuum. It can trace its genesis to precursor efforts like the 2003 African Union Convention, the Inter-American Convention Against Corruption (1996), the Council of Europe 1998 Criminal Law, and the 1997 OECD Convention of Combating

Bribery of Foreign Public Officials. UNCAC has broad and comprehensive tools which balances mandatory and optional provisions to factor in political considerations. While it may state that public officials should make declarations to proper authorities, the exact manner is left to the member state. UNCAC covers the widest ranging provisions from money laundering (Art. 23) to procurement and public finances (Leventhal, 2008, p. 203). This nod to domestic interpretation and implementation many claim is at the heart of why UNCAC has not yielded the fruits it set out to achieve. Despite its broad reach, UNCAC fails to address grand corruption, particularly in

101 the foreign aid context because the very laws that it proposes would have to be initiated and implemented by the same officials guilty of embezzling aid. “There exists no procedure for the

United States, for example, to require or force a foreign sovereign to prosecute a senior government official, even where it was clear beyond peradventure that he has stolen millions or even billions of dollar in aid” (Bean, 2010, p.803).

Chapter II Articles 5 to 14 cover preventive measures. This includes guidelines for anti corruption agencies, merit based public servants, and independence of said agencies in terms of funding. It provides for the participation of civil society as private partners to public acts in promoting transparency and accountability. This article sets the scope of corruption as both private and public acts, when many countries limit the scope to public acts protecting the private sector from legal culpability. The Philippines is non-compliant on this article. It does not hold accountable, the “supply” end of the bribery equation by setting into law protections for the private sector guilty of corruption who may wish to whistleblow on corrupt officials. It also does not criminalize private corruption. The end result of this is government officials may be removed from office for corruption but new ones emerge to take their place as recipients of the private sectors’ bribes.

Article 14 is perhaps the most important of these sets of provisions because it covers anti money laundering measures aimed at getting to the heart of the flow of illicit wealth. It sets up supervisory arrangements to do due diligence in finding out ownership of accounts and the reporting of suspicious transactions. Despite protestations of good intent, Philippine governments have consistently resisted complying with these provisions and as such had been on the black list of non-cooperative countries made by the FATF. President Benigno Aquino in 2012 finally managed to pass the provisions necessary to avoid ending up on the black list again.

102

UNCAC also sees the necessity of ACMLG (Anti-Corruption MLG),, making provisions not just for national and international governmental organizations to participate in the effort, but recognizing that non-governmental organizations are vital as well. The involvement of the NGOs is vital to counteracting the built in resistance of governmental organizations to anti-corruption reform. Carr and Outhwaite (2011) write:

The UNCAC, the only international anti-corruption convention, in its article 13(1) states that: Each State Party shall take appropriate measures, within its means and in accordance with fundamental principles of its domestic law, to promote the active participation of individuals and groups outside the public sector, such as civil society, non-governmental organizations and community based organization , in the prevention of and the fight against corruption and to raise public awareness regarding the existence, causes, and gravity of the threat post by corruption (p.617).

Hechler et al (2011) put their finger on the root of the problem by asserting that dominant elites can be made to adapt to changing economic, social and political realities by using international initiatives that coordinate economic and diplomatic bargaining powers, including forming partnerships with reform minded elites. Most formidable among its tools of persuasion is UNCAC’s regulatory powers of financial centers to detect those who hide their assets (p.23).

Chene (2011) argues that preventive instead of restitution measures should be the focus as it prevents illicit flows from occurring to begin with. Chapter II focuses on prevention and not retribution or restitution. It provides for public reporting, information and intelligence acquisition and analysis, whistle blower protections, and overall transparency in public finance. (p.4). It is better to catch perpetrators in the act of looting, than to wait for them to hide their gains and try to recover them later when it is nearly impossible to do so as was seen with the over twenty year odyssey of trying to recover Marcos wealth.

103

Kubiciel (2009) claims that UNCAC’s criminalization of corruption is the heart of the

Convention. This is because the articles under the chapter on criminalization are mandatory, unlike other chapters. States have to harmonize their legal codes particularly with provisions such as Art. 25, on obstruction of justice, Art. 15, on the bribery of national public officials, bribery of foreign public officials (16.1) and laundering of proceeds of crime (Art. 23) (p.141).

Chapter III Art 15 to 54 cover criminalization and law enforcement measures and have the most important provision covering the relaxing of banking secrecy laws in recognition of the difficulty of getting evidence in corruption crimes often cloaked in societal codes of silence. This set of articles also aims to rationalize varying laws on what corrupt acts are considered criminal.

Constitutional and legal differences abound among countries. Some uniformity in standards of criminality is attempted by these provisions. Art. 52 encourages financial institutions to apply heightened financial scrutiny on public officials. Art. 23 specifies the criminalization of money laundering. Article 58 “encourage parties to set up Financial

Intelligence Units (FIUs) to receive, analyze, and disseminate relevant information” (Chaikin and Sharman, p.141). “In terms of burden of proof, many recipient countries require victim countries to prove that assets were not obtained legally before considering freezing or confiscating assets. Art. 20 calls for recipient countries to consider criminalizing unexplained substantial increase in wealth of public officials and allowing confiscation of assets where public official cannot demonstrate the lawful origin of their wealth (article 31)” (Chene, 2011, p.7).

This is the international legal framework that allows for the burden of proof shifting to those charged with corruption and the dilution of presumption of innocence protections. Needless to say, there is much controversy around this provision. Data shows that countries that enforce this provision have lower levels of corruption such as Singapore (and unlike the Philippines).

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Chapter IV Art 43 to 49 covers International Cooperation. Perhaps the most important provision in this chapter is the one that makes cooperation among state parties “mandatory” in cases where a crime has been committed in both jurisdictions. This concept of “dual criminality” has been problematic as perpetrators have often been able to hide behind national constitutional protections. They do this by not criminalizing acts defined as criminal by UNCAC. An example of this would be enrichment in public office which is not a criminal act in some states. Another provision of Chapter IV is Mutual Legal Assistance (MLA).MLA encourages the gathering and exchange of evidence, presentation of evidence in court and extradition of suspects. Extradition is another area of contention that is barred by many nations’ constitutional protections. For

Hechler et al (2011) the most valuable aspect of the Convention is the provisions on Mutual

Legal Assistance (MLA). They assert that international pressure “makes for stronger regulation of financial centers, making it harder to hide stolen money” (p. 25).

Chapter V Articles 51 to 59 cover recovery and repatriation of assets. When dual criminality is established concerning assets obtained through illicit means, this UNCAC chapter may by itself be used to request the tracking, freezing, and seizure of suspected accounts.

Criminality is an important requirement in the request for freezing and seizure of assets because of constitutional rights to privacy and presumption of innocence. However, this chapter provides for more successful asset recovery by allowing for the provisional freezing of suspected assets.

Experts in this area of financial forensics are exchanged by state parties. “Chapter V of the

Convention laid a framework in both civil and criminal law for tracing, freezing, forfeiting and returning the proceeds of corruption to the country of origin or individual victims. Yet some of the articles are mandatory while others are only discretionary and subject to existing domestic laws and practice” (Chene, 2011, p7).

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One of the lesser known effects UNCAC has is the question of jurisdiction. If the crime committed is a crime in both the criminal and the victim’s states, then even though one cannot or will not undertake the prosecution of the crime, the other will be able to under the dual criminality clause. The nationality of the perpetrator and or the victim can also be used to establish jurisdiction (Chaikin and Sharman, p.127). UNCAC is different from the Palermo convention because it emphasizes repatriation of stolen wealth to the victim country (Chaikin and Sharman, p140). The downside of this is the opportunity for and reports of repatriated wealth being diverted by subsequent governments to private accounts in self serving projects where kickbacks end up in secret havens all over again. An example of this would be reports of how the repatriated Marcos wealth allegedly ended up in Arroyo’s election campaign funds known as the infamous Fertilizer scam scandal. Diaz (2005) reports that “documents covering the releases of fertilizer and farm input funds show that the P544 million in Marcos wealth for CARP

(Comprehensive Agrarian Reform Program) funds was given to the agriculture department by the Department of Budget Management (DBM) under SARO (Special Allotment Release Order)

No. E-04-01090 on April 28, 2004, less than two weeks before the May 10 elections” (para. 100, http://asianjournalusa.com/coa-pm-fm-money-diverted-to-fertilizer-fund-p1416-67.htm).Rimban

(2005) of the Philippine Center for Investigative Journalism reported that at least P1 billion of the Marcos repatriated wealth was diverted from the Department of Land Reform to the

Department of Agriculture. The farmers allege that this money, which cannot be accounted for, which was suppose to have been used for irrigation and seeding programs, was diverted to the

Arroyo campaign. The route that these nefarious transfers take is to transfer funds into foundations that do not exist. (http://pcij.org/stories/2005/farmfunds.html).

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Chapter VI Articles 60 to 62 covers Technical Assistance and Information Exchange.

UNCAC provides for the reality that developing countries may not have the technical expertise to carry out many of the provisions of UNCAC. It helps provide training, research, human resources and information gathering and sharing. It also calls for cooperation and coordination of resources from regional organizations that have already set up their anti corruption programs.

Chapter VII Articles 63 to 64 cover Implementation of Mechanisms. Article 63 mandates the creation of the Convention of State Parties (CoSP) to help State Parties fulfill UNCAC provisions. Part of its function is to set up review mechanism to assess the parties’ progress.

CoSP (made up of UNCAC state members tasked with monitoring and compliance), instituted the Pilot Review Programme as a peer review mechanism. This review process may be behind some of the convention’s built in structures for failure. The review process called the

Implementation Review Mechanism (IRM), begins with a check list that countries use in making self assessment reports. Reviewers are selected by lottery in the peer review portion of the process. The State Parties are hardly likely to give themselves or each other failing marks. To offset this problem and protect the integrity, objectivity and efficacy of this process, a proposal original to me, is to withhold the identity of reviewers, and that they be given code names or numbers instead. That way, there is less uneasiness over giving a friend or ally a bad but accurate assessment. Berkman et al (2008) agree that a “vigorous peer review process” is necessary.

UNCAC’s broad scope and the large number of participating countries will mean enormous commitments in terms of financial and technical resources, which by itself will require enormous political will from participating states (p.32). State members are assessed on the following:

Recovery of Assets, Bribery of Foreign Officials, Bribery of Local Officials, Obstruction of

Justice, and Mutual Legal Assistance.

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Chapter VIII Articles 65 to 71 sets its provisions as the minimum, the lowest standard of compliance state members should enforce. State members are welcome to exceed UNCAC standards. This chapter also covers treaty signing and convention ratification and coming to force of the convention. “Come into force” means that the convention binds signing and ratifying state members to comply with agreed upon provisions. As yet, international conventions such as

UNCAC, have little legal force because of the “what if” question. “What if” the member state is guilty of non-compliance? Laws are enforceable only when there are “consequences” for violations. Apart from peer pressure and threats of expulsion, it has no agreed upon sanctions or consequences for non-compliance.

Being an international legal framework, UNCAC has a legalistic and rule based take on how to combat corruption. It is understandable that it sounds legalistic, prescriptive and generic without specific directions for how the various clauses may be implemented in the context of each participating state’s experience. It is also hobbled by the reality that dominant elites, even those who themselves participated in formulating the provisions would be unlikely to implement them as the provisions challenge their hold on rents and power. An illustration of this would be the Zarsuela (theater) of how Arroyo gave the impression of cooperation with international anti- corruption regulations by creating task forces, committees, sending delegations to anti-corruption seminars and conferences, and signing UNCAC, when she is now incarcerated and facing charges for violating the very provisions her government signed. “Given the prevalence of informal power structures and the relationship between elite capture and corruption, these political economies face fundamental challenges in implementing the Convention, and the

Convention’s stunted implementation appears inevitable” (Hechler et al, 2011, p. 22-23).

Kubiciel (2009) writes;

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However, legal transplants alone do not cure social diseases such as corruption. Since there is no “hydraulic relationship” between criminal law and human behavior, even the strictest implementation of the convention cannot guarantee the transformation of international legal standards into social reality. A civic spirit of virtue as “mental software” is needed to drive the hardware of the new laws. Consequently, the core criminal law provisions of the UNCAC can only be instruments among others. Nevertheless, they have to be used with expertise (p.155).

This is why we see a situation in which a country, notably the Philippines, can claim or in fact demonstrate compliance with many if not all of the Convention’s provisions yet still suffer from chronic and systemic corruption. The elephant in the room that the Convention has not addressed is the fact that in most developing countries, those in positions of leadership and law enforcement are themselves charged with the enforcement of anti-corruption laws (Hechler et al,

2011, p. 25). In other words the “perps” (perpetrators) are left to police themselves.

Perhaps one of the most exciting anti-kleptocracy tools in the legal tool box is the US

Presidential Proclamation 7750 of 2004 signed by President George W. Bush, authorizing the revocation and denial of visas to kleptocrats without requiring a criminal conviction. Another interesting development supported by the Summit of the Americas, the Group of Eight, and

APEC is the denial of safe havens for high level corrupt officials. “The kleptocrats are on notice.

We have a range of substantively and regionally focused instruments being implemented by countries and monitored on a peer review basis and by civil society. And we have a new global instrument, the UNCAC” (Leventhal, 2008, p.207).

OECD 1997 Convention on Combating Bribery of Foreign Officials is the second most important anti-corruption convention. Many countries at one point did not consider bribery of foreign officials a predicate crime to money laundering (Chaikin, 2009, p.32). STRs (Suspicious

Transaction Reports) have not led to bribery investigations. The question would be why? The

109 main problem is there is no world government to secure compliance. “Peer review does not mean peer pressure” so why comply? (p.33). Peer reviews, which are associated with the OECD method and the basis for the Financial Action Task Force (FATF) method, work mainly because individuals and groups do not want the reputation of being black listed or outlawed. Peer review is also based on a purely voluntary and non-adversarial basis. Needless to say, there has been less than little compliance (p.38). Chaikin supports the argument I made earlier that the heart of the problem rests on the nature of this and other international agreements not having the force of law because there are no “coercive” enforcement mechanisms of penalties and consequences attached to them like domestic laws have. FATF is the only anti-corruption international organization that enforces its recommendations with blacklisting for non-compliance.

Berkman et al (2008) quoting the 2007 TI Progress Report on Enforcement, lamented that although 37 countries comprising 75% of global export trade have instituted anti-bribery laws, more than half have not brought any cases since the Convention entered into force. “The convention’s inter-governmental peer review process has been an important factor in mobilizing government action but has not yet generated the public political pressure needed to ensure that all parties take consistent, effective action” (p.131). They especially decry the UK for its actions involving the BAE Saudi Arabia investigations. At that time the UK had not enacted any suitable anti-bribery law; it has recently rectified that situation with the passing of the UK Anti-Bribery

Act in February, 2011. It is by far the most far reaching anti-bribery law which has global implications. It is even more far reaching than the US FCPA (Foreign Corrupt Practice Act) which does not criminalize bribery in the private sector. The UK Anti-Bribery Act is the first to codify anti-bribery legislation in the private sector. It also has more teeth than the FCPA because

110 it holds companies liable for failure to prevent an employee from offering or accepting a bribe

(Melnitzer, 2011, para. 5 & 8).

The OECD convention against bribery is impressive in its scope as it covers all signatory countries. Its provisions are binding and have serious sanctions attached. A weakness is its peer review process which is similar to UNCAC. It is left to peer countries to do progress evaluations.

A Working Group is tasked with monitoring and follow ups. A “self and mutual evaluation” system is used. Yearly, a questionnaire is provided to monitor three phases of compliance. First

Phase: it assesses that member country has the existing legislation recommended by the convention. Second Phase: assesses whether member country is applying legislation with efficacy. Third Phase, enforcement of provisions by member countries is assessed. Member countries are members of the OECD who signed the anti-bribery convention. Countries like the

US, UK, Japan etc. Of the countries under study in my research, only Chile is a signing member, with China and Indonesia enjoying “observer” status in the working group. Missing in the list of

40 member countries are the Philippines, Singapore, and Pakistan. A yearly report per country is published based on those reviews. A strength is that it criminalizes the bribery of foreign officials. It also seeks to coordinate disparate legal systems of member countries into a minimum standard for compliance. Another weakness is that it criminalizes the offering of bribes covering only foreign officials, but not the solicitation and receiving of bribes. The reason for the non inclusion of the receiving party in the criminalization of bribery is to avoid jurisdiction and sovereignty questions in pursuing the guilty in non member countries that do not have functionally equivalent laws (IMF/OECD, 2001, p.6).

This fills in the gap in member countries’ laws which focus on criminalizing the officials receiving and soliciting the bribes but not the ones in the private sector offering the bribes.

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(IMF/OECD Convention Against Bribing Foreign Officials, 2001, p.1). “This is particularly true in the case of” the Philippines, which goes out of its way to institutionalize into law, an incentive to protect the private sector from culpability when it comes to crimes of bribery. Despite its massive problems of corruption, the Philippines does not avail of membership in the OECD and participation in this convention.

It is important to note what brought about this convention against bribery. In 1989, the

US was alone in criminalizing bribery of foreign officials through its Foreign Corrupt Practices

Act of 1977. This put US companies at a direct disadvantage vis- a- vis their competitors because companies in countries where the practice of bribery is not criminalized were able to gain a stronger foothold in corrupt countries’ bidding process. The US Foreign Corrupt Practices Act of

1977 was the first attempt to use national law to impact corrupt acts globally. A person need not be a US citizen nor even have been in the US nor done the corrupt act in the US in order to be held accountable under this Act. The connection between the US FCPA and the OECD Anti-

Bribery Convention is that the OECD convention is the counterpart of the FCPA internationally, aiming to require all countries to criminalize the bribery of foreign government officials.

Despite breaking new ground, the FCPA and the OECD Anti-Bribery Convention do not address grand corruption in the matter of foreign aid involving governments and foreign aid agencies. There is no specific reference in the US criminal code about the misuse of foreign aid.

There are however broad US laws covering graft and bribery that address crimes committed by government agency officials like 18 USC 219 on officers and employees acting as agents of foreign principals. “The FCPA and the OECD Anti-Bribery Convention criminalize only the actions of private parties and legal entities that pay or offer to pay bribes. They do not apply to the intended bribe recipient” (Bean, 2010, p.802). Despite this limitation, there are those who

112 argue that the Convention’s focus and high specificity of target goals, have also led to successes.

There are also design issues that account for the Convention’s success. Its narrow and flexible structure, which some have argued allow for too many has limited its focus to manageable levels for monitoring of legislation implementation and enforcement. The Convention is at heart a

“criminal statute that targets the supply side of bribery of foreign public officials” (Tyler, 2011, p. 164).

The Asian financial crisis and the end of the cold war brought about greater focus on corruption and the recognition that a multi level approach at a solution was necessary for its containment (IMF/OECD, p.3). Different legal systems were not allowed to block the efforts of the convention as it set a standard of “functional equivalence”. The language of legislation may differ but the outcome must be the same. Functional equivalence was the minimum standard agreed upon. In other words, national laws need not be exactly the same, but they must function in the same way. (IMF/ OECD, p.4).

By 1997, the resolve of OECD member countries was seen in its insistence on member countries’ amendment of their national laws to conform to agreements reached in the convention.

The provisions became more prescriptive and monitoring more active. International governmental and non- governmental organizations began adopting their own anti corruption programs. Transparency International came into being in 1994. The World Bank and the United

Nations Development Program instituted their own agenda for promoting good governance in

1997. By 1996, the European Union, Organization of American States, and the World Trade

Organization all launched their anti corruption good governance policies.

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So the question begging to be asked is has the OECD Anti-Bribery Convention made any impact in controlling behavior of member states? D’Souza (2012) found that countries in compliance with the Convention reduced their bilateral exports to more corrupt countries when compared to corrupt ones. This comes to about $46 million or one standard deviation lower as measured in the corruption index. Behavior responds to penalties and increasing penalties for doing business with corrupt countries, has resulted in some OECD countries decreasing their exports or exiting the market there. It is also possible that member states have rewarded non- corrupt countries with increased trade. However, it is also possible that non-member states have moved their business to corrupt states which were left by OECD countries. “These findings support previous work on the US, which showed an economically and statistically significant decline in US business activity in corrupt countries following the adoption of the US Foreign

Corrupt Practices Act” (D’Souza, 2012, p. 85).

One of the main reasons that drove the US to call for anti-bribery conventions is the tax incentive that nearly half of OECD countries gave to the bribing of foreign officials, which gave a competitive advantage to US rival firms. The exploitation of developing states by wealthier states allowed for the bribing of said foreign public officials while prohibiting the bribing of their own. This hypocritical state of affairs was rectified and reduced with the elimination of this tax incentive by OECD countries (Spahn, 2012, p.297). It may be difficult to believe, but rival companies of the US from foreign countries could write off the bribes they give in the income tax return. There are more institutional “building block” OECD Anti-Bribery Convention successes to be celebrated which include 6 out of 10 largest GDP member countries to be compliant and 9 of the 10 biggest exporting countries to be moderately compliant. In addition, all

38 signatories have matching domestic anti-bribery legislation. This is an enormous sea change

114 considering that there were no such laws other than the US FCPA addressing the issue of international bribery, at the time of OECD anti bribery convention’s inception (Tyler, 2011, p.162).

For rules and agreements to have the force of law; they must be accompanied by enforceable consequences for non-compliance. How then do international legal frameworks like the UNCAC and OECD Anti-Bribery Convention enforce agreements and secure compliance?

There are those who believe that not only is there such a thing as international law, but that international agreements can and have been made binding. Tyler (2011) asserts that there are several ways of enforcing international law. War and “lethal force” have been the historic and most effective way to secure compliance, but economic sanctions and moral pressure are more generally used as they do not bring the destructive cost wars do. These sanctions can have a

“coercive” effect leveled by the international community on a target non-compliant state. In the arsenal of economic sanctions are access to financial institutions, foreign aid, foreign trade exports/imports, and tariff manipulation. Another effective tool is the publication of non- compliant states as a moral sway to those who value their international reputation (p. 148). An example of applying pressure on recalcitrant countries is use of a graduated form of tariff manipulation as a punitive measure. A higher tariff for exports of countries engaged in bribery would eliminate any competitive advantage that their bribe giving behavior would give them. By increasing the cost of bad behavior, good behavior can be encouraged (Tyler, 2011, p.172). A narrow targeted use of tariff manipulation to secure compliance will not upset free market forces as they are targeted only to specific countries and industries guilty of bribery and corruption.

Moral pressure, also known as the “shame game” or “naming and shaming” has been known to be an effective tool. Public statements and denunciations by the international

115 community have resulted in a measure of progress. An example of this would be the 75 page report made by the OECD Working Group against Bribery (WGB) in 2008 that brought to the world community’s attention the UK’s actions in the BAE Saudi Arabia / Iranian arms deal. In

2007, the OECD WGB conducted an investigation of the UK’s implementation of the anti bribery convention. They expressed “serious concerns about the UK’s discontinuance of the

BAE Al Yamamah investigations.” (http://www.globalsecurity.org/military/world/europe/uk- corruption.htm). The expose may have failed to result in economic sanctions, but it produced the most far reaching anti-bribery law in the UK. The passing of UK Anti-Bribery Act in 2010 is a significant nod to the power of the international community to verbally censure non-compliant countries (Tyler, 2011, p. 156). Ideally, the dynamic that is intended is for more countries to comply who will in turn have a vested interest in ensuring that others comply so they would not be victimized by the competitive advantage that non-compliant countries will enjoy over them

“This self-reinforcing cycle will strongly incentivize compliance once a critical mass of countries conforms to the Convention” (Tyler, 2011, p. 165 & 168)).

According to IMF/OECD (2001), Article I of the OECD anti bribery convention defines foreign public officials as any person who holds an administrative, legislative, or judicial function be it elective or appointive. It establishes that each member party shall criminalize “the offense of bribery of foreign public officials”. It defines this offense as any action that will induce the recipient of bribes to act to the advantage of the giver of bribes as a result of the bribe given. Although the Convention provides a definition of what a “foreign official” is, it does not require uniformity but functional equivalence in terms of interpretation and implementation of legislation (http://www.imf.org/external/np/gov/2001/eng/091801.pdf, p.6). Tyler (2011) comments that functional equivalence as a standard is used in order to recognize that there are

116 many differences in state parties’ procedures, rules of evidence, jurisdiction, liability which have to be harmonized with the Convention’s provisions. “The Convention is written in intentionally broad terms that are unenforceable on their face; it is not self-executing.” (Tyler, 2011, p. 147).

Article II on responsibility of “Legal Persons” provides that each member party shall establish the legal liability for the offense of bribery of foreign officials. By allowing each state party the freedom to define and determine legal liability, the OECD Anti-Bribery Convention reiterates its respect and non-interference in a state party’s internal affairs. Clarifying definitions of rules protection both global traders and local sovereigns when trying to navigate the legislative terrain when forging a workable pathway particularly in emerging economies. (Spahn,

2012, p.301). It could be argued that here again, as in UNCAC, is a provision that gives recalcitrant countries a backdoor out of the agreements. Nevertheless, the Convention does recognize that global traders have to establish relationships with public officials in foreign lands.

This often necessitates demonstrations of goodwill through gift giving. How then can legitimate local practice be distinguished from actual bribery? The answer can be found in the need for secrecy. If the participants are not transparent with the exchange, then in all likelihood it is a violation of both local and Convention rules (Spahn, 2012, p. 298).

Interestingly enough, the US FCPA provides that any gift giving authorized by written local law of the government officials’ country, are considered exceptions. Splitting hair about what constitutes bribery is disingenuous as no country in written or unwritten law, will authorize the transfer of billions of dollars of rent money to private accounts abroad. The language and spirit of this provision is a wide hole that the guilty often use to excuse their crimes. However, the Convention clearly excludes any unwritten practice of gift giving. “Commentary 7 provides:

It is also an offence irrespective of, inter alia, the value of the advantage, its results, perceptions

117 of local custom, the tolerance of such payments by local authorities, or the alleged necessity of the payment in order to obtain or retain business or other improper advantage” (Spahn, 2012, pp.

268-270).

Article III on sanctions distinguishes itself by requiring member parties to allow for seizure of proceeds of bribery. This has been problematic as not all countries involved have corresponding seizure laws for such offenses. This article also requires member parties to provide for dissuasive actions that would deter and penalize the offense of bribery which may include administrative and monetary sanctions. While the language of the Convention is strong on what it recommends member countries do to deter and penalize the offense of bribery, there is no language in the provisions of what penalties would be suffered by “state parties if they do not comply with the” recommendations of the Convention. Many agree that trade sanctions are the best mechanism to compel compliance. Sanctions by complying countries against non- complying countries will support OECD’s overall mission of “sustainable economic growth, boosting employment, raising living standards, maintaining financial stability, and assisting other countries’ economic development” (Tyler, 2011, p. 170).

Article IV on jurisdiction is important because this convention provides for the prosecution of nationals of member parties defined as living within its territory. When other member parties are involved in the same offense, then the proper jurisdiction for prosecution will be decided by those parties. It must be noted that jurisdiction involves questions of sovereignty and hence the convention limited itself to the prosecution of the “supply” end of the bribery dynamic and not the “demand” side of the dynamic. By providing for punitive measures on the supply side of the international bribery equation, the Convention gives countries that are serious

118 about combating corruption a leg up. It does this by helping fill the gap between written law and common practice (Spahn, 2012, p.290).

Article V on enforcement further gives teeth to convention provisions by stating that prosecution of offenders must not be influenced by the identity of parties, economic interests of countries involved, or the effect on relations between countries involved. Lack of technical knowhow on the part of prosecutors, investigators and lawyers, are structural barriers that need to be overcome by member countries. There is little incentive to invest in this infrastructure especially when a state party’s business community lobbies them against compliance (Tyler,

2011, p. 157). The penalties for non-compliance are nil and the cost of compliance high. Local businesses thrive on using bribes to make profits and win bids. Public officials need those rents from bribes to fuel their political machinery. This explains in part why state parties would be reluctant to enforce convention provisions. (Tyler, 2011, p. 167). Article VI on statute of limitation provides that enough time for the investigation and prosecution of the offense must be given in accordance with laws of the member parties. Again, note the deferential language to laws of member states.

Articles 7 to 10 have their counterparts in the UNCAC and FATF provisions. They happily can also be found in domestic Anti-Money Laundering laws of even non-OECD countries like the Philippines. Article VII on money laundering provides that member countries that make bribery of its own public official a predicate offense of the crime of money laundering, will have the same provision for the bribery of foreign public officials regardless of where the bribery occurred. What this means is that a country that considers the bribing of local officials a predicate crime for money laundering, will also consider bribing of foreign officials a predicate crime for money laundering. This is problematic for a number of countries including the

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Philippines which does not criminalize the bribing of foreign officials even if criminalizes the bribing of local officials.

Article VIII on accounting provides for measures to be taken by member parties for the proper keeping of records, auditing standards, the prevention of off the books and falsification of documents for the purpose of hiding the crime of bribery. This article requires the provision of administrative and criminal penalties for such falsification of records. “Apart from requiring criminalization of transnational bribery, the convention requires parties to take books, records and measures, such as prohibiting the establishment of off the books accounts and off the books or inadequately identified transactions. It requires that sanctions be effective, proportionate and dissuasive and that countries establish liability for legal persons” (Levethal, 2008, p.204). This article has its counterpart in UNCAC provisions.

Article IX on Mutual Legal Assistance, like its counterpart in the UNCAC, provides that legal assistance cannot be refused by member parties on the grounds of banking secrecy laws. The party being asked for assistance cannot refuse to provide information to the party asking. This is an important provision as many countries hide the crimes of bribery and corruption under banking secrecy laws. It is note worthy that the Philippines is not a member country or signatory of this convention. The OECD anti-bribery Convention applies to the

Philippines because it is the guiding legal framework of the FATF, which in turn blacklists countries for non-compliance, whether members or non-members of any anti-corruption

Convention. The Philippines continues to hang on to its banking secrecy laws that continue to shelter illicit wealth. Article X on extradition provides the persuasive feature of this convention.

Extradition is “feared” by recalcitrant countries that hide behind captured judiciaries incapable of holding the powerful accountable. It provides that bribery of foreign officials is an extraditable

120 offense according to treaties of member countries. In the event that no treaty exists between parties, the convention itself is considered binding as basis for extradition. In cases where dual criminality (dual criminality means that the act is considered criminal by both the Convention and the state member involved) is required by member parties, Article I of this convention will be considered as binding.

The biggest flaw of the Mutual Legal Assistance provisions in UNCAC, OECD, and

FATF remains the same. How does one expect to catch the perpetrators when the perpetrators themselves are expected to request legal assistance to catch themselves? The best it has produced is governments who have ousted the corrupt, to then request MLA to go after the illicit funds of the ousted, which has proven to be a long, expensive and often fruitless process. In addition, succeeding rulers to those ousted, then begin their own plunder adventures, which include but are not limited to preying on repatriated illicit wealth. The challenge therefore is still how to catch the “sitting heads of state” who are presently in the act of looting. Since they are unlikely to blow the whistle on themselves, private citizens, non-governmental organizations, and civil society must be allowed to request such assistance from foreign countries and must be added to the

UNCAC provision on civil society participation. The UNCAC provision on civil society is at present merely a description of ways to help NGOs and private groups to network among each other and provide awareness campaigns about corruption. UNCAC or the OECD do not give civil society legal standing to file suit against sitting heads of state or corrupt officials. My research will discuss this more fully in my chapter on recommendations as this would include ideas on how to use Qui Tam laws on an international level. Qui Tam laws give private citizens standing to file lawsuits against legal persons defrauding its government even if the government itself is not included as the plaintiff.

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The following articles 11 to 17 are housekeeping administrative provisions of the

Convention. Article XI on responsible authorities provides that the Secretary General of the

OECD to be the responsible party for receiving requests and acting as the conduit among parties.

Article XII on monitoring and follow up, like UNCAC, provides that the cost of the program shall be borne by the parties involved. This has been a substantial stumbling block to this effort as many countries are unwilling to bear the cost of prosecuting corruption and bribery crimes.

How logical is it to expect the perpetrators of corruption to not only willingly surrender their nefarious means of livelihood but actually finance the provisions that would deprive them of their prerogatives?

According to OECD/IMF (2001), Article XIII on signature and ascension provides for who are deemed participants to this convention which includes non signatory countries and non member countries who may be considered participants. Article XIV on ratification and depository provides that the convention is subject to the approval and signing of member countries who shall deposit said signatures to the Secretary General of the OECD. Article XV on entry into force provides that five out of ten member countries with the largest net export shares comprising 60 percent of combined exports of ten member countries will enter the convention into force sixty days after depositing their instruments. The fact that member countries of this convention consist of countries with the largest net export shares, should be an indication that there is much they can do by way of using economic incentives and disincentives to corruption should they muster the collective political will to do so. Article XVI on amendment provides that amendments may be proposed by any party 60 day before convening a meeting. Amendments agreed upon by consensus shall enter into force 60 days after depositing and ratification by all parties. Article XVII Withdrawal. A party may withdraw from the convention but the convention

122 will be effective one year from notification. In the interim all provisions of cooperation are still binding until the withdrawal is in force one year after the submission to the depositary (pp.38-40,

IMF,http://www.imf.org/external/np/gov/2001/eng/091801.pdf).

The table below (table 7) lists OECD countries and their performance in anti-corruption scores and rankings. I wanted to know how many of the signatory countries are in the top 10 high performers in anti-corruption scoring. I also wanted to know which of my countries under study are members or non-members of the convention.

Table 7 OECD member countries. Source Transparency International. Notes: CPI (Corruption Perception Index) scores, rankings and BPI (Bribery Perception Index) scores and rankings for OECD anti-bribery convention signatories.

OECD Member Country CPI 2011 CPI Ranking BPI 2011 BPI Ranking

Argentina 3 100 7.3 23

Austria 7.8 16 NA NA

Australia 8.8 8 8.5 6

Belgium 7.5 19 8.7 3

Brazil 3.8 73 7.7 14

Bulgaria 3.3 86 NA NA

Canada 8.7 10 8.5 6

Chile 7.2 22 NA NA

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Czech Republic 4.4 57 NA NA

Denmark 9.4 2 NA NA

Estonia 6.2 29 NA NA

Finland 9.4 2 NA NA

France 7 25 8.0 11

Germany 8 14 8.6 4

Greece 3.4 80 NA NA

Hungary 4.6 54 NA NA

Iceland 8.3 13 NA NA

Ireland 7.5 19 NA NA

Israel 5.8 36 NA NA

Italy 3.9 69 7.6 15

Japan 8 14 8.6 4

Luxemburg 8.5 11 NA NA

Mexico 3 11 7.0 26

Netherlands 8.9 7 8.8 1

New Zealand 9.5 1 NA NA

Norway 9.0 6 NA NA

Poland 5.5 41 NA NA

Portugal 6.1 32 NA NA

Russia 2.4 143 6.1 28

Slovakia 4 66 NA NA

Slovenia 5.9 35 NA NA

South Africa 4.1 64 7.6 16

South Korea 5.4 43 7.9 13

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Spain 6.2 314 8.0 11

Sweden 9.3 4 NA NA

Switzerland 8.8 8 8.8 1

Turkey 4.2 61 7.5 19

United Kingdom 7.8 16 8.3 8

United States 7.1 24 8.1 10

It is interesting to note that many of the top ten best corruption scoring countries are members of OECD and signatories of the Convention against bribery. Even poorer scoring countries like China, Peru, Indonesia and Malaysia are observers in the convention Working

Group. The OECD anti bribery convention is the group tasked to monitor compliance with its provisions. An “observer” status is seen as a good faith desire to be a member and see how their countries may or may not be able to participate. An observer status is non-binding, hence opted for by some countries. The Philippines is noticeable absent from this listing. Despite its absence, the Philippines participates in seminars and conventions given by the OECD anti-bribery convention sponsored by the Asian Development Bank based in Manila. It is noteworthy that the top 10 best scoring and ranking countries in Transparency International’s Corruption Perception

Index for 2011 are members of OECD Bribery Convention.

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Inter- Governmental Organizations Anti-Corruption Initiatives

The World Bank StAR Initiative 2007

Stolen Assets Recovery Initiative is a combined effort by the United Nations Office on

Drugs and Crimes (UNODC) and the World Bank. It recognizes that corruption is a worldwide epidemic and that the practice undermines the rule of law and delivery of basic services particularly in developing countries. The recovery of stolen assets is difficult and can take decades to bring to fruition. The loss of 20 to 40 billion dollars a year from developing countries is a staggering sum that could be used for development and regional stability. Stolen assets are laundered through a sophisticated labyrinth of financial centers and safe havens around the world. The detection and recovery of these assets are this initiative’s main thrust (StAR,

UNDOC and the World Bank. http://www1.worldbank.org/finance/star_site/ten_things.html).

StAR’s main thrusts are; empowerment that helps with hands on training; legal advice, and sharing of information on asset recovery, partnerships that help form collective responsibility in donor countries. Financial centers and civil society help detect and recover illegally accrued wealth. StAR produces innovative legal tools on how to recover stolen assets. It promotes UNCAC’s chapter 5 goals covering illegal asset recovery with other Inter-

Governmental Organizations (IGOs) such as the FATF. (UNODC. Let’s put transnational crime out of business. StAR. http://www.unodc.org/unodc/en/corruption/StAR.html ). This is an example of how an IGO initiative like UNCAC animates an IGO initiative like the StAR initiative around the same issue area, in this case the recovery of illicit wealth. This fits

Krahmann’s definition of Multi-Level Governance to be multiple actors coordinating around a specific issue. This is an example of Anti Corruption MLG in action.

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A general lack of interest among developed countries to assist developing countries in the recovery of stolen asset is pronounced. Developing countries do not have the judicial assets to do the evidence gathering and other legal steps to aid in their interest. “In concentrating on strengthening governance in developing countries, little attention has been paid to the role of actors within developed countries that facilitate this theft. These actors include western firms offering bribes, foreign financial intermediaries who assist in laundering bribes, and developed country financial centers in which stolen funds are usually invested” (Chaikin, 2009, p.42). StAR far from being a stalwart defense against corruption has had more of a monitoring and information dissemination role. It also provides assistance in technical information to countries that need it. It does surveys on asset recovery of different countries, which have functioned as a form of review. This at least in Chaikin’s view, has not led to more successful recovery of illicit wealth. (p. 43). This may be seen as a sweeping generalization by Chaikin, but in the case of the

Philippines, only too true. The Aquino administration announced recently that they are no longer continuing to pursue Marcos wealth.

Paul Wolfowitz, president of the World Bank in 1997 was willing to do stronger arming of non-compliant borrowers. He was willing to link loans to compliance with anti-corruption agreements. He actually withheld loans from Congo when he found out that the president was guilty of using $81,000 of loan money on his personal tour in New York. Wolfowitz’s disgrace later may signal some of the unrest his actions triggered among countries singled out for censure.

In May 2007, Wolfowitz resigned his post as president of the World Bank. In an ironic twist of

“he who has no sin cast the first stone”, Wolfowitz was caught arranging a promotion and lucrative pay package for his girlfriend Shaha Rizza, a violation of bank rules(

127 http://abcnews.go.com/Politics/story?id=3152373&page=1#.UXQmgkoyQnM). This says much as to the limits of using diplomacy and officials channels on this issue. World Bank effort is more a “quotidian roster of seminars, workshops, questionnaires, reports, assessments, and training programs” (Chaikin, pp.45- 46).

Not everyone joins the chorus of pessimism. D’ Amour writes, “Although there are significant challenges ahead, the strides that have been made in the past 20 years, such as the increased role of banks in providing company registry information, are positive indicators for the future” (D’Amour, 2011, par. 20). Culture does not change overnight according to Emille van de

Doess, senior financial specialist of StAR, but he asserts that he is “cautiously optimistic” over examples of changes over time. (par. 21). Nevertheless, the World Bank StAR program produced a report that finds that legal structures are exploited by corrupt officials to conceal and separate their identity from the proceeds of their crime. This report covering 30 years and 150 cases estimate the loss to be 50 billion dollars in bribes and corruption (par. 3). This is important information that is necessary to galvanize global activists into action. As Van der Doess explains,

“While there is significant legislation on the books to combat corruption that is just the first step”

(par. 17).

Banking for the wealthy is very profitable and banking secrecy is a well guarded requirement of that business. But are heads of state and high government officials entitled to such secrecy? Would the citizenry not want to know if the president of the United States for example suddenly showed a 30M deposit in his account? Despite the enactment of disclosure, anti-money laundering, and anti-terror financing laws in many countries and the provisions of

UNCAC, FATF and the OECD Anti-Bribery Convention to relax banking secrecy laws, repeated

128 violations of such laws to the tune of hundreds of millions of dollars worth of fines continue in the US banking industry (Bean, 2010, p. 807).

Asset recovery of corrupt wealth should be a powerful tool in limiting predatory elite gains in corrupt countries. Unfortunately, the fact that the most powerful people are also often the most corrupt has made the cost of combating corruption for all involved really high. The shortage of resources allotted to administrative and justice systems, and human, technical and material capabilities, reflect this elite control and protection of rents that a reform agenda challenges. Groups, agencies and institutions who risk losing their rents or their power in the process of asset recovery will want to protect their turfs from change (Hechler et al, 2011, p.13).

There are many barriers to successful asset recovery. There are many ways to conceal the fruits of corruption and among them is the use of TCSPs or Trust and Company Service

Providers such as lawyers, accountants, and financial institutions, including banks. Fronts, shells, legal charities or dummy corporations are also used in other criminal activities such as terrorism, and drug and human trafficking. These kinds of financial crimes are addressed by standard setting agreements such as the UNCAC (ratified by 100 countries as of October 2011) and FATF endorsed by 170 jurisdictions (Does de Willebois et al, 2011, p. 2).

What makes the identification and tracking of illicit wealth even more problematic is the use of “close associates” by corrupt officials. These close associates may be relatives, friends, or business associates. Corrupt officials use legal entities in order to have some control of their ill gotten wealth. This however allows those accounts to be traced to their true beneficial owners. If close associates are used, then the beneficial ownership may legally stop there and not the corrupt official (Does de Willebois et al, 2011, p. 27).

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There are two ways high government officials like to conceal the path of payments of bribes to them. One is to form a company that will receive the bribe for them thereby concealing the true ownership of the bribe, and the other is to use an existing firm to “pass on” the bribe to them (Does de Willebois, 2011, p.39). These may have been the most successful and therefore the most favored ways of concealing ill gotten wealth but unless the corrupt are going to start hiding their loot under their mattresses or burying it in their backyard, the financial forensic investigative teams following the money trail are becoming more sophisticated in asset tracing.

At some point the ill gotten wealth will have to be deposited ultimately to the corrupt official’s account for him or her to be able to access and use for his needs. When that happens, the electronic pathway to that account can be found. Previously, there were no legal frameworks, international or local that authorized the following of the money trail like there are now.

An example of how international governmental organizations reinforce each other in anti- corruption efforts (also known as ACMLG), is how the WB StAR initiative identifies FATF’s recommendations 5, 12, 33 and 34 as absolutely crucial to the cause of asset recovery (Does de

Willebois, 2011, pp. 110-115). Those FATF recommendations require due diligence from professionals and banks which must be accountable for collecting information about the ownership of accounts; without this requirement, they would rather stay ignorant of this information in order to boost their own reputation as the bank that holds your account the most secret. “This obligation is important because in the majority of cases in which a corporate vehicle is misused, the intermediary is negligent, willfully blind, or actively complicit” (Does de

Willebois et al, 2011, p. 6). The damage these front legal corporations do in terms of asset recovery efforts is immense. WB StAR Grand Corruption Database Project reports US56.4

130 billion was concealed in 150 cases, 213 investigations involving 80 countries through legal methods (Does de Willebois, 2011, p. 117).

An example in the Philippine setting of a high government official using legal foundations, close associates, and fictitiously named accounts, is that of former Philippine

President Joseph Estrada. Estrada was convicted by the Sandiganbayan (anti-graft court) on

September 12, 2007. Estrada was found to have used Governor Luis Singson and others to collect rents from illegal gambling operators (jueteng) of US$11.6 million, US$4.26 million of which went to accounts in the name of the Erap (Estrada’s nickname) Muslim Youth Foundation.

Estrada was also found to have collected US$4 million in commission from the sale of shares of the Belle Corporation, which he induced the government to buy. This illicit commission was then put under the fictitious name of Jose Velarde, which Estrada was found to be the beneficial owner of (Does de Willebois, 2011, p. 194).

Estrada’s case is neither unique nor new in the Philippine political setting. It is safe to say that this is standard operating procedure for those in power, high and low. It is said that Estrada was selected for prosecution by the former president Fidel Ramos who did not take kindly to

Estrada having won the presidential elections over his own pick. Estrada’s then vice-president

Gloria Macapagal Arroyo was said to have conspired to remove Estrada from office in order to ascend to power herself. The cycle of hypocritical finger pointing in the Philippines continues with Estrada engineering denunciations of Arroyo’s own alleged grand corruption during her presidency. This is what passes for anti-corruption initiatives in the Philippines, the use of anti- corruption legislation and programs for political vendettas. The question being urgently asked then is “Does StAR have methods for identifying when asset recovery cases are being brought for political reasons?” (WB StAR website). StAR FAQ answers this query by not saying much

131 other than that it supports whoever is in authority in a country and their asset recovery programs.

The WB does state that it is aware of claims of politically motivated targeting of those accused; but asserts that it has no involvement in any specific cases. I would argue that this “hands off” position of the premier asset recovery program in the world is part of why many of these anti- corruption efforts do not work. StAR has no answer to an urgent question: What if those in power are the very ones guilty of abusing power and even abusing anti-corruption initiatives to maintain that power? Although no specifics are given, the StAR website does say that this issue is taken into consideration when determining “the scope and nature of StAR’s assistance”

(worldbank.org/finance/star-site/about-us.html. StAR frequently asked questions).

Another burning question StAR is asked is “Does StAR become involved in cases against sitting politicians?” (StAR website). There is a saying in the Philippines “Aanhin pa ang damo kung patay na ang kabayo,”, loosely translated, means “what good is the grass if the horse is dead already?”. What good is running after guilty kleptocrats when they have already stolen the loot and hidden it? The enormous cost of asset retrieval in terms of time and resources compels this question of prevention over retribution. Retribution against officials who are no longer in power has produced no deterring effect on corruption as the new people in power simply take over the looting and the guilty go free from lack of evidence. StAR once again puts the responsibility for prosecution on sitting authorities which begs the question, how are those sitting in power expected to prosecute themselves and their supporters? StAR tries to excuse this fence sitting by saying that incumbents enjoy immunity but that they may be persuaded to voluntarily give up this immunity. The incredulity with which this most illogical of statements is met, is perfectly understandable.

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The World Bank continues its original position of trying to stay out of internal affairs of countries. Twenty years ago the WB’s failure to address corruption head on actually led to Peter

Eigen, part of the WB team, leaving the WB and founding Transparency International, a global civil society movement devoted to curbing corruption worldwide. The WB now has anti- corruption programs like the StAR initiative. While this is great improvement, it still stops short of using its influence to address what really ails the process and continues to empower the corrupt. It stops short of promising “sanctions” against the guilty while they are in the act of doing their dastardly deed rather than after leaving office. (worldbank.org/finance/star- site/about-us.html. StAR frequently asked questions). The good news on this question of going after “sitting politicians” is, in the same manner that national laws like the US FCPA preceded the OECD Anti-Bribery Convention, the US Anti-Kleptocracy law enables the US to go after sitting politicians suspected of grand corruption by denying safe havens and visas even without a conviction of any crime.

Another compelling question corollary to the one about catching the thief in the act of thievery is the one that asks “What is being done to ensure that recovered assets are not just siphoned off again through corrupt acts?” (WB StAR website). StAR has another astonishingly naïve answer to this. StAR claims that countries like the Philippines, Peru, and Nigeria, all have embraced the policy of openness and transparency having benefited from the recovery of assets.

StAR once again leaves it to “sovereign authorities” of each country to decide on the use of returned assets providing no safeguards as to their possible misuse (worldbank.org/finance/star- site/about-us.html. StAR frequently asked questions). One example of the potential danger of this approach is that part of the repatriated assets from the Marcos money that were put in an agricultural fund was then used in Arroyo’s election bid in 2004 in an infamous fertilizer scandal

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(Diaz, 2005, para. 1, http://www.philstar.com/headlines/307382/coa-p544-m-fm-money- diverted-fertilizer-fund).

“Is StAR taking action against off-shore centers and other tax havens?” is another riveting question on the StAR website. (worldbank.org/finance/star-site/about-us.html. StAR frequently asked questions). StAR’s response to this question is as phlegmatic as the others. It states that much of its work is about ending the existence of safe havens for corrupt funds, which include banks and other financial centers. It seeks to do this by making it more difficult for corrupt officials and other Politically Exposed Persons (PEPs) to use corporate vehicles for concealing illicit wealth. How does StAR propose to make this happen? It states that it seeks to do so by providing guidance on how to improve monitoring of financial transactions from PEPs particularly in developing countries. This opens another big question. Such “guidance” only applies to cases where the banks are in fact interested in avoiding PEPs’ business. What plan does StAR have in cases where the financial havens are interested in and in collusion with the perpetrators themselves?

The Financial Action Task Force: endorsed in 170 jurisdictions.

The Financial Action Task Force is an independent inter-governmental organization tasked with protecting the integrity of the global financial system. It came to being in 1989. It has a set of recommendations to combat money laundering and terrorist financing. Its first set of

40 recommendations were given in 1990, and focused on money laundering. Since then they have been repeatedly reviewed and updated to keep them fresh and current with the needs of the changing times. It is now 40 + 9 recommendations which added terrorist financing in 2001. Its mandate is also reviewed and approved for a set period of time subject to the approval of the

134 membership. The latest mandate was approved for 2012 to 2020 (FATF Annual Report, 2011, p.9). Later, analysts found that FATF’s recommendations are excellent tools for combating transnational corruption. There is a close nexus between the flow of illicit funds and money laundering activities (FATF website, http://www.fatf-gafi.org/pages/aboutus/whoweare/ ).

Notably missing in the list of member countries is the Philippines as it is missing in the bribery convention. Asian Development Bank and Asia Pacific Group Against Money Laundering stand in for the FATF and Bribery Convention in the Philippines.

Countries are not helpless in the face of kleptocracy. Proceeds of financial crimes can be prevented from going through the financial systems by preventing financial institutions and havens from accepting those illicit flows to begin with. If corrupt officials cannot be disciplined, then discipline can be requested and wrought from responsible professionals in the international banking system (Chene, 2011, p. 4). Part of the arsenal of “persuasion” tools are the FATF

Recommendations, which are not international law, but clearly attempts at having the force of law by linking them to the UN Convention Against Corruption (UNCAC) and UN Security

Council resolutions 1267 and 1373 (Jensen and Png, 2011, p. 111). These are UN Security

Council resolutions asking member states in the strongest possible terms to cooperate with worldwide efforts to prevent terrorism “by any means allowed by international law” (UN website. un.org.).

The international community now has the ability to prosecute money laundering and financing of terror with the ability to track, freeze, seize, and confiscate any proceeds of crime.

Member countries are expected to do their due diligence in recording and reporting suspicious transactions. Despite the peer pressure that mutual evaluations and public scrutiny are expected to induce in member countries not to fall behind other countries, the compliance rates are low. A

135 full 75 percent of developing countries are listed as “partly or non-compliant in 18 of the FATF

40 recommendations and all of the special recommendations” (Jensen and Png, 2011, p112).

There are two consequential actions taken against money laundering and terror financing in the past decade. The first is the active black listing of 23 jurisdictions who took special measures to comply after having been blacklisted by the FATF as Non Cooperative Countries

(NCCT)s. The second resulted from intensified efforts against global terror due to the unfortunate events of September 11, 2001 which led to the FATF 9 special recommendations against terror funding (Jensen and Png, 2011, p. 114). Not everyone is rejoicing over these events. Vlcek (2011) asks and answers why there should be a need for developing countries to comply with international standards in money laundering. He argues that rural communities with small economies like the Philippines, which are not vulnerable to terror attacks, are penalized heavily by of those standards. Much of the remittances made in the Philippines are by Filipinos abroad, OFWs (Overseas Filipino Workers) who find the transfer fees of regular financial institutions which have to comply with international standards of monitoring of account ownership, much too steep, leaving them much less of the original amount to send to loved ones back home. Vlcek worries that the blacklisting of economically vulnerable countries are ruinous to their overall financial health (p. 416).

Jensen and Png (2011) add that anti-money laundering and terror financing requirements do not really work where there is a substantial informal economy and transactions are cash based

(p. 117). The ability of AML/CFT measures is stymied when AML/CFT cannot verify suspicious transactions which they can do very well in formal economies. While these are powerful arguments against the compliance mechanisms of FATF, it must be remembered that the informal financial flows in the Philippines were what terror funding by Bin Ladin’s charitable

136 foundation used to great advantage. The original funding for the Islamic terror group in southern

Philippines, Abu Saffay came from charitable organizations like the Benevolent International

Foundation organized by Bin Ladin through his brother-in-law Mohammed Jamal Khalifa. For some time, these charitable foundations went undetected as the money laundering arm of these terror groups.

(Jane’sTerrorism/SecuritMonitor,2012.http://search.proquest.com.proxy.libraries.uc.edu/docview

/1080580952). Not having a strict “know you customer” policy for bank account owners has also led to the theft by PEPs (Politically Exposed Persons) of at least 13 percent of the national budget flowing out of the country. (Conde, 2007, para. 13). FATF recommendations are strong medicine but it is medicine that countries like the Philippines will be better off taking for its long term well being. The ultimate solution is not to depend on income remitted by OFWs, but to have the kind of economic stability that would generate jobs at home. Raiding the treasury of fifty percent of its budget, due to corruption enabled by non compliance with FATF requirements, is more persuasive as an argument in favor of compliance, than acceding to short term demands of one sector of the population.

Despite the sound and fury of FATF blacklisting, some wonder whether it has had any effect on the fortunes of tax havens. Kudrle (2009) writes that tax havens’ volume of business appears not to be touched by the black listings. He agrees that the “threat” itself of blacklisting led to immediate compliance by state parties, but that capital flight is unabated and just the power of “sticks and stones” may not be enough to break the back bone of the illicit flow of wealth. “The havens remain highly vulnerable to the sticks and stones that foreigners might ultimately deploy ,but both participants and academic commentators may have overstated the power of words alone to inflict harm” (Kudrle, 2009, p.45). Nevertheless, FATF member

137 countries and jurisdictions are consistent top 10 best performing and ranked countries in

Transparency International’s Corruption Perception Index. (See

/(http://www.fatfgafi.org/pages/aboutus/membersandobservers/).

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Table 8 FATF Member Countries. Source Transparency International. Notes: Top ten highest ranking and scoring countries on the CPI are FATF members. FATF Member CPI 2011 CPI Rank

New Zealand 9.5 1

Denmark 9.4 2

Finland 9.4 2

Sweden 9.3 4

Singapore 9.2 5

Norway 9 6

Netherlands 8.9 7

Australia 8.8 8

Switzerland 8.8 8

Canada 8.7 10

Luxemburg 8.5 11

Hong Kong 8.4 12

Iceland 8.3 13

Germany 8 14

Japan 8 14

Austria 7.8 16

United Kingdom 7.8 16

Ireland 7.5 19

Belgium 7.5 19

United States 7.1 24

France 7 25

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Spain 6.2 31

Portugal 6.1 32

Republic of Korea 5.4 43

Turkey 4.2 61

South Africa 4.1 64

Italy 3.9 69

Brazil 3.8 73

China 3.6 75

Greece 3.4 80

India 3.1 95

Mexico 3 100

Argentina 3 100

Russian Federation 2.4 143

The Forty Recommendations cover legal frameworks as the basis for compliance to recommendations and international measures and cooperation necessary to combat money laundering and terrorist financing. Recommendations 1 to 3 Legal systems recommendations provide for criminalizing the offense of money laundering and making it a predicate offense to crimes with a minimum of 6 months to 1 year prison sentence. It also provides that should there be no dual criminality, that administrative options with the same level of penalties are provided.

This was referred to earlier as functional equivalence. In other words, laws in some countries may not call an offense a crime, but if they have the same degree of penalties for the offense, then that would be considered equivalent. Recommendation 3 covers rigorous freezing,

140 confiscation and seizure provisions. What makes these recommendations stand out is they state that a criminal conviction is not needed in order to require that suspects prove the origin and lawful nature of properties in question. What this means is that in the past, the burden for the prosecution or investigative teams is to first secure a criminal conviction before suspects are asked to account for wealth in question. FAFT 40 Recommendations states;

Countries may consider adopting measures that allow such proceeds or instrumentalities to be confiscated without requiring a criminal conviction, or which require an offender to demonstrate the lawful origin of the property alleged to be liable to confiscation to the extent that such a requirement is consistent with the principles of their domestic law (2010, p.4).

This particular recommendation has opened up avenues for tracing illicit wealth not previously possible because it does not require a criminal conviction. It also shifts the burden of proof standard to the accused instead of the accuser. The only protection member countries have is that it says as long as it is “consistent” with domestic law. Presumption of innocence is a cornerstone of the Chilean and Philippine constitutions. Shifting the burden of proof to the accused is a big stumbling block to compliance in countries such as these. Therein is the seed to problems and built in inability to attain the goal of the recommendation. Indeed many domestic laws provide for presumption of innocence and burden of proof safeguards in their constitution.

True to form, recalcitrant countries began using this loophole to be non compliant. Despite this constitutional impediment, the Philippines was brought to compliance with international standards in 2012 when President Aquino signed the new AMLA provisions recommended by the FATF to avoid being kept in its black list. This new law allowed for the freeze and seizure of suspected assets and accounts without the knowledge of the account holder. The account holder is then expected to explain the origins of suspected assets instead of a charge being filed and the

141 prosecution team doing its own digging for evidence to prove that guilt of the accused.

Philippine

Recommendations 4 to 26 provide for measures to be taken by financial and non financial institutions to combat money laundering and terrorist financing. Like UNCAC and the OECD

Bribery convention, FATF puts teeth to its recommendations by stating “countries should ensure that financial institutional secrecy laws do not inhibit implementation of the FATF

Recommendations” (FATF, 2010, p.4). With this phrase, the authors anticipated that secrecy laws would be invoked by recalcitrant countries in order to skirt compliance with their recommendations, a prudent move as this is precisely what black listed countries continue to invoke. Recommendations 5 to 12 deal with record keeping and due diligence provisions. It requires all banking institutions to verify the identity of accounts and owners of business transactions. One would think that something as basic as identifying the owner of accounts would be a given. It has not been so easy to enforce this because perpetrators manage to elude this provision by setting up dummy and shell companies to hide true ownership. Many financial centers around the world are only too happy to secure large accounts no matter what their origins so this common sense basic solution has been defied. Nevertheless, due diligence in establishing the identity of owners of accounts, when and if implemented is still the best way of policing accounts according to many experts (p.4). This provision has counterparts in the UNCAC and

OECD bribery conventions.

Recommendation 6 covers PEPs or Politically Exposed Persons, defined as people who hold administrative, legislative, or judicial offices and their relations and business network.

These PEPs are to be given more scrutiny. Again one would think that this is a common sense solution. This recommendation acknowledges that and presumes guilt on the part of people in

142 positions in government which have followed a pattern of abuse. This pattern of abuse of power takes on mind numbing redundancy in the Philippines. Each administration swears by all that is holy to fight corruption, denouncing the very same actions they are then later charged with when they get in power. The same system of patronage politics, of having to reward their supporters with lucrative deals and contracts prevail. This can be readily seen in the perpetuation, administration after administration, of the distribution of largesse in high value industries; such as lucrative licenses and permits to mining, logging, and other resources. This is seen in high dollar contracts in public work, evading taxation, evading complying with regulations, smuggling, legal and illegal gambling, contracts from pork barrels, theft of foreign aid, and kickbacks from defense contracts. This is seen in how these purveyors of largesse move their illicit wealth through shell corporations and dummy accounts. Nothing about this pattern is new or unknown. There are signs that awareness of this pattern exists among MLG actors. Signs may be seen in MLG emphasis on new solutions like a procurement law, a whistleblower law, a freedom of information act, and money laundering standards imposed from the outside by the international community. If a pattern keeps repeating itself in very specific areas through very specific actions by very specific people in very specific positions, then it is the height of insanity if not outright negligence not to target said areas for special scrutiny. Targeting special areas of concern is the equivalent of criminal profiling. Corruption is a crime and criminals committing this crime must be profiled and watched more closely than others as would be done in any crime.

Another sign that MLG actors are aware of this repeating pattern is their heightened scrutiny of

PEPs. It is not new knowledge who the perpetrators usually are in the often repeated patterns of abuse. This presumption of guilt instead of innocence has again aroused all kinds of protests from recalcitrant officials seeking to invoke privacy rights so as not to be the subject of this

143 special attention by this provision. This recommendation also provides for establishing sources of wealth. That requirement if implemented will go a long way to curbing corruption (p.4).

Recommendation 7 is notable for assessing anti money laundering and terrorist financing controls already existing in the participants system. Recommendation 8 provides for new technologies that make possible the verification of the identity of an account’s true owner who may not physically be present where the verification is being made. Recommendation 9 provides for third party involvement in ascertaining identities of parties but still rests the responsibility for such identifications on the financial institutions who are involved as first and second parties. Recommendation 10 provides for the archiving of records for at least 5 years.

This is important in carrying out investigations and evidence collection requiring past bank statements and other documents like passports, drivers’ licenses, and identity cards, that would reveal the identity of the true owners of an account.

Recommendation 11 provides for the flagging of large transactions which have no apparent or visible source or lawful purpose. Recommendation 12 provides for the flagging of regular conduits of money laundering schemes like casinos, real estate agents, lawyers, accountants, and dealers in precious stones and metals which historically have been used to hide illicit wealth (FATF, 2010, p.6). In 2013, the Aquino administration passed this last hurdle on money laundering recommendations made by the FATF, leaving behind casinos as the only possible money laundering avenue outside of the reach of the AMLA. Recommendation 13 requires financial institutes to report any suspicious transactions to FIUs (Financial Intelligence

Units). Recommendation 14 protects employees from legal liabilities coming from investigating or reporting suspicious transactions to the FIUs. This is another point of controversy as this is open to abuse by people who use this process to persecute political opponents. Opponents to

144 parties in power can be investigated or cause to be reported with no check to the investigating parties.

Recommendation 15 requires financial institutions to provide training, audits, internal policies that are specifically aimed at controlling money laundering and terrorist financing.

Recommendation 16 requires non financial businesses to report suspicious transactions. These include lawyers, accountants, dealers of precious metals and trust companies. Lawyers and accountants and other professionals covered by privilege are immune from reporting suspicious transactions (p.8). This again is a gaping loophole in these sets of recommendations as perpetrators simply set up their accounts with lawyers and invoke lawyer client privilege to keep their transactions secret.

Recommendation 17 repeats the requirement for countries to have criminal and civil procedures to dissuade and curb money laundering and terrorist funding activities.

Recommendation 18 specifically targets shell banks and prohibits financial institutions from doing business with them. Recommendation 19 provides for “specific dollar” amounts to be flagged and reported in an international system (p.9). This is the most widely practiced tool to detect laundered funds The tracking of currency above a fixed amount and flagging them for closer inspection have produced beneficial effects in the flow of illicit funds. Recommendation

20 suggests adding more non financial institutions and professions other than those already specified and to develop modern techniques of detecting money laundering and terrorist financing.

Recommendation 21 and 22 provide for measures in cases of non compliance from countries. They provide for special attention to be given to businesses and financial institutions

145 from countries flagged to be intransigent. It provides for companies and subsidiaries abroad in non compliant countries to report whether because of domestic laws, they are unable to comply with FATF recommendations. Recommendation 23 provides for the kind of scrutiny that will ensure that criminals are not holding positions of responsibility in financial institutions. Financial institutions must be subject to regulation and licensing procedures to ensure that requirements are being complied with. Recommendation 24 again refers to non financial business institutions like casinos to be subject to licensing and regulation. It recommends that independent government or non government bodies should be tasked with the monitoring of said business establishments. Recommendation 25 requires that countries come up with their own guidelines for financial and non financial institutions to prevent money laundering and terror financing

(p.10). The difficulty with these regulations of casinos and the like has been that they have been sources of rent seeking activities as government officials often expect bribes in exchange for a favorable monitoring of their establishments. A disinterested party composed of ACMLG actors would stand a better chance of independence as a monitoring body.

Recommendation 26 provides for the establishment of Financial Intelligence Units (FIU)s that would act “as center for” gathering relevant information on money laundering and terror financing and giving it direct and timely access to financial institutions and law enforcement as well as administrative agencies in order to detect suspicious transactions. Recommendation 27 requires countries to have law enforcement agencies responsible for policy techniques and programs of cooperation with other countries to ensure compliance with anti money laundering and terror financing laws. Requirement 28 is critical to anti corruption strategies because it allows for the “compulsory” search, seizure and procurement of documents from financial institutions and the application of sanctions on those who fail to produce documents relevant to

146 an investigation (p.11). The compulsory nature of this recommendation separates FATF from any other anti corruption organization. Singapore, which has one of the best corruption scores, according to Transparency International and World Bank World Governance Indicators’, practices this compulsory procurement of evidence. The Philippines does not.

Requirements 29 to 32 all provide for the empowerment of local agencies to procure evidence and documentation from financial institutions and to apply sanctions for non compliance. It also requires that countries give adequate financial and technical support to anti money laundering and terror financing efforts. Cooperation with other countries in terms of exchange of information and resources must be encouraged. Recommendation 33 to 34 deal with the non use of legal persons for the use of money laundering activities. Corporations and trusts are considered legal persons and have long been used by criminals to hide illegal wealth. Proper detecting and sharing of information by financial institutions about said legal personalities aid in the transparency corruption efforts require (p.12). The Philippines notably has not complied with this provision disallowing trusts and corporations to be considered legal persons and therefore subject to the same penalties meted out on natural persons. The inference here again is the

Philippines will feign compliance, but balk at the recommendations that will ultimately stem corruption.

Recommendations 35 to 40 cover international cooperation in ratifying and implementing various conventions on terror financing and the seizure of proceeds of crime. Recommendation

36 stresses once again the importance of providing mutual legal assistance. It also requires that countries do not refuse to cooperate with requests for assistance from other countries on the grounds of banking secrecy laws or conflict with any other fiscal grounds. This reinforces the same provisos of guarantees against banking secrecy laws. That FATF recommendations

147 mention this twice demonstrates the importance of this provision in the attainment of stated goals. Recommendation 37 addresses the problem of dual criminality and provides that despite the absence of dual criminality, countries cannot refuse to give mutual legal assistance (p.12).

This means that even if the language of the law does not match for participating countries, if the underlying crime has the same description and penalties that that would suffice as having satisfied the dual criminality requirement for mutual legal assistance.

Recommendation 39 covers extradition provisions. This is an exciting tool for curbing corruption as captive states with captive judiciaries are seldom in a position to gather evidence and or convict perpetrators. By allowing for the extradition of their own nationals to be tried in foreign jurisdictions and trying foreign nationals for the same offense, the convention tightens loopholes that perpetrators escape through. Recommendation 40 reiterates the importance of not refusing cooperation with foreign counterparts requesting help. Banking secrecy laws cannot be invoked as a ground for refusal. Domestic counterparts must be able to investigate on behalf of foreign counterparts seeking help. It does require competent authorities to provide safeguards for the privacy of data in this exchange of information (p.14).

FATF 9 special recommendations of 2001 and 2004 cover anti terror financing. It is devoted to the detection and suppression of terror activities by cutting off the flow of their funding. FATF 9 requires countries to criminalize the funding of terror. It requires that countries provide a means of tracking, freezing, and seizing of terror funds. It requires countries to provide their own measures to detect terror funds funneled through foundations and nonprofit organizations (Please see FATF GAFI website http://www.accessbankplc.com/Library/Documents/Download%20Centre/FATF.pdf).

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FATF Blacklist is a coercive means of enforcing agreements made in international conventions. FATF blacklisting is the only international action against corruption that is coercive in nature. Most international measures are informative, investigative and administrative. None carry the threat of sanctions enforced on corruption issues like the FATF blacklisting of non cooperative countries. However, to Chaikin (2009), asset detection, freezing, and confiscation, are its most important initiatives (p.49). Unlike the OECD, UNCAC, and Asia Development

Bank/Asia Pacific Group, FATF is not reticent about calling out recalcitrant countries not complying with its agreements. It is known to blacklist those countries.

If in compliance with FATF 9, opening a bank account requires a variety of identification information verification such as passports, driver’s license, and utility bill. Amounts greater than

$10,000 are reported when crossing borders. AML duties supersede even the fiduciary duty of banks with regard to confidentiality. Some countries like Australia and the UK even allow the attorney client privilege to be superseded by FATF recommended AML laws. However, the US,

Canada, and France chose not to practice the waiving of attorney client privilege. By using civil forfeitures based on a balance of probabilities instead of “beyond reasonable doubt” as would be required in criminal cases, assets can be seized with more success. Suits are filed directly against the asset instead of the persons. This strategy has worked in the Montesinos case in Peru and also in domestic cases in the Philippines (pp.53-54). A specific example in the Philippine case is how

Marcos illicit wealth from Swiss bank accounts was repatriated even though Marcos was already deceased. The court ruling was based on the asset/estate, since the heirs disavowed knowledge and ownership of suspected Marcos accounts.

Despite international regulations featuring legal assistance and technological know how to developing countries to prevent the flow of illicit wealth, the question remains. Who will hear

149 the case? If by all accounts the judiciary is held hostage by elite capture, what independent forum will adjudicate international financial crimes? Bean (2010) writes powerfully;

The International Criminal Court does not take jurisdiction over cases involving theft or embezzlement. This is true even for multi- billion dollar crimes, which delay development, cause starvation, or prevent construction of desperately needed development projects. Although way beyond the scope of this article, there are efforts underway to establish grand corruption as a universal crime or a crime under international laws. With political will and determined leadership, the international community will one day acknowledge that grand corruption is a crime under international law and subject violators to prosecution where ever they may be found and regardless of where the corruption occurred (p. 804). Chene (2011) argues that the use of financial instruments through financial institutions by the international community is probably its most powerful tool of combating corruption. Chene argues that persuading banks to cooperate in recovering illicit wealth and ascertain very carefully the true ownership of accounts they hold, could very well reduce corruption (p.3). Not mentioned by Chene is the need for the international community to use the threat of withholding access to financial instruments and institutions to encourage the cooperation of recalcitrant countries. The economy is now global and no country’s economy can survive without access to international banks. That weapon if used judiciously and resolutely will, lessen the need for the corrupt to voluntarily comply in killing off the goose that lays its golden egg. Control of the golden eggs will be withheld from it.

There is some good news about national laws impacting international laws to advance the anti-corruption agenda. The oldest national law that impacts international law is the US FCPA.

The Dodd Frank Act and the UK Bribery Act are two of these most recent legal arsenals in the weaponry of ACMLG. Very important to anti-corruption global activists’ wish list is the need to regulate those who extract natural resources such as gas, oil, and mining, all vulnerable to opportunities for plunder, diversion, and embezzlement. The Dodd-Frank Act imposes new

150 disclosure and reporting obligations to those entities. The Act requires the following: “To do a country-by- country accounting of operations and revenue; to do a country by country accounting and reports following the standards set by the European Union; to do a country by country disclosure of key financial data and anti-corruption measures taken by the company”

(Chene, 2011, p. 10). These developments directly impact the efficacy of the provisions and recommendations of the International Governmental Organizations (IGO)s on anti-corruption actions like the UNCAC, OECD anti-bribery conventions, WBStAR, and FATF 9. The main provision of these IGOs that the Dodd-Frank Act supports are the identification and tracking of illicit wealth. By requiring multinational corporations to account for their revenues and expenses, it will be much easier to trace which countries that they do business with may have ended up with some of their corporations’ funds. If multinational corporations show a difference in their books between the amount they are paid and the amount they sell their products or services for and the expenses they declare, then that is important information in following the trail of dirty money.

Anti-Corruption International Non-Governmental Organizations

Transparency International: founded 1993.

Brothers (2008) quotes (TI) Transparency International’s Annual Report which describes it as a Berlin registered non-profit organization that is for charitable purposes only and thus tax exempt. It is well known for its Corruption Perception Index (CPI) scoring and ranking of countries. There is some question as to why only 163 of more than 200 countries are represented in the CPI rankings which TI explains as its desire for a solid empirical basis for the index. “TI has a policy of requiring results from three surveys to back up the CPI” (Brothers, 2008, p.51).

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This means surveys done by different anti-corruption organizations coming to the same ratings they gave each country. “TI aims to create a world free or corruption by raising awareness about corruption globally through its 100 plus national chapters. TI is politically non-partisan and seeks to involve all relevant parties in government, media, business etc. It sees everyone as its target audience” (Brothers, 2008, p. 50).

Juricek (2006) lists some of the useful tools and techniques TI provides in its website.

Among TI’s tools for battling, understanding, and measuring corruption are; the Corruption

Perception Index (CPI), Briber Payers Index (BPI), and the Global Corruption Barometer (GCB).

The public, policy makers, and practitioners in the cause of corruption can also avail of TI’s monthly bulletins on corruption, annual reports, publications and studies in the policy research section (p.524). Transparency International is the biggest anti- corruption international non- governmental organization. It is a global coalition formed in 1993, composed of governments, businesses, and global civil society organizations, whose most famous contribution is the

Corruption Perception Index, which is influential in academic research as well as the evaluation of anti corruption initiatives. It is mainly devoted to the sponsoring of research studies, conferences, and human resource training. The main criticism against it is that it is too soft on corruption and uses the language of scholars and diplomats and none of the militant activist language that such an endeavor requires. It has no coercive power such as FATF, UNCAC or

OECD do.

One of the criticisms levied against the CPI is that it discriminates against poor countries by reporting them as persistently corrupt. The problem starts with how corruption is defined by

Transparency International as “the misuse of entrusted power for private gain”. Andersson and

Heywood (2009) argue that the better definition of corruption is “the misuse of power in the

152 interest of illicit gain” (p.745-748). The words “entrusted power” is problematic because power may not have been acquired legitimately as in the case of dictators. The World Bank defines corruption as “the abuse of public office for private gain”, narrowing it down to public corruption. The problem with the measurement of corruption by the CPI is it is a composite of perceptions provided by business leaders and experts measuring “perception of corruption” through surveys instead of actual experiences of it. The understanding of what corruption is underpins what kinds of initiatives are necessary to combat it. This is problematic for some scholars because many developing countries are automatically disfavored by this understanding of corruption, which results in the withdrawal of business investments and development aid

(Andersson and Heywood, p. 753).

Another problem raised about the CPI is that it influences aid given to poorer countries.

Poor countries typically score less than 3 on a scale of 1 to 10 with ten being the least corrupt. It is no surprise that nearly 50 percent of countries score lower than 5 in this scale. To attach withdrawal of aid to low corruption scores is punishing the corrupt country and encouraging more corruption rather than less (Andersson, 2009, pp.757-758). I would argue that withdrawal of aid from countries with low corruption scores is not the answer but attaching more scrutiny and safeguards to whatever aid given are the key. So instead of merely withdrawing aid as a consequence of poor corruption scores, specific requirements in terms of banking secrecy and extradition laws as prescribed by UNCAC, OECD, and FATF must be enforced.

The standards of measurement used must be the same across the board, for rich and poor countries alike. It must be acknowledged that poor countries are poor partly because a high percentage of their treasure goes to private accounts. For academics to build an argument of discrimination against the CPI without acknowledging this fact and what must be done about it,

153 in no way helps move the agenda forward. Indeed the CPI is the only naming and shaming mechanism available that can hold to account local overlords in third world countries upon whose powers there are no checks. FATF blacklisting does function as a naming and shaming mechanism but takes one step more than the CPI. FATF imposes sanctions with its blacklisting of countries. The absence of check and balance mechanisms in many developing countries have contributed to the perpetuation of corrupt behavior. The strategy to combat it is not to prevent measurements of corruption such as the CPI, but to use it as an ad hoc check mechanism in countries where there are none. Andersson’s argument that lack of good results from

Transparency International’s anti corruption efforts is a sign that the strategy of monitoring and sanctions do not work is flawed. It has not gained that much traction because perpetrators are entrusted with policing themselves and providing the logistics for penalizing themselves. That is what is flawed in the strategy which must be changed.

Truth is a commodity that is held hostage in developing countries. Public opinion is most often controlled by the ruling few who control all levers of power. So a measurement index such as the CPI and an international anti corruption organization not beholden to local domestic overlords and system of patronage politics is most necessary in the strategy against corruption.

The CPI may not be a perfect measure but no one else has consistently and systematically measured corruption performance for a long time period than Transparency International. While gains may be nil, as there are no sanctions or coercive measures it can apply, it puts the issue of corruption in the front burner for policy makers.

Local counterparts of INGOs do not have the same independent voice as they are often co-opted by the ruling party and local political figures in power. Transparency International has a local chapter in the Philippines. It is engaged more in capacity building and corruption awareness

154 projects without singling out the guilty parties. The watchdogs have themselves become part of the system and have taken the side of whoever is in power by virtue of their meaningful silence, often taken as tacit acceptance of the corruption going on. This is particularly true for the

Philippines where NGOs are either funded by government or have a stake in seeing the post

Marcos regimes. This has prevented them from being honest brokers in this fight against corruption. Transparency International of course announces that their donors do not have control of their positions and agendas. Local NGOs in the Philippines do not have a track record of policing the party in power and only do so when the looting of the treasury has taken place and incumbents have been dislodged from power. Meanwhile, the looting has already taken place.

That is behind their dismal record in curbing corruption.

Global Financial Integrity: 2006 launching.

In 2006, Global Financial Integrity (GFI) was launched to help stem the flow of illicit funds globally. It does this with ground breaking research, forming partnerships, and putting forth new solutions, safeguards, and policies. GFI is greatly alarmed by the 1 trillion dollars of illicit wealth that leaves developing countries. In 2005, in a publication by the Center for

International Policy, Senior Fellow Raymond Baker described how the flow of illicit wealth from developing countries to about 70 or more tax havens through dummy corporations that shield ownership, have prevented the use of aid and other resources for development (Please see Global

Financial Integrity website, http://www.gfintegrity.org/content/view/14/135/). He asserted that for every 10 US dollars that go out in aid, only 1 dollar actually goes to benefit the country while

9 dollars flow out of the country as illicit wealth. Investment Weekly News as cited by GFI, reports that the developing nations’ ODA (Official Development Assistance), is now over taken by the capital flight of illicit wealth. “Illicit financial flows siphon revenue out of poor countries,

155 robbing them of much needed assets and forestalling development” (GFI, 24 January, 2009.

Global Financial Integrity; Illicit financial flows out of the developing world overwhelm foreign aid. Investment Weekly News). Every dollar that flows out illicitly is a dollar taken away from more hospitals, schools, roads, irrigation and many other livelihood programs that are vital to the development of poor countries.

Following the money or going after the flow of dirty money is where the rubber meets the road. It is now an important thrust of anti-corruption campaigns. Sixty percent of illicit funds flow out from mispricing of trade in order to avoid paying taxes. Corporations and individuals misrepresent what they earn so that the difference may be siphoned off in accounts abroad

(Global Financial Integrity. http://www.gfintegrity.org/content/view/14/135/). If Transparency

International is known for its CPI, Global Financial Integrity is known for its reports, notably the report entitled “Illicit Financial Flows from the Least Developed Countries: 1990 to 2008”.

(Global Financial Integrity. http://www.gfintegrity.org/content/view/14/135/)

Global Financial Integrity convened the Task Force on FIED (Financial Integrity and

Economic Development) in 2009. This is a coming together of global civil society and 50 governments to “address the inequalities in the financial system that penalize billions of people”

(PR Newswire Europe Including UK Disclose, 2009). Their five main goals include automatic information exchange on cross border tax information on business accounts, curtailment of mispricing in trade exports and imports, coordination between participating countries of making anti money laundering a predicate offence, confirmation of beneficial ownership of accounts, and country by counting accounting and reporting by multinational corporations of their sales, taxes, and profits (Financial Integrity & Economic Development Task Force. http://www.financialtaskforce.org/ ). Task Force FIED, convening civil society, policy makers,

156 economists and journalist, encouraged the G20 meeting in Pittsburg to make the connection between poverty, corruption, lack of development and illicit flow of funds. Every year, developing countries lose 1 trillion dollars through corruption, tax evasion, and criminal activity

(Economics Week, 2009). There are 70 secrecy jurisdictions that enable the laundering of money out of developing countries.

In October 4, 2012, GFI (Global Financial Integrity) hosted the launch of Frank

Vogl’s book “Waging War on Corruption”. Vogl is a co-founder of Transparency International.

The book launch featured a panel of experts who discussed IFFs (Illicit Financial Flows) and its links to Corruption and Global Security. Among the experts were Frank Vogl, author and co- founder of Transparency International, Raymond Baker, Director of Global Financial Integrity,

Ted Greenberg, former Chief of the Money Laundering Section, U.S. Department of Justice, and former Senior Financial Specialist of the Financial Market Integrity Unit at the World Bank, and

Jean Pesme, Manager of the Financial Market Integrity service line at the World Bank, and

Coordinator of the joint UNODC/World Bank Stolen Asset Recovery (StAR) Initiative. The panel discussion was videotaped and may be accessed through YouTube. (GFI website, gfintegrity.org/content/view/577/77)

This panel of experts was a treasure trove of pressing issues about corruption and the flow of illicit funds. Frank Vogle celebrates his anger and his passion over the fact that commentary on corruption ends with commentary on solutions and no follow up on implementation. Ted Greenberg pointed out the world’s obsession with old dictators like Marcos, failing to see that new kleptocrats have cropped up using the same banks to launder their money.

He also points out the role of social media in addressing the problem of corruption. Raymond

Baker said that given that there are only 25 full democracies in the world that global civil society

157 has to step in to curb the problem of corruption. Some questions came up about the role of intelligence gathering and why it has not been more active in catching the perpetrators of corruption. Greenberg says that the intelligence community has been active but can hardly disclose their activities. Baker asserts that corruption is and must be seen as a problem that is linked to all other issues like international security, poverty, and human rights abuses among others.

Because this panel includes interactions between key figures from so many of the organizations examined in this chapter, I am including in the index my summary of the entire recorded panel at Frank Vogle’s book launching at GFI. (Please view the follwing panel discussion in its entirety on youtube, http://www.youtube.com/watch?v=A-oLyNgECRM.

The inventory of Anti corruption MLG actors and actions is helpful in understanding how new linkages curb corruption. Anti-corruption international legal frameworks in the form of conventions like UNCAC and OECD anti bribery convention, and how they guide actions of international governmental organizations like FATF and WB StAR, which in turn guide the actions of international non-governmental organizations like Transparency International and

Global Financial Integrity, are heartening in how they echo one another’s provisions and advocacies. Even more encouraging is how these international anti-corruption MLG actions impact counterpart domestic legislation and the actions of domestic governmental and non- governmental organizations. An excellent example this is how UNCAC provisions on ascertaining ownership of accounts and search, freeze, and seizure laws are echoed in the OECD anti bribery convention provisions and given teeth in FATF recommendations. Domestic AMLA laws reflect cooperating countries efforts to comply with international regulations on corruption.

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Domestic Governmental Anti-Corruption Initiatives in the Philippines

Domestic Anti-Corruption Legal Framework

Anti Money Laundering Act (AMLA)

According to the AMLC website, the Anti-Money Laundering Act 2001 (RA 9160) and later amended as RA 9194 in 2003 criminalizes money laundering, relaxes banking secrecy laws, creates a financial intelligence unit (FIU), provides requirements for record keeping, customer identification, and reporting of suspicious transactions. “It provides for freeze, seizure, and forfeiture of dirty money ex-parte in compliance with international standards and requests for cooperation in curbing the flow of unlawful transactions attempting to look like they have legitimate origins”. The relaxing of banking secrecy law provisions in addition to the ex-parte

(meaning without requiring all parties involved to be present) freezing and seizure powers of the

Act, are the most formidable legal instruments in curbing corruption if applied

(http://www.amlc.gov.ph/). The Philippines has resisted many attempts to pass legislation that would relax banking secrecy laws. It has justified this position with the argument that it wants to compete with tax havens like Singapore as the destination of foreign currency. It has also resisted ex-parte investigations into suspected accounts that included freezing and seizures by invoking privacy rights guaranteed by the Constitution.

Offenses and penalties under this Act all sound formidable. A fine ranging from P100,

000 to P3 Million with a prison time ranging from 6 months to 14 years are even higher than those imposed under similar laws in non-corrupt countries like Singapore. It penalizes not just unlawful acts but omission of performing due diligence which results in unlawful acts. It defines

159 unlawful acts as any act that involves dirty money or assets. It has a long and complete list of these acts, also known as predicate crimes; these include plunder, graft and corruption, Jueteng and Masiao,(illegal numbers game/gambling) “qualified theft, swindling, smuggling, piracy, hijacking, murder, terror acts against non-combatants, financing terrorism, and concealing property or funds for terrorism” (http://www.amlc.gov.ph/). Why despite this excellent domestic legal framework for anti-money laundering do illicit funds manage to leave the Philippines by the billions of dollars? Global Financial Integrity 2011 reports,

There has been extensive research on capital flight from the Philippines. For instance, Beja(2006) finds that capital flight from the Philippines was US$16 billion in the 1970s, US$36 billion in the 1980s and US$43 billion in the 1990s which has led to a hollowing out of the economy. As large as these out flows are, they are based on the traditional method used by economists according to which illicit inflows are netted out from outflows. Based on the gross outflow method used in this and other GFI studies which sets all illicit inflows to zero, we estimate that the Philippines lost an estimated US$109 billion in illicit outflows through both the balance of payments and trade mispricing over the nine year period 2000 to 2008. Le and Zak(2006) in a study of 45 developing countries including the Philippines, find that interest differentials and various risks to capital stemming from economic and political instability have a statically significant impact on capital flight. They found that political instability was an important factor in driving illicit flows particularly in the case of the Philippines --(GFI 2011 Report, p.26, http://www.gfintegrity.org/storage/gfip/documents/reports/IFF2010/gfi_iff_update_report -web.pdf). The freezing of property and monetary instruments is perhaps one of the most powerful and effective measure of this Act. In 2012, after threats of black listing by the FATF, the

Philippines was brought into compliance with international standards, including this freeze power which includes the controversial but necessary ex-parte, or without notice to the suspected party, provision. It had been observed correctly that the corrupt simply move their funds upon hearing of a possible investigation. It renders the old freeze, search and seizure laws ineffective.

To comply with constitutional rights to privacy, the Anti Money Laundering Council (AMLC) which was created by the AMLA, is still required to get a warrant from the Court of Appeals to

160 decide probable cause justifications for the freeze and inquiry into private accounts. The freeze order is immediate and lasts 20 days but may be extended. The immediacy feature of the freeze order is important because of how swiftly banking transactions can move around the globe

(http://www.amlc.gov.ph/). However, many are concerned with good reason that such draconian powers when placed in the hands of elite captured institutions can be used mainly for the persecution of political opponents. A judiciary that is not independent from the executive and party in power in addition to a Financial Intelligence Unit (FIU) that is under the control of the executive and the executive branch, provide many opportunities for abuse of power.

The “Know thy Customer” provision sounds less draconian than the freeze and seize provisions of the Act, but it has the most potential for preventing corruption before it even happens. This provision is in compliance with UNCAC and FATF provisions. Flagging any covered or suspicious transaction over P500, 000 in a single day, by an identified account holder who cannot provide justification in terms of trade or does not match the account holder’s financial capacity or previous patterns of transactions, by itself can reduce the amount of illicit flows globally. As of this writing, the Act only covers institutions like banks, insurance companies or securities dealers supervised by the SEC (Securities and Exchange Commission).

The Philippines is yet to comply with the FATF requirement that would cover among others, gems and precious metals dealers, casinos, and real estate brokers. Philippine compliance to

FATF recommendations beginning 2001 has been piecemeal and excruciatingly slow.

There are other noteworthy offenses and penalties like the sin of omission being penalized. “Records have to be kept for 5 years and failure to do so would mean a fine of P100,

000 to P500, 000 and a 6 month to one year imprisonment. Perhaps to guard against the abuse of the Act for political purposes, malicious reporting of false information is severely penalized with

161 a range of 6 month to 4 years imprisonment and a fine of P100, 000 to P500,

000“(http://www.amlc.gov.ph/). It could be argued that this provision can act as a double edged sword. It can curtail abuse of the Act, but can also send a chilling influence on potential whistle blowers. A public official convicted of this Act is banned from public office permanently.

Officials of institutions guilty of violating the Act will be selected for prosecution. Most interesting is the provision that institutions under investigation or involved in investigations may not disclose any information to the press or public and will be criminally liable and fined from

P300, 000 to P1M and prison time of 3 to 8 years. It is noteworthy that publishers and editors of publications are included in the list of those who can be held liable. Interestingly enough, this breach of confidentiality clause was not invoked by the defense panel in the Corona Trial when the Chief Executive himself discussed information about the case using information produced from AMLA investigative powers. The media and publishers who had a field day disclosing

AMLA information on the case during the trial, where also not held accountable under this provision of the Act.

On December 12, 2011, the 23rd Chief Justice of the Supreme Court of the Philippines,

Renato Corona, was impeached. He was impeached on failure to disclose assets and liabilities on his Statement of Assets, Liabilities, and Net worth (SALN). Corona was a midnight appointee of former president Arroyo, who made the appointment after the presidential elections of 2010.

Although the Philippine constitution expressly prohibits late appointments by the outgoing president, the Philippine Supreme Court upheld the appointment. From the time of swearing in, the incoming president Benigno Aquino made his displeasure clear about Corona’s appointment by not choosing him for the swearing in ceremonies, but the lone dissenting justice on the

Corona appointment, Conchita Carpio Morales instead. The conflict between Aquino and Corona

162 continued with the Philippine Supreme Court ruling on the unconstitutionality of Aquino’s Truth

Commission, aimed at ferreting out facts on Arroyo’s corruption. The tension escalated when the

Philippine Supreme Court issued a Temporary Restraining Order (TRO) on the travel ban ordered against Arroyo. This case is relevant to my topic because of how it displayed the array of new anti-corruption laws, like the AMLA, and how they were used by Aquino to force the disclosure of secret bank accounts. The disclosure of Corona’s bank accounts remains controversial because no charges of corruption were brought against him in the impeachment trial, which would have been the prima facie trigger that would have allowed the search and disclosure of his bank accounts. Some constitutional scholars continue to argue that Corona’s impeachment was illegal because failure to disclose assets and liabilities by statute gives the opportunity for correction of errors in the SALN, and not impeachment. Many continue to see the removal of Corona to be politically motivated, Aquino’s way of “cleaning up” the judiciary that could prevent the conviction of Arroyo for her alleged crimes.

The Philippines tried to comply with FATF requirements with the AMLA of 2001. This act authorized the creation of the AMLC or Anti Money Laundering Council, an FIU or

Financial Intelligence Unit, high officials from the Securities and Exchange Commission and

Central Bank of the Philippines (Suleik, 2012). In 2003, FATF was not happy with these provisions and required tightening the reporting of suspicious accounts. Simpser (2009) writes,

The Act took a number of important first steps. Money laundering was classified a criminal offense. The Anti-Money Laundering Council (AMLC) was established. The AMLC first and foremost acts as a Financial Intelligence Unit (FIU). The act mandates that all financial intermediaries regulated by the BSP, SEC, and IC must send in covered transaction reports and suspicious transaction reports (p. 296).

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The AMLC, unlike other FIUs, is empowered to initiate forfeiture proceedings with the Office of the Solicitor General and the investigation of suspicious accounts by the Ombudsman or the

Department of Justice. Other FIUs like the one in the UK, turn those functions over to the police

(p. 297). The AMLC could also initiate measures against money laundering. The AMLC can also ask the Court of Appeals to freeze property for up to 20 days (p.297). Civil forfeitures have been used successfully to recover illicit wealth. Forfeiture of stolen wealth is seen as more punitive than even a criminal conviction and fines. The standard the Philippines has used to establish whether a suspected property is ill gotten is to compare the assets declared by the government official in his tax forms, and his declared income. Any discrepancy is regarded suspect. This was the formula they used to freeze and recover Marcos’ $658,175,373.60 alleged ill gotten wealth. Although no court has established ownership of Marcos accounts, the proceeds were nevertheless frozen, held in escrow, and repatriated to the Philippines (p.299).

In June 5, 2012 the Philippine Senate passed Senate Bill 3009, which allows the inquiry into bank deposits without notifying the account holder. This is to comply with FATF requirements and to prevent suspicious accounts from taking flight. This tightens the loopholes in the anti money laundering laws against money laundering and terror financing. The threat of

FATF blacklisting was a powerful incentive for Philippine law makers as consequences of the black listing includes the delay of remittances from overseas workers that the Philippine economy depends on (Senate approves changes to anti-money laundering law, http://www.abs- cbnnews.com/business/06/05/12/senate-approves-amla-amendments).

The amendments to AMLA were signed into law by President Aquino June 18, 2012. The two amendments are the “Act to strengthen the Anti-Money Laundering Law” and “The

Terrorism Financing Prevention and Suppression Act of 2012”. The passing of these two laws

164 was critical to complying with international standards and avoiding blacklisting from the FATF.

The approved version gives the power to approve the freezing of suspected accounts exclusively to the Court of Appeals, upon the recommendation of the AMLC. In other words, like Chile, the

Philippines holds onto the issuing of warrants as the prerogative of the higher courts, and not agencies under the Executive Branch. The Supreme Court continues to have the power to issue a

Temporary Restraining Order. This new version also takes the authority to investigate suspected accounts away from the Central Bank of the Philippines, partly in reaction to what was revealed in the Corona Trial as an abuse of power. The new version criminalizes funding of terrorist activities with 14 year imprisonment and 500,000 to a million pesos in fines. These are very serious changes that are designed to prevent the use of the financial system for criminal activities

(Calica, A., 2012).

Domestic Governmental Anti-Corruption Initiatives/Programs

Anti-Money Laundering Council: Founded 2001

The Anti-Money Laundering Council is a Financial Intelligence Unit created by the

AMLA. According to the Philippine Anti Money Laundering website,

It is composed of the Governor of the Bangko Sentral ng Pilipinas (BSP) as Chairman and the Commissioner of the Insurance Commission (IC) and the Chairman of the Securities and exchange Commission (SEC) as members. It acts unanimously in the discharge of its functions. The AMLC is assisted by a Secretariat headed by an Executive Director and the following; and the Administrative and Financial Services Division (AFSD), the Legal Evaluation Group (LEG), the Compliance and Investigation Group (CIG), Technical Services Staff (TSS), the Information Management and Analysis Group (IMAG). (www.amlc.gov.ph/) AMLC is authorized by AMLA to investigate cases of money laundering and terror financing, receive reports on suspicious transactions, request the courts for freeze, search and seizure of suspected accounts, assist international agencies with requests for money laundering and terror financing information, request and assistance from any government agency in terms of resources, to help with its activities, organize educational, training and

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public information exercises and file complaints to the Department of Justice and the Ombudsman (http://www.amlc.gov.ph/). Civil forfeitures are still to be conducted according to law. Civil forfeitures require that a freeze be authorized by the Court of Appeals and that a financial institution submit a covered transaction report in the amount of $9,200, the absence of which will not allow for a civil forfeiture. The amount of $9,200 is used by Financial Intelligence Units as the warning bell on what accounts have to be scrutinized. That is the threshold amount in one transaction that a suspicious account must have before the courts could issue a freeze warrant on civil forfeiture cases. Before the 2013 amendment to the AMLA, the corrupt could hide their ill gotten wealth in real estate, gold and precious gems and metals, and luxury items because the older version of

AMLA only applied to financial institutions and banks. (Simpser, 2009, p.297).

What factors are used by the court in weighing the evidence of whether there is probable cause that a suspected account is engaged in money laundering and unlawful acts? The answer to any of these questions must be yes to establish probable cause: “Is the value of the property not commensurate with the respondent’s earning capacity? Is the transaction a clear deviation from the respondent’s precious transactions? Is an account held by a nominee owner? A nominee owner is an agent of the true owner used to shield the true owner and or beneficiary of the account. Have transactions been structured to avoid currency transaction reporting rules? Is there no apparent underlying legal or trade obligations, purpose or economic justification to the transaction?” (Simpser, 2009, p.299).

The Philippines has also used a net worth theory, notably applied in the Marcos Illicit

Wealth cases. It takes the legitimate income declared by the defendant for tax purposes and compares it to his or her holdings and assets. The Court can draw an inference of guilt if the

166 income declared is significantly lower than the holdings found. Ironically, the Philippine

Supreme Court then headed by Renato Corona, set the standard for how to determine whether wealth held by government officials, is illicitly acquired. By ruling against the Marcos heirs in

July 15, 2003, G.R. No. 152154, Republic of the Philippines, petitioner, vs Honorable

Sandiganbayan (Special First Division), Ferdinand E. Marcos (Represented by his estate/heirs:

Imelda R. Marcos, Maria Imelda (Imee) Marcos-Manotoc, Ferdinand R. Marcos jr., and Irene

Marcos-Araneta) and Imelda Romualdez Marcos, respondents, it upheld sections 2 and 6 of

Republic Act 1379 which provide that,

Section 2. Filing of petition. – Whenever any public officer or employee has acquired during his incumbency an amount or property which is manifestly out of proportion to his salary as such public officer or employee and to his other lawful income and the income from legitimately acquired property, said property shall be presumed prima facie to have been unlawfully acquired.

Sec. 6. Judgment – If the respondent is unable to show to the satisfaction of the court that he has lawfully acquired the property in question, then the court shall declare such property in question, forfeited in favor of the State, and by virtue of such judgment the property aforesaid shall become the property of the State. Provided, That no judgment shall be rendered within six months before any general election or within three months before any special election. The Court may, in addition, refer this case to the corresponding Executive Department for administrative or criminal action, or both.

The law raises the prima facie presumption that a property is unlawfully acquired, hence subject to forfeiture, if its amount or value is manifestly disproportionate to the official salary and other lawful income of the public officer who owns it. (http://sc.judiciary.gov.ph/jurisprudence/2003/jul2003/152154.htm)

The Philippine Senate during the Corona Impeachment Trial, used this formula against

Chief Justice Corona by comparing his declared assets, liabilities, and net worth (SALN) with undeclared assets in the form of real estate and peso and dollar accounts. They found that there are discrepancies between the two but only convicted Corona on failure to report his SALN

167 accurately. Corona was able to provide evidence of the legitimacy of the source of his misreported wealth and hence was not able to be charged with more under RA1379. This is the same formula used to determine whether there is any wrong doing on the part of Arroyo in her upcoming plunder trial.

The Office of the Ombudsman: The powers of the Office of the Ombudsman are formidable. His

Office is also structurally insulated from political interference because it needs congressional confirmation, has a fixed term of office, may not be removed other than by impeachment, and salaries may not be diminished and funding autonomous. For all intents and purposes, these conditions should render the OMB independent from the executive. Yet the utang na loob (moral debt) mentality of Filipinos when it comes to recognizing personal debt, bind them to whoever may have given them a job or opportunity to begin with. An important and recent example of this is the impeached former Ombudsman Merceditas Gutierrez, an Arroyo appointee. Articles of

Impeachment against her include charges of betraying public trust by not acting on requests to investigate high profile cases implicating Arroyo; notably the Fertilizer Scandal and the NBN-

ZTE scandals. Please find details about the scandals and charges at: http://www.scribd.com/doc/50856265/Articles-of-Impeachment-versus-Ombudsman-

Merceditas-Gutierrez.

Unknown to many, the OMB has quasi judicial powers which include administering oaths, issuing subpoenas including subpoena duces tecum, (subpoena to produce documentary evidence in court), and has the authority to take testimony into the investigation of bank accounts and records. The Ombudsman has the power to initiate investigations in recovery of ill gotten

168 wealth. The OMB is the disciplinary arm for government employees or government owned corporations. It not only investigates criminal complaints but also complaints about negligence in the performance of duty, inefficiency, improper and unjust conduct. It is empowered to “stop, prevent, or correct any abuse or impropriety in the performance of duties”

(http://www.ombudsman.gov.ph ).It can also make recommendations as to the disciplinary action taken from censure, fine, suspension, or removal from office. An officer who refuses an order from the Ombudsman to enforce disciplinary action against the guilty will be charged for disciplinary action.

Another formidable power of the OMB, is the power to investigate the disbursement of government funds and to report to the Commission on Audit (COA) any irregularities found. It can request copies of documents and contracts on the disbursement of public funds and properties. Like the AMLC, it can request assistance for information and resources from any government agency in the performance of its duties. Unlike the AMLC, it can publicize matters covered by its investigations provided that it is fair and balanced. The OMB is also charged with determining the cause of inefficiency, mismanagement, red tape, fraud and corruption and make recommendations for “their removal and high standards of ethics and efficiency”

(http://www.ombudsman.gov.ph/OMB official website).

There are several ways of evaluating anti-corruption legislation and one way is how specific they are to concrete practices instead of abstract principles. “The way this can be assessed is to ask the journalist’s standard questions of who, what, when, and how; what is involved, who are involved and affected, and when and how are actions carried out. It is also important to note that despite the array of factors linked to levels of corruption, some policies are more effective than others such as civil service reform” (Michael and Polner, 2008, p. 536).

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In this quote, Michael and Polner are setting a way of measuring the soundness of anti-corruption legislation and initiative. The question of who crafts the legislation has the most impact. If the legislation is written by people with no desire for it to be effective, they would leave out important ingredients that would render it effective. Philippine legislators left out anti-corruption laws that make effective ferreting out of evidence possible. They left out a freedom of information act, and a whistleblower act. They kept banking secrecy laws protecting dollar accounts of government officials from disclosure. They kept out laws that would penalize both public and private corruption. They kept out laws that would define legal persons to also mean corporations and foundations. A country’s anti-corruption agenda is measured many ways. Is the country a member or signing party to international conventions on bribery and corruption such as

UNCAD and the OECD Anti-Bribery Convention or their regional counterparts? Does the country have national anti-corruption programs involving many agencies in government as well as NGOs? Does the country have a civil service law, a freedom of information law, a financial disclosure law for civil servants, an anti-money laundering law, and a political party finance law?

(Michael and Polner, 2008, p. 536). The Philippines has a civil service law, a financial disclosure law for civil servants, and an anti-money laundering law. It does not have a freedom of information law and a political party finance law. By these standards, the Philippines passes in terms of compliance with the legal framework and anti-corruption infrastructure. Why then does it still rank as one of the most corrupt countries? Part of the answer points to the quality and implementation of Philippine anti-corruption laws and initiatives.

The Philippines has a stellar record in appearing to have all the anti-corruption ingredients required by the international community. It has anti-corruption legislation and government agencies recommended by MLG actors. The Philippines is a signatory of UNCAC,

170 complied with FATF recommendations even if not a member country. It has an anti-money laundering law and enforcing agency. It has a national anti-corruption law and multiple enforcing agencies. It has a procurement law, an anti-corruption court, and an ombudsman. It participates actively in anti-corruption seminars and conferences and has thousands of anti-corruption non- governmental organizations, etc. These all should be indicative of success in lowering levels of corruption. The puzzle is why they have not lowered their corruption scores and other countries like Singapore, which does not have as many features of the anti-corruption legislation and agencies, have had more success.

Domestic Non Governmental Organizations Anti-Corruption Initiatives

Transparency and Accountability Network (TAN). TAN is an umbrella coalition of various civil society organizations, academics, universities, business leaders to promote transparency and accountability in government. It has 25 organization members and 8 development partners.

According to their website Transparency and Accountability Network (http://www.tan.org.ph/) the 25 organizations are:

1. Ateneo de Naga University KDC 2. Ateneo School of Government 3. Caucus of Development NGO Network 4. Christian Convergence for Good Governance 5. Citizens Network for Good Governance 6. Concerned Citizens of Abra for Good Government 7. Development Academy of the Philippines 8. Evelio B. Javier Foundation, Inc. 9. Institute for Political and Electoral Reform 10. Institute for Politics and Governance 11. Institute for Popular Democracy 12. La Salle Institute of Governance 13. Lawyers League for Liberty

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14. Makati Business Club 15. National Institute for Policy Studies 16. pagbabago@pilipinas 17. Palawan State University Knowledge Development Centre 18. Procurement Watch, Inc. 19. Siliman University Knowledge Development Centre 20. Social Weather Stations 21. St. Paul University-Tuguegarao Knowledge Development Centre 22. Transparency International-Philippines 23. University of San Carlos Knowledge Development Centre 24. University of Southeastern Philippines Knowledge Development Centre 25. UP National College of Public Administration and Governance

These organizations have special areas of focus. Those who are involved in monitoring political and democratic accountability are; The Philippine Center for Investigative Journalism,

Transparency and Accountability Network, Ateneo de Davao. Those who are focused on financial accountability are Makati Business Club, Procurement Watch Inc., Citizens Network for Good Governance, La Salle Institute of Governance, and Evelio B. Javier Foundation. Those involved in performance accountability are DAP (Development Academy of the Philippines), and SWS (Social Weather Stations). TAN, 2011 lists Philippines ACMLG stake holders, (pp. 30-

31).

o United States Agency for International Development (USAID), o International Bank for Reconstruction and Development (World Bank), o United Nations Development Programme, o International Foundation for Electoral Systems, o Friedrich Ebert Stiftung, o Embassy of the United States, and o Australian Agency for International Development (AusAID) o The Asia Foundation

Although impact on corruption levels are yet to be seen, these donor agencies have been active in institution and capacity building such as funding of information technology such as an electronic filing and procurement system for the Ombudsman’s database of SALNs (Statements of Assets, Liabilities and Net worth) and special institution building capability for the judiciary,

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Commission of Audit, the Department of Public Highways, and the Sandiganbayan (TAN, 2011, p.31).

Given this impressive array of local organizations and international supporters, why have they been so ineffective in their stated goals? Part of the answer may be found in their own words. Quoting from their website TAN reports,

In 1986 at EDSA, the first people power revolt ended 21 years of a government so dark and so opaque, and ushered in one of light and transparency. The strongman Ferdinand E. Marcos was vanquished and democracy icon Corazon C. Aquino came to power. A year later, the 1987 Constitution enshrined state policies of full transparency and accountability in the conduct of all public officials and employees, and of full public disclosure of information vested with public interest. The Constitution upheld the people’s right to know and be informed about all policies, projects, and programs of government that involve use of taxpayers’ money. It is now 2012, or over 26 years after EDSA. Filipinos today are the most exuberant in their exercise of the freedoms of speech, of the press, and of peaceable assembly for redress of just grievances (TAN website).

The statement above reeks not of academic or scholarly or even objective tone but of government propaganda painting the (People Power Aquino Republic) in glowing terms not supported by facts on the ground. There is no mention that the media and survey firms are controlled by Aquino sympathizers. This obvious bias as revealed in their statement, tells the story of how these very same elements and organizations which installed the Aquino regime, are not impartial watchdogs but actual partisans with the agenda of making sure their handiwork succeeded and was portrayed to be succeeding. That renders them useless as an authentic check to abuse of power.

Despite their website’s partisan tone, TAN managed to produce a balanced and scholarly paper. Transparency and Accountability Network [TAN], 2011, reports that

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Corruption in the country has deep roots in the political economy. Political and economic powers are monopolized by the elites of the Philippine society. This consolidation of power blurs the public-private divide through the interplay of public and private interests, an environment conducive to corruption. Corruption becomes an accumulation strategy that the elites adopt to entrench their private interests in the public sphere. The Philippine government system is a considerably important factor in the configuration of corruption in the country. The Philippines has a strong presidential system that affords the president wide and vast powers, including and most importantly the power of the purse and the power to appoint. This makes the presidency a most sought after position of power among elite groups. Institutionally, the President (or executive branch) is balanced by the legislature and the judiciary. In reality however, this system of checks and balance is not functional. The legislature is unable to balance competing interest of society because of its current configuration. It is captured by local elites. Further, the legislature’s behavior towards the president is weakened by weak party discipline and budgetary needs. The President, on the other hand, is tied to local interest because of his/her dependence on local elites to muster electoral support. This is attributed to weak political parties. Other constitutionally independent bodies, including the judiciary, have also been weakened by “unchecked/unbalanced” appointments. Arroyo maximized her use of the power to appoint to dispel opposition, legitimize government policies, strengthen power hold and protect her political and economic interests. The dysfunctional system of checks and balance has allowed some individuals and institutions to freely pursue rent-seeking activities as independent monopolists. This has increasingly happened as globalization and democratization (including decentralization and devolution) efforts began. New sources of and opportunities for corrupti0n appeared and new players emerged (p.5). Apart from some digs at Arroyo, it was able to zero in on systemic origins of the corruption problem.Quite surprisingly, TAN does not advocate for checks on the president’s power but actually suggests that Aquino uses the power of the purse and appointments to control the legislature in order to set the agenda for reform. TAN (2011) writes,

An analysis of the political economy has shown the critical role of the Office of the President to rein in power and power abuses. The interplay of political and economic forces in Philippine society and its impact on government institutions may be tempered by the tactical use of the President’s budgetary powers to negotiate for difficult reforms that require legislative support. The President should also use his appointment powers more carefully to strengthen constitutionally independent institutions, specifically the Supreme Court, Office of the Ombudsman, Commission on Audit, and the Commission on Elections. Further, Aquino should institute safeguards to make the appointments process more transparent and accountable. These institutional safeguards could survive even beyond the Aquino government, as it sets a precedent difficult to reverse (p. 6).

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The obvious flaw in this suggestion is the presumption that the executive and the executive branch are above reproach. TAN is resting its analysis, at least the part about using budgetary powers to “negotiate for difficult reform”, on the integrity of one man and not the soundness of institutions to prevent abuse. TAN does point out that Aquino must ensure the continuity of his reform agenda by strengthening independent anti-corruption institutions like the

Ombudsman, Commission on Audit, the Supreme Court and Commission on Elections. Here is the dilemma: What if Aquino and his people go the way of those who came before them? Why should it be to anyone’s surprise that the Executive branch is often the nexus of grand corruption when budgetary allocation indicates that it has an appallingly disproportionate share of the budget at 50.2% while the other supposed to be co-equal branches have .50 % for Legislature and .83 % for the Judiciary, both at less than 1 percent of the executive’s budget (TAN, 2011, p.15). Even if Congress is suppose to exercise approval over budgets, the reality is giving the

Chief Executive vast power over the allocation of vast resources, promotes an imperial presidency that hands out largesse to keep itself or its party in power, with little institutional checks to that power since most offices are appointed by him and pork barrel given to legislators within his control.

The value of looking at the actors and actions of anti-corruption MLG like I have in this chapter is to see who they are, what they are, how they are designed to function, whether the

Philippines is compliant with their recommendations, and how well have it has interpreted and enforced them. By listing, describing and analyzing each anti-corruption MLG actor and action, I

175 have been able to see their strengths and weaknesses. For example, there are loopholes in anti- corruption MLG convention legislation that are used by recalcitrant countries. An example of this is how domestic law takes precedence over international agreements in the language of the convention provisions. The Philippines comply with setting up anti-corruption laws and agencies, but dilute the efficacy of this provision by having a law protecting the secrecy of dollar accounts. The Philippines also fails in requiring penalties for both private and public corruption.

It has no provision for penalties for “legal persons” as the conventions recommend, hence shell corporations and foundations used for corruption escape investigation and punitive measures.

This chapter reveals the weaknesses in the self evaluation and peer review process they employ in measuring progress. Being able to spot problems generates innovative solutions. In order to strengthen the objectivity of the review process, I have suggested that reviewing countries be given code names or numbers so as to avoid any notion that diplomatic or economic agendas have come into play in their assessments. This chapter also brought out where the Philippines has been compliant and where it has not and why just having the infrastructure of anti-corruption

MLG has not been enough to lower its levels of corruption. It reveals new US laws that can and are being used to hold corrupt foreign nationals accountable in US courts. It opens the discussion about how these laws can be broadened from being the ad hoc solutions they are, into codified international agreements.

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Chapter IV

Case Study: Comparing, Contrasting, and Connecting the Dots

In order to answer my research question of why ACMLG has not lowered levels of corruption and what remedies may be found , individual cases studies, as well as comparative analysis , will be employed in order to ferret out significant conclusions. This chapter is to compare and contrast the performance of the countries under study organized as Independent and

Dependent Variables gathered from databases produced by Transparency International, World

Bank, Global Financial Integrity, Global Integrity Report and others. I want to find out if statistics bear out some claims as to what are correlates of corruption. Tables and graphs are used to see each country’s performance first and then how they compare with each other in terms of what are commonly referred to as corruption correlates if not drivers like GDP, Privatization

Index, Free Media, Civil Society, Anti-Corruption Legislation, Agencies, and Implementation and others. Time frames may be shorter in some cases due to availability of data. Individual country’s numbers are used as a guide and filled in with anecdotal, scholarly, and news accounts to help explain the numbers. The process is like using statistics (the numbers) as a skeletal framework and filling it in with muscle, tissue, and organs. In so doing I aim to see what the corruption picture really looks like. Historical and contemporary backgrounds for each country are also studied to help explain why some countries score poorly while others are more successful in combating corruption. Finding the correlates of corruption aids in finding solutions.

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PHILIPPINES:

Background

According to Lim and Stern (2003), the Philippine political economy is characterized by a predatory oligarchy using a weak state in the pre-Marcos era and a strong predatory state during the Marcos era. In the Marcos era, the oligarchy was actually within the state apparatus and not outside. The elite in South Korea by contrast where able to balance business and state powers, which allowed for rapid economic growth (p.10). The nagging question that hangs in the air, and is not asked or answered, is why elites in the Philippines behave differently from the elites in South Korea and other Tiger Economies. Lim and Stern lament that “When the state itself is engaged in predation, as is the case in the Philippines, then Filipinos have had nowhere else to turn to but non-governmental organizations and ties of kinship (Lim and Stern, 2003, p.

28). This is an incisive observation that implies some solutions. It explains why MLG (Multi-

Level Governance), or the deployment and involvement of national and international, private and public institutions, has been used as an ad hoc or stop gap mechanism to alleviate the weakness in domestic institutions. The question remains; why is the Philippine elite more predatory than

185 neighboring counterparts and what can be done if anything to check oligarchic predation in developing countries like the Philippines?

When asked what the difference is between the Marcos days and post Marcos days, the average Filipino in the street would tell you that a million Marcoses replaced the one who was ousted. According to this account, warlords and political overlords simply took over the looting, scaling up from one man and his family looting to a million others and their families. Indeed, scholarship on this seems to agree that democracy brought with it some unintended consequences. It decentralized not just power, but corruption. By contrast, Singapore does not rely on its local businesses or elites for support and patronage (36). “Both the Aquino and Ramos administrations did not basically try to eradicate the patron-client relations in state institutions and governance structures with the result that this legacy of patronage politics, patron-client relations and informal networks capturing formal structures of authority was used to the hilt by the Estrada Administration” continues (Lim and Stern, 2003, p.30).

Gonzales and Mendoza (2004) write that state capture, or the “concentration of wealth and the interlocking links among owners and government officials cast doubt on the independence of legal institutions in the country” (p. 82). For example, the lopsided allocation of powers shows the Philippine president doling out more than 3,000 jobs in the government bureaucracy to political supporters. This power of the purse and power of appointments vested unevenly on the executive explains in part the systemic nature of corruption in the Philippines.

In the 1960s, Philippine political economy was second only to Japan. The 1970s, 1980s, and 1990s saw furtive experimentation with statist policies. This quickly turned into crony

186 capitalism, continued patron client arrangements under the revolutionary government of Corazon

Aquino who was chided for her Kamaganak Inc, (Relatives Inc.), referring to the prominence of

“relatives” in positions of power and largess distribution. Her successor, Fidel Ramos also had his share of scandals with the PEA-Amari reclamation, which exposed government land not being sold to the highest bidder, but sold below market value to Ramos supporters. Corruption continued unabated with Ramos successor Joseph Estrada who was impeached for Jueteng

(illegal gambling) scandals. Gloria Macapagal Arroyo, who succeeded Estrada, was said to be behind Estrada’s ouster. Ironically, her administration was plagued with an array of corruption and abuse of authority charges. As of this writing, Arroyo is being held without bail awaiting trial for plunder and election fraud. This tableaux of corruption scandals occurred after ousting

Marcos for precisely the same things.

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Connecting the Dots: ACMLG Monitored Indices

International ACMLG monitoring organizations score countries on the indicators I used in this section of my research. . A good score in these indicators is seen by these monitoring organizations as requirements for good corruption levels. Poor scores in Legal Framework index,

Ombudsman index, civil organization index and others would equal poor scores in corruption.

This section will show whether the numbers bear out these expectations. The aim of this section of my research is to demonstrate that corruption cuts across political personalities as being causal. I hope to demonstrate to Filipinos that levels of corruption cannot be blamed on political personalities alone. The objectivity of empirical data gathered by independent international agencies not beholden to local elites should be able to depersonalize and depoliticize this issue of corruption for Filipinos. By doing this, I hope that they begin to see the plague of corruption as having multiple and shared historical, political, economic, and structural causes. It would then be possible for them to be able to heal the political and ideological divide around this issue and begin the construction of systemic changes that will ultimately attain their goal of curbing corruption.

Figure 1 supports my claim that the prevalence of corruption in the Philippines did not end with the departure of Marcos. The Philippine began with better scores in 1995 when compared to China, Indonesia, and Pakistan. By 2011, China and Indonesia zoomed ahead leaving only Pakistan in the lower rungs of the corruption scoring along with the Philippines. By the beginning of my graph’s time period of 1995, Corazon Aquino’s People Power Revolution has already had almost 10 years in power. An additional 18 years have not lowered levels of corruption. The reason it is important to show these hard numbers is to depoliticize the issue of

188 corruption as being “gone” because of the departure of a corrupt dictator. The question

Filipinos should be asking is why the People Power Revolution failed to lower levels of corruption. This chart also supports my claim that systemic change and not just personnel change at the top is needed to curb corruption.

189

Figure 1 Source Transparency International. Notes: The numbers in brackets on the table represent the number of participating countries for that year. Corruption Perception Index Scores for the Philippines, Singapore, Indonesia, Chile, China, and Pakistan from 1995- 2011. Countries are rated 1 to 10 with 10 being the best score.

Transparency International CPI score 1995‐2011 10

5 Philippines 4 Singapore Indonesia 3 Chile China 2 Pakistan 1

0 1995 1996 1998 1999 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 (41) (54) (85) (99) (91) (102) (133) (145) (158) (163) (179) (180) (180) (178) (182) Philippines 2.77 2.69 3.3 3.6 2.9 2.6 2.5 2.6 2.5 2.5 2.5 2.3 2.4 2.4 2.6 Singapore 9.268.89.19.19.29.39.49.39.49.49.39.29.29.39.2 Indonesia 1.94 2.65 2 1.7 1.9 1.9 1.9 2 2.2 2.4 2.3 2.6 2.8 2.8 3 Chile 7.94 6.8 6.8 6.9 7.5 7.5 7.4 7.2 7.3 7.3 7 6.9 6.7 7.2 7.2 China 2.16 2.43 3.5 3.4 3.5 3.5 3.4 3.4 3.2 3.3 3.5 3.6 3.6 3.1 3.6 Pakistan 2.25 1 2.7 2.2 2.3 2.6 2.5 2.1 2.1 2.2 2.4 2.5 2.4 2.3 2.5

The chart above shows the trajectory of Philippine corruption scores from 1995 to 2011.

On a scale of 0 to 10, with 10 being the highest scoring performance and 0 the lowest, the

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Philippines started off with a score of 2.77 in 1995 ahead of Indonesia which had a score of 1.94,

Pakistan with 2.25, and China with 2.16 in the same year. By 2011, China, Indonesia and

Pakistan all show a rising trajectory of improved scores. Pakistan scoring the lowest of 1 in 1996 managed to end 2011 with a 2.5 while China beginning with a 2.16 scores a 3.16 by 2011. The best improvement was posted by Indonesia which started at 1.94 to end in 2011 at 3. The

Philippines which began at 2.77 in 1995 ended with a 2.6 in 2011 after posting the lowest scores in 2008 of 2.3, 2.4 in 2009 and 2.4 in 2010 during the Arroyo presidency. The Ramos years having had the least number of corruption scandals match the scores for the years of his presidency. Apart from the Amari land scandal in 1995-1996, which posts his lowest scores of

2.77 (1995) and 2.69 (1996), he left office with a somewhat higher score of 3.3 (1998). (See

Figure 1). World Bank WGI (World Governance Indicator) Control of Corruption index scoring from 0 to 100 with higher numbers indicating better performance, appear to reflect this view of the Ramos years. The highest WGI scores were received by the Philippines during the Ramos presidency. It received a 51.2 in 1996 and a 55.1 in 1998. The trajectory for WGI Control of

Corruption was downward since then (See figure 2).

Estrada was ushered in on a high note as the “people’s candidate” with an agenda of no favoritism for friends and allies. He ran on a nationalist platform and challenged and contained the Muslim insurrection in the south. He was rewarded with a higher score of 3.6 in 1999. It appears that this score was a honeymoon phase score as his presidency began sliding downhill relatively quickly with corruption scandals, eventually ending in an aborted impeachment trial and massive street protest called EDSA (Epifanio De Los Santos-street where Aquino-led People

Power Revolt occurred) II. He resigned and was replaced by Arroyo, who then brought charges of plunder against him followed by imprisonment by 2001. His ousting was brought about by a

191 slew of scandals from protection payoff for illegal gambling, illicit wealth in decoy names, mistresses, relatives and friends benefitting from appointments to plum positions, and manipulation of the stock market which triggered lack of foreign investment and trust in the stock exchange (Global Integrity Report Timeline, website). It is possible to infer from the CPI performance of the six countries under study, that ACMLG may have had some effect. Four out of six countries posted improved scores from 1996 to 2011. That was the same time period of increased Anti-Corruption Multi-Level Governance efforts. There may also be other explanations for score improvements.

Table 2 below supports TI Corruption Perception Index in its overall poor scoring of the

Philippines. In the same way the trajectory of the line in the graph was downward, Figure 2 agrees with that finding. In fact Figure 2, which was produced by the World Bank shows a steeper decline in numbers, indicating worsening levels of corruption. It supports my argument that democratic institutions and the presence of ACMLG alone is not enough to lower levels of corruption in the short term.

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Figure 2 Source- World Bank Control of Corruption Index from 1996 to 2011. The scoring is based on a range of 0 to 100 with 100 being the best scores. So the lower the trajectory of the line on the graph means the corruption scores are worsening.

WGI Control of Corruption Philippines 1996‐ 2011 60 50 40 30 Philippines 20 10 0 1996 1998 2000 2003 2004 2005 2006 2007 2008 2009 2010 2011 Philippines 51.2 55.1 40 38.5 30.2 35.1 22 26.2 24.8 23 22.5 22.7

This litany of horrors also includes drunken sprees with his “midnight cabinet” composed of influential friends and campaign contributors unaccountable to the people. This list also includes suspicions of double murder against known media critics Dacer and his driver Corbino.

The World Bank WGI Control of Corruption reflects these events with a score of 55.8 when

Estrada ascended into office down to 40 by 2000. By 2001, people power II with thousands of people amassed in the streets began calling for his resignation. Some claim this was engineered behind the scenes by his then vice-president Gloria Macapagal Arroyo who stood to benefit and step in in the event of his resignation. People began questioning the constitutionality of the street revolt that ousted Estrada, which Estrada later claimed was not a resignation but a leave of absence.

This began the questions of legitimacy that would continue to plague the Arroyo presidency and cast a pall over it as a stolen presidency. It made matters worse that she was

193 embroiled in an election scandal with the disclosure of a taped conversation between her and

Virgilio Garciliano, a former official of the Commission of Elections during her 2004 re-election campaign. World Bank WGI Control of Corruption scores reflect a dip from a 40 in year 2000 to a 30.2 in 2004, a 10 point drop mirroring the turmoil during that period. Arroyo is now incarcerated without bail on charges of election sabotage. Fidel Ramos was also suspected to be behind the move allegedly in retaliation for Estrada ordering an investigation of abuses during his presidency. Ironically, the period of the Estrada presidency posted the highest TI CPI scores for the country. He began his presidency in 1998 with a 3.3, a 3.6 in 1999, and a 2.9 in 2001 in the year of his ouster. (See figure 3). All these scores are higher than both his nemeses Ramos before him and Arroyo after him.

The lowest CPI (Corruption Perception Index) scores and biggest scandals came with the

Arroyo presidency. What this research calls “taking turns at the trough in tandem politics” continued with the Arroyo presidency, which was marked by even bigger and longer lists of scandals and controversies. As soon as she stepped into office, a controversial project was approved for USD470 million. Global Integrity Report Notebook Timeline reports “In 2003, the

Philippines’ CPI score dipped lower from 2.6 in 2002 to 2.5 in 2003”(Global Integrity Report website).This dip may be explained in part by accusations made against the First Gentleman of laundering campaign funds into secret accounts under a pseudonym of Jose Pidal. The score of

2.5 fails to improve with the killing of journalist and anti-corruption crusader Marilyn Garcia

Esperat, who was shot dead in front of her home. 2005 also saw calls for Arroyo’s resignation over allegations of election fraud. By 2006, the score stays at 2.5 with Reporters without Borders

194 calling the Philippines the second most dangerous place for reporters due to the rampant killing of journalists and reporters investigating and publishing corruption cases. 2006 culminated in a failed coup attempt headed by General Danilo Lim. World Bank WGI scores this year with an appropriate 22 in 2006 down from a 40 in 2000 as Arroyo came into power (Global Integrity

Report website under Notebook).

2007 brought no improvement to the 2.5 CPI score with reports of extra-judicial killings, corruption and human rights abuses. Attempts to curtail a free press from reporting on abuses were masked under pronouncements by the justice ministry of allowing wire tapping of journalists under the umbrella of anti-terror efforts. This was seen as a transparent attempt to stop institutional safeguards against corruption from functioning. Global Integrity Report Integrity

Scorecard reflects these events with an 82 in 2004 for Civil Society, Public Information, and

Media, to 72 in 2006 and 69 by 2008. Transparency International’s CPI score corresponds with this GIR with a dip to an all time low of 2.3. These echoing dips in multiple global indicators may also be reflective of the year 2008 being the year when Philippine Congressman accused

Arroyo of direct knowledge of the payoffs in the ZTE broadband scandal. Echoing other indices,

Global Integrity Report Integrity Scorecard Anti-Corruption Rule of Law index gives the year

2008 a weak 66 down from a moderate 78 in 2006. (See figure 4).

Figure 4 shows how the Philippine scored in the category of Civil Society Organizations.

It shows a worsening trajectory for this indicator as well. This proves my argument that the huge presence of civil society in the Philippines does not bring about success in curbing corruption. A bad score of 68 in 2011 down from 84 in 2004 supports my contention that the

195 presence of ACMLG CSOs in the Philippine have not functioned as watchdogs and nets of oversight.

Figure 34 Source: Global Integrity Report Integrity Scorecard from 2004 to 2010. CivSoc (Civil Society, Public Information, and Media; ElecPolProc (Elections, Political Process); GovAcc (Government Accountability); AdminCivSe (Administration and Civil Service); Oversight (Oversight and Regulation); Anti- CorRul (Anti-Corruption and Rule of Law). Higher numbers mean good performance and lower numbers mean bad performance. The range is 1 to 100 with 100 being the best score.

Global Integrity Report Philippine Integrity Scorecard 2004 to 2011 100 90 80 70 60 50 40 2004 30 20 2006 10 2008 0 CivSocTot ElecPolProc AdminCivS OversightP Anti‐ 2009 GovAccPH PH PH ePH H CorRulPH 2011 Philippines Philippines Philippines Philippines Philippines Philippines 2004 82 64 88 81 89 75 2006 72 60 71 73 85 78 2008 69 57 71 73 65 66 2009 68 59 70 82 76 71 2011 68 59 70 82 76 71

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The Philippines persistently under performed in WGI correlates of corruption such as

Political Stability, Voice and Accountability, Rule of Law, Regulatory Quality, and Government

Effectiveness. All these indicators are positively correlated with corruption. This means poor performance in these areas mean poor control of corruption. (See Figure 5).

Figure 5 demonstrates that as my research found, the end of the dictatorship and advent of Corazon Aquino, did not bring political stability, voice and accountability, rule of law, and control of corruption. All the lines on the chart show a downward of worsening trajectory.

Figure 45 Source World Bank World Governance Indicator 1996-2011. The scoring is from 1 to 100 with 100 being the best. The different indices scoring the Philippines in different areas are color coded as follows: Control of Corruption (Blue), Rule of Law (Red), Regulatory Quality (Green), Government Efficiency (Purple), Political Stability (Aqua), and Voice and Accountability (Orange).

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Philippine WGI 1996‐2011 70

40 ControlCor 30 RuleLaw 20 RegQuality GovEffective 10 PolStability 0 199619982000200220032004200520062007200820102011 VoiceAccoun ControlCor 51.2 55.1 40 39 38.5 30.2 35.1 22 26.2 24.8 22.5 22.7 RuleLaw 51.2 52.2 38.3 38.3 36.4 34.4 42.1 44 37.3 35.1 34.6 34.7 RegQuality 59.8 62.7 56.9 50 52.5 45.1 51.5 50.5 51.5 52.4 44 43.6 GovEffective 49.8 57.1 50.2 53.7 56.6 48.8 56.1 53.7 55.3 56.3 51.2 55.9 PolStability 30.3 32.7 11.1 18.8 7.7 5.3 13.5 8.2 8.2 8.6 8 9 VoiceAccoun 55.8 60.1 53.4 52.4 51.4 51 48.6 45.2 45.7 44.7 48.3 48.8

Lim and Stern (2003) observe that countries like Singapore and Malaysia who practice state interventionist policies and have vast networks of government owned corporations, nevertheless have not had more corruption. These countries run contrary to the consensus that free markets, deregulation of the economy and non-state interventionist policies result in less corruption. Perhaps these low levels of corruption, despite less democratization, occurred because authoritarian methods are tempered with export oriented economies which largely deal with international standards of business practices (p. 40). This hybrid policy enables the economic elite to prosper while the state reserves and accrues for itself the greatest revenues. In the Philippines, privatization has resulted in disproportionate transfer of wealth into the hands of

198 cronies. The politically well connected elite, whether it be under a dictatorship or democracy, are able to generate rent distribution. They are able to do this themselves or through their agents in the state (p. 41).

Global Integrity Report and World Governance Indicator indices reflect this lack of positive correlation between economic liberalization and privatization policies and levels of corruption. According to GIR (Global Integrity Report), the Philippines scored a high of 92 out of 100 in its privatization index in 2004, a 96 in 2006, 84 in 2007, and 86 in 2008 and 2010.

Although reflecting a downward trajectory, these privatization scores are relatively high when compared to corruption indices reported by WGI in the same time frame. The Philippines received a control of corruption score of 30.2 out of 100 in 2004, 22 in 2006, 26.2 in 2007, 24.8 in 2008 and 22.5 in 2010. The distance between these two sets of scores may indicate that economic liberalization has not produced the intended corruption outcomes. (See Figure 6).

Figure 6 shows the relationship between good corruption scores and the economic policy of privatization, widely seen as an anti‐corruption policy that is suppose to reduce rent generating opportunities. Figure 6 supports my assertion that privatization as a strategy for curbing corruption has not worked when comparing the great scores on privatization, in the range of 80s and even 90s with dismal scores of low 20s and 30 for corruption.

Figure 56 Source Global Integrity Report Privatization Index, World Governance Indicator Control of Corruption 2004-2010. Scoring range is 1 to 100 with 100 being the best. The blue line represents privatization and the red line represents corruption scores.

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Philippine GIR Privatization Index & WGI Control of Corruption Index 2004‐2010 120

100

60 Privatization ControlCor

0 2004 2006 2007 2008 2010 Privatization 92 96 84 86 86 ControlCor 30.2 22 26.2 24.8 22.5

Bertelsmann Transformation Index (BTI) supports GIR’s and WGI’s findings. BTI’s

Organizational Market Competition index measures how free markets are in countries. In 2003, the Philippines received a score of 3 out of 10, a 6.5 in 2006, a 6.5 in 2008, and a 7 in 2010.

These improving scores do not reflect an anticipated outcome of improving corruption scores.

Transparency International gave the Philippines a CPI score of 2.5 out of 10 in 2003, a 2.5 in

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2006, a 2.3 in 2008, and 2.4 in 2010. This shows a lack of correlation between free market politics and lower corruption in this data. (See Figure 7 in index). Trade liberalization and free markets are considered anti-corruption MLG correlates. These policies are consistently pushed on developing countries with poor corruption scores in order to effect greater prosperity and less corruption. Figures 6 and 7 attempts to demonstrate whether or not there is a correlation between free markets and better corruption scores in the case of the Philippines.

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In the era after Marcos, the limited window of opportunity to generate and collect rents due to term limits resulted in more intense and focused looting. This has resulted in more corruption instead of less, particularly when compared to authoritarian regimes (p. 44). There were periods during the Marcos and Soeharto regimes when rent extraction was more restrained.

Anticipation of long term power does not require the distribution and allocation of as much rents in order to gain support. This helps explain Malaysia and Singapore’s comparatively low levels of corruption. Whether by democratic, military coups or military regimes, politicians seek access to allocation rights for personal use and enrichment of friends and political supporters

(Lim and Stern, 2003, p.41). So what accounts for democracies, ranked as more politically free than Singapore, being more corrupt? Lim and stern (2003) cite two reasons for this. First the centralization of rent allocation (as in Singapore) tends to limit it and second, the emphasis on export orientation (as in Singapore) requires adherence to international standards of transparency

(Lim and Stern, 2003, p.45).

According to Bertelsmann (2012), the new Aquino administration struggles with the same problems of poverty, high population growth, corruption, and unemployment as the Marcos regime and all other administrations after. Aquino must create 1.3 million jobs a year in order to offset the unemployed (numbering 3.1 million and underemployed numbering 6.3 million). A

GDP growth of 7% to 8% is needed to reduce poverty significantly. The high population growth of 2% a year drags down the Philippines growth increments. The failure of previous administrations to confront the powerful Roman Catholic Church on the issue of birth control has the most impact on this problem. The Church continues to oppose any population management program that goes beyond the use of natural contraception. To Aquino’s credit, he has, despite

202 great risk to his political capital and support from the Church, has championed the reproductive bill, which finally passed in December of 2012 (BTI, 2012, country report Philippines website).

The difficulty in gathering unbiased data in the Philippines is reflected in the chapter which appeared in Hadiz (2004), written by Eduardo Gonzales and Magdalena Mendoza of the

Development Academy of the Philippines, a government funded institution. This explains in part why the chapter was lacking in candor when compared to the one done of Indonesia written by

Vediz Hadiz. The anti-Marcos comments and glowing but unwarranted remarks about press freedom are understandable since these two were working for a highly politicized government bureaucracy. The pervasiveness of state capture even of the academe is dismaying.

Figure 8 supports my ACMLG claim of worsening corruption seen in the flow of illicit funds The Philippines has a long history of corruption. According to GFI (Global Financial

Integrity) in an article by FATF (Financial Action Task Force), cited by the Business Anti-

Corruption Portal, the Philippines lost about USD 142 billion in illicit financial outflows in 2000 to 2009, often as means of tax evasion through trade mispricing. 92% of business executives surveyed by Transparency International rate the government’s anti-corruption efforts as ineffective or very ineffective (Transparency International website Bribe Payers Index 2008).

According to the World Economic Forum Competitiveness Report 2011-2012, as cited by the

Business anti-corruption portal, business executives surveyed observed that public funds are diverted to individuals and groups and cronyism remains rampant in business and government.

(See Figure 8).

Figure 8 of all indicators is the most reflective of the true state of corruption in the

Philippines because it measures the behavior of taking illicit money outside of the country. The

203 flow of illicit funds started in the 5 million range in 2000 to 23 million in 2007. It is important that objective, external monitoring organizations outside of the sphere of influence of local elites, like the GFI, monitors and publishes these facts. It helps to depoliticize the issue of corruption. It helps demonstrate it as a systemic problem and not just a personal ethics problem. The steady increase of illicit wealth leaving the country supports my research’s finding that corruption is getting worst and not better.

Figure 8 Source. Global Financial Integrity Illicit Financial Flows in millions 2000- 2008.The range of measurement is from 0 to 25 million. Bigger numbers mean bigger amounts of dollars leaving the Philippines. Note the upward ascent of the red bars which represent the dollar amounts per year of illicit wealth.

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Philippine GFI IFF in Millions 2000‐2008 25,000

20,000

15,000

10,000 Philippines

5,000

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 Philippines 5,666 6,543 10,19 13,80 13,72 18,38 19,65 23,41 18,68

However, there are small gains in the area of securing licenses and permits due to e- bidding. (bidding online). Global Integrity Report Scorecard shows that procurement is one area the Philippines scores highly in (Business Anti-Corruption Portal webiste). Nevertheless, the

Philippines continues to underperform in the area of ease of doing business and setting up of companies. World Bank Ease of Doing Business Index 2012 reports that of 185 countries, the

Philippines, even with Indonesia and Pakistan both ranking below it in a variety of indicators in the past, now lags behind them in multiple indices including this one. Of the countries under study, Singapore is ranked 1, Chile 37, China 91, Pakistan 107, Indonesia 128, the Philippines

138. (Ease of Doing Business website, IFC, WB, doingbusiness.org/rankings). Generally prescribed for lowering corruption, particularly by Transparency International’s National

Integrity System, decentralization, deregulation, and privatization have increased and not decreased it post Marcos era. The US Department of State 2011 reports that the Philippine judicial system’s inefficiency, including long delays and arbitrary application of the law, are cited most often by investors as deterrents to investment due to the risk to investors in contract disputes adjudicated by corrupt judges.

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Table 9 is most interesting as it measures many qualities widely expected to lower levels of corruption. Attention must be drawn to the extremely weak score of 58 out of 100 in the area of free media. This empirical data would come as a shock to the rest of the world which presumes that a free press came about with the end of the Marcos dictatorship. It supports my claim that in fact, Philippine media is held captive by private interest that supports the election of their agents in government. Note the score on anti –corruption laws. The Philippines scores

100 out of 100 in 2010. This supports my claim that the Philippines leads in sheer number of anti‐corruption laws. These laws are also well written and covers every kind of corruption.

Table 9 Source. Global Integrity Report Integrity Scorecard 2004-2010. Abbreviations LawEnforce (Law Enforcement), RuleLawAcc (Rule of Law and Accountability, Anti-CorAge (Anti-Corruption Agencies), Anti-CorLaw (Anti-Corruption Legislation), Anti-CorRul (Anti-Corruption Rule of Law); BusiLicReg (Business and License Registration, FinanSecReg (Financial Sector Regulation), StateOwned (State Owned Corporations), TaxesCustom (Taxes and Customs), SupAuditIns (Supreme Audit Institutions), NationOMB (National Ombudsman), Oversight (Oversight and Regulation); WhistleBlow (Whistle-blowing Measures), CivSerReg (Civil Service Regulations), AdminCivSe (Administration and Civil Service), BudgetProc (Budget Processes), GovAcc (Government and Accountability; PolPartFina (Political Participation and Financing), ElecMonAge (Election and Monitoring Agencies), NationElec (National Elections), ElecPolProc (Election and Political Processes), AccInfoLaw (Access to Information Law), CivSocOrg (Civil Society Organizations), CivSocTot (Civil Society Totals).

Philippines 2004 2006 2007 2008 2010 CivSocTot 82 72 69 68 68 CivSocOrg 98 78 84 73 73 AccInfoLaw 66 65 53 58 72 FreeMedia 83 73 68 72 58

ElecPolProc 64 60 57 59 59 NationElect 89 94 87 79 79 ElecMonAge 88 74 71 74 74 PolPartFina 17 11 14 25 25

GovAcc 88 71 71 70 70 Executive 89 77 75 70 70 Legistlative 88 70 75 81 81 Judiciary 88 69 61 58 58 BudgetProc 69 72 69 69

AdminCivSe 81 73 73 82 82 CivSerReg 89 73 73 74 74 WhistleBlow 56 38 52 79 79

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Procurement 87 87 81 88 88 Privatization 92 96 84 86 86

Oversight 89 85 65 76 76 NationOMB 92 83 75 87 87 SupAuditIns 96 95 93 93 93 TaxesCustom 75 67 60 58 58 StateOwned 28 83 83 FinanSecReg 93 98 NA NA NA BusiLicReg NA 81 72 58 58

Anti-CorRul 75 78 66 71 71 Anti-CorLaw 69 89 89 100 100 Anti-CorAge 78 79 66 73 73 RuleLawAcc 80 80 52 51 51 LawEnforce 74 65 58 60 60

Gonzalez & Mendoza (2004) write that the Philippines has the freest press in Asia. They write that a free press is critical to the fight against corruption (p.107). This is difficult to reconcile given that the media outlets are owned by Aquino cronies. (Legal Notes, 2013, para.6, http://legalnotes.wordpress.com/2013/01/18/the-truth-about-the-1986-people-power-revolution/).

In fact Global Integrity Report Integrity Scorecard rates Philippine media freedom and access to public information as weak and very weak. In the category of media freedom, they scored a high of 83 in 2004, which accounts for Gonzalez and Mendoza’s glowing account, but steadily slid down to a 73 in 2006, a 68 in 2007, a 72 in 2008, and an all time low of 58 in 2010. Of the countries under study reported on by GIR (Global Integrity Report), Indonesia by comparison scored an 82 in 2004 and a 78 in 2011 in the same category. In Access to Public Information

Law, the Philippines scored 66 in 2004, 65 in 2006, 53 in 2007, 58 in 2008, and 72 in 2010. (See

Figure 9).

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Gonzalez and Mendoza were not so optimistic about the success of reforms due to weak institutions, lack of funding for anti-corruption initiatives, and resistance to change. Back in

2004, they wrote optimistically of Arroyo’s efforts combating corruption. “When President

Gloria Macapagal Arroyo (GMA) came into office, one of her main directives was to issue a prescription for a code of conduct for relatives and friends of top officials” (p.97). It is ironic that

8 years later, as of this writing, GMA is incarcerated without bail on plunder and election fraud charges. So what accounts for this gap in rhetoric, good intentions and implementation? A

positive correlation between free media and control of corruption indices is reflected in GIR’s free media and access to information indices vis-à-vis WGI control of corruption indices from

2004 to 2010. The Philippines received a GIR free media score of 83 in 2004 and a 58 in 2010 versus WGI control of corruption scores of 30.2 out of 100 in 2004 to a 22.5 in 2010. (See Figure

9 and Table 9).

Corruption Legislation

Gonzalez & Mendoza (2004) write that penalties for corruption are stiff but powers of detection and prosecution weak, leading to the corrupt getting away with the behavior. It asserts that a weak judiciary is behind the problem of lack of prosecutions of the corrupt. They further assert that the Philippine judiciary was the most independent before the declaration of martial law but has never recovered from the assaults to its independence during the martial law years

(p.102). Lifestyle checks, open documents, report card surveys, civil society participation, more efficient civil service as vanguards against corruption, an independent congress, all these are

208 preventive measures against corruption (p114-121). Global Integrity Report’s Integrity Scorecard scoring of the judiciary appears to support Gonzalez and Mendoza’s assessment. The Philippine

Judiciary began with a score of 88 strong in 2004 which slid down to 69 in 2006, slid further down to 61 in 2007, dropped to an all time low of 58 weak in 2008 and 2010. (See Figure 10).

Figure 10 below show how little Filipinos trust the judiciary. These poor numbers (58 out of 100 in 2010),reported on the Philippine judiciary by GIR, reflect the suspicion of Filipinos that it is held hostage by the appointing power, the president. This sentiment was in full evidence when Chief Justice Corona was impeached amid high approval ratings. This supports my claim that a captive state has all levels of government held captive, the judiciary being one.

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Figure 10 Source. Global Integrity Report Government Accountability Judiciary Index for 2004, 2006, 2007, 2008, 2010. The scores range from 0 to 100 with 100 being the best. The red columns represent the score for the year. The taller the red columns the better the scores. Note that the columns diminished in height since 2004.

Philippine GIR Judiciary Index 2004‐2010 100 90 80 70 60 50 40 Judiciary 30 20 10 0 2004 2006 2007 2008 2010 Judiciary 88 69 61 58 58

Philippine anti-corruption law making is rewarded with its highest marks of 100 out of

100 in 2008 and 2010 by the Global Integrity Report Integrity Scoreboard. (See figure 11). It had an anti-corruption law as early as 1930, which was revised in 1960. The two main anti- corruption laws are the Anti-Graft and Corrupt Practices Act and the Anti-Money Laundering

Act. They criminalize money laundering, extortion, bribery and other criminal acts. An anti-

210 corruption law is also provided for in the Philippine Constitution. The Act Establishing a Code of

Conduct and Ethical Standards for Public Officials and Employees provides rules for personal integrity for government employees. The Anti-Graft and Corrupt Practices Act requires all public officials to submit a SALN (Statement of Assets Liabilities and Net worth). (Article IX, sections

1 to 18, which was passed in 1989). The list of anti-corruption laws also include laws on the creation of an Ombudsman (RA 6770) in 1989, the Act declaring forfeiture of ill gotten wealth

(RA 1379), the Act criminalizing plunder (RA 7080), and the Act establishing a corruption court

(Sandiganbayan) (RA 8249). This is an area where we see the great disconnect between low corruption scores and very high anti-corruption legislation scores. This supports my research’s claim that ACMLG infrastructure in terms of anti-corruption laws, are good beginnings waiting for enforcement.

Figure 11 below shows one area where the Philippines shine, and that is in anti‐ corruption law making. Philippine Anti‐Corruption Legislation can only be described as numerous and voluminous in writing. The only thing lacking is enforcement of those laws.

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Figure 11 Source Global Integrity Report Anti-Corruption Law Index for 2004, 2006, 2007, 2008, 2010. The score ranges from 0 to 100 where 100 is best. The red columns represent the score for the year. The taller the columns, the better the score. Note the Philippines received a score of 100 out of 100 back to back in 2008 and 2010).

Philippine GIR Anti‐Corruption Law Index 2004‐1010 120 100 80 60 Anti‐CorLaw 40 20 0 2004 2006 2007 2008 2010 Anti‐CorLaw 69 89 89 100 100

Corruption Agencies

The Ombudsman

GIR in Figure 12 below gives the Philippine Ombudsman high 80s and 90s. Gonzalez &

Mendoza (2004) write that the office of the Ombudsman “after ten years have little to show in terms of lowering corruption. They explain that this is because it is more interested in prosecution instead of proactive prevention." (p.110). I disagree. The office of the Ombudsman fails because it has no investigation, search and seizure, and arrest powers. All it can do is make a recommendation to the president and to the courts for prosecution. Another agency that failed is the NACP National Anti-Corruption Plan. It was created to coordinate anti-corruption activity

212 much like ICAC (Independent Commission Against Corruption) in Hong Kong HK does. It fails because it is another agency that falls under the influence of the president (p.1111). This lack of independence, whether in funding or authority, is behind some of the failures in the Philippine anti-corruption strategy. Nevertheless GIR Integrity Scorecard shows a score of a high 92 in

2004 for the OMB, which dropped down to 83 in 2006, a 75 in 2007, 87 in 2008 and 2010. These are strong scores for the office of the Ombudsman. (See Figure 12).

Figure 12 shows scores for ombudsman that my research scholarship does not bear out.

My claim is that the office of the ombudsman in the Philippines has performed dismally, especially when it comes to convicting the big fishes.

Figure 12 Source Global Integrity Report National Ombudsman Index for 2004, 2006, 2007, 2008, 2010. The scoring range is 0 to 100 with 100 as best. The red columns represent the score for the year.

Philippine GIR National Ombudsman Index 2004‐2010 100

50 NationOMB 0 2004 2006 2007 2008 2010 NationOMB 92 83 75 87 87

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Anti-Money Laundering Council (AMLC).

Anti-Money Laundering Council was established in 2001 as a FIU. It is tasked with investigations into and reporting of money laundering and terror financing activities. Observers like the Asia Pacific Group and the US Department of State are concerned that as of 2008, businesses like casinos are excluded from the Act. In 2012, President Aquino sought to comply with some of these remaining FATF recommendations that the Philippines have not completely complied with. GIR gives the Philippines a 78 out of 100 in 2004 and a 73 in 2010. This is an average score reflective of efforts being taken but also reflecting the sense that much more is needed in the area of anti-corruption government agencies.

Anti-Corruption INGOs (International Non-Governmental Organizations)/NGOs (Non-

Governmental Organizations

In 2010, some of the findings by Global Integrity Report about the Philippines show an overall country score of 57 (very weak); an 84 (strong) for legal framework; and a 31(very weak) for actual implementation This demonstrates the continuing challenge of how to reconcile formal rules with actual behavior. In the category Anti-Corruption Legal Framework and Rule of Law, it receives an overall score of 64, an 89 on anti-corruption law, a 53 in anti-corruption agency, a 62

214 in judicial independence, and a 52 in law enforcement. The Philippine continues to score high on legal infrastructure and poorly on actual enforcement. (See Table 9).

Media’s ability to control corruption is given a score of 58 (very weak). The Business

Anti-Corruption Portal partly explains why it has such a poor showing. Despite Freedom House ranking the Philippines as “partly free,” Philippine reporters and journalists routinely suffer from libel law suits, which can result in anything from heavy fines and prison terms to death.

Reporters Without Borders now ranks the Philippines as one of the most dangerous countries for reporters. Journalists are also seldom paid and are vulnerable to selling stories for political interests for US 23 to US 43 dollars. World Bank’s World Governance Indicators supports both the Global Integrity Report’s and the Business Anti-Corruption Portal reports of poor showing on press and media freedom in the Philippines. WGI (World Governance Indicators) reports a percentile rank of 48.8 in 2011 and 44.7 in 2008.

Figure 14 below offers additional support to this research’s claim that ACMLG CSOs have done poorly in their oversight role after Marcos’ departure. Despite the much heralded return to democracy and press freedom, the Philippines scores dismally on the media category of

Global Integrity Report’s Integrity Scorecard.

Figure 14 Source Global Integrity Report Civil Society Organization Index for 2004, 2006, 2007, 2008, 2010. The score ranges from 0 to 100 with 100 being best. The red columns represent the score for civil society organizations for the year. Shorter columns mean poorer scores.

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Philippine GIR Civil Society Organization Index 2004‐2010 120

100

60 CivSocOrg 40

0 2004 2006 2007 2008 2010 CivSocOrg 98 78 84 73 73

The Business Anti-Corruption Portal gives an explanation inside the numbers. Despite approximately 116,000 Civil Society Organizations (CSOs), with a variety of groups ranging in focus from religion to poverty alleviation, the Bertelsmann Foundation finds that CSOs have little influence on policy. CSO activists are subject to kidnapping, killing and arrests.

Figure 15 supports my contention that there is little authentic transparency and oversight in the Philippines that holds government accountable. In 2010, the Philippines received a “very weak” score of 59 in the Global Integrity Scorecard for Anti‐Corruption Non‐

Governmental Organizations. World Bank’s World Governance Indicators’ ranking of 48.3 in

2010 for Voice and Accountability supports this finding. Philippine scores received from WGI

Voice and Accountability began with a high of 55 in 1996 to a low of 44.7 by 2008 and a continuous downward trajectory. (See Figure 15).

Figure 15 Source. World Bank World Governance Indicator Voice and Accountability Index for 1996 to 2011. The score ranges from 0 to 100 with 100 being best. The red

216 columns represent the score for the year. Note that the columns never grew taller than the 60s score.

Philippine WGI Voice & Accountability Index 1996‐2011 70 60 50 40 30 20 VoiceAccoun 10 0 199 199 200 200 200 200 200 200 200 200 201 201 6 8 0 2 3 4 5 6 7 8 0 1 VoiceAccoun 55.8 60.1 53.4 52.4 51.4 51 48.6 45.2 45.7 44.7 48.3 48.8

Bertlesmann Transformation Index (2010) cites a study done by Swansea University’s

Center for Development Studies putting the number CSOs (Civil Society Organizations) at

115,067, of which 81,436 are non-stock corporations, 19,937 are cooperatives, 14,489 are trade unions and 103 are political parties (BTI website). BTI (2008) cites a report by the International

Federation of Journalists bringing the count of journalists killed to 13 in 2006, making a total of

49 media practitioners and 290 political activists murdered during Arroyo’s watch, making the recorded number of journalists and activists killed higher than during the Marcos regime. (BTI,

2008). Freedom House downgraded the Philippines from free to partly free as a consequence of these events. WGI Voice and Accountability Index echoes these low scores with a 45.2 in 2006 from a 55.8 in 1996. GIR reports scores of 78 for 2006 from a 98 in 2004 in the area of Civil

Society Organizations and a 73 in 2006 down from an 83 in 2004 in the free media category. BTI status index reflects more robust score of an 8 with 10 being the best in 2006 in the category of

217 political participation. The same index reports a declining score of a 6.3 in 2008, a 5.5 in 2010, and a 6.8 in 2012.

Whistleblower Protections:

Global Integrity Report 2011 gives the Philippines a score of 67 for its whistleblower protections. As of 2012, the whistleblower bill, which was drafted in 2007, has not passed. This bill provides that anyone who prevents a whistle blower from giving testimony to the crime of corruption will suffer up to 6 years of imprisonment. However, it also provides that a whistleblower who provides false testimony, will himself suffer a prison term of up to 12 years.

Not only does this bill water down its own protections, the net effect was a whistleblower (Jun

Lozada), implicating the former president Arroyo in a ZTE broadband scandal, was threatened and later on charged with perjury by Arroyo associates (www. business-anti- corruption.com/country-profiles/east-asia-the-pacific/Philippines/initiatives/public-anti- corruption-initiatives/). (See Figure 17).

Figure 17 below show poor scores for the Philippine whistle blower index. This supports my research’s claim that a functioning whistle blower law is vital to the conviction of perpetrators. Philippine poor corruption scores bears out this correlation.

Figure 17 Source: Global Integrity Report Integrity Scorecard Whistle Blower Index 2004, 2006, 2007, 2008, 2010. The score ranges from 0 to 100 with 100 being best. The red columns represent the score for the year.

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Philippine GIR Whistleblower Index 2004‐2010 90 80 70 60 50 40 WhistleBlow 30 20 10 0 2004 2006 2007 2008 2010 WhistleBlow 56 38 52 79 79

Procurement Protections:

Global Integrity Report 2011 gives the Philippines a 95 strong in the category of government procurement, transparency, fairness, and conflicts of interest safeguards. This is the one of two shining scores in a sea of weak or very weak grades. There is good reason for the good marks. The controlling legislation is the Government Procurement Reform Act of 2003, which stipulates preference for local suppliers by requiring 60 percent Filipino owned companies as bidders. An online procurement system called the Philippine Government Electronic

Procurement System, like Indonesia’s e-procurement system, publishes and allows secure bids online for greater transparency. It also publishes black listed companies, which like those in

Indonesia, manage to circumvent this process by simply changing the name of their companies.

What is impressive about the Philippine procurement system is the panel of 5 to 7 officials who have to review and approve bids. This helps prevent conflicts of interest as the panel is regularly rotated. Another governmental initiative is the creation of a Protection Transparency Group

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(created by Executive Order 662-A). This group is tasked with evaluating and monitoring procurements as reported by international monitoring agencies. (See Figure 18).

Figure 18 below support my research’s claim that progress has been made in terms of e‐ governance and the use of an online procurement processes. This is what I refer to in my research as the layering dynamic or building block dynamic of anti‐corruption institutions. This research claims that with time and enforcement from codification of ACMLG sanctions, that these institutions built today will be able to serve its purpose fully in the future.

Figure 18 Source. Global Integrity Report Integrity Scorecard Procurement Index for 2004, 2006, 2007, 2008, 2010. Score ranges from 0 to 100 with 100 being best. The red columns represent scores for the year for procurement protection.

Philippine GIR Procurement Index 2004‐2010 90 88 86 84 82 Procurement 80 78 76 2004 2006 2007 2008 2010 Procurement 87 87 81 88 88

E-Governance Development:

Donor countries have been most active in helping develop an online system of governance involving various departments including the BIR (Bureau of Internal Revenues) by

220 setting up the One Stop Shop Inter-Agency Tax Credit and Duty Drawback Center. A web connected payment and clearance center was set up by the Bureau of Customs. Then there is the

Government Electronic Procurement Systems, which include electronic bidding functions.

Despite encouraging progress in this area, it also has been slow because not many people have access to the Internet (www. business-anti-corruption.com/country-profiles/east-asia-the- pacific/Philippines/initiatives/public-anti-corruption-initiatives/). These modest gains are reflected in their WGI scores for Government Efficiency. This is the only category in which the

Philippines improved its score from 1996 to 2011.

Unlike Chile and like Indonesia, the Philippines does not criminalize bribery of foreign public officials or illicit enrichment or go after legal persons in the form of corporations. It also does not recognize UNCAC as a treaty for extradition purposes. BTI 2012 reports that Philippine democratic credentials do not yield growth in its socio-economic development particularly when compared to its neighbors. During the Ramos presidency (1992-1998), political stability and market liberalization were the main thrusts. Ramos focused on resolving armed insurrections led by the communists and Muslim militants. Ramos saw the importance of political stability to economic forces. In order to be competitive in international markets, he privatized nonperforming assets, liberalized trade and saw a period of stability and progress during his term. However, the 1997 global financial crisis negated most of the gains of the Ramos presidency (BTI 2012 website).

Comparing the trajectory of Philippine WGI Political Stability scores to BTI GDP

Growth Rate scores shows little positive correlation between political stability and GDP growth rates. A decline from a WGI political stability score of 18.8 in 2002 to 7.7 in 2003, another drop to 5.3 in 2004, an increase to 13.5 in 2005, an 8.2 for 2006 and 2007, and an 8 in 2010 (in a 0 to

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100 scale, higher numbers meaning better performance) does not correlate with improving GDP scores of 4.4 in 2002 to 6.6 in 2007 and a drop to 4.2 in 2008. This bears out reports that despite

GMA’s political struggles, she managed to post some economic gains. (World Bank website).

Arroyo posted more than 37 quarters of consecutive economic growth and steered the economy to safety during the global financial crisis in 2007. This she managed despite calls for her resignation because of charges of election fraud questioning her legitimacy to assume power.

It appears that her achievements on the economic front failed to reduce poverty, unemployment or the deficit due to the continued practice of patronage politics, lack of accountability and transparency and overall poor governance. By the end of her regime, focus on regime survival had been the priority as massive street protests, 2 failed military coup attempts, and 4 attempts at impeachment wracked her presidency.(BTI, 2012, http://www.bti- project.org/countryreports/aso/phl/). Persistent low economic performance reflected in GDP per capita from 1980 to 2010 correlates with persistent low corruption scores in the same time frame.

Data from the Asian Development Bank (2007) reveal that “of all the Southeast Asian countries, the Philippines is the only country that shows an increase in absolute number of poor people” (1995-2005). Asian Development Bank reports that income inequality increased as captured by the Gini index (BTI 2012 website). Surprisingly, World Bank Data reveals that the

Philippines does not have the highest level of inequality among the countries under study.(Higher Gini number meaning higher levels of inequality). Singapore and Chile, which are the two high performers in almost every indicator, have the highest levels of inequality.among countries under study. Chile’s scored a 56.2 in 1987 to an improved score of 52.1 in 2009. By comparison the Philippines shows a score of 41 in 1985, a jump to 46.2 in 1997 and an improved

222 score of 43 by 2009 (World Bank Data GINI index, website; data.worldbank.org/indicator/SI.POV.GINI).

Figure 23 below represents the level of equality in the Philippines. This is an important measure in my research because this is also a poverty indicator. Poverty is correlated to the economic indices I use in my research. The more poverty, the less voice and ability the populace has in breaking free of their political patrons’ support. This supports what this research refers to as patronage politics having a stranglehold on the people with a skewed version of trickle down economics. The Gini inequality indicator is a barometer of how strong the elite’s capture of the state is..

Figure 23 Source. World Bank Data GINI Inequality index. The scoring ranges from 0 to 100 with 100 being best. The smaller the number the better the score. A high number in this indicator mean poor scores. Gini uses a scale of 0 to 100 where 0 means perfect equality and 100 perfect inequality. The red columns represent the inequality scores for the year. The taller the red columns the more inequality there is.

Philippine WB Gini Index 1985‐2009 48 46 44 42 40 Gini Index PH 38 36 1985 1988 1991 1994 1997 2000 2003 2006 2009 Gini Index PH 41 40.6 43.8 42.9 46.2 46.1 44.5 44 43

The increase in inequality appears to coincide with the Ramos period of increased market liberalization. Chile’s higher levels of inequality also coincide with increased market

223 liberalization during the Pinochet and post Pinochet periods led by the right and center left.

Indonesia outperforms the Philippines in terms of levels of inequality with a starting score of a

30.5 in 1984 to a low of 29 by 1999 and 34 by 2005. It is interesting that of the countries under study, Singapore, the best performer in nearly all the indicators, shows up only once in this Gini data with a score of 42.5 in 1998 which actually shows slightly more income inequality than the

Philippines in the same time period. China started at a stellar score of 29.9 in 1987 matching

Indonesia’s 29.3 the same year and outperforming Chile’s 56.2. China’s Gini scores worsened over the following years ending with a 42.5 in 2005. This worsening of inequality scores also coincides with increasing trade and market liberalization in China. Is there a correlation between free markets and higher levels of inequality? (BTI, 2012 website).

Perhaps what may explain the virulent retribution against Arroyo as of this writing are many of her controversial orders, such as Executive Order 464, which prevented key senior government officials from appearing in investigations, invoking executive privilege, and

Proclamation 1017, “which justified the violent dispersal of anti-government rallies and arrest of its leaders (BTI, 2008, website). Some say GMA tried to do a “Marcos” by using the primacy of economic growth and the threat of communist and other insurgents to legitimize her rule. She also cracked down on dissenters and distributed largess to all key areas of government, including the military, to prop up her rule. “She pushed for constitutional change, which was seen as a blatant attempt to extend her rule”(BTI 2008). She run for a seat in Congress, reportedly intending to become Prime Minister should the system become parliamentary.

There is a consensus in the literature that the main reason the Philippines ranks poorly in investment freedom, corruption, and property rights is because socio-economic power has been held mainly by 100 families over the past 25 years. The end result is state capture by elite

224 interests to favor select industries. Market economic reform is blocked by this dominant political and economic elite, which has slowed down the pace of progress over the years. What the

Philippines has is an elite democracy, a resilient national oligarchy with a history of predatory rent seeking and plunder. Their resurgence in the past 25 years accounts for the failure of land reform initiatives and other social and economic changes that could aid more than half of the population who have been consigned to live in abject poverty (BTI 2008). BTI reports “Political parties in the Philippines are personality based organizations largely organized around dominant local political clans and warlords. They are anchored on clientelistic, parochial and personal inducements rather than on issues, ideologies and party platforms” (BTI, 2010, website). The top

1 % of the population owns the equivalent of what the poorest 30% of the population owns. That is wealth concentrated in the top 5.5% who own 44% of tillable land with 15% owning 52% of the national income (BTI, 2012, website). Only about 20 share holding families control 60 to 90 percent of the local equities market, which makes ownership of wealth an intractable problem.

This problem has eroded its global competitiveness as reported by the World Economic Forum, citing corruption, inadequate infrastructure, political instability, high tax rates among the reasons for low investment (BTI, 2010, website). High energy cost may be added to that list as well as the constitutional provision on foreign ownership restriction to 40%. The same elite that wants to continue to control ownership of wealth, is reluctant and or unable to make the kind of sizeable investments that can grow the economy to keep in pace with job creation needs of the populace.

World Bank WGI reports that the Philippines showed a score of 30.3 in 1996, which dropped to a low of 9 in 2011 in the category of political stability. By comparison, Indonesia showed a low of 13 in 1996 and an improved score of 21.2 by 2011, Singapore an 85.1 in 1996 and a 90.1 in 2011, while Chile showed a 63.9 in 1996 and a 65.1 in 2011. Among the countries

225 under study, only the Philippines failed to register an improvement in this area. The political instability wrought by deep socio-economic injustices in turn contributes to lack of business confidence, which creates a continuing cycle of failure. (World Bank website).

The GINI inequality indicator published by the World Bank supports the finding of the

National Statistics Office in 2009 scoring the Philippines with a 43, with Indonesia scoring 34,

China at 42.5, Chile at 52.1, and Pakistan at 30. Chile’s low corruption scores appear not to be adversely affected by high inequality scores the way the Philippines’ scores are. Indonesia’s and

Pakistan’s relatively low inequality scores appear to have aided their improved corruption scores.

China’s higher inequality scores appear not to have adversely affected its improved corruption scores. Nevertheless, the Philippines posted some achievements in 2005 by selling off non- performing assets by as much as PHP97 billion. Bank mergers consolidated and strengthened what is 80% of the total resources of the financial system. Better credit ratings from the IMF

(International Monetary Fund) came after servicing debt, which included prepaying $220 million and reducing debt by increasing payments from $225 million (2004) to $389 million (2006). This resulted in renewed investor confidence.

On the other hand, debt servicing has been detrimental to economic growth. PHP 700 billion, which is more than the amount set for development, is earmarked for interest payments out of a national budget of PHP 1.46 trillion. This leaves the government little room to maneuver in terms of economic solutions that would really make a measurable difference. Privatization is a “solution” required by the international community for highly corrupt countries such as the

Philippines. Has privatization helped curb corruption? While it has been the policy of both the

Arroyo and now Aquino administrations to privatize non-performing government controlled corporations, especially in the communications field, privatization opens itself to charges of

226 crony capitalism and control of all means of information in support of the administration. Private corruption is just as disastrous as state corruption. Even the pro-poor Conditional Cash Transfer programs designed for the short term alleviation of poverty are often used selectively as election incentives to keep the party in power.(Lebonne, 2011, pp.26-28 http://www.econ.yale.edu/conference/neudc11/papers/paper_062.pdf) Lebonne (2011) writes,

“The most conservative estimate that the project increases incumbent vote share in non dynastic municipalities by 26 percentage points.” (p.26). On the other hand Walden Bello a House

Representative for Akbayan (pro-poor party) writes that in fact the CCT programs breaks the hold of entrenched political dynasties as it shifts the power to distribute benefits to the poor to the incumbents, which may not be them. (http://focusweb.org/content/conditional-cash-transfer- debate-and-coalition-against-poor).

Perhaps nothing tells the story of the Philippines poor performance on anti-corruption scoring than the TI CPI country rankings. In 1996, the Philippines began ahead of China,

Pakistan, and Indonesia in the rankings. (Higher numbers meaning poorer ratings). The

Philippines ranked 44 in 1996 compared to Indonesia’s 45, China’s 50, and Pakistan’s 53. By

2011, China is ranked 75, Indonesia 100, Pakistan 134, and the Philippines at 129. High performing Singapore began at rank 7 in 1996 to rank 1 in 2010 and rank 5 in 2011. Chile ranked

21 in 1996 with its best performance at rank 17 in 2002, and rank 5 in 2011. Indonesia continued to rank behind the Philippines from 1996 to 2007. By 2008, it began its ascent and passed and bettered the Philippine rankings. (See Figure 25).

As of this writing, July 2013, the Philippines under the Benigno Aquino administration enjoys a slight improvement in CPI scores. (abs-cbnnews.com, 2013, http://www.abs- cbnnews.com/nation/07/10/13/why-perception-ph-corruption-decreased-under-pnoy).This is

227 largely attributed to the president’s personal record of integrity and his official family’s lack of corruption scandals reported. In a recent interview, Washington Sycip, of Sycip Gorres and

Velayo, said that “President Aquino is the only Philippine president who can say with a straight face that he has not given any special favors to anyone who helped him get elected.” (ANC

Headstart, 2013, http://www.abs-cbnnews.com/video/business/07/08/13/washington-sycip- shares-anecdotes-about-marcos-cory#.UdrM7zflrXk.facebook). The problem with resting the country’s CPI scores on the character of one man without changing the system of corruption underneath him, is the front runner in the 2016 presidential elections and the one reported to most likely to succeed Aquino as president is the current Vice President Jejomar Binay. Binay is reported to have the financial center of the Philippines, Makati, as his cash cow by virtue of his time as Mayor, his son being Mayor, his daughter being a congresswoman from that district, and his daughter now recently elected senator in the this year’s mid-term elections. The Binay family continues to be hounded by charges of corruption. The puzzle is he maintains high confidence ratings for the public. His popularity is a reflection of the system of patronage politics in the

Philippines. He is known to be a master of patronage politics and have wielded largess distribution with efficiency in building his political base. (Philippine Center for Investigative

Journalism, 2007, http://pcij.org/stories/makatis-mayor-fortifies-his-fort/). The fact that the front runner in the 2016 Philippine presidential elections is someone who cannot explain his vast wealth relative to his penurious beginnings in his government career as a Cory Aquino supporter after the People Power Revolution, and that being just fine with the majority of Filipinos, support this research’s claim that the reason anti-corruption efforts in the Philippines have failed is that it works for Filipinos.

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Looking at tables 13 and 14, I observe that the economic indicators that are supposed to be predictive of lower levels of corruption for the Phlippines like BTI’s Growth as a percentage of GDP, (scoring 4.4 in 2002 and a 7.6 in 2010), FDI as a percentage of GDP (scoring a low 2 in

2002 and an even lower .9 by 2010), Organizational Marketing Competitiveness, (scoring a 3 in

2003 and a 6.3 by 2012), Private Property, (scoring a 3 in 2003 and a 6.5 in 2012) , and GIR’s privatization index, (scoring 92 in 2004 and an 86 in 2010), did not produce the desired outcome of lower levels of corruption.

Tables 13 and 14 summarize my independent and dependent variables. Since there is not one number I can use to represent anti‐corruption MLG, as my causal variable

(Independent Variable), Iuse variables that are correlates of corruption that have been assigned numeral scores by independent anti‐corruption organizations.

Table 13 Independent Variables: Anti-corruption MLG: Philippines. Source BTI (Bertelsmann Transformation Index, World Bank WGI (World Governance Indicator), TI (Transparency International), GFI (Global Financial Integrity). GIR (Global Integrity Report). IV stands for (Independent Variable), DV (Dependent Variable).

IV 19 19 20 20 20 20 20 20 20 20 20 20 20 20 96 98 00 02 03 04 05 06 07 08 09 10 11 12 BTI FDI%GDP 2 0.6 0.8 1.9 2.5 7.4 0.9 1. 0. 2 9 BTI 4.4 4.9 6.4 5 5.3 6.6 4.2 1. 7. GrowthGDP% 1 6 BTI 3 6.5 6.5 7 6. OrganizationMa 3 rketComp BTI Private 3 7 7.5 7. 6. Property 5 5 GIR 92 96 84 86 86 Privatization index PolStability WGI 30 32 11 18. 7.7 5.3 13. 8.2 8.2 8.6 8 9 .3 .7 .1 8 5

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WGI Rule of 51 52 38 38. 36. 34. 42. 44 37. 35. 34 34 Law .2 .2 .3 3 4 4 1 3 1 .6 .7 BTI Rule of Law 3 6.5 6. 5. 5 8 GIR Rule of Law 80 80 52 51 51 GIR Anti‐ 69 89 89 10 10 CorLaw 0 0 GIR Anti‐ 78 79 66 73 73 CorAge GIR CivSocOrg 98 78 84 73 73 GIR FreeMedia 83 73 68 72 58 GIR AccInfoLaw 66 65 53 58 72 GIR 56 38 52 79 79 WhistleBlow GIR 87 87 81 88 88 Procurement GIR 92 83 75 87 87 NationOMB WGI 55 60 53 52. 51. 51 48. 45. 45. 44. 48 48 VoiceAccoun .8 .1 .4 4 4 6 2 7 7 .3 .8

Table 14 Dependent Variables: Corruption levels: Philippines. Source BTI (Bertelsmann Transformation Index, World Bank WGI (World Governance Indicator), TI (Transparency International), GFI (Global Financial Integrity). GIR (Global Integrity Report). IV stands for (Independent Variable), DV (Dependent Variable).

DV 19 19 20 20 20 20 20 20 20 20 20 20 20 20 96 98 00 02 03 04 05 06 07 08 09 10 11 12 CPI TI 2. 3. 2.6 2.5 2.6 2.5 2.5 2.5 2.3 2. 2. 69 3 4 4 GIR anti‐ 75 78 66 71 71 corruption scorecard WGI Control of 51 55 40 39 38. 30. 35. 22 26. 24. 23 22 22 Cor .2 .1 5 2 1 2 8 .5 .7 GFI IFF 10, 13, 13, 18, 19, 23, 18, 19 80 72 38 65 41 68 5 3 4 2 4 9 2

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Apart from FDI index, the Philippines performs in the middle to high levels in the economic measures. This strong showing should correlate with lower levels of corruption.

Comparing them to my Dependent Variables listed in table 14 , which consists of corruption scores from Transparency International, which gave the Philippines a score of 2.69 in 1996 and a

2.4 in 2010; Meanwile, Global Integrity Report (GIR) gave scores of 75 out of 100 in 2004 and

71 in 2010; World Bank World Governance Indicator (WGI) gave scores of 51.2 in 1996 and a

22.7 in 2012, while Global Financial Integrity (GFI) illicit flow of funds shows USD10, 195 million in 2002 to USD18, 682 by 2012. All indices show low scores and worsening levels of corruption. Only when I compare economic indices across countries do I see its predictive power vis-a vis levels of corruption.

Philippine political indicators’ poor scores (including WGI’s political stability scoring a 9 out of a possible 100, rule of law scoring 34.7, and voice and accountability scoring a 48.8 in

2010, and GIR’s rule of law score of 51 in 2010) correlate with poor corruption scores seen in the dependent variables table. Relatively better scores in the anti-corruption institution building indices such as GIR’s anti-corruption legislation scoring 100 out of a possible 100, and average and slightly above average scores in anti-corruption agencies, civil society, whistleblower, ombudsman, procurement indices, do not correlate with poor levels of corruption. Improvement in anti-corruption institution building may not have yielded the improved corruption scores from monitoring organizations in the short run, but it is possible that with increased awareness and involvement of a much more network global community, and the codification of ACMLG sanctions, much more pressure will be put on local leaders to implement what are highly rated anti-corruption laws written in the Philippines.

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Comparing and Contrasting the Philippines with

CHILE

Background: Historical, Political, and Economic Comparison

The objective of this section is to compare and contrast Chilean experience on corruption with that of the Philippines. I hope to find similarities and differences that would explain why

Chile has been successful in its anti-corruption efforts and the Philippines has not.

Historical Comparisons:

In comparing and contrasting the Philippines with other countries, Chile emerges as particularly interesting. Chile and the Philippines were both colonized by Spain in the 1500s.

Both are predominantly Catholic. Both have a history of dictatorships and military rule. Both have diverse ethnicities. What is interesting is Chile has ranked among the most affluent countries with low levels of corruption and first world human development scores. It is one of the largest economies in Latin America. Chile ousted Pinochet later than the Philippines ousted

Marcos, yet unlike the Philippines, Chile was able to transition into one of the most impressive development success stories. Why is that? One difference suggested is that Chile suffered more due to its history of civil wars and that the Pinochet regime was much harsher than the Marcos

232 dictatorship, which motivates Chileans to protect the gains of their freedom. Both have a presidential form of government, yet in Chile, the military officers and head of the Supreme

Court are elected and not appointed by the executive as they are in the Philippines. This might be a significant difference in terms of other branches of government having independence from the executive and each other (Hudson, 1994, p.xxvii). Another interesting similarity is that both have multi-party systems, but the socialist parties dominated in Chile in earlier times (p.xxviii).

Although both share a history of military rule, the Chilean armed forces are reputed to be professional and non-partisan (p. xxix).

Chile won independence in 1818 and the Philippines 1946. That gives Chile more than one hundred more years of self rule when compared to the Philippines. Coincidentally, Chile was discovered by Ferdinand Magellan on October 21, 1520. The Philippines was discovered by

Magellan in 1522 (Drake, 1994, p.7). A difference is the Catholic Church was not very powerful in Chile. They were known to champion the rights of the indigenous people instead of abuse them like in colonial Philippines. For example, Jesuit Luis de Valdivia tried to improve the lives of the natives (Drake, p.8). Another big difference is that Chile is geographically cut off and hence became the most homogenous and centralized of the Spanish colonies. The Philippines on the other hand is diverse and widespread, complicating unity issues later on (p.9). Chile’s war of independence from Spain was really a war among the mestizos or criolles against the penninsulares. It was certainly not a war to free the laborers and slaves (p. 14). In this way, it bears more resemblance to the US revolution. Chile’s defeat of the Peruvian fleet in 1839 gave

Chileans a feeling of pride and unity and increased their stature as a country. (Drake, p.18)

I would argue that Philippine corruption also has deep roots in disunity and lack of national feeling for and common ownership of problems, an example being the problem of

233 corruption. Because there is no national ownership of problems, there is also no national ownership of solutions. Where does this attitude originate from? It may be traced to the difference between the Chilean and Philippine experiences in military victories. The confidence of Chileans may be rooted in their victories in the conduct of wars. They were victorious in the

Peruvian-Bolivian war in 1836-39, against Spain in 1865-66 and against Peru and Bolivia in

1879-83 (English and Tollefson, 1994, p.277). In comparison, the Philippines has not been victorious or successful in the prosecution of any war, whether it be the war of independence or anything else. Chilean geography, which features a long coastline and long borders to protect, make then vulnerable to attacks from invaders. This vulnerability to outside attacks may have forced them to be more united and disciplined in defending themselves. Local divisions would have been fatal to their republic during armed attacks from invaders. This may have roots in the unity due to homogeneity of the Chilean culture and the divisiveness of the Philippines diverse culture and loyalties by comparison.

The Philippines by comparison never had the experience of successfully repelling an invaderI would argue that the Philippines remained a conquered people despite it’s independence from Spain which was replaced quickly by US occupation. Even independence from the US was

“granted” and not won in battle. So for all intents and purposes, it remained a conquered people.

. Chile boasts of being the only Latin American state with consecutive freely elected leaders.

Chile enjoyed an uninterrupted democracy from the 1930s to the 1970s when Allende was overthrown. It was a proud achievement and a contrast with their more tumultuous neighbors

(Drake, p.34). They also had a foreign policy of staying out of foreign wars. It is noteworthy that they showed ideological sophistication early on and elected leaders based on ideological leanings. The Philippines, on the other hand, has had a ruling predatory elite that is neither

234 consistently right wing nor left wing but rather a predatory wing. Allende’s socialist government applied Keynesian economics by hiking wages. It socialized farms, industries, and estates (p.48).

His critics say Allende’s economic policies failed and brought hardship due to inflation and lack of foreign investment. Some say the US engineered the Pinochet coup, which came one year after Marcos declared

Chile is one of the most educated and sophisticated countries in Latin America and has enjoyed democratic and constitutional rule since the adoption of their constitution in 1833.

Chileans have benefitted from welfare institutions, state run universities and, since 1952, a national health care system. It has had a history of socialist rule that culminated badly for

Allende’s socialist government in 1973 when it was overthrown by Pinochet in a bloody coup.

This is another major difference with the Philippines. The Philippines has not experienced a bloody civil war, the ousting of Marcos being singularly peaceful. Chile’s national motto interestingly is “By reason or by force” (xxxvi). Allende was assassinated or committed suicide, while Marcos was sent in exile in the wake of the People Power Revolution. Pinochet broke away from the socialist statist model of his predecessors and instituted free market export driven reforms influenced by Milton Friedman. Chile privatized the state owned corporations so that only 5 remained in state hands by the end of his regime. His successors continued his policy of integrating Chile’s economy with the world economy, but without sacrificing democratic principles. People still wonder if the revolutionary reforms Pinochet instituted would have been possible without authoritarian rule (Hudson 1994). (See Figure 28).

Because of Chile’s geographical isolation, the rich could not afford to send their children abroad, so they had to create strong centers of learning, which then contributed to national pride and identity (Valenzuela, 1994, p.62). Chile was not a profitable venture for colonizers because it

235 did not have enough gold or crops that would require slave labor. Fierce resistance from the native population in the south called the Araucayans resulted in less exploitation of the region and the abolition of slavery in 1818 when they declared their independence from Spain (p.78).

Unlike the Philippines, they started their birth control programs in the 1960s. By comparison, the

Philippines narrowly passed its reproductive law in 2012 amidst the vociferous resistance of the

Roman Catholic Church. This is a big difference.

Martini and Mangui-Pippidi (2010) write that among other factors, the rise of “an enlightened intelligentia/Patricians” who were educated in Europe and brought back democratic ideals were integral to Chile’s solid foundations. It must be noted that Chile experienced its own period of clientelistic and rent seeking behavior earlier in their democracy. Parties provided the competitive political setting comparable to parliamentarian models in Europe. Patronage behavior was monopolized by the presidency before the civil war of 1891, after which the

Congress took over the center of power and appropriated rent opportunities themselves (p.5).

The 1925 Constitution heralded the return of executive power, a period of stability brought about by a structurally autonomous judiciary protected from party politics by life tenures, irreducible salaries, and non-partisan selection process. Chile also enjoyed the emergence of radical communist, socialist, conservative, and liberal parties, which had strong ideological and ethical foundations (p.6). By the 1950s Chile enjoyed mature institutions with elites competing and crafting consensus and compromise. Autonomous bodies like the Comptroller General, who had the same check and balance powers as the executive, legislative, and judiciary, emerged as a strong influence as early as 1950. The Philippines in comparison had just gained its independence from the US four years earlier in 1946.

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It is critical to delve into the historical experience of both countries, from as far back as the colonial period to the modern day era in order to find out what similarities and differences they share in economic, political, and cultural experiences that could explain why one country succeeded and the other failed in controlling corruption. Chile’s experience of military victories for independence is important in explaining national psyche. Its history of elite participation in reform movements in Europe in the 1800s is also explanatory in terms of why the socialist movement took hold and provision of critical services like education and health care took root.

These Chilean differences in their political and economic experience may help explain why there are more and checks and balance institutions there than there are in the Philippines.

Social organizations, student and labor unions, and church groups played a big role in

Chile’s political life (p. 97). Significantly, Chile was one of the first countries in the Americas to have a social security program in 1898. As early as 1824, they had a program patterned after the pension plan of Otto von Bismark where both workers and employers contributed to the fund. By

1952 they had a state run social security system and by the 1960s a system that included even unemployment benefits (p.100). National health programs started in the 1890 (p.103). This infrastructure in health and social services is what accounts in part for Chile’s high human development index score. In addition, low cost housing began in 1906. (p.107). Builders qualified for a complete exemption from all taxes and home owners were exempt from taxes for

25 years. Universities were free or charged nominal fees with the government devoting 50 percent of its education budget to them (p. 111). Chile has a history of being one of the most state run economies, import substitution being its goal. Allende’s socialist government championed this agenda.

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Table 31 below shows Chile’s strong socialist policies in the welfare state programs index. It outperforms the Philippines and Indonesia, but not. This supports my research’s claim that different systems of government can produce similar great outcomes. This is important to my research’s search for solutions. It shows how it is possible to have a great economy, great corruption scores, along with great scores in services available to the people.

Singapore’s scores in the welfare index is even higher than Chile. The difference is Chile has great political freedom scores, great GDP scores, great corruption scores, along with great welfare scores. Chile shows that these indices can be highly correlated.

Figure 31 Source BTI (Bertelsmann Transformation Index) for 4 countries. The scoring range is 1 to 10 with 10 being best. The time frame is from 2003 to 2012. The countries are represented as columns and color coded as follows: Chile (Blue), Philippines (Red), Indonesia (Green), Singapore (Purple).

BTI Welfare System Index 9 8 7 6 5 4 Chile 3 Philippines 2 Indonesia 1 Singapore 0 2003 2006 2008 2010 2012 Chile 3 7 7.5 7.5 7.5 Philippines 24.54.566 Indonesia 25555 Singapore 38888

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Allende was overthrown by Pinochet who instituted by “military government” a free market export oriented economy (Edwards and Edwards, 1994, p.139). From 1938 to 1958, a series of left of center governments were installed interested in protectionism and government intervention in the economy (p.142). Allende had a program of “nationalization; increasing real wages; reducing inflation; spurring economic growth, increasing consumption by poorer people; and reducing the economy’s dependence on the rest of the world” (p.145). This was to be accomplished by “a boost in aggregate demand mainly boosted by higher government expenditures, accompanied by strict price controls and measures to redistribute income” (145).

By 1971 “a vicious cycle began; repressed inflation encouraged the informal economy, thus reducing tax revenues and leading to higher deficits and even higher inflation” (p.148).

Large manufacturing firms and farms had been expropriated arbitrarily in the nationalization process (p.149). Aylwin’s economic position upon taking over was that “The market cannot be replaced as a mechanism for consumers to articulate their preferences.” (Edwards and Edwards,

1994, p.160). . Further, an efficient economy, according to this argument, has no need for price controls. These views were a far cry from those that sustained Frei’s Christian Democratic government or Allende’s Popular Unity government in 1970 to 73 (p.160). Some of the successful strategies deployed were high exchange rates and low import tariff, spending programs to be funded by foreign aid, reallocation, and increased tax revenues. Chile also had the novel idea of converting their foreign debt into shares in local companies.

Economic Comparisons:

Questions about who is getting the lion share of the benefits in this swift economic growth must be factored in. Chile and China should provide a cautionary tale that extreme swings from one economic model to another is not advisable and a calibrated shift would be

239 preferable. The most surprising finding is Pakistan. Consistently in the bottom of economic , political, ACLMG scores when compared to the other five countries under study, shows the best performance in the Gini inequality score ranging from the low 20s to low 30s. My own view on this is I would recommend higher economic growth and great corruption scores, to Pakistan’s model of collective poverty. The inference is there are many poor people than rich and even the rich are not so rich. Singapore is a no show in this index. If I rank order the countries from best to worst scores in the Gini, Pakistan will be 1, Indonesia is 2, China is 3, Philippines is 4, and

Chile is 5. What this says in relation to my research is there is hope yet for Pakistan and

Indonesia to shine.

Table 15 is a puzzle. The great performers in virtually all indicators I’ve looked at are the poor performers in the inequality indicator. Chile of the good corruption scores and great GDP scores has the worst level of inequality of the countries under study. It scored in the 50s on a scale of 0 meaning perfect equality and 100 as perfect equality. By comparison, China does a little bit better ranging from 29 in 1987 to 42.5 in 2005. The inference is with high GDP came higher levels of inequality.

Table 15 Source World Bank Data. Gini Inequality Index. Comparing the Philippines, Indonesia, Chile, China, and Pakistan from 1985 to 2009. Gini uses a scale between 0 to 100 with 0 meaning perfect equality and 100 being perfect inequality. The higher the number the poorer the score.

1985 1988 1991 1994 1997 2000 2003 2006 2009 Gini Index PH 41 40.6 43.8 42.9 46.2 46.1 44.5 44 43

1984 1987 1990 1993 1996 1999 2002 2005 Gini Index IN 30.5 29.3 29.2 29.3 31.3 29 29.7 34

1987 1990 1992 1994 1998 2000 2003 2006 Gini Index CHL 56.2 55.3 54.8 56.1 55.5 55.3 54.6 51.8

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1987 1990 1993 1996 1999 2002 2005 Gini IndexChina 29.9 32.4 35.5 35.7 39.2 42.8 42.5

1987 1991 1997 1999 2002 2005 2006 2008 Gini Index Pak 33.4 33.2 28.7 33 30.4 31.2 32.7 30

Chile enjoys a relatively corruption free state bureaucracy. Global Financial Integrity reports an Illicit Financial Flow of USD 82,731 million from 2000 to 2008. By comparison the

Philippines had USD 130,067 million. Chile shows an average illicit outflow of funds of 9,192 million USD while the Philippines shows an average of 14, 451 million USD. (See Table 17).

This is a result of the checks and balances, mature political institutions, competitive party politics and real opposition parties that kept close watch on the conduct of government. In addition, a position in government is valued, so university graduates and the middle classes joined the ranks of government (p.218). The state still controlled the big industries that produce big revenues like the copper mines, railroads, and utilities while not dismantling the liberalization agenda of the military government. This mimics what is in place right now in the Philippines but not with the same results because of the problem of corruption and government officials helping themselves to the national coffers and leaving little revenue for the state. Martial Law.(Burbach, 2006, para.

4 http://www.tni.org/archives/archives_burbach_pinochet.).

Table 17 below compares the illicit flow of funds from the Philippines, Indonesia, Chile,

China, and Pakistan. Singapore did not participate in this study so has no posted numbers with which we can compare with the other countries. All 5 countries show an increase of IFF (Illicit

Flow of Funds) between the period of 2000 to 2008. There are numbers missing in some years in the Pakistan data so its smaller total is misleadingly small. What I see is the Philippines and

Indonesia having about the same IFF. The Philippines shows a slightly lower total than

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Indonesia. However, I must factor in the fact that Indonesia’s economy is several times bigger than the Philippines. Chile has a bigger GDP than both Indonesia and the Philippines but show a smaller total IFF. China’s huge economy also shows a huge IFF. In the case of Chile, smaller IFF correlates with great corruption and GDP scores. The Philippines and Indonesia share near identical GDP and IFF scores which correlate with nearly the same corruption scores. This supports my research claim that corruption scores correlate with IFF scores. GDP correlate with both IFF and corruption scores.

Table 17 Source GFI (Global Financial Integrity). Notes: Comparing IFF (Illicit Flow of Funds) for 5 countries. Numbers are measured in millions.

Average 200 200 200 200 200 200 200 200 200 Total Illicit Illicit Country 0 1 2 3 4 5 6 7 8 Outflows Outflows Philippine 5,66 6,54 10,1 13,8 13,7 18,3 19,6 23,4 18,6 s GFI IFF 6 3 95 03 24 82 54 19 82 130,067 14,451 Indonesia 1,11 20,5 18,9 26,4 12,6 24,0 30,1 GFI IFF 0 512 3 17 41 86 13 24 27 134,333 16,791 Chile GFI 3,14 4,53 5,07 4,97 10,2 7,37 12,3 29,1 5,95 IFF 8 2 0 8 38 1 18 22 4 82,731 9,192 169, 183, 162, 183, 251, 291, 355, 405, 399, China 130 624 152 266 472 091 371 863 659 2,401,556 266,839 2,05 3,24 1,76 1,14 6,13 Pakistan 0 0 5 0 9 0 855 1 3 15,193 2,532

Political System Comparison;

From 1830 to 1973, Chile has had almost all its leaders step down after their constitutional time in office for their constitutionally designated successor (Valenzuela, 1994, p.200). This peaceful transfer of power was interrupted only by a brief civil war in 1891, and military interventions in 1931 and 1932. The rest of its history was governed by the 1833 and

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1925 constitutions. The left, right, and center of the ideological spectrum competed for influence in the political process without descending into chaos like other Latin American countries

(p.202). Most controversial during Pinochet’s regime was “Transitional Article 24 which eliminated due process of law by giving the president broad powers to curtail the rights of assembly and free speech and to arrest, exile, or banish into internal exile any citizen, with no right of appeal except to the president himself” (p. 205). What Pinochet wanted was an authoritarian democracy that emphasized national security. It created a permanent “tutelary role” for the armed forces as the guarantors of democracy.

In 1980, the constitution gave military leaders were given seats and power to comment or check any event that they feel threatens the security of the nation. Cosena,(National Security

Council)were given 4 of the 9 members of the senate while the president and senate could nominate only one each. The military is protected from the president even if he appoints the commanders. After they are appointed by him, he cannot remove them for the duration of their term. During the Pinochet regime, Cardinal Fresno brokered a united opposition to the military regime, composed of elements from the far left all the way to original supporters of the regime from the right who felt that the personalization of politics only created more instability for Chile

(p.209). This ideologically wide-ranging opposition to authoritarian rule was the same pattern followed in the Philippine context. Cardinal Sin brokered a united opposition in the Philippines.

One difference is Marcos never had an almost successful assassination attempt on his life while

Pinochet had a near successful attempt by the Partido Comunista de Chile (Communist Party of

Chile) PCCh linked group whose commandos attacked his motorcade and left 5 bodyguards dead. In October 1988,the opposition decided to run their own candidates in a plebiscite and use the guidelines set by the military regime (p.211). Extraordinarily, the military junta in 1988

243 guaranteed fair elections and Pinochet unlike Marcos acknowledged his defeat. But the plebiscite was only an electoral and not an institutional defeat. It just meant that he would have to call for presidential elections in seventeen months.

The compromise between the opposition and the moderates in “the military junta meant that the opposition, the moderates and the right wing they were able to do in the 1989 compromise what they were not able to do in 1980,” which was to legitimize and institutionalize their powers and prerogatives as independent and organic law and that the military constitution would then replace the 1925 constitution. For the opposition this meant only a first step (p.215).

The compromise between the opposition and the military against Pinochet and his hard liners bears some resemblance to the defection of Marcos’ loyal allies in the military, his chief-of-staff

Fidel Ramos and defense minister Juan Ponce Enrile who joined the people power revolution that later installed Corazon Aquino. Unlike the Philippines, Chile’s military enjoyed continued power in the new administration with the victory of opposition leader Aylwin. The electoral victors felt that the military would be less resistant to the return of civilian leadership if they did not immediately make sweeping changes (p.216). The importance of comparing the aftermath of the Pinochet and Marcos regimes and the coalitions that brought their downfalls, is to establish that corruption flourishes without institutional checks and balances and that Chile left the

Pinochet faction in power while the Philippines scuttled the Marcos forces. In so doing, there was no power to check the new power that came into office with the People Power Revolution, which meant continuing the sytem of corruption already in place. By leaving the Pinochet military forces in power, Chile was able to craft its own way of preventing any one force from dominating and commiting corruption wholesale.

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Many Chileans appreciate the separation of powers, system of checks and balances of the

US as the successful model after the French revolution was unable to come up with a better republican model. An interesting check and balance feature of the state is the Office of the

Comptroller General, the equivalent of the Commission of Audit head in the Philippines but with vast powers that originated as early as the 1923 constitution. The Comptroller General has juridical powers to rule on the constitutionality of laws and decrees in addition to its audit functions (Valenzuela, 1994, p.234). That is the purview only of the Supreme Court in the

Philippines. This elaborate system of power checking power is behind Chile’s relatively low levels of corruption. Chile also has another watchdog body called the Constitutional Tribunal, which is tasked to prevent unconstitutional decrees and laws. A look at how power is balanced in

Chile’s government structure will show that per the 1980 constitution, the Supreme Court was allowed to select three, the Cosena, two, and the president and congress one each as members of the Constitutional Tribunal (p.234). That guarantees that the president has no dictatorial powers over autonomous agencies of government.

The Constitutional Tribunal is the court of last resort on constitutional matters and there is no appeal once a decision is made. The Central Bank of Chile is another autonomous organ from the 1980 Constitution in order to insulate it from political influence in order to make sound monetary policy. Another check and balance mechanism is the Electoral Certification Tribunal which rules on the integrity of elections and adjudicates complaints. Members are drawn by lot from among jurists. This is interesting as it is an example of the drawing by lot idea I have for other appointments made by the executive in order to preserve the impartiality of the process and the limitation of the influence of money in decisions. The Armed Forces is an essentially autonomous power in Chile. They have a status comparable to Congress and the Courts.

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However, only military leaders may make their views known to civilian authority with the lower rank and file exhorted to follow superiors (p.236). Their budget may not be reduced—it is provided for by the constitution-- and they get a set percentage of worldwide sales of the state run copper company.

The comptroller general, the military, the three branches of government all share roughly the same counterbalancing power. This is why no one person or group can abuse power with impunity without being held to account. This desire to strike political balance also applies to appointments. If a cabinet minister is a Christian Democrat, then it is tradition to have a Socialist for vice-minister. Other appointments are divided representing different political coalitions.

Chile also has a tradition of appointing the most qualified people, many of whom are technocrats from think tanks. There is also a functioning opposition party that monitors and checks abuses of power. Autonomous institutions like the Central Bank, Constitutional Tribunal and regulatory agencies have veto powers. There are laws that limit the executive’s discretionary powers such as the procurement law, and regular audits, and competitive appointments, limit opportunities for rent seeking behavior (p.13). By contrast, there are no checks to the Philippine President’s vast control of the power of the purse and the power of appointments, the end result having all institutions wanting to curry favor with the executive and providing no check to his power

The choice of the public prosecutor in Chile involves the President, Senate, and Supreme

Court so that there is maximum checks and balances and political considerations will not influence the investigation of a crime like corruption. The president has to choose from a list of 5 candidates submitted by the Supreme Court but they cannot be appointed without a 2/3rd majority vote by the Senate (Ortega, 2009, p.65). Unlike the Philippines, Chile also has an informal phase of an investigation where the suspect may not know he is being investigated for reasons of

246 confidentiality. In money laundering cases where secrecy is paramount, secrecy can be maintained for up to six months (p.66).

Global Integrity Reports “challenges in public information, political financing, and whistle blower protection. They have national OMB but few people know about it” (Global

Integrity Report Website. Reportglobalintegrity.org/Chile/2008). In 2008, Chile received an overall score of 83 on anti-corruption and rule of law issues. This section breaks down according to a score on anti-corruption 100 (very strong); a 78 (moderate) for anti-corruption agency, 78

(moderate) for rule of law, and 75 (moderate) for law enforcement. In the same area of the same year 2008, the Philippines received a score of 71 (moderate) in the anti-corruption and rule of law section of the global integrity index which breaks down as follows; 100 (very strong) for anti-corruption law, supporting the finding that the Philippines has excellent legal anti-corruption legislation and framework; 73(moderate) for anti-corruption agency, which supports the existence of multiple corruption specific government agencies and initiatives; 51 (very weak) for rule of law, which indicates the persistent problem of state capture of state institutions; 60 (weak) for law enforcement, which supports the finding that despite the existence of solid legal framework to combat corruption, enforcement of said laws remains weak. (See Figure 30 and

Table 19).

Military Rule Comparison:

Authoritarian rule is something both Marcos and Pinochet used, but Marcos did not go for straight free market policies, instead nationalizing many industries. Both were pressured to submit themselves to unscheduled elections. Both lost. Marcos was ousted 1986, a full three

247 years ahead of Pinochet. It is surprising that Pinochet did not learn from the Marcos experience.

(xxxviii).

Although Pinochet left behind a strong economy, Chile still had high inequality rates.

(See Table 15). His successor Aylwin invested more in health care and housing and raised out of poverty 30 percent of the lowest income holders in 1990. Aylwyn developed a robust pension fund that was the envy of the world. A strong economy, lower poverty and better delivery of services to the people are correlates of improved levels of corruption. The poor are more susceptible to being bought and controlled by the corrupt and have a weaker voice to protest.

One of Pinochet’s legacies are unelected senators and military officers over whom presidents have no control (xliii). There is also a tradition of the biggest mining company giving 10 percent of its income to the military. The tradition of having unelected senators and military officers is

Chile’s unique version of balance of power or checks and balances. The military is independent from the president and this is demonstrated by their control of 10 percent of the biggest mining company’s revenue.

Some reforms by the Pinochet government were carried over by the forces of democratization for good reason. The “Chicago Boys” blue print for progress (by Chilean leaders who went to school in Chicago and instituted what they learned from there) includes; institutionalization of the rules of the game; the concept of certainty and predictability of laws and procedures; the security of property rights, which was undermined in Allende’s socialist government that confiscated lands and industries; systematic reduction of opportunities for discretion and arbitrariness in order to reduce rent seeking behavior; non-intervention of the state in market failures; trade and financial openness which increased competition in local economy and enlarged the economy to add to a smaller domestic economy; elimination of trade permits

248 and regulations that enhance rent seeking opportunities such as price controls and rationing

(Martini and Mungui-Pippidi, 2010, p.8).

By contrast, Marcos’ authoritarian rule marked a left of center agenda that used developmental state models using the active intervention of the state in the economy and the take over and control by the state of select industries. The developmental state model would have worked as it worked in the Tiger economies including Japan if the sequestered industries did not go to favored individuals or cronies, which meant that the benefits did not accrue to the state but to those individuals. State regulation under Marcos led to rent seeking opportunities, which eventually led to failure. I do not argue completely for one model versus the other; either the free market model or the developmental state model. I would argue for a hybrid model that is not fixed but adjusts for specific situations. I would cite success stories like Singapore and China, who find no problem mixing both models. Singapore and China controls the industries and make policies that protect certain industries for their own benefit, yet embrace free market policies when it suits their interest when exporting their products.

The Chilean military received a big blow during the military dictatorship where charges of human rights abuses were profound. With the return of democracy, military men were sheltered by an Amnesty Law that protected them from charges of human rights abuses. In the

Philippines, there was no such fear because the military during Marcos’ time was simply co- opted and absorbed in the following regime. No one was held accountable for human rights abuses other than Marcos despite the fact that the most responsible members of his military became leaders of the new regime. Another interesting difference that may explain the presence of a strong check and balance system in Chile after the Pinochet regime was ousted was despite the coalition of elites that dislodged him, the new leaders were not able to completely dislodge

249 the Pinochet elites, so a semblance of balance in elite power prevailed (Martini and Mangui-

Pippidi, 2010, p. 9). By contrast, the Marcos forces were demolished in the wake of his ouster.

The transition from Pinochet to Aylwin did not shift the power completely. The military continued its prerogatives and autonomy as well as 10 percent of copper revenues, Pinochet could appoint 9 out the 47 members of state legislature and he could stay as the head of the army until 1998 and Senator for life. As astounding as this may sound to people’s ears, this accommodation provided the balance of power and checks that prevented any one group from exploiting and raiding the coffers. Despite Chile’s excellent compliance with UNCAC provisions in the area of extradition, it makes an exception of military and police, those being exempt from such cooperation (APEC, 2012, p.43). Most informative and helpful to countries seeking to find out why Chile’s system of checks and balances work toward curbing corruption is how power is shared. The electoral process, even though it is a presidential system, resembles more of a parliamentarian system in that it encourages consensus building by electing representatives from the 2 parties with the most votes (Martini and Mungui-Pippidi, 2010, p. 12).Parties and not personalities decide who will sit in office. People vote in parties and the winning party decides who will represent them. This is a corruption disincentive because political dynasties are less able to use their monetary advantage to get elected. Aside from having an independent judiciary, a Comptroller General oversees the actions of the legislative and executive.

Connecting the Dots: ACMLG Monitored Indices

This section evaluates and compares Chile’s performance in ACMLG indicators monitored by international anti-corruption organizations. The presence of these indicators and

250 how well or poorly countries score in them are claimed to be correlated with lower levels of corruption.

Figure 30 below compares the performance of Chile, Indonesia, and the Philippines in several areas of interest. Looking at Chile’s performance on the Oversight and Regulation category of the integrity index, it averages an overall score of 85 (strong). This breaks down as

77 (moderate) for the presence of an Ombudsman; 85 (strong) for Supreme Audit Institution; 100

(very strong) for Taxes and Customs; 73 (moderate) for State-Owned Enterprises; 92 (very strong) for Business Licensing and Regulation. The Philippines on the other hand, which has only had “less than a century of democratic system, with a break of 14 years under the Marcos dictatorship from 1972 to 1986,” scores a moderate 76 as an average with the score breaking down as follows: 87 (strong) with the presence of an Ombudsman; 93 (very strong) with the presence of a Supreme Audit Institution; 58 (very weak) on Taxes and Customs; 83 (strong) on

State-Owned Enterprises; and 58 (very weak) on Business Licensing and Regulation. This finding on the Philippines supports other findings of strength in the presence of agencies of accountability like the Ombudsman but weakness “in actual application in rent rich areas like taxes and customs and business regulations where government officials have fertile opportunity to extract rents” (Global Integrity Report website).

Figure 30 supports this and other scholarly research that indicates that Chile’s long experience with democracy and mature democratic institutions have led to the checks and balance and discipline old institutions acquire over time.

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Figure 30 Source GIR (Global Integrity Report) Integrity Scorecard for 3 countries

Global Integrity Scorecard 2008 90 80 70 60 50 40 Philippines 30 20 Chile 10 Indonesia 0 Election Anti‐Cor OverReg Admin GovAcc CivSoc s Philippines 71 76 82 70 59 68 Chile 83 85 62 67 84 80 Indonesia 74 80 56 70 69 62

Table 20 below shows Chile scoring a strong 84 in elections, a 100 in election integrity, a

97 (strong) in voting participation, yet a 55 (very weak) score in political financing. This indicates that despite strong voter participation, the influence of money in elections in Chile is very much alive. The Philippines by comparison receives an overall score of 59 (very weak) on the same category of Elections, 79 (moderate) in voter participation, a 74 (moderate) in Election

Integrity, yet an alarmingly low 25 (very weak) in Political Financing, again demonstrating the disconnect between the influence of money in elections not outweighed by voter participation; an experience it shares with Chile albeit with lower scores. In the area of Civil Society, Public

Information and Media, Chile receives an overall average score of 80(moderate); 85(strong) in

Civil Society Organizations; 85(strong) in Media; and a surprisingly weak score of 70(weak) in

Public Access to Information. (See Table 20).

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Table 20 scores 3 countries in multiple indices. These numbers are important to my research as they can be readily compared to numbers reflecting levels of corruption. What jumps out in this table is support for my claim that the Philippines scores poorly in access to information, which is vital to ferreting out information about abuse of power incidences.

Another index not so well observed is the political party financing index where all three did extremely poorly in. The Philippines stands out as having the poorest score of 25 out of 100.

This supports this research’s finding that changes in political leadership do not bring better corruption scores because of the influence of money in the electoral process.

Table 20 Source GIR (Global Integrity Report) for 3 countries 2008. The scoring range is 0 to 100 with 100. Scores for Chile, the Philippines, and Indonesia can be compared according to Civil Society, Electoral Protections, Government Accountability, Administration/Civil Service, Oversight, and Anti-corruption Rules.

2008 GIR Chile Philippines Indonesia CivSocTot 80 68 62 CivSocOrg 85 73 65 AccInfoLaw 70 58 50 FreeMedia 85 72 70

ElecPolProc 84 59 69 NationElect 97 79 88 ElecMonAge 100 74 81 PolPartFina 55 25 39

GovAcc 67 70 70 Executive 75 70 79 Legistlative 70 81 65 Judiciary 62 58 71 BudgetProc 63 69 65

AdminCivSe 62 82 56 CivSerReg 76 74 41 WhistleBlow 13 79 0

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Procurement 69 88 88 Privatization 90 86 96

Oversight 85 76 80 NationOMB 77 87 87 SupAuditIns 85 93 60 TaxesCustom 100 58 100 StateOwned 73 83 80 FinanSecReg NA NA BusiLicReg 92 58 75

Anti-CorRul 83 71 74 Anti-CorLaw 100 100 67 Anti-CorAge 78 73 81 RuleLawAcc 78 51 89 LawEnforce 75 60 58

This demonstrates that despite a vibrant civil society and relatively free media, Chile shows a structural weakness in accountability factors like access to public records. The

Philippines, despite all the celebratory prose about its people power revolution, which trumpeted the victory of civil society against the Marcos dictatorship in 1986, and its installation of

Corazon Aquino which ostensibly restored democracy, scores a low 68 (weak) in the Civil

Society Public Information category; 73(moderate) in Civil Society Organization; 72(moderate) in Media; and a low 58(very weak) Public Access to Information. The disconnect between civil society and media participation and access to public information is interesting in that it demonstrates that participation without accurate information does not produce an ordered and free society. This disconnect is shared by both Chile and the Philippines.

Interaction with Overseas Regulations:

In 2006 Chile ratified the UNCAC but even before that had already ratified the Inter-

American Convention Against Corruption and the OECD Anti-Bribery Convention in 2004.

Chile became a member of the OECD in 2010.

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Connecting the Dots: ACMLG Monitored Indices

1. Declaration of assets and interests. Chile enacted Law 20,088 requiring high public

officials to declare their assets in addition to another law already in place mandating the

declaration of interests. Another landmark legislation to comply with UNCAC is the

criminalization of bribery of foreign public officials with Law 30, 341 and 20,371 both in

2009 as well as the penal liability of legal persons with Law 20, 393 in 2009. 205 public

authorities, the President of the Republic, its Cabinet and 150 heads of services, have

published their assets and interests declarations. The goal is to increase compliance to

207 authorities. In contrast, Philippine public officials do not publish their SALNs unless

there is a specific request from media or relevant government agency, with that process

reputed to be slow and cumbersome.

2. Active bribery of national public officials. Active bribery is understood to apply to the

“briber”. Bribery of national public officials is criminalized in article 250 of

Chile’s Criminal Code in alignment with UNCAC Art 15; APEC (Asia Pacific Economic

Cooperation) quotes from UNCAC: articles,

A person offering or consenting to give a public official an economic advantage to his benefit or that of a third party to perform an act or to refrain from acting, as provided for in articles 248 Art.15(b) Passive bribery or the receiver of bribe is criminalized in Articles 248, 248 and 249 of the Criminal Code. Bribery Article 248a public official who solicits or accepts an economic advantage for himself or for a third party for refraining or having refrained from acting in relation to the performance of official duties or for carrying out or having carried out an act in violation of the duties proper to his office ( p.23).

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The active and passive criminalization of bribery is an important difference between this high performing country, Chile, and the Philippines. The Philippines does not penalize the supply end of the bribery chain, which is considered active as opposed to passive corruption in Chile

3. Bribery of foreign public officials and officials from public international agencies. Article

251 of the Criminal Code has been adjusted to comply with (Art 16(1) UNCAC). It

defines a briberer as: “ he who offers, promises or gives a foreign public official an

economic or other advantage, for that official or a third person, to act or refrain from

acting in order to obtain or retain-for him or a third party- any undue business or

advantage in the field of international business transactions…” A foreign public official

is defined as “any person holding a legislative, administrative, or judicial office in a

foreign country, whether appointed or elected; any person exercising a public function for

a foreign country, including for a public agency or public enterprise, and any official

agent of a public international organization” (APEC, p. 24). Unlike Chile, the Philippines

does not criminalize bribery of foreign public officials, illicit enrichment or go after legal

persons such as corporations. It also does not recognize UNCAC as a treaty for

extradition purposes.

4. Unjust Enrichment. Law No. 20,088 (alignment with UNCAC Article 20), requires that

public officials declare their net worth. Criminal Code Article 241 bis provides for unjust

enrichment: “A public official who, in the exercise of his duties significantly and

unreasonably increases his net worth, shall be punished with the amount of the increase

and imposed the penalty of absolute provisional disqualification from holding public

positions and duties, in its minimum and medium degree. The Prosecutor’s Office will

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always have the burden of proof.” The burden of proof requirement here is what makes

Chile more similar to the Philippines and different from countries like Indonesia and

Singapore. Indonesia and Singapore shift the burden of proof to the defendant to prove

that his assets were legitimately acquired, while in Chile, the government has to prove its

case against the defendant.

5. Measures to Prevent Money Laundering. Law 19,913 provides for due diligence

regulations that verifies customer identification and provide the Financial Analysis Unit

any STRs (Suspicious Transaction Report) provided for in section three of Law 19,913 in

compliance with UNCAC Article 14 1.a . Among entities required to do their due

diligence are banks, pension fund managers, insurance brokers, insurance companies,

mutual fund administrators, housing leasing companies, security deposit companies, third

party funds administering societies, investment funds, credit card issuers and providers,

securities intermediaries, savings and credit cooperatives, filial companies are required to

report any suspicious transactions to their Financial Intelligence Unit (FIU) (APEC,

pp25-28)

6. Whistleblower Protections: Law 20,205 in 2007 was enacted to protect public officials

who denounce and report corrupt acts.

7. Freedom of Information: In compliance with UNCAC Article 5(2) on transparency,

important legislation required for transparency and accountability was the enactment of

Law 20,285 in 2009. This requires that all public bodies must have available to citizens

online all information upon request and a provision for complaints when those requests

are denied. In September 2011, Chile also became a party to the Open Government

Partnership that requires state members to promote, transparency, e-governance, citizen

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participation, accountability and anti-corruption efforts (APEC, 2012, p.11). Chile also

has to make an Annual Public Report that is done orally and shared on the web by all

state organs. As of 2008, the Office of the Comptroller General publishes all information

on all ongoing audits, which enjoys wide access and review by the public. The website

also publishes day-to-day agendas of the Comptroller General and officers under him

(APEC, 2012, p. 18). The CGR (Comptroller General of the Republic) in his audit also

determines conflicts of interest in programs awarded and declaration of interest and assets

by the officials. Hence public officials are expected to submit their declarations of

interests in time for the CGR audit.

8. Public Procurement Protections: Another way Chile complies with UNCAC provisions

on transparency is through Law 19, 886 or the Public Procurement System, which

requires all involved to upload information on contracts and bids on purchases made by

the government. The entire bidding process is also done online and may be observed in

real time by citizens (APEC, 2012, p. 18).

9. Prosecution of “Legal Persons”: Contained in this innocuous sounding UNCAC

provision is the seed of what can really help combat money laundering and flow of illicit

wealth. Chile provides by law that “legal persons” and not just “natural persons” are to be

held liable for money laundering and terror financing activities. This is critical because

much of the movement of illicit wealth through the international system is done through

“legal persons” such as corporations, foundations etc. Chilean law in Law No 20,393

2009 establishes the criminality of legal persons for money laundering, bribery of foreign

and domestic public officials, and terrorist financing. APEC, 2013 reports,

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Legal persons are criminally liable for the crimes if committed directly and immediately to their benefit, by their owners, holding companies, senior managers, CEOs, representatives of those discharging managerial duties. “Criminal liability of a legal person requires that offenses had been committed in their interest and to their benefit by any individual holding managerial, and that there is a breach of managerial or supervisory duties on the part of the legal person. This model is sometimes called the default liability of a company ( p. 33).

Herein can be found a big difference between not just the implementation but the letter of the anti-corrupption laws between the Philippines and Chile. The Philippines has not defined legal persons to mean corporations, foundations and more importantly hold people of the corporation in responsible positions liable for breaches of the law. Chile does which is over and above what is recommended by UNCAC, OECD anti bribery Convention, and FATF. The y recommend that countries define legal persons to include corporations and foundations so as not to allow perpetrators to use shell corporations to hide their illicit wealth. This is one reason why

Chile’s anti-corruption laws and efforts work. They have real teeth and are not there for window dressing but language carefully so as to give the perpetrators a way out of complying.

10. Provisions on freezing, seizure, and confiscation: In Chile, the “Prosecutor General is the

sole officer responsible for investigating, tracking, seizing and keeping custody of funds

and goods used in the commission of a crime,” which includes the crime of money

laundering. Chile has a specific law criminalizing money laundering, Article 27 Law No.

19, 913, and the provisions on seizure of illicit funds and goods are also contained in

criminal codes covering drug trafficking, Law No.19,366. This aligns and complies with

UNCAC. Most interesting is the provision that goods and monies may be seized by the

Prosecutor General without notifying the suspect in the course of his investigations.

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Nevertheless, the Prosecutor General asks a Guarantee Judge (Court of Appeals judge in

the Philippines) for search and seizure warrants. (APEC, 2013).

11. Provisions on relaxing banking secrecy laws: Chilean laws regulates bank secrecy under

Articles 154 of the General Banking Law and Article 1 of the Banking current accounts

and checks law. Only a Court of Appeals judge may relax bank secrecy laws on the

request of the public prosecutor. The request has to be specific and no fishing expedition

may be engaged in using banking secrecy court orders. (APEC, p.39). The Philippines

has the same procedure.

12. Provisions on extradition. Chile, unlike the Philippines and Indonesia, does not require a

treaty to extradite but recognizes the Convention and international law as bases for

extradition in the absence of a treaty(44). Chile complies with UNCAC provisions on

MLA (Mutual Legal Assistance) by not requiring dual criminality in order to provide

assistance in investigations, depositions etc. Only seizure and freeze orders or anything

that would interfere with rights are to be approved by a Guarantee Judge (p.46). MLA

cannot be given on lifting of banking secrecy without a court order from a Guarantee

Judge at the request of the Public Prosecutor. Warrants of arrest are subject to Chilean

court order on the request of the prosecutor.

BTI (2012) reports President Michelle Bachelet’s sound economic policies, which were grounded in a well institutionalized economic order, allowed for an upturn despite the effects of the global economic crisis in 2009 which shrunk the economy by 1.4%. By 2010, the economy grew by 5.35% despite the effects of the devastating earthquake. She was criticized for some of her policies considered counter-cyclical before the crisis, but was hailed after the crisis when the

260 savings generated by those policies cushioned the economy from the shock of the crisis. As a result, Bachelet received the highest approval rating in Chile’s history, a 78%. Nevertheless, the area of welfare continues to need attention. This includes education, healthcare, inequality, and human capital. Rule of law is also impacted by unresolved conflict with their indigenous tribes, the Mapuches. Chile also scored poorly in the area of political financing and transparency of business involvement in elections. GIR gave a score of a very weak 55 out of 100 in this area in

2008. Chile received its lowest scores from BTI in the area of the welfare system, scoring a 3 out of 10 in 2003, a 7 in 2006, and a 7.5 for 2008, 2010, and 2012. These scores stand out as low points among scores of 10s, 9s, and 8s in other categories. (BTI, 2012, http://www.bti- project.org/countryreports/lac/chl/). The countries under study all score their lowest scores in the area of welfare system in the BTI status index. (See Figure 31 and Table 22).

This is indeed an area of concern and that is why I argue for a hybrid model that does not swing too far to either side of the debate. Chile for example embraces free market policies but reserves for state ownership their biggest source of revenue, the copper mining industry. China will show more clearly that despite an increase in inequality indicated by a higher Gini number, which correlated with the rapid increase in GDP, their embrace of a free market hybrid also significantly reduced poverty. There is a balance that can be sought and followed here. (See

Chapter on China

Unlike Indonesia and the Philippines, and more like Singapore, Chile did not decentralize. There are advantages and drawbacks to this. Policies of the administration are not always representative of the population. There is no regional autonomy as in the Philippines and

Indonesia. Resources as a result are concentrated in urban affluent areas. Yet by and large those in the rural communities are said to be satisfied with their elites (BTI, 2012, website). Unlike the

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Philippines and Indonesia, political clientelism is negligible in elections. In 2006, the institution of democracy was further strengthened with the removal of the system of appointed Senators.

Civilian authority over the military improved with the president regaining the right to remove the commander-in-chief This is seen as an improvement because the military jealously guards its independence from civilian rule. Military power could be an important veto power to abuses by the different branches, so it is not certain whether the weakening of this check and balance will redound to the good.

(BTI, 2012, website). This is this organization’s view, but I am more persuaded by the earlier observation that appointed Senators, and the allocation of said appointments to the military, the executive, the supreme court, and the legislature, provide an ingenious though controversial means of balancing power.

Figure 33 shows great scores for Chile and Singapore in how they organize their market.

This supports my research claim that different systems of government can apply free market policies. Singapore is an authoritarian state using free market solutions and Chile a democracy is also using free market solutions. Economic solutions transcend forms of government. Like

Singapore and Indonesia and less like the Philippines, stability is given primacy over deepening of democratic political processes. The recent shift from center left to right wing government is seen as a general support for basic democratic rules of the game (BTI 2012). The rules of the game include the Tribunal for the Defense of Free Competition, which is empowered by mature and effective anti monopolies and oligopolies legislation since the 1990s. This prevents supporting non‐competitive products. Chile like Singapore, Indonesia, and marginally the

Philippines is export oriented. 45% of its GDP is export, making its economy export dependent

262 to a very high degree, much like Singapore (BTI, 2012). BTI rewards this defense of free markets with high scores in the market organization competitiveness index with a 9.8 out of a possible

10, the same score it awards Singapore in this category. (See Figure 33).

Figure 33 Source BTI (Bertelsmann Transformation Index) for 4 countries. Scoring ranges from 1 to 10 with 10 being best. The columns represent the different countries and are color coded as follows: Chile (Blue), Philippines (Red), Indonesia (Green), Singapore (Purple). Taller columns mean better scores. Note the blue and purple columns are taller.

BTI Market Organization Index 2003‐2012

12 10 8 6 4 Chile 2 Philippines 0 2003 2006 2008 2010 2012 Indonesia Chile 59.89.89.89.8 Singapore Philippines 36.56.576.3 Indonesia 35.55.866.5 Singapore 5 9.5 10 10 9.8

This export orientation is something they have in common with Singapore in particular and to lesser degrees the Philippines and Indonesia. Chile’s banking system is oriented at stability with policies geared for surpluses and reserves to withstand global economic crises. This is something they share with Singapore, to a lesser degree with Indonesia and not at all with the

Philippines. Public debt is maintained at a low of 5-9 percent with the regional average being 30 percent of GDP. IMF analysts observe that these economic policies’ success was owed to experts making decisions insulated from the pressures of the political process. (BTI Country Report.

Chile Country Report 2012. http://www.bti-project.org/countryreports/lac/chl)/The Bachelet government resisted pressure to increase spending from high copper prices in 2008. The reserves

263 from this prudence were then used to increase spending at an accelerated rate when the crisis hit in 2009. In common household terms, save for a rainy day as it is sure to come. Household savings then can be spent to ride out financial downturns. This common sense logic is not always heeded by nations. Singapore shares this logic and weathered out the financial storm successfully. Indonesia and to a lesser extent the Philippines rode out the global financial crisis with some success.

In Chile, private companies are given legal safeguards as they are seen as the engines of production. The privatization that took place under the Pinochet regime was built on and consolidated by succeeding left of center administrations. Chile scores very well in the private property category, the highest of the countries under study, a 5 in 2003 (on a scale of 1-10, 10 being the highest), a 10 in 2006, 2008, 2010, and 2012 consecutively. The sanctity of private ownership is fundamental to business confidence. All countries under study score their highest marks in this category.

Table 34 below is compares how well countries respect the sanctity of property ownership. This is an important correlate of corruption because those who do poorly here have less investments, poor scores in economic indices, and poorer corruption scores. Notably Chile and Singapore, countries with high GDPs and FDIs have great scores in the private property index.

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Figure 34 Source BTI (Bertelsmann Transformation Index). This is the private property index reporting scores from 2003 to 2012. Scoring ranges from 0 to 10 with 10 being the highest. The columns represent the countries and are color coded as follows: Chile (Blue), Philippines (Red), Indonesia (Green), Singapore (Purple). Note that the blue and purple columns are consistently the tallest. Taller columns mean better scores.

Chile BTI Private Property Index 2003‐2012

12 10 8 6 4 Chile 2 Philippines 0 2003 2006 2008 2010 2012 Indonesia Chile 510101010 Singapore Philippines 377.57.56.5 Indonesia 466.566 Singapore 599.59.59.5

By contrast, the Marcos dictatorship bears more resemblance to the Socialist government of Allende in the expropriation of private property. What made the Marcos’ seizure of private property onerous for so many was that it was viewed as selective and targeted only against political enemies with the control of revenues awarded not to state coffers but to family and cronies. This went on and continues to go on after democratization. Chile retains some statist features of their socialist experience. The biggest mining company CODELCO, and the world’s biggest copper producer, is still state run. However, a hybrid combining the best policies of the center left governments were improved on by the center right government of Pinera. The center left built on the free market/liberalization policies of Pinochet by subsidizing poor families at the rate of $80 and introducing a “negative income tax.” Chile spends the highest on education,

6.4%, compared to the countries under study and the OECD average of 5.7%. Like Singapore

265 and unlike Indonesia, it has a small domestic market. The center left Concertacion party was able to cut the poverty level by half after the Pinochet dictatorship. By comparison, the Aquino government and succeeding governments after Marcos brought an increased level of poverty.

This is something that many scholars and policy makers appear unwilling to acknowledge and find answers and solutions for.

Pinera’s government used technocrats for its cabinet. This admiration for technocracy is shared by Singapore, but not in Indonesia or the Philippines, where most appointments are politically driven. “Efficiency in the use of economic resources can be demonstrated by the balanced budget, the absence of public deficit and the low public debt, as well as the corresponding availability of funds in times of crisis, as the Bachelet government demonstrated effectively during the economic crisis of 2008-2009” (BTI country report transformation index).

Of the countries under study, Chile, Singapore, and Indonesia, but notably not the Philippines, emerged from the economic crisis using similar strategies.

Global Integrity Report and Bertlesmann Transformation Indicator measure country performance in tax and revenue collection. Chile outscores the other countries under study in the tax and revenue category. Efficiency in tax collection guarantees a bigger reserve for saving and spending. According to BTI status index, Chile scores a 16.7% of GDP in 2002, a 19.7 in 2008, and a 15.6 in 2009. By comparison Singapore scores 13.3% in 2002 and a 14.1 in 2008 and a

13.7 in 2009. The Philippines surprisingly scores a decent 12.5 in 2002, a 13.6 in 2008 and a

12.2 in 2009. Indonesia scores lower than the Philippines in this category with a 12 in 2002, a 13 in 2008, and an 11.4 in 2009. Global Integrity Report has a somewhat less rosy assessment of the

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Philippine performance in this area with scores of 75 (out of a best of 100) in 2004, a slide down to 67 in 2006, a 60 in 2007, and a very weak 58 for 2008 and 2010. By comparison, Indonesia gets glowing reports from GIR with scores of 65 in 2004, 63 in 2006, a high of 100 in 2008, and

83 in 2009 and 2011. The perfect score in tax collection in 2008 is particularly noteworthy as that is during the period of the global financial crisis. (See Figure 36).

Figure 36 compares the performance of countries in how well they collect taxes. Tax collection is a little known but potentially important way of determining levels of corruption.

Chile shows great scores in this index far better than the Philippines, Singapore, and Indonesia.

Efficient tax collection means perpetrators are not pocketing bribes in exchange for collecting less taxes from individuals and corporations.

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Figure 36 Source BTI (Bertelsmann Transformation Index). Notes: Comparing tax revenues as a percentage of GDP (Gross Domestic Product) for 4 countries. The time frame is from 2002 to 2009. The scoring ranges according to actual percentage of taxes collected. Columns represent countries and are color coded as follows: Chile (Blue), Philippines (Red), Singapore (Green), Indonesia (Purple). The blue column by far is the tallest, taller meaning better scores.

Tax Revenue % of GDP 25

15 Chile BTI Tax Revenue % of GDP 10 Philippines BTI Tax Revenue % of 5 GDP Singapore BTI Tax Revenue % of 0 2002 2003 2004 2008 2009 GDP Chile BTI Tax Revenue % of GDP 16.7 16.4 17.1 19.7 15.6 Indonesia BTI Tax Revenue % of Philippines BTI Tax Revenue % of GDP 12.5 12.8 12.5 13.6 12.2 GDP Singapore BTI Tax Revenue % of 13.3 13.1 12.4 14.1 13.7 GDP Indonesia BTI Tax Revenue % of 12 12 13 13 11.4 GDP

Tables 24 and 25 summarizing my Independent and Dependent Variables for Chile, confirm the high correlation between high economic scores and low corruption levels.

Corruption is strongly correlated to good economic performance. Foreign Direct Investment, and local investment reflect business confidence which is absent when there is rampant corruption.

Investors do not want to be delayed with rent seeking behavior which go along with the lack of ease of doing business as well as strong arming from relatives and friends of people in power to give them speed money in return for logging concessions, gambling rights and so forth. In

268 addition, tax collection is also a good indicator of levels of corruption. If it is found there should have been more taxes collected given the country’s volume of business, it may reasonably be inferred that businesses were able to avoid the right percentage of taxes to be paid by paying a smaller amount that goes to the pockets of the corrupt government officials. Moreover, investors foreign and local do not want the insecurity of having contracts abrogated by corrupt regimes replacing the former corrupt regimes. Notably, Chile posts a BTI score of 9.8 in Organization

Market Competitiveness, a 10 in Private Property, and a 90 in GIR Privatization Index.Investors are also warry of any kind of insecurity in property ownership. Corruption is seen often in the area of private property ownership and privatization because these are areas ripe for extortion in return for “protection” by people in power. Predators in power assume fake ownership of property for investors in exchange for a fee. Lack of privatization can also mean that predators in power can pocket revenues from protected industries.

These good scores correlate strongly with the better corruption scores listed in the

Dependent Variables table. TI gives a CPI score of 7.1 in 2010, GIR an 83 in 2008, and WGI a

91.9. GFI reports that Illicit Flow of Funds dropped from a high of 29, 122 million USD in 2007 to 5, 954 million in 2008. All other countries under study by this research posted increases throughout the same time period. Chile also posted high scores in political and anti-corruption institution building indices like a 100 out of a possible 100 in GIR anti-corruption law, a 9.3 out of a possible 10 from BTI rule of law, 88.5 from WGI, an 85 in GIR civil society organization.

(See tables 24 and 25).

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Table 24 Sources: BTI (Bertelsmann Transformation Index), WGI (World Governance Indicator), GIR (Global Integrity Report). Notes: FDI (Foreign Direct Investment) as a percentage of GDP (Gross Domestic Product). IV stands for Independent Variable Chile IV 19 19 20 20 20 20 20 20 20 20 20 20 20 20 96 98 00 02 03 04 05 06 07 08 09 10 11 12 BTI FDI%GDP 3.8 5.8 7.6 5.8 5 8.8 8.9 8 7.1 BTI GrowthGDP% 2.2 3.9 6.2 6.3 4.6 4.7 3.7 ‐ 5.2 1.7 BTI 5 9.8 9.8 9.8 9.8 OrganizationMarket Comp BTI Private Property 5 10 10 10 10 GIR Privatization 90 index PolStability WGI 63. 45. 63 82. 70. 71. 74. 65. 58. 58. 67. 65. 9 2 2 2 2 5 4 7 9 9 1 WGI Rule of Law 84. 84. 87. 88. 87. 88. 88. 89. 87. 88. 87. 88. 2 2 1 5 6 5 5 5 6 5 7 3 BTI Rule of Law 5 9.3 9.3 9.3 9.3 GIR Rule of Law 78 GIR Anti‐CorLaw 10 0 GIR Anti‐CorAge 78 GIR CivSocOrg 85 GIR FreeMedia 85 GIR AccInfoLaw 70 GIR WhistleBlow 13 GIR Procurement 69 GIR NationOMB 77 WGI 68. 63. 74. 80. 79. 88 89. 80. 82. 77. 82 81. VoiceAccoun 3 9 5 3 3 4 8 7 4 2

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Table 25 Source TI (Transparency International), GIR (Global Integrity Report), WGI (World Governance Indicator), GFI (Global Financial Integrity), IFF (Illicit Flow of Funds). Note: DV stands for Dependent Variable DV 19 19 20 20 20 200 20 200 200 20 20 20 20 20 96 98 00 02 03 4 05 6 7 08 09 10 11 12 CPI TI 7.9 6.8 6.8 6.9 7.5 7.5 7.4 7.2 7.3 7.3 7 6.9 6.7 7.2 4 GIR anti‐ 83 corruption scorecard WGI Control of 89. 87. 92. 91. 86. 90. 91. 91. 89. 90. 90. 91. Cor 8 8 2 7 3 7 2 2 8 3 9 9 GFI IFF 5,0 4,9 10,2 7,3 12,3 29,1 5,9 70 78 38 71 18 22 54

In table 24, I list and summarize my Independent Variables. I researched organizations that monitor indicators generally believed to be correlated with corruption indicators. I wanted to see how economic, political, and social factors can be quantified. All three factors help explain the prevalence of corruption. By using statistical analysis, I can track whether or not these factors do correlate with levels of corruption, and if so which of them is more indicative or even predictive of levels of corruption. In so doing, I aim to find the appropriate solutions to my research problem. I found that they are measured and monitored by organizations like Bertesmann

Transformation Index (BTI). BTI scores economic performance through GDP, FDI, Market

Organization, and Privatization levels. Global Integrity Report has its own Privatization score which I included among the economic indicators.

Political factors are measured by World Bank through their World Governance Indicators

(WGI). I included WGI’s Rule of Law, Political Stability and Voice and Accountability measures, BTI also has a Rule of Law indicator which I included in my list of IVs; I tried to find as many organizations that measure the same thing over the same time frame with data on my countries under study. GIRs political measures include Rule of Law, Anti-Corruption Laws,

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Anti-Corruption Agencies, Whistleblower index, Procurement index, and National Ombudsman index.

The Social category includes GIRs Civil Society index, Free Media index, and Access to

Information index. Anti Corruption MLG causal variables do not only include the more common indicators. The more common anti-corruption indicators are international and national anti- corruption laws, agencies,civil society and media participation. For my outcome or Dependent

Variables, I include TI’s CPI, GIR’s integrity score, WB’s WGI control of corruption, and the most interesting in my view and most accurate way of measuring the presence of corruption is

Global Financial Integrity’s (GFI) Illicit Flow of Funds (IFF). In Chile’s case, great scores in both IVs and DVs make it a great example that great scores in economic, political, and social indicators also mean great scores in corruption levels.

The most important conclusion I have in comparing the Chilean and Philippine anti- corruption multi-level governance is that Chile has fewer anti-corruption laws and agencies than the Philippines. It has fewer anti-corruption civil society organizations than the Philippines. It has less anti-corruption multi-level governance presence than the Philippines, yet it has lower levels of corruption than the Philippines. The difference lays in Chile’s older and more mature system of checks and balances. No one faction is strong enough to loot the treasury without being held accountable by a rival or checking entity. This is not so in the Philippines. The party in power, put there by an entrenched oligarchy, controls all levers of power and means of rent giving. There is no mature party or institutional checks to power. Anti-corruption MLG, which is designed to be an ad hoc check and balance mechanism in the issue of corruption, is as yet too young and frail to withstand decades without institutional checks on power.

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Comparing and Contrasting the Philippines with

INDONESIA

Background: Historical, Economic, Political:

Historical Comparisons:

According to Hadiz (2004) Indonesia and the Philippines share a background of elite predation, which keeps conditions intact for plunder (p.226). Like the Philippines, Indonesia has a long history of corruption. Sukarno’s Guided Democracy and Soeharto’s New Order, much like Marcos’ New Society, centralized rents and rent seeking behavior, rewarding a privileged few in a corrupt system that is wide scale and widespread. (p.210) Even liberalization of the economy meant the same power brokers were intact (p.211). However, Hadiz asserts that

“Indonesia shows higher degree of state capture than Philippines” (p.247).

Baswir (2003) found that corruption is rooted in high income inequality and corrupt practices started under the Dutch when they instituted a “salary base” to pay off the aristocrats who then had to commit corruption to supplement their income (p.162). Indonesia and the

Philippines share a colonial background of corruption and control of aristocrats. Not all centralized control is bad. Lim and Stern (2003) argue that “Strong central political control may have helped limit rents and direct them in partly productive ways, thus preventing corruption from undermining economic growth, despite massive personal wealth that Soeharto and his family members accumulated during his rule” (p. 24). Marcos’ centralization resembles that of

Indonesia. Why did centralized authority not produce the same economic growth and outcome

273 for the Philippines as it did for neighboring economies? Both Singapore and Indonesia practiced their version of crony capitalism or preferential treatment of family and friends in the allocation of rents.

Military Rule Comparisons:

One major difference between Indonesia and the Philippines is the role of the military.

BTI 2012 reports that “the armed forces maintain the right to interfere with the elected government if they believe the unity and stability of the Indonesian nation to be threatened.”

Aside from the military, Islamist groups advocating the use of Sharia or Islamic Law for purposes of governing, also checks the power of the elected officials. This power and autonomy of the Indonesia military resembles the military establishment in Chile, which is also empowered to check the actions of the executive and other branches of government (BTI, 2012, website). In

October 2009, the national parliament moved to water down the investigatory powers of the

KPK, such as its power to use bugging devices. Chandra Hamza, World Bank Integrity Award winner in 2010, was arrested along with another chairman of KPK Nibit Samad Rianto. The

Constitutional Court checked this move by declaring it unconstitutional a month later (BTI,

2012, website).

It is important to raise the issue of military influence in Indonesia and compare it with

Chile and the Philippines. This is related directly to what kind of checks to power the military provides in all three countries because the check to power they provide may or may not be related to how well people in power can commit corruption. In Chile, the military provides a check to power. In the Philippines it is subservient to the president and relies on and participates

274 in corruption initiated in the executive branch. Indonesia bears some resemblance to the role of the military in Chile, which sees itself as a check to power.

Comparing military corruption in Indonesia, the Philippines, and Chile is important in understanding anti-corruption strategies because of their impact as check and balance mechanisms, such as has happened in Chile, or merely drivers of corruption, such as has happened in the Philippines and to a limited extent Indonesia. Their protection from accountability is also a anti-corruption MLG issue which have been addressed with varying degrees of success in Chile, Indonesia, and the Philippines. As yet, Indonesia and the Philippines have succeeded in “show trials” of military personnel. MLG pressure may induce them to do more in the future.

Like the Philippines, Indonesia saw the downfall of the dictator behind their authoritarian rule, the Philippines with the ouster of Marcos in 1986 and Soeharto stepping down from office in 1998. Both the Philippines and Indonesia did not see an improvement in corruption indices after their respective leaders’ departure. As in the Philippine case, those who succeeded

Soeharto, such as Bacharuddin Jusuf Habibie, were deemed more corrupt. Lim and Stern (2003) write that Habibie “whose state-owned aircraft company had been beneficiary of government subsidies for decades, was also bedeviled by accusations of corruption, most notably the diversion of US$80 million from Bank Bali to his failed presidential election campaign in 1999”

(p.24). Lim and Stern (2003) write that,

In contrast to the central political control and rapid economic growth of the Soeharto era

prior to the financial crisis, the post-Soeharto governments to date have as corrupt if not

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more corrupt than Soeharto’s but have presided over much slower economic growth.

MacIntyre’s (and Shleifer and Vishny’s) analysis suggests that weaker and less

centralized political control post-Soeharto has meant that officials of regulatory agencies

now act as independent monopolists pushing up prices without regard for the effect on

overall demand for government goods(p.25).

Although Lim and Stern do not agree, I would argue that like Indonesia, there is as much if not more corruption after Marcos’ departure, with less economic gains to show for it.

ACMLG Implementation Comparison: Hauling in the Big Fishes:

Lim and Stern (2003) write that scholars are pessimistic about Indonesia’s success in implementing its anti-corruption initiatives given the continued high levels of corruption prevailing. Lim and Stern are not so pessimistic. Indonesia’s improved trajectory on international indices supports this optimism. Starting way behind the Philippines in corruption scores,

Indonesia now leads the Philippines on most of these indices. (See Figure 37). Lim and Stern laud the arrest of Suharto’s son Tommy and other cronies in 2002 for various corruption charges.

Central Bank governor Syahril Sabirin and Suharto party leader Akbar Tanjung are also being tried. Tanjung was sentenced to 4 years in prison. By 2004, the Indonesian Supreme Court overturned his conviction. (http://articles.latimes.com/2004/feb/13/world/fg-corrupt13). Syahril

Sabirin was convicted and sentenced to 3 years in 2002 and acquitted the same year. (Tomsa,

2008, p.199). In 2002, Tommy Suharto was convicted of corruption and murder and was actually imprisoned. (Reuter, 2012, p.435).Unlike the Philippine case against the Marcoses, Indonesia had never been able to recover illicit funds from Tommy Suharto despite his conviction.

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Indonesia began in 1995 with a low CPI score of 1.94. Indonesia’s score steadily improved with the latest score being 3. The highest scores posted appear to have begun in 2006, which shows a 2.4 score, 2008 with 2.6, 2009 with 2.8, 2010 with 2.8, and 2011 with 3.

Explanations may be found in Global Integrity Report Notebook (2011), which outlines a timeline of events that may be contributory to the improved corruption scores of Indonesia. In

February 2007, human rights abuses under the Soeharto regime resulted in 18 abusers convicted and serving sentences. Soeharto had to face civil complaints filed by the prosecutor for the theft of $440 million and $1.1 billion in damages. Indonesia’s resolve to recover illicit assets, despite the court dropping the criminal case against Soeharto in 1996, was rewarded with improved scores. Consequently, Yudhoyono was re-elected with 60% majority in 2009.

According to Business Anti-Corruption Portal (2012), Yudhoyono was elected in 2004 and believed to have been re-elected because of his corruption free image and pronouncements to stamp out corruption. This good standing remains despite accusations that he had been unable to convict former Soeharto cohorts (business-anti-corruption.com/country-profiles/east-asia-the- pacific/Indonesia/general-information/). By comparison, the Philippines elected Benigno

Aquino, the son of the late former president Corazon Aquino in 2010 under virtually the same anti-corruption platform and an image of being clean.

Another indication that Indonesia may be serious about holding wrongdoers to account is the exposure and arrest of Gen. Susno Duadji, former chief detective along with other police and government officials, on allegations of corruption. Also in 2010, a high profile tax scandal resulted in the arrest of Gayus Tambuan, a 31 year old mid level tax official, who was involved in pocketing $2.7 million in a quid pro quo arrangement for dozens of companies to avoid paying taxes. 2011 shines for Indonesia’s anti-corruption record as it arrests former treasurer

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Muhammed Nazaruddin, linking him to bribes of $23 million from contracts in the Athlete’s

Village for the Southeast Asian Games. Indonesia has a shining record for arrests. Perhaps this will lead to a record where the bribes are prevented from happening in the first place. Lim and

Stern (2003) write that scholars are pessimistic about Indonesia’s success in implementing its anti-corruption initiatives given the continued high levels of corruption prevailing. Lim and Stern are not so pessimistic. Indonesia’s improved trajectory on international indices supports this optimism. Starting way behind the Philippines in corruption scores, Indonesia now leads the

Philippines on most of these indices. (See Figure 37). Lim and Stern laud the arrest of Suharto’s son Tommy and other cronies in 2002 for various corruption charges. Central Bank governor

Syahril Sabirin and Suharto party leader Akbar Tanjung are also being tried. Tanjung was sentenced to 4 years in prison. By 2004, the Indonesian Supreme Court overturned his conviction. (http://articles.latimes.com/2004/feb/13/world/fg-corrupt13). Syahril Sabirin was convicted and sentenced to 3 years in 2002 and acquitted the same year. (Tomsa, 2008, p.199).

In 2002, Tommy Suharto was convicted of corruption and murder and was actually imprisoned.

(Reuter, 2012, p.435).Unlike the Philippine case against the Marcoses, Indonesia had never been able to recover illicit funds from Tommy Suharto despite his conviction.

In 2006, Indonesia ratified UNCAC and established the KPK (Corruption Eradication

Commission) authorized by Law 30 of 2002. Compliance with international institutional and legal frameworks to combat corruption demonstrates the government’s intention to curb corruption. Indonesia continues to languish in the bottom of country rankings despite marked improvements because implementation of anti-corruption laws and programs still lack enforcement. World Bank World Governance Indicator Control of Corruption Index scores

Indonesia with a 30.7 in 1996 but down to a 27.5 in 2011 in a scale where 100 is the highest. The

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Philippines scored higher than Indonesia at 51.2 in 1996 only to descend to 22.7 in 2011, lower than Indonesia. High performers Singapore began at 96.2 in 1996 and maintained a 96.2 in 2011.

Chile started with an 89.8 in 1996 and reached a 91.9 by 2011. Global Integrity Report found that in 2008, the Supreme Court rejected the case against Soeharto’s youngest son and awarded him $550,000 in his counter suit. It also overturned its ruling on the conviction of Eunico

Gutierres, a militia leader accused of leaving 1,000 people dead in the East Timor independence vote in 1999 (Global Integrity Report, 2012, Indonesia Timeline, globalintegrity.org/report/Indonesia/2011/timeline). On the plus side of Indonesia’s anti- corruption performance, its anti-corruption court sentenced Uri Tri Gunawan to 20 years for accepting an $8 million dollar bribe as prosecutor. In 2010 the parliament rules the bailout of

Bank Century, at the cost of USD 730 million, as illegal. Civil society participation may be seen with about 400 activists protesting in front of parliament over this bail out.

Economic Comparisons:

Like Chile during the global financial crisis of 2008, Indonesia under President Susilo

Bambang Yudhyoyono reduced public debt from 100% of GDP in 1999 to 26%. Like Chile,

Indonesia increased its international reserves to USD 6.2 billion by December 2010. This helped them weather the shocks in the international market. They had 7.1 months reserve for imports and servicing of external debt (BTI, 2012,website). This is an important difference to bring up between the Philippines, Chile, and Indonesia. Economic solvency by increasing reserves in order to weather financial shocks, is another incentive for investors. In more corrupt countries,

279 reserves end up in private accounts abroad, and not in the national coffers. There is a direct correlation.

BTI 2012 Country Report finds that due to three consecutive fair and free elections, from

1999, 2004, and 2009, in terms of economics, Indonesia has made remarkable progress.

In terms of economics, the country did not witness major economic setbacks as a result of the global financial crisis. The impact was comparatively minimal because macroeconomic preconditions were relatively good. Moreover, the central bank took decisive and swift actions at the beginning of the crisis. The Indonesian government also passed an adequate economic stimulus package that favored accelerated recovery. Another reason was the importance of the large domestic market, as domestic demand accounts for two thirds of Indonesian GDP. A remarkable GDP growth and a big increase in FDIs show the new attractiveness of the Indonesian market. Being a relatively stable democracy and an emerging market, therefore, Indonesia is now seen much more positively by the international community than it was a decade ago. Despite all of these achievements, the road to a full-fledge recovery under the rule of law and a sustainable market economy with socio political safeguards is still long. (See Figures 39 and 40).

Figure 39 below shows the level of FDI for Indonesia. This is important to my research’s claim that Foreign Direct Investment is a good correlate of corruption. FDI measures behavior.

It measures if investors are willing to risk their money in a country. That behavior is linked to their level of confidence that there is less corruption. Investors do not want the uncertainty of corrupt regimes being toppled and their investments going down the drain at the mercy of the new powers. A big difference between the Philippines and Indonesia is that Indonesia has had more FDI. This may account for the better corruption scores for Indonesia when compared to the Philippines.

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Figure 39 Source BTI (Bertelsmann Transformation Index). Notes FDI (Foreign Direct Investment) as a percentage of GDP (Gross Domestic Product)for Indonesia from 2002 to 2010.

Indonesia BTI FDI%GDP 3.5 3 2.5 2 1.5 1 Indon BTI FDI%GDP 0.5 0 ‐0.5 2002 2003 2004 2005 2006 2007 2008 2009 2010 Indon BTI FDI%GDP 0.1 ‐0.3 0.7 2.9 1.3 1.6 1.8 0.9 1.9

It is important to compare economic performance of the countries under study in order to find some explanation to as to why Indonesia outperforms the Philippines in corruption scores.

Figure 40 shows that Indonesia shows continuing increase in FDI from 2002 to 2010. The opposite is true of the Philippines. Indonesia also shows increasing GDP per capita as opposed to the Philippines in the same time frame. This shows that there was more business confidence to invest in Indonesia within that time period because it is perceived to have better corruption scores. Better corruption scores loops back and correlates to better economic scores. Morgan

Stanley predicts Indonesia will join the biggest emerging economies of Brazil, Russia, India, and

China.

Figure 40 below compares FDI among Indonesia, the Philippines, Singapore, and Chile. In

2010, Indonesia shows an FDI of 1.9 percent of GDP as opposed to a .9 from the Philippines.

That is a significant difference that this research claims is correlated to levels of corruption.

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Note the vast difference between Singapore’s 18% of GDP FDI and Chile’s 7% of GDP FDI. Their great scores in this index correlate directly with their great corruption scores.

Figure 40 Source BTI (Bertelsmann Transformation Index). Notes: FDI (Foreign Direct Investment) as a percentage of GDP (Gross Domestic Product) from 2001 to 2010 for 4 countries. Time frame is from 2001 to 2010. Higher numbers are better. Countries are color coded as follows: Indonesia (Blue), Philippines (Red), Singapore (Green), Chile (Purple).

BTI FDI % of GDP 2001‐2010 25 20 15 10 5 Indon BTI FDI%GDP 0 Phil BTI FDI%GDP ‐5 2002 2003 2004 2005 2006 2007 2008 2009 2010 Sing BTI FDI%GDP Indon BTI FDI%GDP 0.1 ‐0.30.72.91.31.61.80.91.9 Chil BTI FDI%GDP Phil BTI FDI%GDP 2 0.6 0.8 1.9 2.5 7.4 0.9 1.2 0.9 Sing BTI FDI%GDP 8.1 11.2 13.8 17.2 17.8 20.9 4.8 8.1 18.5 Chil BTI FDI%GDP 3.8 5.8 7.6 5.8 5 8.8 8.9 8 7.1

Another big difference is Indonesia has oil that can be used for domestic consumption while the Philippines suffers from price shocks due to dependence on oil imports. Indonesia has become an importer of oil and as such may be vulnerable to price fluctuations. Unlike the

Philippines, the Indonesian military owns some government controlled businesses which are headed by high ranking military officers. Like the Philippines, Indonesia suffers from a history of human rights abuses under former dictatorships. However, high military government officials have been left untouched in both Indonesia and the Philippines. Hence both have a culture of impunity among the military and others responsible for past abuses. (BTI, 2012, website).

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Political System Comparison:

Another difference between the Philippines and Indonesia is the party system. Unlike the

Philippines highly personalized party system, Indonesian political parties “represent distinct societal streams and are not merely vehicles of personal interest. However, there has been a trend toward personality based political party in recent years” (BTI, 2012, website). Comparing the

Philippines’ and Indonesia’s party vs personality based electoral system is related to corruption issues because the influence of money in elections, and the tight control of political dynasties in the Philippines, assures the continued stranglehold of the entrenched few on the rent seeking opportunities in government.

Another difference between Indonesia and Philippine societies is that women in

Indonesia are more vulnerable to discrimination due to Islamic laws and traditions while the

Philippines is a matriarchal society. Philippine women do not suffer from significantly lower literacy rates as Indonesian women do. Indonesia is more diverse in ethnicity with 300 ethnic groups in a population of 230 million. Being a big country with a diverse and big population is not an excuse the Philippines can use as to why it has not prospered like Indonesia has.

Cooperatives are the rural NGOs in Indonesia, which function as a net of support. Indonesia’s diverse ethnicity is important to bring up in relation to the Philippines. It has been explained that perhaps corruption flourishes because of lack of unity of purpose in problems and solutions due to so much diversity. Indonesia proves that that argument can be overcome.

Connecting the Dots: ACMLG Monitored Indices

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1. Anti-corruption Agencies:

Hadiz (2004) found that “The BPK and the BPKP and the National Ombudsman

Commission has no authority to compel law enforcement agencies to follow up on its findings and many government bodies may not bother to reply to its inquiries. It is also short on funding and resources”(p. 222). Here Indonesia’s Ombudsman appears weaker than the Ombudsman in the Philippines. They also have the same free pass to bribers given by their Joint Investigation

Team for the Eradication of Corruption (p.222). The Commission to Investigate Wealth of Public

Officials reports to the president and is composed of lawmakers and members of the public. It does not have authority to examine complaints filed by the public or NGOs. (p.221). Its main duty was to circulate forms that ask officials to explain how they came upon their wealth.

Predictably, there was not much compliance. The Philippines is stronger here with its SALN

(Statement of Assets and Liabilities) because it is embedded in law. (See Figure 43).

Indonesia outperforms the Philippines in what originally was a strong category for them, government oversight and controls. In 2011 Indonesia scored an overall score of 89 (strong); 95

(National Ombudsman); 97 (Supreme Audit Institution); 83 (Taxes and Customs); 90 (State

Owned Enterprises); 81 (Business Licensing and Regulation). This is important as this indicates revenue collection and a welcoming business climate for investors. By comparison, the

Philippines in 2010 posted an overall score of 57 in the government oversight and control category; 45 (National Ombudsman); 57 (Supreme Audit Institution); 50 (Taxes and Customs);

78 (Oversight of State-Owned Enterprises); 54 (Business Licensing and Regulation). (See Table

28).

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2. National Ombudsman Commission (ORI)

Global Integrity (2011) gives Indonesia’s National Ombudsman Commission (ORI) a score of 95 (very strong). In comparison the Philippine Office of the Ombudsman is given a score of 45 (very weak). The Philippine OMB is seen as not independent of the executive’s influence as it is seen to not go after the big fishes related to the president. Both Indonesia’s and the Philippines Ombudsmen are protected structurally from political influence by making them independently funded state institutions. Yet here again we see evidence that it is often not the quality of the law and institutions themselves but the will of the public officials and citizenry to enforce them that makes the difference.

3. Supreme Audit Institution

Global Integrity (2011) gives Indonesia’s Supreme Audit Institution called the Auditor

General a “very strong” score of 97. The BACP (Business Anti-Corruption Portal) observes that

COA’s (Commission on Audit) recommendations are seldom listened to and acted upon by the

Philippine government: “It does not have the authority to prosecute and impose penalties on non-performing agencies.” Nevertheless, this is a category where the Philippines outperforms

Indonesia scoring 95 in 2004 to the Philippines’ 96, 87 in 2006 to 95 for the Philippines, 60 in

2008 against a 93 for the Philippines, bouncing back with a 97 in 2011 and a 93 for the

Philippines.

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4. Anti-Money Laundering Agency

Indonesia’s Anti-Money Laundering Agency is called the Indonesian Financial

Transaction Reports and Analysis Center (INTRAC). Also known as the Pusat Pelaporan dan

Analisis Transaksi Keuangan (PRATK), it is the agency that was set up in 2002 to join the international community in eradicating financial crimes such as money laundering. The existence of an anti-money laundering agency is something Indonesia has in common with the Philippines,

China, and Singapore. The Komisi Pembarantasan Korupsi (KPK) or Corruption Eradication

Commission (CEC) was established in 2003 to enforce anti-corruption initiatives. It investigates and coordinates investigations on corruption complaints undertaken by the police or the prosecutor. The Indonesian Police and Prosecutor are also charged with investigating criminal cases including money laundering and corruption and coordinates with the KPK in those matters.

The Satigas Mafia Hukum or the Legal Mafia Eradication Task Force was set up in 2009 to coordinate and speed up anti-corruption investigations among existing agencies. It does not itself have powers of investigation (Hiswara Bundjamin & Tandjun, 2011, p.21). This layering of one anti-corruption initiative on top of another is similar to the Philippine approach. It is more about a multiplier effect than strengthening investigatory powers. Simply layering one anti-corruption agency on top of another has not served the cause of lowering corruption well as it does not necessarily come with laws and policies that close the loopholes in collecting evidence. This is a case of quantity not being better than quality.

5. Anti-corruption Legislation:

The controlling legislation behind Indonesian anti-corruption initiatives are: Law No. 28 of 1999 on Good Governance, covering government executives and public officials and Law No. 31 of

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1999, which is harsher than law no. 25,because it applies the death penalty to those found guilty of corruption during times of crisis. Like Singapore, it shifts the burden of proof to the accused away from the prosecution. Its limitation is it cannot prosecute cases before the law was enacted

(Hadiz, 2004, p.223). It is also known as the Eradication of Criminal Acts of Corruption. It established the KPK and covers both government executives and everyone else.

Law No. 30 of 2002 outlines the specific duties of the KPK. Law No. 49 of 2009 established the Corruption Tribunal outlining its duties. Presidential Decree No. 37 of 2009 established the Satgas Mafia Hukum (Hiswara Bundjamin & Tandjun, 2011, p. 21). Indonesian anti-corruption legislation is not as voluminous as that of the Philippines. Like the Philippines, it does not go after the private sector or the supply end of the corruption equation, the foreign bribers. Philippine anti-corruption laws are much more robust, numerous and detailed when compared to that of Indonesia. This is reflected in GIR’s anti-corruption law index scoring. The

Philippines began with a 69 to Indonesia’s 51 in 2004 but rose to 100 for the Philippines for

2009 and 2011 against Indonesia’s 78 for the same periods. However when looking at the anti- corruption agency index that reflects the performance of agencies empowered by anti-corruption laws, the scores flip with Indonesia beginning behind the Philippines in 2004 with 66 to the latter’s 78 and ending with Indonesia with an 88 in 2011 to the Philippines’ 73. (See Figures 45 and 46).

Figure 45 compares Indonesia and the Philippines performance in anti‐corruption law making. This is important to my research because it supports my claim that merely having

287 excellently written or numerous laws would not necessarily correlate with good corruption scores.

Figure 45 Source GIR (Global Integrity Report). Notes: Comparing anti-corruption law index for Indonesia and the Philippines from 2004 to 2011. The score range is 0 to 100 with 100 being best. The blue line represents Indonesia’s scores in anti-corruption law making. The red line represents the Philippines.

Indonesia & Philippines GIR Anti‐ Corruption Law Index 2004‐2011 120 100 80 60 IN Anti‐CorLaw 40 20 PH Anti‐CorLaw 0 2004 2006 2008 2009 2011 IN Anti‐CorLaw 51 89 67 78 78 PH Anti‐CorLaw 69 89 89 100 100

Indonesia lags behind the Philippines in anti-corruption legislation. GIR Integrity

Scorecard gives Indonesia a 78 in this category and the Philippines an 89 (strong). Despite this excellent showing on anti-corruption legislation, the Philippines still received a low of 22.7 on control of corruption index from the WB WGI. Indonesia receives a 27.5 putting it on the low

25th to 50th percentile grouping, versus the Philippines’ 10th to 25th lowest percentile grouping.

What may account for this difference in cumulative scores? In the control of corruption category, the Philippines scored a weak 53 on anti-corruption agency while Indonesia scored a strong 88.

The Business Anti-Corruption Portal attributes this to Indonesia’s success in prosecuting and convicting some prominent big fishes, such as the prosecution of three members of parliament in

2009. In 2008, it sentenced a former governor of the bank of Indonesia to 5 years in prison for

288 embezzling USD 10.3 million from the central bank. It led to the arrest of the former deputy governor of the Central Bank who was also the father-in-law of President Yudhoyono’s son. The

Philippines on the other hand, has over 17 anti-corruption governmental agencies recording high numbers of investigations of low level corruption. It has yet to convict and sentence or fine a sitting incumbent or relation guilty of grand corruption. Charges have been filed against former president Gloria Macapagal Arroyo but as of this writing (2012) is yet to stand trial, let alone be convicted, sentenced, or fined. In fact , Arroyo won a second term as congresswoman in her province in the recently concluded 2012 May elections. She won despite being held in “hospital arrest”, which is the Philippine style of incarcerating high profile figures. As of this writing, there is no progress in setting a trial date for the plunder and election fraud charges against her.

6. Investigatory Powers:

The investigatory powers of Indonesia’s anti-corruption bodies appear to have more in common with China’s and Singapore’s draconian investigative powers than those of the

Philippines. The KPK, Police and Prosecutor have search and seizure powers, “power to tap telephones, obtain information from banks and other financial institutions, order travel bans, freeze suspected accounts, instruct foreign enforcement agencies to detain, search, and seek evidence abroad, compel anyone to appear before them, obtain financial tax reports, suspend transactions, permits, and licenses of suspects, arrest and detain suspects, collect evidence,

289 examine assets, compel witnesses to comply with their requests” (Hiswara Bundjamin &

Tandjun, 2011, p. 22-23).

7. Arrest and Detention Powers:

The KPK, Police, and Prosecutor have arrest and detention powers of 60 to 110 days.

This is similar to China and Singaporean arrest and detention powers of anti-corruption bodies.

The Philippines has no comparable anti-corruption arrest and detention powers enjoyed by its anti-corruption bodies (Hiswara Bundjamin & Tandjun, 2011, p. 23).

8. Power to Freeze Property:

The KPK, Police, and “Prosecutors have the power to freeze suspected property pending conclusion of investigation” (Hiswara Bundjamin & Tandjun, 2011, p. 23). This Indonesia has in common with China and Singapore. The Philippines enjoys no such freeze power and in fact labor under strict banking secrecy laws that tend to hide illicit wealth.

9. Sanctions and Sentencing Power:

Both Indonesia and China impose the death penalty for corruption convictions. The

Philippines no longer does. “Indonesia imposes a maximum imprisonment” of 20 years and fines up to a high of $115,000, both higher than the penalties under Chinese and Philippines laws

(p.23).

10. Interaction with Overseas Regulators:

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The KPK can request assistance from international organizations to locate, seize, and detain goods or evidence overseas. It can comply with existing international laws and treaties covering investigations and indictments of corruption cases abroad. This it has in common with both the Philippines and China. The Philippines appears to have more reservations about protecting non-compliance options by making it clear that it will only cooperate with acts that do not jeopardize national interest. Like the Philippines, Indonesia does not have provisions criminalizing both the payer and receiver of bribes. It has drafted an amendment to their corruption law that would include criminalizing of foreign public officials to comply with

UNCAC by 2013. They have however provided MLA in 4 cases where foreign bribers were involved (APEC, 2012, p.96). Indonesia has committed to implementing FATF’s recommendations and UNCAC’s provisions namely; Art 14-Money Laundering, Art 23

Laundering of Proceeds of Crime, Art 31- Freezing, seizure, and confiscation, Art 40-Bank

Secrecy and Chapter V-Asset Recovery. To this end the KPK complies with UNCAC Art 31 on tracking, freezing, and seizure of illicit wealth by successfully recovering USD 7.2 million in

2011 (APEC ACTWG, 2012, p.91).

By 2010, Indonesia passed an amended AML (Anti-Money Laundering) law called Law

No. 8 2010 to comply with FATF’s 40 Recommendations plus 9 Special Recommendations.

Notable legal breakthroughs include the “broadening of the list of predicate crimes to 25,” increasing the prison sentence to up to 20 years, higher than the Philippines which is a maximum of 15 years, and a fine of a maximum of USD 1 million. Most relevant is the freezing of suspected assets provision, which states that the predicate crime need not be established before filing the charges of money laundering. This is a controversial provision still being debated by state parties including Chile and the Philippines, who do not have it because of Constitutional

291 bill of rights protections. In Indonesia, the defendant is required to prove his innocence or provide the legal source of the suspected asset. Jakarta Post (2013) reports, “I Legal experts have called on the judiciary to use the principle of shifting the burden of proof in all courts, especially for trials of corruption and money laundering.

Currently, the Corruption Eradication Commission (KPK) shifts the burden of proof in corruption court trials by requiring that defendants prove their innocence rather than solely obligating prosecutors to produce evidence of guilt on the basis of the Corruption Law No. 20/2001 and Money Laundering Law

No. 25/2003.” (Jakarta Post, 2013, para 1‐2http://www.thejakartapost.com/news/2013/06/29/judiciary‐ told‐use‐shifting‐burden‐proof‐all‐courts.html). It is not, like legal tradition practiced in Chile , where it is left to the prosecutor to prove the defendant’s guilt. This shifting of the burden of proof is seen as the most important innovation in international law when it comes to collecting evidence and establishing proof of guilt.

To the extent that international agreements may be called international law despite the absence of enforcement mechanisms, UNCAC Article 31.8 on Freezing, Seizure and

Confiscation provides “States Parties may consider the possibility of requiring that an offender demonstrate the lawful origin of such alleged proceeds of crime or other property liable to confiscation, to the extent that such a requirement is consistent with the fundamental principles of their domestic law and with the nature of judicial and other proceeding.”

(http://www.jus.uio.no/lm/un.against.corruption.convention.2003/31.html),

International agreements suggest requiring offenders to prove the source of suspected wealth but only if in compliance with domestic laws. This is the grand loophole that non- compliant countries slip through. If the language of the most comprehensive and global legal framework against corruption like UNCAC is reticent in its language on search and seizure, it

292 most definitely will not as yet state that the action they are requiring in Article 31.8 actually shifts the burden of proof to the accused. The effect of the requirement when enforced as domestic law, is the same even without recognition of the shift. In their report to the US

Department of Justice analyzing the issue of forfeiture of illicit wealth and reversal of the burden of proof to the offender, Hamilton (2011) write, “Once the state establishes that the respondent owns or possesses unexplained wealth or property constituting proceeds of crime, the burden shifts to the property owner to establish the contrary.” (Hamilton, 2011, p.156, https://www.ncjrs.gov/pdffiles1/nij/grants/237163.pdf).

Hamilton lists Hong Kong and Singapore as countries that reverse the burden of proof to the defendant in criminal cases targeting PEPs. (p.58). Section 10 of Hong Kong’s Proceeds of

Bribery Ordinance provides that the “burden of proof shifts to the defendant/suspect to explain the legitimacy of his or her property,” (p.60). In the case of Singapore, Section 4 and $A of the

CDSA (Corruption, Drug Trafficking and Serious Crimes Act) “shifts the burden of proof to the defendant.” (p.63). Despite the controvery of the burden of proof shift, Hamilton lists Austria,

France, Italy, Netherlands, and Switzerland as countries with illicit wealth provisions shifting the burden of proof to the defendant. (Hamilton, 2011, pp. 46-56). The Philippines has joined countries shifting the burden of proof to the defendant with a law that requires the defendant to prove the source of wealth that the state has established manifestly disproportionate to his income. Presumption of guilt is manifest in Section 2 of RA 1379 which provides“whenever any public officer or employee has acquired during his incumbency an amount of property which is manifestly out of proportion to his salary as such public officer or employee and to his other lawful income and the income from legitimately acquired property, said property shall be presumed prima facie to have been unlawfully acquired. x x x”(

293 http://raissarobles.com/2012/01/24/from-his-own-mouth-cj-coronas-guidelines-in-the-use-of- salns-itrs-to-prove-ill-gotten-wealth/).

11. Provisions for seizure and repatriation of illicit wealth. In compliance with UNCAC:

APEC Russia 2012 reports,

Indonesia commits compliance with Articles 44-Extradition, 46-Mutual Legal Assistance, 48-Law Enforcement Cooperation, 54-Mechanisms for recovery of property through international confiscation, and 55-International Cooperation for purposes of confiscation. The guiding law for extradition in Indonesia is Law No. 1/1979 which requires dual criminality. Law No. 1/2006 guides MLA on criminal cases. Extradition is also guided by treaties and in the absence of treaties, good relationship with requesting party. Extradition cannot be applied to political offenses. Requests for extradition and MLA should be addressed to Indonesia Central Authority, the Ministry of Law and Human Rights of Republic of Indonesia, Indonesia National Police, Attorney General Office and KPK (p.97). Indonesia’s efforts to comply with UNCAC preventive provisions in Chapter II, Articles

5 to 13, may be seen in their “controlling law on declaration of assets” provisions in Article 8(5).

Notably, Indonesia’s Law No. 28 of 1999 requires that all state officials have their wealth investigated prior to, during, and after assumption of office (assetrecovery.org). The functional equivalent of this law for the Philippines is the SALN (Statements of Assets and Liabilities) law under Article XI Section 17 of the 1987 Constitution and Section 8 of Republic Act 6713 “Code of Ethical Standards for Public Officials and Employees.” The Indonesian version is different in that it requires wealth disclosure before, during, and after taking office, while the Philippine version requires it only after assumption of office. The Philippine version does have a provision of a waiver that allows the Ombudsman to look into the officials’ business and financial interests by acquiring documents from relevant agencies (gov.ph/saln/). This sounds like a very formidable tool that could be used by the Philippine Ombudsman to great effect but rarely does

294 as investigations on incumbents or parties in power continues to be problematic. In contrast

Indonesian authorities have caught several participants in corrupt activities. According to APEC

(2012),

Since 2004 KPK’s “catches” include 49 Members of Parliament, Members of District Parliament, 6 Ministerial Level, 4 Ambassadors, 7 State Commissioners, 8 Governors, 28 Mayors, 3 Judges, and other high level officials. 40% of cases in corruption are in procurement, 38% are bribery, 15% cases are abuse of power, and 8% are in licensing and illegal charges (p.99).

12. Whistleblower Laws:

Indonesian Law No 13 (2006) protects all citizens who report on corruption and bribery.

The Witness and Victim Protection Agency of Indonesia was not created until 2008 even if enacted in 2006. It did not receive funding until 2008. The Asian Human Rights Commission says this was because of the lack of political will on the part of the citizens.(Business anti- corruption portal website). Freedom House in 2011 reported that an anti-corruption activist was assaulted due to his reports about large bank accounts belonging to police generals

(www.business-anti-corruption.com/country-profiles/east -asia-the pacific/Indonesia/initiaties/public-anti-corruption-initiatives/ ). Like the Philippines, Indonesians have no obligation to “whistleblow.” Financial institutions, however, must report suspicious transactions or suffer fines. China and Singapore have more “punitive” approaches to the whistleblowing requirement.

The Corruption Eradication Commission provides an online tip line to report incidences of corruption and bribery. Despite some challenges in witness protection programs, Global

Integrity 2011 gives Indonesian whistleblowing protections a strong 92. Comparatively, the

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Philippines received a 79 in its whistleblowing protections. In yet another of a series of role reversals in performance in international indices, Indonesia begins behind the Philippines in scoring and ends up ahead. In 2004, it received a very low 19 (out of 100, 100 being best) compared to the Philippines’ 56 the same year. By 2011, the scores are flipped with Indonesia receiving 92 and the Philippines a 79. (See Figures 47 and 48).

13. Procurement Protections:

Like the Philippines, Indonesia has an online system of procurement called the e-

government procurement website. Like the Philippine model, it allows for secure bids

and publication of companies that are blacklisted. Procurement protection legislation in

Indonesia is through Presidential Decree No. 80/2003 and Presidential Regulation No.

54/2010. Unlike the Philippine version which directly prohibits companies that are not

60% Filipino owned, Indonesia sets the amount of the bids that foreign companies are

limited to bidding, which are government construction projects with a value of IDR 100

billion. Global Integrity 2011 gives Indonesia a score of 95 strong on its government

procurement index.

Figure 50 shows that both Indonesia and the Philippines are making efforts to improve corruption scores by tightening loopholes in the procurement system. The bidding process for government contracts provides great opportunities for corrupt behavior. This supports my research’s claim that although not apparent in better corruption scores as yet, the Philippines and Indonesia appear to be installing the infrastructure within their system to curb it.

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Figure 50 Source GIR (Global Integrity Report). Notes: Comparing procurement index for Indonesia and the Philippines from 2004 to 2011. The scoring ranges from 0 to 100 with 100 being best. Blue line (Indonesia performance). Red line (Philippine performance).

Philippine & Indonesia GIR Procurement Index 2004‐2011 92 90 88 86 84 82 80 IN Procurement 78 PH Procurement 76 74 72 2004 2006 2008 2009 2011 IN Procurement 79 86 88 83 90 PH Procurement 87 87 81 88 88

Civil Society Comparisons:

Berlin affiliate TI (Transparency International) has a presence in Indonesia. It aims to create greater transparency and accountability in government. It is composed of academics and activists who sponsor anti-corruption publications, workshops, and conventions. Indonesia

Corruption Watch also has a presence and was instituted in 1998 after the fall of Soeharto and is the most active anti-corruption group in Indonesia (Bhargava and Bolongait,p.225). Partnership for Governance Reforms is a civil society group that is collaboration between the international community and government. It provides assistance and funding to the legislature, civil society,

297 and judiciary sponsoring corruption related reforms using media, seminars, and audits. It is known to be well funded. Since 2001, it has been known to be an important part of attempts at involving civil society in government audits. (Bhargava and Bolongaita, 2004, p.226). Bhargava and Bolongaita assert that audits done by non-governmental organizations will provide the government much needed credibility. They believe that government must not see civil society as a threat but a partner. Civil society worries that working in partnership instead of in a watchdog capacity with government would destroy their credibility. (p.26). My own view is that non- governmental organizations must and can keep their watchdog credibility with the quality of reports they actually produce. The involvement of the private sector in government audits may be problematic as they have not been elected by the majority of people so for them to interfere directly would have no legal foundation. This is why the Freedom of Information Act is critical to the ferreting out of information by the private sector. This is the legal avenue with which civil society can request audit information much needed as a check and balance mechanism. (See

Table 28).

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Table 28 below shows some surprising numbers for Indonesia. It scored a 90 out of 100 in the access to information index, a 100 out of 100 in national election integrity, and overall great scores in oversight indices and anti‐corruption rule making and enforcing. My research claims that these infrastructure will provide the basis for future good corruption scores.

Table 28 Source GIR (Global Integrity Report). The time frame is from 2004 to 2011. The score ranges from 0 to 100 with 100 being best. Categories being scored Civil Society, Electoral Process, Government Accountability, Administration/civil service, Oversight, and Anti-Corruption Rules.

Indonesia 2004 2006 2008 2009 2011 CivSocTot 71 59 62 60 83 CivSocOrg 88 81 65 69 81 AccInfoLaw 42 57 50 52 90 FreeMedia 82 39 70 58 78

ElecPolProc 73 69 69 73 83 NationElect 90 87 88 84 100 ElecMonAge 90 78 81 87 92 PolPartFina 39 43 39 48 58

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GovAcc 63 62 70 68 74 Executive 63 72 79 68 67 Legistlative 69 62 65 72 80 Judiciary 58 81 71 76 80 BudgetProc NA 33 65 56 69

AdminCivSe 49 72 56 80 79 CivSerReg 47 69 41 66 68 WhistleBlow 19 59 0 81 92 Procurement 79 86 88 83 90 Privatization 50 75 96 89 67

Oversight 85 70 80 84 89 NationOMB 91 60 87 92 95 SupAuditIns 95 87 60 90 97 TaxesCustom 65 63 100 83 83 StateOwned NA NA 80 80 90 FinanSecReg 89 93 NA NA NA BusiLicReg NA 50 75 75 81

Anti‐CorRul 55 74 74 77 75 Anti‐CorLaw 51 89 67 78 78 Anti‐CorAge 66 83 81 86 88 RuleLawAcc 61 62 89 83 58 LawEnforce 44 63 58 60 77

Global Integrity Report finds Indonesia improving its score on the Integrity Index from

2004 to 2011. Its improvement is due to improvement in judicial accountability and access to public information. It still shows vulnerability in political financing and asset disclosure of public officials. GIR reports that in 2004, political parties are not audited and run protection rackets by pressuring businesses for campaign contributions in exchange for special favors later.

In 2008, Indonesia’s overall integrity indicator score was 68 (weak); Legal Framework (83);

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Actual Implementation (55). It 2011, its overall score is 81 (strong); Legal Framework (95) and

Actual Implementation 69. Looking closer inside the numbers we find that in 2008, Indonesia scored a very weak 50 on Public Access to Information. By 2011 it scored a strong 90 in that category. In 2008, it scored a very weak 0 on whistle blowing protections and a very strong 92 in

2011. Despite whistleblower laws passed in 2006, low whistleblower scores from 2004 to 2008 may be due to cases of defamation filed against them, loss of income, and loss of income to their families because of loss of patronage, International Whistleblower (2011), reports that Indonesia requested more funding for its witness protection program which detractors say does not even define what a whistleblower is. Susno Duadji, chief detective was arrested in the bribery case he himself blew the whistle on. (para. 5,www.internationalwhistleblowers.com,). Comparatively, the Philippines scored higher than Indonesia at 66 to Indonesia’s 42 in 2004 and ended at 90 in

2011 to the Philippines 72 of the same year. (See Table 28 and Figure 51). The improvements in anti-corruption scores coincide with Indonesia’s signing of UNCAC in 2003 and ratification in

2006. It began complying with its own anti-corruption law and agencies. It scored higher in procurement because like the Philippines it began an online bidding process. GIR reports that

Since 2003 and continuously to 2012, Indonesia has paraded high profile arrests and convictions of powerful. The Business Anti-Corruption Portal supports this finding with its own report on

Indonesia’s latest corruption conviction. Ridwan Sanjaya, former Energy and Mineral Minestry official, was convicted of accepting billions IDR and was sentenced to 6 years in prison. Herein lies a big difference between the Philippines and Indonesia. The Philippines does have indictments, but on small dollar amounts. High profile cases do not end up in convictions let alone prison sentences.

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Figures 51 and 52 compare Indonesia and the Philippines access to information and free media scores. Although widely known for having a free press, this supports my claim that the absence of a Freedom of Information Act in the Philippines gave them poorer scores than

Indonesia in this index. Law that allows for access to government information that assists in transparency and accountability goals is more important to corruption scores than multiple media outlets that are controlled by special interests.

Figure 51 Source (Global Integrity Report). Notes: Comparing access to information index for Indonesia and the Philippines from 2004 to 2011. Time frame is 2004 to 2011. Scoring ranges from 0 to 100 with 100 being best. Indonesia (blue column). Philippines (red column).

Indonesia & Philippines GIR Access to Information Index 2004‐2011 100 80 60

40 AccInfoLaw 20 AccInfoLaw 0 2004 2006 2008 2009 2011 AccInfoLaw 42 57 50 52 90 AccInfoLaw 66 65 53 58 72

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Figure 52 Source GIR (Global Integrity Report). Notes: Comparing free media index for Indonesia and the Philippines from 2004 to 2011. The scoring ranges from 0 to 100 with 100 being best. Indonesia (blue column). Philippines (red column).

Indonesia & Philippines GIR Free Media Index 2004‐2011 90 80 70 60 50 40 IN FreeMedia 30 20 PH FreeMedia 10 0 2004 2006 2008 2009 2011 IN FreeMedia 82 39 70 58 78 PH FreeMedia 83 73 68 72 58

On media’s ability to control corruption, the Integrity Scorecard gives Indonesia a 78 compared to a 58 for the Philippines. The Business Anti-Corruption Portal supports this finding in terms of giving Indonesia’s media a “partly free” ranking from Freedom House. Both

Indonesia and Philippine media suffer from the same constraints in terms of libel lawsuit threats and death. Like the Philippines, Indonesian journalists are vulnerable to “envelope journalism” when journalists sell news reports. What accounts for Indonesia’s higher scoring is its passing of the Freedom of Information Act in 2008. In 2013, the Philippines is still waiting to pass its own version of it. A draw back Indonesian media suffers from is the censoring of cyberspace with a law passing in 2008 extending libel laws on the Internet. In 2012, the Philippines passed a cyber crime bill amidst national and international protest. Social media is seen as one of the few venues not yet captured and bought by the ruling elite in both states. As of this writing, in a display of some independence from the Executive branch, the Philippine Supreme Court issued a TRO

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(Temporary Restraining Order) on this cybercrime law amidst claims of unconstitutionality.

(Teves, 2012, para. 3, Associated Press website). In February 2013, the Philippine Supreme

Court extended the TRO on the cybercrime law until further notice. (Phneah, 2013, para. 1, zdnet.com ). (See Index Figure 52).

In 2008, Indonesia received a weak 65 score from Global Integrity Report (GIR) in the category of civil society. Activists in Indonesia and the Philippines share to some degree the same experience as anti-government activists particularly in the anti-corruption areas are harassed, attacked and murdered. Politicians portray critical Civil Society Organizations (CSOs) as foreign sponsored and therefore not representative of national interests. The same use of the

“nationalist” card against global anti-corruption activists persists in the Philippine context. An example would be the latest denunciation by Philippine Senate President Enrile of FATF threats of black listing for non-compliance with anti-money laundering and terror financing recommendations as invasive of the concept of sovereignty. Indonesia in two years however was able to increase its score of weak on the CSO front to a strong 81 in the 2011 integrity index.

(See 53). In the Philippines, there is more and more realization by the international monitoring agencies that publications as well as electronic media are owned and controlled by friends of political overlords. The obvious bias of these media organizations to the positions taken by their political patrons is what I would assert is driving the media scores of the Philippines down.

Freedom House (2012) reports that two families control ownership of the media and often reflect the political and economic interests of their patrons and owners. (para. 7, Freedom House website www.freedomhouse.org/report/freedom-press/2012/philippines).

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Figure 53 below supports my research’s claim that Philippine Civil Society is not effective in performing its watchdog role. Indonesia scores better in this index despite less number of anti‐corruption organizations.

Figure 53 Source GIR (Global Integrity Report). Notes: Comparing civil society organization index for Indonesia and the Philippines from 2004 to 2011. Indonesia (blue column), Philippines (red column). Scoring ranges from 0 to 100 with 100 being best.

Indonesia & Philippine GIR Civil Society Organization Index 2004‐2011 120 100 80 60 IN CivSocOrg 40 20 PH CivSocOrg 0 2004 2006 2008 2009 2011 IN CivSocOrg 88 81 65 69 81 PH CivSocOrg 98 78 84 73 73

The Business Anti-Corruption Portal may help explain the Philippines’ high score on corruption legislation, due to its robust number of anti-corruption laws when compared to

Indonesia. Indonesia has anti-corruption Law No 20 criminalizing active and passive corruption and Law No 23 criminalizing money laundering.Rolandi and Watts wrote in Asian Legal

Business (2011) that the new anti-money laundering laws “shifts the burden of proof from the prosecution to the defendant. Like the new Philippine anti-money laundering law, Indonesia includes not just financial transactions but real estate properties, jewelry, prescious metals and other luxury items. (Rolandi and Watts, 2011, para. 13). It is supposed to be more compliant of

UNCAC provisions as it will penalize both the public and private sectors and foreigners engaged

305 in bribing foreign officials. This has been met predictably with some resistance. Indonesia scores behind the Philippines when it comes to the flow of illicit funds measured by GFI. This is the empirical indicator of whether or not illicit wealth is leaving the country, which is one of the best measures of corruption. . The weakness of this indicator is that it measures all illicit wealth leaving the country and not just the ones stolen by government officials through corruption.

Raymund Baker, director of GFI, estimates that 3 to 5 percent of the global total flow of illicit funds represents those stolen by government officials. (Young ,2013, para. 6).

Figure 54 below reports that in 2001, the Philippines flow of illicit funds was USD 6,543 million. By 2008, it had ballooned to USD 18,682 million. Comparatively, Indonesia had USD

512,000 in 2001 and blew up into USD 30,127 million by 2008. Chile stands out in how much lower its flow of illicit funds is when compared to the Philippines and Indonesia. In 2008 Chile had an IFF of 5,954 million USD. This amount is miniscule when compared to Indonesia’s

30,127 million USD, or the Philippines’ 18,682 million USD. These numbers are staggering evidence of why Chile does very well in corruption scores and the Philippines and Indonesia do extremely poorly. These numbers tell the story.

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Figure 54 Source GFI (Global Financial Integrity). Notes: Comparing IFF (Illicit Flow of Funds) for the Philippines, Indonesia, and Chile from 2001 to 2008.

GFI Illicit Flow of Funds 2001‐2008 35,000

30,000

25,000

20,000

15,000 Philippines Indonesia 10,000 Chile 5,000

0 2001 2002 2003 2004 2005 2006 2007 2008 Philippines 6,543 10,195 13,803 13,724 18,382 19,654 23,419 18,682 Indonesia 512 1,113 20,517 18,941 26,486 12,613 24,024 30,127 Chile 4,532 5,070 4,978 10,238 7,371 12,318 29,122 5,954

Tables 29 and 30 below quantifies factors that are causal to corruption as Independent

Variables. These causal variables are scores from international rating organizations grading countries economic and political indices. These scores support my claim that Indonesia’s better

GDP and FDI scores in addition to better oversight scores, correlate to better corruption scores found in table 30.

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Table 29 Sources BTI (Bertelsmann Transformation Index), GIR (Global Integrity Report), WGI (World Governance Indicator): Notes: IV stands for Independent Variable

I 19 19 20 20 20 20 20 20 20 20 20 20 20 20 V 96 98 00 02 03 04 05 06 07 08 09 10 11 12

BTI FDI%GDP 0.1 - 0.72.91.31.61.80.91.9 0.3

BTI GrowthGDP% 4.4 4.7 5 5.7 5.5 6.3 6 4.6 6.1

BTI 3 5.5 5.8 6 6.5 OrganizationMarket Comp

BTI Private 4 6 6.5 6 6 Property

GIR Privatization 50 75 96 89 67 index

PolStability WGI 13 7.2 3.4 8.7 2.9 4.3 7.2 9.6 13 15. 20. 21. 8 3 2

WGI Rule of Law 39. 27. 28. 20. 20. 25. 25. 27. 30. 31. 31. 31 7 3 7 1 6 4 4 3 6 7 3

BTI Rule of Law 3 5.5 5.5 5.5 6.3

GIR Rule of Law 61 62 89 83 58

GIR Anti-CorLaw 51 89 67 78 78

GIR Anti-CorAge 66 83 81 86 88

GIR CivSocOrg 88 81 65 69 81

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GIR FreeMedia 82 39 70 58 78

GIR AccInfoLaw 42 57 50 52 90

GIR WhistleBlow 19 59 0 81 92

GIR Procurement 79 86 88 83 90

GIR NationOMB 91 60 87 92 95

WGI VoiceAccoun 23. 17. 34. 39. 37 40. 44. 43. 46. 46. 47. 46. 6 3 6 4 4 7 3 2 2 4 9

Table 30 Sources: TI (Transparency International), GIR (Global Integrity Report), WGI (World Governance Indicator), GFI (Global Financial Integrity). Notes: DV stands for Dependent Variable

D 19 19 20 20 200 200 200 200 200 200 20 20 20 V 96 98 00 02 3 4 5 6 7 8 09 10 11

CPI TI 2.6 2 1.9 1.9 2 2.2 2.4 2.3 2.6 2.8 2.8 3 5

GIR anti- 55 74 74 corruption scorecard

WGI Control of 30. 9.8 19 8.3 14.6 17.1 20 21.5 33.5 34 22 26. Cor 7 3

GFI IFF 1,1 20,5 18,9 26,4 12,6 24,0 30,1 13 17 41 86 13 24 27

In comparing Indonesia’s IV and DV MLG tables with those of the Philippines, we note many similarities. Both Indonesia and the Philippines suffer from low levels of FDI with

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Indonesia scoring a 1.9 in 2010 and the Philippines a .9. Both Indonesia and the Philippines have low scores in economic indices listed in among our causal variables. Indonesia’s low economic scores correlate significantly with its low corruption scores. What is interesting is by 2012,

Indonesia scored in the 70s to 90s out of 100 in anti-corruption institution building indices, higher than the last scores posted by the Philippines in this category. Indonesia scores the following: (95) National OMB, (90) Procurement Protections, (90) Whistleblower Protections,

(90) Access to Information, among others. These improvements do not reflect as yet in the DV table measuring corruption levels scoring a (3) TI CPI, (26.3) WGI in 2011. (See Tables 29 and

30). This in part supports my claim that anti-corruption MLG institution building strategies have not worked on the short term. Those who have performed well in the areas of lower corruption such as China, Chile, and Singapore, already have functioning institutional checks and balance in their political, social, and economic structures and so are found to complement and echo the standards of anti-corruption MLG required of them. This is also the reason why I included economic and political indicators as predictors of corruption levels among my Independent

Variables. .

The most important conclusion in comparing Indonesia’s and the Philippines’ anti- corruption MLG experience, is that they are nearly identical in scores in indices. Indonesia has nearly as many anti-corruption laws and agencies as the Philippines. It has nearly as many anti- corruption civil society participation as the Philippines. It shows as much compliance as with anti-corruption international monitoring organizations as the Philippines. Yet it shows an ever so slight better scores in levels than the Philippines. What accounts for the difference is the quality of investigatory laws. Indonesia has more resemblance to China and Singapore in collecting evidencen that would stand up in court as does the Philippines. It shows better scores in

310 economic indicators such as FDI and GDP. Indonesia has markedly higher levels of Foreign

Direct Investment which could be explained by better business confidence due to better performance in curbing corruption. A very high level of foreign reserves that could help withstand economic shocks, is also a big difference between the two countries. A large foreign reserves suggests to the investor that leaders in Indonesia are pilfering less and giving to the state more.

Comparing and Contrasting the Philippines with

SINGAPORE

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Background. Historical, Political, Economic

Historical Comparisons:

Singapore declared its independence in 1965, more than two decades later than the

Philippine declaration of independence in 1946. This detracts from the earlier theory that the reason Chile stands out as a shining example of corruption control is the age of its republic and the maturity of its democratic institutions. Singapore’s lack of natural resources, an example it shares with power house Japan and Switzerland in contemporary history and powerhouse

Renaissance Venice in earlier history, does support Baron de Montesuieu’s climate theory that the more adverse the natural and geographical conditions a set of people face, the more organized, efficient, and united they become. Acemoglu and Robinson (2012) citing the philosopher Montesquieu writes, “He argued that people in the tropical countries tended to be lazy and lack inquisitiveness. As a consequence, they didn’t work hard and were not innovative , and this was the reason they were poor” (para. 3). Venice, which was the most powerful port city of its time and leader of culture and civilization, began as a swamp where Italians from the mainland fled to escape invaders. They were forced to settle in this land with no land for crops, and buildings had to be built on stilts. Necessity being the mother of invention, Venetians built their city on logs imbedded into the water. They became what their limitations forced them to become, merchants. And the rest as they say is history. Like Renaissance Venice, Singapore boasts one of the highest standards of living and lowest corruption scores worldwide. (See

Figures 55, 56 and 58).

Economic Comparisons:

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“Singapore’s loss of the hinterlands due to its expulsion from Malaysia in 1965, increased the urgency of the political leadership to focus on developmentalist strategy” (Saxena and Bagai, 2010, p. 3). Singapore used what it had, and unlike hyper nationalist Filipinos and other countries, Singapore welcomed MNCs (Multi-National Corporations) with open arms and preferential policies. They soon became the destination for investment. By what can only be attributed to good fortune, Singapore’s leadership of intellectuals and technocrats set a pragmatic and non-ideological course designed to speed up economic development. This is what I call

“Pragmatic Patriotism,” which is a movement gaining ground among younger Filipinos today.

Another less known but remarkable difference between the Philippine and Singaporean experience is how the British were able to extract direct taxation of the elite and put the country in sound fiscal footing by efficient tax collection (Slater, p.22). Tax revenues have persistently been low and ridden with corruption in the Philippines where the elite legislate low taxes and escape actual collections by bribing government officials directly or indirectly through campaign donations. Powers of extraction and coercion were at the heart of state power. Singapore lessened its dependence on foreign resources by intensifying collections domestically. The

Philippines was never able to do it, the Bureau of Internal Revenue historically being one of the most corrupt agencies of government.

Part of the answer to the question of why state elites cooperated with the state in terms of active state development rests on the theory that elites feared the strong communist uprising in

Singapore. This may have been true in the Philippines as well when Marcos declared Martial

Law and was well supported by the local elite and the international community at that time. Why did the Marcos dictatorship fail then, where the other authoritarian experiments succeeded and are still going? Another thing common between Marcos and Singapore’s PAP party is they were

313 both initially democratically elected. Not known to many, PAP in 1963 used their coercive powers to decimate their opposition by detaining 24 opposition leaders and activists in 1963.

Similarly, Marcos rounded up his opposition and detained them, including Benigno Aquino, whose assassination later heralded the demise of his regime. (Business Anti-Corruption Portal website).

Singapore invests heavily in programs that would make it attractive to investors. It does this with infrastructure and skill building of its labor force. By contrast, the Philippines invests poorly in man power infrastructure like education, health, and housing. Singapore has the highest rates of domestic savings which is an indication that its own citizenry has great confidence in the running of its own country. Singapore also controls the markets through GLCs (Government

Linked Corporations) or GOCC (Government Owned Corporations) in the Philippines. The control of basic industries sounds socialist and would be called as such in countries like Chile when Allende tried it in his socialist government. It did not produce the same economic benfits in Chile so why does it in Singapore? Singapore also intervenes in the market by ensuring cheap labor cost making it extremely competitive in the world market. Finally it also sells shares of government owned corporations gaining more capital to invest elsewhere while retaining control of that industry. Why did state interventionist policies accrue benefits to the state in the

Singapore model but not so in the Philippine model?

Perhaps most importantly, Singapore did not have an entrenched economic elite or military class, which gave leaders the extraordinary opportunity to set forth export oriented plans

314 that aggressively wooed multi-nationals and foreign investment. In addition, it enjoyed a

“Cultural values of immigrants, including diligence and indifference to combative poltics, provided the impetus from growth from below.”(Saxena and Bagai, 2010, p.4).. Singapore’s open door policy to foreign investment did not however mean unfettered free market policies like those of Pinochet’s Chicago Boys in Chile. Singapore followed the developmental state or

“statist” policies of Japan, which meant the state took leadership in intervening in the economy, generating employment, financing private investment, building infrastructure, fostering industrialization and delivery of services

The government’s highly interventionist approach and active involvement in the economy is one of the reasons for Singapore’s initial economic success.” (p. 16). Its efficient management and delivery of goods and services legitimized its authoritarian, highly disciplinarian laws. Marcos also tried these “statist” interventionist policies in the Philippines and yet failed where Singapore succeeded. What was the difference? Some argue that the benefits accrued to Marcos himself and the elites that supported him and not the state or the people in general. The difference? Marcos had powerful elites he needed to co-opt and whose loyalty could only be won by rents, while Lee Kwan Yew of Singapore did not have an entrenched elite to mollify and cater to with patronage..

Singapore runs counter to the argument of many scholars and policy makers that state control and regulation of the economy create opportunities for rent seeking behavior and hence are bad for corruption control. Singapore is among the highest performing countries in the world when it comes to corruption control, ranking 4th in Transparency International’s corruption perception index. It is also ranked number 1 of 183 countries in the ease of doing business index.

What is counter intuitive to some anti-corruption scholarship is that Singapore intervenes in the

315 economy, dictates what is subsidized or not, what is for export, and what is produced. In that sense it is far from “free market” capitalism, yet investors are encouraged to invest because “the role of government is primarily market facilitating rather than market inhibiting” (Saxena and

Bagai, 2010, p.15).

Figure 60 below supports my claim that great economic scores are better predictors of better corruption scores. Both Chile and Singapore score best in the economic transformation indicator. Their corruption scores correlate highly with that.

Figure 60 Source BTI (Bertelsmann Transformation Index). Comparing Economic Transformation Index in Singapore, Chile, the Philippines, and Indonesia from 2003 to 2012. Scoring range is 0 to 10 with 10 being best. Color codes for columns: Philippines (Blue), Chile (Red), Indonesia (Green), Singapore (Purple). Taller columns mean better scores. Note the purple and red columns are the tallest the whole time frame.

BTI Economic Transformation Index 2003‐ 2012 12 10 8 6 4 Philippines Eco Trans 2 Chile Eco Trans 0 2003 2006 2008 2010 2012 Indonesia Eco Trans Philippines Eco Trans 2.7 5.86 6 6.21 5.96 Singapore Eco Trans Chile Eco Trans 4.4 8.61 8.68 8.68 8.54 Indonesia Eco Trans 2.7 5.79 5.99 5.79 6.21 Singapore Eco Trans 4.7 9.21 9.57 9.14 9.18

Figure 61 below supports this research’s claim that economic indicators are more predictive of corruption than political indicators. Singapore scores poorly in the political index

316 but very well in the economic index. It supports my finding that regime type or system of government do not make good predictors of corruption.

Figure 61 Source BTI (Bertelsmann Transformation Index). Notes: Comparing Singapore’s political and economic transformation indices from 2003 to 2012. Scoring ranges from 0 to 10 with 10 being best. The blue column represents political transformation and the red column represents economic transformation. Note that the blue columns are nearly half the height of the red columns.

Singapore BTI Political & Economic Transformation Indices 2003‐2012 12 10 8 6 Singapore Pol Trans 4 2 Singapore Eco Trans 0 2003 2006 2008 2010 2012 Singapore Pol Trans 2.8 5.35 5.37 5.4 5.32 Singapore Eco Trans 4.79.219.579.149.18

This economic development remains formidable because despite being overly dependent on exports and thus vulnerable to global financial crises such as the one in 2008, like Chile and

Indonesia, Singapore tapped into its reserves and passed economic policies to stimulate the economy. These policies included lowering corporate taxes, guaranteeing bank loans, subsidizing wages, and heavily investing in infrastructure. The end result is the highest growth rate in Asia of 14.5% in 2010. Despite this, the gap between rich and poor continues to be wide and only the highest income earners benefited from the economic recovery (BTI, 2012, http://www.bti-project.org/countryreports/aso/sgp/)

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Political Comparisons:

Another reason for Singapore’s success is its early adherence to Westminster models of civil service efficiency. The best and the brightest are recruited, highly compensated, and those caught at wrongdoings severely disciplined and weeded out. Singapore’s civil servants are the highest paid in the world. Unlike the Philippines, Singapore’s civil servants had both prestige and pay. The appointment process is fair and exacting. Many senior appointments are professionals and intellectuals from industry who have attained success in their fields. This spirit of meritocracy in the civil service comes from the argument that ambitious national plans cannot be implemented without a disciplined bureaucracy (Saxena and Bagai, 2010, p.5). This efficiency in government can be seen in Singapore’s consistent 100 out of 100 scores from WGI year after year in this category. Conversely, the Philippines is still mired in the “to the victors the spoils” brand of civil service where government jobs are dangled and given to political supporters of the victorious party. Interestingly enough Marcos hired some of the best and the brightest into those positions immediately around him, so cabinet and ministerial appointments were often from Harvard or Ivy League universities in the US.

What made this attempt more decorative than substantive is that it was not mirrored in the hiring process down the line in the government bureaucracy. Those appointments continued to be based on patronage. The loyalty then is to political overlords and not to principles. What makes the success of Singapore most interesting to compare to that of Chile’s is they both inhabit the top ten highest performers in corruption control indices yet share largely different political backgrounds and policies. Chile practiced socialist and then free market policies with strong checks and balance oversight institutions in an older democracy, while Singapore, a young country with young institutions, combines some pragmatic free market policies with some state

318 control of the economy in an authoritarian state with a powerful executive in complete control of the legislature, where only one party has ruled. Singapore is an outlier in the sense that it demonstrates remarkable ability to police and discipline its own ranks without relying on countervailing powers to check each other. “More than half the MPs are elected unopposed and hence nominated by the ruling party” (p.5).

The PAP (Political Action Party) has been the only party in power in Singapore, where the lines between party and government bureaucracy are blurred. In the US model of checks and balance politics, where the government bureaucracy is to remain politically neutral, government bureaucrats understand that they owe their salaries to the tax payers and not to any political party. Singapore’s merging of the military, administrative bureaucracy, labor parties, capitalists and investors would be an anathema in the US case. Some argue that the absence of political competition in Singapore has in fact given the government less need to spend time engaging in politics and more time administering and managing the country. In the Philippine context, the politicization of government bureaucracy is standard practice for the party in power. The most obvious manifestation is pressure put on government employees to attend political rallies at the threat of being marked absent from work if found not in attendance. Singapore resembles Japan in the sense that labor and capital sit together to find consensus on policies. (Slater, 2012, p.21).

What makes it work for Singapore is the strong ethical base of the leadership which permeates to every level of society, in other words, leadership by example. But what brought this attitude of professionals and intellectuals in leadership positions other than the accidental good fortune of having had leaders with strong principles that they were able to manifest in institutions

319 of government? Marcos also attempted this unity of all branches of government, government bureaucracy, the military, and the economic elite under his party and persona. It was referred to as a dictatorship. Singapore’s authoritarian regime on the other hand, because it delivers results and success for its people, is not as easy to criticize. State owned corporations are run efficiently, modeled after private enterprise guidelines rather than serving as milking cows for supporters of the party in power as is the case in the Philippines.

Singapore’s outlier status in terms of lack of correlation between political freedoms and economic freedoms can be seen clearly in BTI’s political and economic transformation indices.

Singapore receives a (5.32 out of a possible 10) in political transformation and a (9.18) in economic transformation. What this means is Singapore performs below a third world economy like the Philippines in political participation, stability of democratic institutions, and rule of law but just as high if not higher than first world economies when it comes to economic performance, currency and price stability, market competition, and economic development.

Figure 59 below supports my research’s claim that the Philippines scores very well in the political transformation index. It scores higher than Singapore but lower than both Chile and

Indonesia. This however, has not translated to better corruption scores. It also supports my observation that best economic and corruption scorers Chile and China occupy the opposite scores in this index with Chile being best and China being worst. It also supports my claim that political factors are not good indicators of better corruption scores.

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Figure 59 Source BTI (Bertelsmann Transformation Index). Notes: Comparing Political transformation in Singapore, Chile, Philippines, and Indonesia from 2003 to 2012. Scoring ranges from 0 to 10 with 10 being highest. Columns are color coded as follows: Chile (Blue), Philippines (Red), Indonesia (Green), Singapore (Purple).

BTI Political Transformation Index 2003‐2012 10 9 8 7 6 5 Chile 4 Philippines 3 Indonesia 2 Singapore 1 0 2003 2006 2008 2010 2012 Chile 4.8 9.1 9.3 9.3 9.2 Philippines 3 6.95 6.3 5.9 6.4 Indonesia 3 6.36.4576.85 Singapore 2.8 5.35 5.37 5.4 5.32

So why is the Filipino elite given to plunder but the Singaporean elite are not? Some attribute it to strong Confucian values in society. Buddhist and Confucian ethics influence the behavior of the people. However, BTI (2012) observes that,

The Singaporean state is secular, and religious dogmas have no influence on the legal order or the political institutions. Although the constitution does not explicitly define Singapore as secular, the 1966 constitution commission report does point out that the city state is a secular state where religious groups have no influence on the decision-making process. The secular character of the Singaporean state is not affected by the existence of a state Shari’ah court. The court has jurisdiction if all the parties involved are Muslims or where the parties were married under the provisions of the Muslim law and the dispute relates to the issues of divorce and marriage (BTI website).

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If Filipinos are a nation of joiners with about 500,000 civil society organizations,

Singaporeans are suspicious of people with a huge 90% not members of any societal associations. This is contrary to the general consensus that civil society is vital to the transparency needed in curbing corruption. However, this could also be due to the restraints the government puts on though laws on civic activities and sedition laws. “The state will recongnize civil society only if they do not interfere with government policies.” (BTI, 2012, no. 16, Civil

Society Participation).

The government is the largest employer in Singapore, so that differentiates it from “free market small state thinkers” in the Pinochet model. The Singapore model asks for a leadership committed to anti-corruption. This model does not provide for a scenario where the very top officials are themselves the most corrupt as is true in many developing countries, the biggest rents usually going to the highest officer of the land. What does it mean when Singapore’s most lucrative GLCs (Government Linked Corporations) are headed by present and former government officials and their relatives? Why is this practice in authoritarian Singapore not denounced as nepotism and corruption? (Lim and Stern, p.38). This does erode somewhat the argument for Lee Kwan Yew’s shining reputation for leadership by example. The only explanation for this is that government economic goals and targets are met, the government is efficient, and any benefits to the leadership are argued to have been arrived at legitimately by merit.Some observe that there is no need for high government officials to engage in corruption as the remuneration in pay and benefits from sitting on the board of several government agencies and corporations enable them to benefit legally. Lim and Stern (2003) found that,

Deputy Prime Minister Lee Hsien Loong and his father Senior Minister Lee Kuan Yew are at the helm of GIC (Government of Singapore Investment Corporation), possibly Singapore’s largest GHLC in terms of assets. DPM Lee’s wife, brother, and a few other

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relatives are also holding key positions in GLCs. Deputy Prime Minister Lee’s wife, Madame Ho Ching, like himself and his brother, also a former military officer, served concurrently as chairman and deputy chairman or director on the boards of several large GLCs, most notably the Singapore Technologies conglomerate; In June 2002, she assumed the post of executive director of Tamasek Holdings, the holding company which controls some 40 GLCs. Ho Ching’s brother, Ho Sing, is vice-president and director of two Singapore Technologies units. Deputy Prime Minister Lee’s brother Lee Hsien Yang is chief executive of their SingTel Group and director of other GLC units, while his wife Lee Suet Fern is director of SembCorp Logistics and her sister is senior vice-president of SembCorp Utilities, both subsidiaries of the large GLC conglomerate SembCorp. The DPM’s maternal uncle and maternal and paternal cousins also serve in top positions of various GLC units (p.34). Surprisingly, this astonishing labyrinth of overlapping familial control of GLCs is excused as an outcome of a meritocracy, given that the family members are some of the most qualified professionals to hold those positions. Still there is no denunciation of the impropriety of allocating lucrative positions to family members even if this clientelistic distribution of largess mimic those that exist in its more corrupt neighbors (Lim and Stern, 2003, p.38). The same arrangements in its more corrupt neighbors are readily denounced by the international community. It appears that economic growth, competent management and profitability of these corporations under the leadership of these family members have justified their continued acceptance. Ross (2001 as cited in Lim and Stern 2003) asserts state interventionist industrial policies did not hurt the economy because state-created rents are allocated efficiently without corruption (transparently and legally) as bonuses and incentives to government officials and public servants.

This corruption free policy is designed to attract foreign investors who are also given extraordinary tax breaks and infrastructural support. State monopolies in the form of GLCs are held to high standards, and despite being monopolistic, are expected to produce huge budget surpluses that are then re-invested in the economy. “Rent seizing politicians need not storm the fortress. They are already inside the walls” (Ross, 2002 as cited in Lim and Stern 2003, p.4). The

323 difference between the Philippine’s state owned corporations and Singapore’s is the profits are plowed back into state coffers while Filipino officials pocket not just the profits but the budget allocations of their state owned corporations. BTI 2012 reports,

Although Lee Kuan Yew remains the main political figure in Singapore since he first became prime minister in 1959, no one calls him a dictator. Despite having a one party system since independence, drastic measures such as bankrupting opposition politicians though defamation suits and an iron supervision of the political process and in 2004, the election of Lee Kuan Yew’s son as the country’s prime minister, no one domestically or internationally dare to raise even one eye brow. Singapore has traded democracy for wealth and embraced a way of life in which civil liberties, intellectual debate and political parties have become casualties of economic development (BTI website).

Budgets are allocated based on percentages of GDP for a five year period, so development plans are long term and comprehensive. The Philippine budget is rife with pork barrel allocations that stop and start depending on who is in office. There is no sanctity of contracts or private property assurances as vengeance politics impose retribution on business supporters of the defeated party. Singapore on the other hand has a non-ideological structure of government which makes agencies porous and cooperative with each other. Its efficiency rests on minimizing turf warfare in budget allocations, which in turn minimizes waste and repetition in functions. Because it is non-ideological and non-political, the government bureaucracy responds and adapts quickly to change (Saxena and Bagai, 2010, p.14).

Clearly there are ideas in Singapore’s governance and administration that can and should be emulated by developing countries, can these ideas solve the basic problem of checks and balances for an elite which refuses to let go of entrenched rent seeking behavior? This is where pressure from the outside, the international community, can be helpful if the local elite cannot be

324 incentivized to discipline themselves. It really cannot be argued that Singaporeans are just culturally less corruption prone. Corruption in Singapore’s police, internal revenue, customs and immigration, the likely suspects in developing countries, was rife during colonial times. The reason given by Berlinger (2012) was the low salaries of government employees and low risk of detection and punishment. (para. 4-5). These are the exact conditions existing in countries like the Philippines today. What changed between then and now?

Anti-Corruption Enforcement:

In 1959 PAP leaders realized that they would not succeed in their developmental goals without curbing corruption. They decided to change it from a “low risk, high reward” behavior into a “high risk, low reward” behavior. This meant removing the incentives and opportunities for corruption (Quah, 2001, p. 32). PAP began instilling a wide array of draconian penalties for corruption, like increasing the fines and prison terms and giving the CPIB (in 1960) the powers of arrest, search, and seizure of suspected accounts belonging to public servants or their wives, children or agents. Section (8 of the Prevention of Corruption Act (PCA), also known as the

Presumption of Corruption Clause, provide that intent to commit the crime of corruption even without actually receiving the bribe is enough to convict. (Attorney General’s Chambers,

Singapore. Singapore Government website. Statutes.agc.gov.sg.).This provision is absent in

Philippine law. Singapore progressively increased sanctions and penalties against corrupt behavior. In 1981, the PCA (Prevention of Corruption Act’s) deterrent effect was increased by requiring that those convicted should pay the amount stolen plus all court costs. Further, it provides that if the government official dies, then his estate will be entailed. There is no such provision in Philippine laws.

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The deterrent effect of the enforcement of this provision was seen in the suicide in 1986 of then Minister of Development Cheang Wan who was interrogated by CPIB officers and accused of accepting as much as S$1 million from two developers, in exchange enabling one developer to retain his land, which had been expropriated by government, and assisting the other developer to purchase state land for private development (Quah, 2001, p.33).

Singapore would not have been able to apply the second part of their anti-corruption strategy without economic success, as it required raising the salaries of government officials and employees. Lee Kwan Yew argued that civil servant salaries must be competitive with the private sector to remove the need or incentive to add to their income by accepting bribes.(Quah,

2001, p.30). Here is an example of changing behavior by changing the system. It does not depend on lectures and hopes of self discipline and morality. Singapore provided the incentive to curb corruption. The Philippines is still mired in the mode of waiting for the “right leaders,” the

“moral leaders” and government employees who will by magic see the light and refrain from corrupt behavior out of a sense of ethics. The need to survive has proven them wrong. The system and environment are more powerful teachers and drivers of behavior.

After listing 6 lessons to be learned from Singapore’s success, the most important of which is to make sure that big fishes fry and not just small fishes, Quah (2001) writes; “Needless to say, the situation becomes hopeless if such political will is lacking when political leaders and senior civil servants pay only lip service to implementing anti-corruption strategies in their countries” (p. 35). What if those in charge of anti-corruption programs are themselves the most corrupt? “Hopeless” is not a satisfying answer from or for a scholar, so the search for an answer remains and must continuously be asked and eventually answered. The efforts of the

326 international community to sanction and deny safe havens to corrupt sitting heads of state are a testament to the latest attitude and strategies to combat this problem.

Political will and political support are vital to any anti-corruption campaign. It could be argued that a “cycle of virtue” happens when the public benefits from strong anti-corruption measures. They then are encouraged to have even tougher measures (Yak, NA, p. 6).

Singaporean officials claim that anti-corruption laws that are applied without fear or favor are what is behind their success. But the question remains. What if the head of state himself is the most corrupt? How are these anti-corruption programs to be enforced, adjudicated, much less legislated?

Strong State Comparisons:

Some answers may be found in Dan Slater’s strong state arguments that strong states produce stability and that authoritarian regimes like Singapore produce stability that is more conducive to eventually building democratic institutions than transplanting a full grown democratic political process that produces chaos. On the other hand democracies can have strong states just as authoritarian regimes can. Slater (2012) writes; “State power is a far more reliable source of political stability than authoritarian rule, though it is also immeasurably harder to build.

Once constructed, state power does not rely on regime type” (p.21). Hence democratization would not render inefficient Singaporean authoritarian Leviathan states. Slater argues that democratization is not a threat to authoritarianism .The perception that authoritarian regimes are needed stabilizers in developing countries is what Singapore has traded on for the past decades

(p. 20).

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The unasked and unanswered question here is why authoritarian regimes such as

Singapore, Korea, or Taiwan, are accepted but the Marcos dictatorship was not? What makes people decide between calling a regime a dictatorship and another authoritarian rule? Perhaps the answer lies in how efficiently authoritarianism is used to benefit its people and not just a few of the elite. Developmental states under authoritarian rules have created middle classes through their poverty reduction programs, middle classes that then tend to support conservative and/or authoritarian ruling parties during elections. “When strong-state dictatorships foster democratization at times of relative prosperity and stability, as in Korean and Taiwan, stability and democracy coincide” (Slater, 2012, p. 21).

According to Slater (2012), there is a debate in academic and policy circles about how to sequence democratization. One viewpoint is that a strong state must be built before democratization can proceed smoothly. Another perspective states that they go hand in hand and can be done simultaneously. “Since building a state is harder than changing a regime, waiting for the former to be accomplished before pursuing the latter is as fruitless as waiting for Godot”

(Slater, 2012, p.31). Corruption or the personalization of power do not necessarily indicate a

“failure by the state to perform its functions” (p.31).. It indicates the exploitation of the state by personal interests which are politically supported by the electorate. It is not that the electorate does not want democracy. The electorate sees no value in a democracy that cannot keep peace and order. The populace puts a premium on order which may or may not come with some personalization or corruption in government. So far the pleas of international watchdogs and small portion of Singaporeans for deeper democratization, have fallen on deaf ears in Singapore.

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Connecting the Dots: ACMLG Monitored Indices

1. Anti-corruption Legislation:

The Prevention of Corruption Act (PCA) and the Penal Code are the controlling legislation behind Singapore’s anti-corruption initiatives. It was instituted in 1960 and gives the

CPIB (Corrupt Practices Investigation Bureau) the power to investigate and arrest wrongdoers.

The PCA grants the Corruption Practices Investigation Bureau its powers. The PCA, unlike the

Philippines, and like China and Indonesia, is directed at both public and private corruption.

China, Indonesia and Singaporeand lately, in compliance with international standards, the

Philippines apply the presumption of guilt standard on the accused when it comes to corruption cases. Chile follows the US model upholding the constitutional rights of the accused even in corruption cases. (APEC Russia 2012, p.37).

The Penal Code describes corrupt conduct by public officials, and the Corruption, Drug

Trafficking and Other Serious Crimes Act (CDSA) criminalizes all serious offenses including drug trafficking and money laundering. “Not made publicly available is an Information Manual on regulating the conduct of public officials”(Smith, Rajah & Tan, 2011, p.55). Note that the list of laws covering corruption in Singapore is stark when compared to the long laundry list of anti- corruption laws in the Philippines. It is also noteworthy that Singapore has been consistently in the top 5 best anti-corruption performers the past 15 years. By comparison, the Philippines, despite its myriad anti-corruption laws, has inhabited the lowest 10 to 25 percent of corruption rankings in the same time frame. China and Indonesia similarly have smaller number of corruption laws than the Philippines.

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2. Anti-corruption Agencies:

The main body mandated by the Corrupt Practices Act and the Penal code to investigate corruption cases is the Corrupt Practices Investigation Bureau or CPIB. It does not have prosecutorial powers as it still has to turn over its cases with merit to the prosecutor to be litigated. Under the Singapore Police Force is the Commercial Affairs Department or CAD.

CAD’s Financial Intelligence Division (FID) is the counterpart of other countries’ anti-money laundering agencies. It is charged with the enforcement of white collar crimes legislation and coordinating with local and foreign banks and financial institutions. The FID has the Proceeds of

Crimes Unit (PCU) which identifies and seizes illicit wealth; the Financial Investigative Branch

(FIB) which investigates illicit financing and terror funding, and the Suspicious Transaction

Reporting Office (STRO) which collects, analyzes, and reports on intelligence gathered about suspicious transactions and terror financing (Smith, Rajah & Tan, 2011, p.55)

3. Investigatory Powers:

Singapore’s CPIB is known for having extraordinary powers of investigation which it has used with great efficiency over the years. It can be argued that this is what spells the difference between success and failure of their anti-corruption measures when compared to others. CPIB’s investigative powers are similar in range to Indonesia and China. What stands out as a difference from even Indonesia’s and China’s is the mention of search and seizure powers including opening of safety deposit boxes and seizing of bank account books, including making copies of pertinent documents. The Public Prosecutor and not the court may order the following extensive powers of investigation and evidence collection: arrest without a warrant for the purposes of interview, investigate a suspect’s bank accounts and every form of accounts including shares,

330 purchases, safety deposit boxes, and suspected bankers’ books and accounts. These powers are what provide teeth to Singapore’s anti corruption measures (Smith, 2011, p.57).

It is not surprising that with this kind of evidence gathering power, enough evidence to convict is not only possible but enjoys a high rate of success. This is the core difference between the Philippines’ and Singapore’s anti-corruption initiatives. The Philippines has a very low number and quality of convictions. This is primarily because not enough evidence can be gathered that would stand up in a court of law. There is not enough evidence gathered because its anti-corruption agencies have little to no investigative powers. The perpetrators can hide behind first world due process rights protections in a third world environment of state capture. In a country where corruption is endemic and systemic, where the balance of power between the haves and have nots is nearly insurmountable, where all levers of power in government are controlled by a few, draconian investigatory powers may be seen as imperative.

4. Arrest and Detention Powers:

Singapore’s CPIB per its controlling statute allows its officers to arrest without warrant, and hold up to 48 hours, anyone suspected of a crime, including financial crimes and corruption.

During this detention, officers are empowered to collect evidence and seize anything found with or on that person, as evidence of his crime. These are draconian measures which may not stand up in US judicial procedures. The Philippines, being an heir of some US systems and processes, use these protections and has managed to avoid these draconian procedures enjoyed by its more successful neighbors.

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5. Power to Freeze and Seize Property:

Not surprisingly, Singapore’s CPIB has the power to freeze bank accounts suspected of illicit transactions. This swift search, seizure, and freeze process of evidence collection has proven key to their success. Their leaders claim that zero tolerance for corruption is part and parcel of their overall development and economic strategy. Singapore enjoys and credits a first world economy to its anti-corruption measures. In compliance with UNCAC Art 31, Singapore under section 15 and 16 of the CDSA (Corruption, Drug Trafficking and Other Serious Crimes, confiscation of benefits) Act provides that, “a court may issue a Restraint Order (freeze) to prohibit a person from dealing with any realizable property. A Restraint Order may be issued by a High Court where proceedings have been instituted against the defendant and proceedings have not been concluded.

6. Sanctions & Sentencing Powers:

Interestingly enough, the penalty for corruption is not as harsh in Singapore when compared to Indonesia, China, and the Philippines. There is no death penalty for crimes of corruption in Singapore. No more than a fine and prison term of 3 to 7 years is imposed. What they are efficient about, which has helped as a deterrent, is not so much the fine or prison term, but the recovery of the ill gotten wealth itself. Singapore makes the behavior of corruption a high risk low return activity (APEC, 2012, p.188). This suggests that the fear of harsher penalties is not as effective a deterrent as the certainty of being caught and convicted. Harsh penalties with no chance of ever being implemented or proven in a court of law are as good as having no programs and laws to begin with.

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7. Whistleblower Laws:

Banks and other covered institutions are required to report any suspicious transactions and failure to do so would mean a fine. Indonesia imposes a fine and no prison term. China also has no prison term and just imposes a fine but provides by law a general obligation for citizens to report crimes of corruption. Indonesia, Singapore, and the Philippines do not have such a law obligating individuals to report crimes. In the case of money laundering, failure to report suspicious accounts by financial institutions in the Philippines means both fine and prison time.

(Sycip et al, 2011.p.58 ). Procurement Protections: Like Indonesia and the Philippines, Singapore has a Procurement Act governing all transactions between government and business. It also has an online procurement portal where government officials are required to declare any conflict of interest in ongoing government transactions (APEC, 2012, p. 180).

8. E-Government and Procurement Protections; Singapore is one of the first to institute e-

government not just in procurements but in the delivery of services to its people. People

can go online for nearly everything, licensing procedures, bids, registering their pets etc.

All ministries are online and interactive.

9. Overseas Regulators Interaction:

Interestingly enough, Singapore is not a signatory of OECD anti-bribery Convention which is the biggest international agreement covering corruption. It signed UNCAC in 2005 and ratified it in 2009. It has limited its international cooperation on corruption initiatives with counterparts in their law like the Mutual Assistance in Criminal Matters Act, which is the counterpart of UNCAC’s Mutual Legal Assistance initiatives. This is a significant difference from Indonesia and the Philippines, both of which have been on board these important

333 international agreements from the onset. Japan and Singapore, the first world economies in the region, have not felt the need to and or been compelled to be parties to said agreements. This tends to support the theory that international anti-corruption agreements have no correlation to lower corruption levels.

10. Provisions on hiring public servants. Aligned with UNCAC Art 7(1), Unlike the

Philippines, Singapore is known for paying high salaries to civil servants, which curb the

need succumb to the temptation of bribes. The selection process is highly professional

and fairness is assured by a panel of 3 who choose on the basis of merit and not patronage

or influence. Remuneration is benchmarked on the private sector so as to attract talent

(APEC, p. 186). This is amazing since not even larger first world economies like the US

have the same remuneration scale for public servants as those in their private sector for

the same talents.

11. Assets and Interests Declaration. Aligned with UNCAC Art 8(5), Singapore’s

government officials, like those of the Philippines, are required to declare all properties,

debts, and interests upon appointment and yearly thereafter. They are not to receive gifts

or engage in any activity that would tend to show a conflict of interest. They must ask for

permission should they engage in any other employment other than government service.

Due diligence in ascertaining identities of legal and natural persons promotes transparency in private transactions and entities (Business anti-corruption portal 2012, Public Initiatives).

Aligned with UNCAC Art 12(2), government agencies involved like the Accounting and

Corporate Regulatory Authority (ACRA) are authorized by the following laws; the Accountants

Act, the Business Registration Act, the Companies Act, the Limited Liability Partnership Act, and the Limited Partnership Act.

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12 . Anti-Money Laundering.

Aligned with UNCAC Art 14, provisions of law exercised by Singapore to curb money laundering and corruption in general include allowing any officer at any check point to freeze and seize monies and goods suspected as being laundered or used for terrorism under section 35 of the Criminal Code and Suspension of Financing Act. Police and custom officers can seize monies suspected of having been used in the commission of an offense (APEC, 2012, p. 184).

Immigration and Checkpoint Authority (ICA) can make searches and seizures without warrants on the basis of suspicion. Special scrutiny is given those where information is not complete on an account as to identity of both the sender and receiver, origin of funds and who the direct beneficiary is. Special scrutiny is also given wire transfers exceeding USD2 000. The threshold for enhanced scrutiny in Chile is USD5,000 (p.185). It is interesting that it took some doing to get the Philippines to lower the threshold to USD 10,000 to begin flagging of accounts.(AMLA of 2001 Section 3b, amended as Republic Act 9194 of 2010 Section 10.803b. The Lawphil project . Lawphil.net). 13, Banking Secrecy. Aligned with UNCAC Art 40, Singapore guards the privacy of bank accounts by law. However, Section 47 of the Banking Act allows for the lifting of banking secrecy in the cases of money laundering and terror financing. There is an obligation under the law to report on terror and money laundering offenses and as such, those who report on them do not run afoul of banking secrecy laws.

14. Bribery of foreign public officials. “Under the prevention of Corruption Act, CPIB is

provided with extra-territorial power to investigate Singaporeans involved in overseas

corruption. This includes Singaporeans from private sector enterprises involved in

bribing foreign officials. If the bribery of the official of the foreign country takes place

within Singapore, then both parties to the bribe can be prosecuted under the PCA”

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(APEC, 2012, p.189). Holding both the private and public sectors to account is another

reason Singapore stands tall in the area of corruption control. According to Sycip et al

(2011), laws covering bribery in the public sector in the Philippines also covers those in

the private sector under Article 212 of the Revised Penal Code. (p.42). This states that the

same penalty given the official bribed shall be given to the one who did the bribing. The

private corruption I am referring to are acts by the private sector which are not or cannot

be linked to a public official. An example of this would be a cartel or monopoly

controlling the price of a public commodity, like energy, to the detriment of a country’s

economic goals.

15. Extradition provisions. Aligned with UNCAC Art. 44, Singapore has extradition

arrangements with 40 Commonwealth countries, and treaties with the US, HK, Germany.

16. Mutual Legal Assistance. Aligned with UNCAC Art 48 on MLA provisions, Singapore

has the law called the Mutual Assistance in Criminal Matters Act (MACMA) which was

amended in 2006. In the absence of a treaty, mutual legal assistance may still be asked on

the basis of reciprocity. Singapore will then be able to request those countries for

assistance.

17. Asset Recovery and Confiscation provisions. Aligned with UNCAC Art 54 and 55,

MACMA contains detailed lists and procedures on the recovery of stolen assets. Mutual

Legal Assistance is provided and any assets recovered are returned to the requesting state

minus expenses incurred in the recovery. Singapore like China and unlike the Philippines,

has few anti-corruption laws and agencies and near non-existent anti-corruption civil

society groups yet has stellar anti-corruption scores. This goes against the theory that

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institution and capacity building anti-corruption initiatives like civil society groups and

anti-corruption legislation and agencies are requisites for lower levels of corruption.

Singapore participates in fewer studies conducted by international monitoring agencies when compared to the countries in this study. In the summary of MLG Independent and

Dependent Variables, (See Tables 32 and 33), it is not surprising to see a high degree of correlation between economic scores in the IV table and corruption scores in the DV table.

Singapore scores 9s and 10s consistently in FDI, GDP growth, Market Competitiveness, Private

Property and Privatization indices as well as political indices like WGI’s rule of law index. The only discordant note in this list of laurels is WGI voice and accountability score of 42.7 out of a possible 100. Its corruption scores in the DV table of 9s and 10s is a near perfect correlation.

Table 32 Sources: BTI (Bertelsmann Transformation Index), GIR (Global Integrity Report), WGI (World Governance Indicator). Notes: Singapore did not participate in the GIR or GFI(Global Financial Integrity) IFF (Illicit Flow of Funds) ratings. IV stands for Independent Variables Singapore IV 19 19 20 20 20 20 20 20 20 20 20 20 20 20 96 98 00 02 03 04 05 06 07 08 09 10 11 12 BTI FDI%GDP 8.1 11. 13. 17. 17. 20. 4.8 8.1 18. 2 8 2 8 9 5 BTI GrowthGDP% 4 2.9 8.7 6.4 8.4 8.8 1.5 ‐ 14. 0.8 5 BTI 5 9.5 10 10 9.8 OrganizationMarket Comp BTI Private Property 5 9 9.5 9.5 9.5 GIR Privatization index PolStability WGI 85. 75 81 88. 77. 87 87 93. 91. 96. 89. 90. 1 5 9 3 8 2 6 1 WGI Rule of Law 89. 90 87. 90. 93. 94. 95. 92. 92. 92. 92. 93. 5 6 9 3 7 7 3 3 3 9 4

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BTI Rule of Law 3 6 6.3 6.3 6 GIR Rule of Law GIR Anti‐CorLaw GIR Anti‐CorAge GIR CivSocOrg GIR FreeMedia GIR AccInfoLaw GIR WhistleBlow GIR Procurement GIR NationOMB WGI 55. 53. 53. 49. 42. 49 51. 33. 35. 35. 38. 42. VoiceAccoun 3 8 8 5 3 4 7 1 1 4 7

Table 33 Sources: TI (Transparency International), GIR (Global Integrity Report), WGI (World Governance Indicator), GFI (Global Financial Integrity). Notes: CPI (Corruption Perception Index), IFF (Illicit Flow of Funds), Control of Cor (Control of Corruption) DV 19 19 20 20 20 20 20 20 20 20 20 20 20 20 96 98 00 02 03 04 05 06 07 08 09 10 11 12 CPI TI 9.2 8.8 9.1 9.1 9.2 9.3 9.4 9.3 9.4 9.4 9.3 9.2 9.2 9.3 6 GIR anti‐corruption scorecard WGI Control of Cor 96. 96. 96. 98. 98 98. 98 97. 97. 98. 98. 96. 6 1 6 5 5 6 6 1 6 2 GFI IFF

The most important conclusion I can make after making a comparative analysis of

Singapore and the Philippine experience with corruption and whether or not anti-corruption

MLG has more correlation to levels of corruption, is that quality and not quantity matters. The

338 efficient enforcement of even a few anti-corruption laws has more impact in lowering levels of corruption. The difference in investigatory powers in securing evidence for convictions is also more impactful in lowering levels of corruption. Therein are the critical differences between

Singaporean and Philippine anti-corruption strategies. Looking at the summary IV and DV data in Tables 32 and 33, it is noticeable that Singapore has no measurements recorded and is non- participatory with many of the monitoring worldwide organizations we used like Global

Financial Integrity and Global Integrity Report. There are a whole slew of anti-corruption indices from GIR and GFI that shows no numbers for Singapore. Singapore has less anti-corruption laws than the Philippines. It has less anti-corruption agencies than the Philippines. It has less international participation in anti-corruption legal frameworks than the Philippines. It has less civil society anti-corruption participation than the Philippines. Yet it has lower levels of corruption than the Philippines. These tend to show that anti-corruption multi-level governance has little correlation to levels of corruption in the case of Singapore. What has more explanatory value to levels of corruption is the difference between these two countries in FDI and GDP. The better economic indices are for Singapore, the better its levels of corruption. The worst economic indices are for the Philippines, the worst its levels of corruption.

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Comparing and Contrasting the Philippines with CHINA

Background. Historical, Political, Economic

Historical Comparisons:

The new China under the Chinese Communist Party (CCP) always thought of corruption in terms of class warfare. They saw it as an elite characteristic that does not apply to the masses.

By 1952, they realized their mistake and began a series of anti-corruption campaigns focusing on anti-theft of state property, anti-bribery, anti-corruption, tax evasion, stealing economic

340 intelligence and cheating in labor and materials. By the 1980s to the 1990s, following increased corruption with marketization reform, another slew of anti-corruption campaigns ensued prohibiting government officials from enlarging their budgets, imposing fines, running satellite companies, and a ban on engaging in business activities and extravagance in public organizations. These were all designed to lower the rent making opportunities (Chan and Gao,

2008, p.100).

According to the Business Anti-Corruption Portal, China is a socialist state that combines statist policies with a market economy. Chile and Singapore have successfully used this formula as well. It is now the second largest economy, overtaking Japan.but not the US. World Bank reports that in 1980, China’s GDP was close to USD 190 billion. In 2011. it has grown to over

USD 7 trillion. Along with the growth of the economy came higher levels of inequality. In 1984,

China’s GINI or inequality indicator was 29.9 lower numbers being better. By 2005, it was up to

42.5 (World Bank Data 2012 website). Despite China’s low scores in the Transparency

Corruption Index, it did manage to post improvements from a score of 2.16 of 10 in 1995 to a 3.6 in 2011. In 1996, China ranked 50 out of 54 countries measured, which is almost near bottom.

By 2011, it ranked 75 out of 182 countries measured. However, Global Financial Integrity reports that China’s illicit flow of funds rose from USD 169,130 million in 2000 to USD 396,659 million in 2008 (Global Financial Integrity 2012 website).

With growth, come opportunities for government officials to be corrupt. Global Integrity

Reports found that several high government officials have been executed in recent years for taking millions of dollars in bribes. In May 2007, former head of the State Food and Drug

Administration, Zhou Xiaoyu was executed for receiving bribes of more than USD$860, 000.

Many deaths were caused by medicines authorized by Xiaoyu because of bribes taken. In May

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2011, Xu Maiyong, former mayor of a resort town Hangzhou, was sentenced to death for corruption charges (Global Integrity Report Timeline, 2012, website). So concerned is China about the rise of corruption impacting its economic gains that not only does it penalize corruption and bribery with death or life sentences, it has now come up with a “Party Style” approach of performance commitments and reviews from party cadres and officials as a means of combating corruption. Not meeting set specific goals committed to can have grave consequences such as dismissal or salary reductions (Chan and Gao, 2008, p.98).

Ngo (2008) writes convincingly that China’s corruption problems are embedded in its political economic or economic governance and used as a strategy to promote national economic goals. Like the Philippines, Chinese officials use official discretionary powers over rent allocations by restricting and rationing licenses for doing business, fixing prices, imposing quotas and other means by which business tries to gain an advantage for themselves and their industries by bribing government officials for favorable treatment (p. 27). Bribe taking is rife in particular sectors of the economy in most countries as they are for China and the countries under study here. Most attractive areas to rent seekers are exploitation of natural resources, construction, procurements, land sales, property rights transfers, and medical and drug supplies.

Both “Campaign Style” (which was a propaganda style education campaign) and “Target

Style” (which was a goal and accountability measurement oriented style), approaches to combating corruption have been tried by China. Chan and Gao (2008) write, “The fundamental problem in implementing the target based system is that political patronage always compromises its effectiveness. It is like pouring old wines into new bottles” (p.99). Like the Philippines,

China’s corruption problem is systemic and endemic, despite its socialist pro-proletariat political economic history.

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Another innovative way the Chinese have devised to combat corruption is known as the

“warning and admonishing” system whereby those who are close to committing corruption but have not, are warned, and those who commit minor infractions admonished before the final penalties are imposed if the official refuses to be “re-educated” (Chan and Gao, 2008, p.109).

Performance evaluations are measured on a 100 point scale where each goal is given a set number of points, and its accomplishment awarded those points. Despite gains from these anti- corruption initiatives, patronage politics still plays a role in who would be prosecuted as corruption control is under the auspices of leadership of the CCP (China Communist Party) committee and hence prosecution or toleration of corruption depends on relationships with party superiors. Anti corruption efforts by and large “scratches the itch outside the boots” as Chinese idiomatic expression describes (Chan and Gao, 2008, p.114).

True to its roots in propaganda and politization of the masses, all media, including text books, Internet, TV, billboards, greeting cards, seminars, conventions, are to be used to promote a massive moral education campaign. Leading party cadres are to study the Outline of

Establishing and Improving the Mechanism to Prevent Corruption by Education, Institution

Building and Supervision. This echoes many of the anti-corruption information campaigns used by other countries including those under study in this research. The difference between the

Chinese anti-corruption information drive is it also lets everyone know what the consequences of being caught at corruption are. Everyone is informed as to the penalties for corrupt behavior.

This is the feature of this target style campaign that has had a deterrent effect. Enforcing consequences in anti-corruption MLG strategies is the next step.

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The Chinese anti-corruption programs and systems suffer from the same malady the

Philippines does. It lacks implementation because the system is rigged whereby the concentration of power at the top, can arbitrarily decide to advance a corruption case for the prosecution to the judicial level or not. For example, the power of appointments and power of the purse assures the Executive in the Philippines disproportionate power over the other branches of government. In China, directives from national government is what determines the careers of lower level government employees, so currying favor with one’s superior is part of the whole ancient “pecking order” thought to have disappeared with the advent of the communist victory.

Many anti-corruption campaigns fail because of a basic misunderstanding of the term

“rent seeking behavior” and corruption. The most useful definition for the purposes of this research is the use of public authority for private gain. Although rents are associated with corruption and taken as one and the same by most, there is a difference. Rents may accrue for public gain and not just private gain. The concept of rent is an economic concept whereby the surplus between actual market value and selling price is gained by the owner of resources.

Offering “rents” is supposed to dissipate as other social actors compete in rent seeking behavior to bring down the price of rents so that it eventually disappears. The problem with that theory is in actual practice the price of rents never dissipates because officials control the “entry” into the field in the form of monopolies, cartels, or government regulations.

Rents may be gained without corruption in the strict definition of public authority for private gain. An example would be the cartel that holds a 95% share of noodle manufacturing in

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China. The International Ramen Manufacturers Association (IRMA) raised the price of instant noodles in 2007 thereby gaining rents in surplus. No official in government gained from this rent seeking behavior.(Ngo, 2008, p.29). By contrast, the case of hundreds of Chinese officials being found in collusion with private business in Xiamen province is corruption. The Yuanhua

Corporation headed by Lai Chanxing set up dozens of corporations intended to maintain his smuggling empire. He used gifts of cash, club memberships, real estate, and even mistresses to bribe 200 officials. This is corruption but not rent seeking as there is no surplus gained above market value by the officials (Ngo, 2008, p. 29). Rent seeking therefore, is a source of corruption and not a form of corruption. Misunderstanding the difference is what has led to the confusion between what is or is not corrupt behavior and consequently how to combat it.

Political Comparisons:

Like Singapore, China limits any reform in the political arena and confines them to the economic arena. This is evident in the World Bank World Governance Indicators (WGI) scores where it received scores of 11.5 out of 100 in 1996, and 4.7 in 2011 in the area of voice and accountability. (See Figure 66). Bertelsmann Transformation Index (BTI) 2012 reports that

China receives a score of 10 out of 10 for economic performance in 2008 and 2012 (WGI 2012 website BTI 2012 website). Business Anti-Corruption Portal observes that there are many interest groups and civil servants who benefit from the opaqueness of the system and resist any attempts at reform. Lack of free speech and press hobble the fight against corruption.

Like the Philippines, China’s anti-corruption campaign netted small fish but not large scale plunder. In fact, there is a notable increase in grand scale corruption. In 1998, 1,773 cases

345 involving 500,000 yuans were reported. By 2003, there were 123 cases involving 10 million yuans. Since the campaign based anti-corruption efforts yielded little result, the CCP decided in the 1990s to hold party members and all social organizations accountable for corruption control targets. That would be the equivalent of the party in power, like the Republicans or Democrats in the US being given the responsibility of meeting anti-corruption goals and not just the government bureaucracy. This again yielded little result because it was difficult to quantify measurements by which cadre officers can be evaluated and often left to them to set the criteria

(Chan and Gao, 2008, p. 103). It is a multi-level way of getting the job done involving the government bureaucracy, the political party in power, and social and trade groupings. Chan and

Gao (2008) write;

The advantage of adopting a multiple level accountability system is sound in theory. A leading cadre’s corrupt behavior will be detrimental to both his or her own career and that of their supervisors. It would, therefore, be important for leading cadres to assure the integrity of their subordinates. With multiple checks on the power of leading cadres, the target based responsibility system seems to be capable of preventing corruption at its source (p.107).

According to Ngo (2008), the reason these safeguards have yielded little deterrent effect is the systemic nature of the corruption problem in China. It is a main feature of Chinese economy to officially and legally engage in rent seeking behavior such as price control and control of market entry, to benefit the state. (Ngo, 2008, p. 33). All is well as long as the rents accrue to the state and not to individual agents of the state. This rent seeking behavior then becomes corruption as the system itself lends itself to bribing officials in order to gain entry and or advantage in the market place. Herein lays the difference between Singapore’s legal rent seeking behavior which accrues to the state and Philippine rent seeking behavior which accrues to individuals. There are other forms of legitimate rent seeking the state can engage in. It can

346 come in the form of tax breaks such as lower tariffs for imports or exports, or government subsidies through tax exemptions. It can control prices such as sell commodities at a lower price, which the recipients then sell at higher prices in the black market. This does not only happen in the form of goods such as medicines, fertilizers but in the form of services such as electricity, selling land at low prices to attract investors and lower interest bank loans. An example of this would be the case of the Shanghai State Asset Co. Ltd which obtained a loan at the low interest of 5.022% only to turn around and re-loan it for 8% (p.32).

In the Philippine context, a monopoly on electricity by Meralco which in turn owns the biggest television and media outlet ABS-CBN, assures them of monopoly of the energy market and may enjoy the higher profits from higher prices charged to the consumers. The fact that the owners are known Aquino political supporters is not lost on many. Government subsidies and monopolies are awarded to Meralco, and are then plowed back to fund Aquino’s political machinery in the form of media monopoly. Chinese use of rents, surplus, and subsidies to control the markets is not unique. The developmental states in East Asia, also known as the Tiger economies enjoyed the practice of choosing the winner and losers as to what industries to subsidize and support. Again, this state manipulation of the markets as policy for industrial development is excused because the gains are enjoyed by the state as a whole and not individuals

(Ngo, 2008, p.33). How this was possible in the Tiger economies but not in the Philippines,

Indonesia, and Pakistan can be attributed to the Tiger economies’ autonomy from outside influences, technocratic insulation, and collaboration between state and business. (Briscoe, 2008, p.10).Singapore and Japan would be examples of strong autonomous states with close coordination between state and the business communities.

Economic Comparisons:

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The existence of planned economy with a private sector economy is not just a Chinese innovation but a Singaporean one as well. China implemented this hybrid in a gradual process to avoid the sour experience of the Russian Federation with it. It accomplished this hybrid building through trial and error. The Chinese government would try them on a small scale locally,and if these pilot attempts succeeded, they are then implemented nationwide. “The Chinese are encouraged by the success of their economic reforms which have yielded a yearly growth rate of

10% since 1978 to 2010. Even the global financial crisis in 2008 failed to put a dent on this success. There is only 9% of the population living in poverty as the living standard increases.

The only cloud in this otherwise sunny economic sky is that the gap between rich and poor has increased with the upper “10% of the population owning 23 times as much as the bottom 10%”

(BTI 2012, website).

Table 64 below confirms this increase in income inequality with the Gini Index. The Gini measures inequality on a scale of 0 to 100 with 0 meaning perfect equality and 100 meaning perfect inequality. Hence the lower the number the better the score. China 29.9 inequality rate in 1987. By

2005, it has nearly doubled at 42.5. This is important to my study as in as much as I recommend economic solutions to the problem of corruption, I also mean this to be in a calibrated way to make sure that benefits do not accrue more to just one segment of the population.

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Figure 64 Source WB (World Bank) Data. Notes: Gini (inequality index) for China from 1987 to 2005.

China WB Gini Index 1987‐2005 45 40 35 30 25

20 Gini IndexChina 15 10 5 0 1987 1990 1993 1996 1999 20022005 Gini IndexChina 29.9 32.4 35.5 35.7 39.2 42.842.5

The protection and planning of the economy by selecting which industries to protect from competition , which enables them to become giiants that can compete in the international markeet, was employed across the board by the Tiger economies and China. China selected industries like petro-chemicals, automobile, electronics, machine tools and construction, to support with preferential and protectionist policy treatments. Such selection of privileged industries was also attempted by Marcos by planning the Philippine economy using developmental state models of successful Tiger economies. Marcos’ selected industries were referred to as “crony capitalism”, but the same model in China, Japan, Korea, Singapore etc, is called developmental state planning. The distinction it is asserted is the personalization of those favored industries to accrue not to the industries themselves, but to Marcos and the support of his political machinery.

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Often the choice as to which are to be considered as market winners are politically driven instead of market driven. “In short, during the allocation of particularistic benefits, the distinction between ad hoc favoritism and developmental discretion is a blurred one” (Ngo, 2008, p. 39). Far from being unique to Marcos and the Philippine experience, China suffers from the same problem of using favorable terms to stimulate growth and investment while keeping it free from turning into opportunities for corruption. Even though rent seeking behavior and corruption are the outcomes of massive intervention of the state in the economy, dismantling the system by limiting the discretionary powers of bureaucrats, the autonomy of local political authorities, and giving up propping the “losers” in the market place, are simply too costly for regime maintenance in China (Ngo, 2008, p.41). Despite having a planned economy, the Chinese elite plow back most of its rents back into the economy so much so that they do not discourage investment local or foreign.

Figure 76.a. below China ranking third in FDI rate below Singapore and Chile but above

Indonesia, the Philippines, and Pakistan. This confirms my research claim that despite having a planned economy and employing statist policies, they nevertheless employ enough free market strategies to continue to stimulate investment. Note that the Philippines has the lowest FDI at

.9 which correlates well with its poor levels of corruption.

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Figure 76.a. Bertelsmann Transformation Index Foreign Direct Investment as a percentage of GDP for the time period of 2002 to 2010 for China (Blue Line), Indonesia (Red Line), Philippines (Green Line), Pakistan (Purple Line), Singapore (Aqua Line), Chile (Orange Line). Scoring ranges based actual recorded FDI bigger numbers being better.

BTI FDI as % of GDP 25

10 ChinaBTI FDI %GDP 5 Indon BTI FDI%GDP

0 Phil BTI FDI%GDP Pakistan FDI%GDP ‐5 2002 2003 2004 2005 2006 2007 2008 2009 2010 Sing BTI FDI%GDP ChinaBTI FDI %GDP 3.42.92.83.52.94.13.92.33.1 Chil BTI FDI%GDP Indon BTI FDI%GDP 0.1 ‐0.3 0.7 2.9 1.3 1.6 1.8 0.9 1.9 Phil BTI FDI%GDP 2 0.60.81.92.57.40.91.20.9 Pakistan FDI%GDP 1.2 0.7 1.2 2 3.4 3.7 3.3 1.4 1.1 Sing BTI FDI%GDP 8.1 11.2 13.8 17.2 17.8 20.9 4.8 8.1 18.5 Chil BTI FDI%GDP 3.85.87.65.858.88.987.1

Figure 67 below shows the disconnect between China’s success on the economic front and the political indicators which are suppose to produce those economic gains, resemble that of Singapore’s. The very low scores given by Bertelsmann’s Transformation Index in the political transformation category of 1.6 out of a high of 10 in 2003 to 3.32 are distinctly lopsided when compared to its scores in economic transformation where it receives a 2.6 in 2003 and a 6.57.

The lack of positive correlation is even more obvious when comparing China’s scores for

351 economic performance of 4 in 2003 to a perfect 10 for 2008 and 2010. The consensus in literature that rule of law and political participation are positively correlated to economic performance flies in the face of China’s experience. BTI gives it a score of 1 out of a possible 10 in the rule of law category in 2003 and a 3.32 in 2012. China scores a 1 in political participation in 2003 and a 1.8 in 2012. The lack of positive correlation is evident in its scores of 10 in economic performance. The scores for free market competition are closer in range to economic performance, perhaps indicating that there is some correlation between China’s free market reforms and its economic successes. (See Figure 67 and Table 38).

Figure 67 Source BTI (Bertelsmann Transformation Index). Notes: Comparing China’s political and economic transformation indices from 2003 to 2012. Scoring range from0 to 10 with 10 being best. The blue column represents political transformation while the red column represents economic transformation. Note that the red columns are nearly double the height of the blue columns. Taller columns mean better scores.

China BTI Political & Economic Transformation Index 2003‐2012 7 6 5 4 3 Political Transformation 2 EconomicTransformation 1 0 2003 2006 2008 2010 2012 Political Transformation 1.63.053.153.373.32 EconomicTransformation 2.65.796.256.216.57

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Table 34 below demonstrates the phenomenal rise of China’s GDP per capita over the span of 3 decades. It must be noted that in 1980, China posted a GDP per capita of 193 as compared to the Philippines at 689, Indonesia at 517, and Pakistan at 294. By 2011, China’s posted a GDP per capita of 5,445 as compared to the Philippines at 2,370, Indonesia at 3,495, and Pakistan at 1,194. China did not begin to pass the numbers posted by these countries until

2001 when it hit 1,042 as compared to the Philippines’ 966, Indonesia’s 742, and Pakistan’s 490.

In the years before that point, these countries under study had been enjoying wide margin leads when compared to China. What happened in 2001 to accelerate China’s growth and whether or not this economic growth is what spelled the difference in its better corruption scores when compared to others, is something worth looking into more closely. (See Table 34,

35and Figure 65). Finding the connection between GDP scores and corruption scores is important to my research. At the very time China’s GDP began improving was also the same time frame its corruption scores began getting better.

Table 34 Source World Bank Data. Notes: Comparing GDP (Gross Domestic Product) per capita from 1980 to 2011 for China, Chile, Indonesia, Singapore, Pakistan and the Philippines

GDP/cap

Chile Indonesia Philippi Singap China Pakist

1980 2,466 517 689 4,193 193 294

1981 2,877 599 737 5,579 195 337

1,982 2,111 600 746 6,051 201 367

1983 1,688 529 649 6,605 223 322

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1984 1,615 532 597 7,186 248 338

1985 1,362 520 569 6,960 292 326

1986 1,440 467 538 6,783 279 323

1987 1,670 434 582 7,512 249 327

1988 1,935 499 647 8,890 281 365

1989 2,191 560 708 10,384 307 370

1990 2,393 621 719 11,845 314 358

1991 2,712 684 719 13,737 330 395

1992 3,251 730 819 15,180 363 412

1993 3,424 816 822 18,103 374 425

1994 3,891 900 947 20,249 469 418

1995 4,952 1,014 1,070 22,922 604 476

1996 5,179 1,124 1,170 25,796 703 484

1997 5,580 1,052 1,137 27,545 774 465

1998 5,278 459 975 24,400 821 451

1999 4,792 665 1,097 21,715 865 446

2000 4,878 773 1,048 23,815 949 512

2001 4,394 742 966 22,027 1,042 490

2002 4,262 893 1,009 21,691 1,135 481

2003 4,636 1,058 1,020 22,690 1,274 544

2004 5,929 1,143 1,089 26,241 1,490 629

2005 7,549 1,258 1,205 28,953 1,731 691

2006 9,392 1,586 1,403 31,609 2,069 789

2007 10,406 1,859 1,685 36,707 2,651 871

2008 10,695 2,172 1,925 34,465 3,414 979

2009 10,179 2,273 1,836 35,274 3,749 949

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2010 12,640 2,952 2,140 41,987 4,433 1,019

2011 14,394 3,495 2,370 46,241 5,445 1,194

Table 37 below shows great scores for China in the areas of access to information , which is a transparency and accountability requirement, whistleblower, privatization, procurement, audits, and anti‐corruption laws. This proves what my research claims that despite the absence of traditional democratic checks and balance system like a free press and active civil society, China nevertheless has the oversight institutions that are counterparts of those in other countries where they score very well.

Table 37 Source GIR (Global Integrity Report)

China 2007 2008 2009 2011 CivSocTot 57 61 55 54

CivSocOrg 56 65 53 53

AccInfoLaw 70 83 81 83

FreeMedia 44 35 30 24

ElecPolProc 40 42 44 41

NationElect 57 63 63 61

ElecMonAge 57 62 66 59

PolPartFina 4 2 2 4

GovAcc 45 45 46 51

Executive 47 47 49 55

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Legistlative 30 32 31 33

Judiciary 45 46 46 58

BudgetProc 56 54 56 60

AdminCivSe 64 69 71 78

CivSerReg 39 47 46 52

WhistleBlow 73 75 79 83

Procurement 71 78 83 91

Privatization 73 78 78 85

Oversight 67 74 76 79

NationOMB 71 80 79 76

SupAuditIns 73 84 84 92

TaxesCustom 69 71 75 79

StateOwned 60 58 62 70

FinanSecReg

BusiLicReg 65 75 79 76

Anti‐CorRul 61 65 70 79

Anti‐CorLaw 78 78 78 100

Anti‐CorAge 55 59 68 70

RuleLawAcc 62 68 68 76

LawEnforce 48 54 67 69

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Among the countries under study, it is interesting to note that China roughly receives the same scores from BTI as the Philippines, Pakistan, and Indonesia in the category of how free its markets are. China is the only one of the four countries that share the same high economic scores as Singapore and Chile. Singapore and Chile both share high 9s and 10s in the free market category. In the case of Singapore and Chile, a correlation is evident in the BTI indices between free markets and high economic performance with China being the outlier in this category. In comparing the correlation between economic performances by our countries under study with their corruption scores, we use BTI scores and TI CPI scores for 2003 to 2012. We find that

China of the six countries under study is the only one with low corruption scores when compared with its high economic scores. Singapore and Chile’s great scores in corruption correlate with

357 high performing scores in its economy. Pakistan, the Philippines, and Indonesia’s low corruption scores correlate with low economic performance. China is the outlier in this category, and it may be inferred by this limited sample that there is a strong correlation between economic performance and corruption performance than between political performance and economic performance.

Is political transformation more positively correlated with good corruption scores? Is political transformation more indicative or even prescriptive than economic transformation to bring about corruption reform? Looking at the CPI and BTI indices below, we observe that

China’s low 3s CPI scores are matched with its low 3s BTI political transformation scores.

Pakistan’s low 2s for corruption match up with BTI’s 3s; Philippines is different in that its low

2s for corruption do not correlate with its relatively higher high 6s for political transformation.

Indonesia is more like the Philippines in that it scores high 2s in corruption and high 6s for political transformation. Singapore in this case is the outlier as it scores high 9s for corruption but low 5s for political transformation. Only Chile appears to support the positive correlation between corruption and political transformation with high 7s in corruption scores and 9s in political transformation scores.

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Figure 71 below shows a comparison of corruption and political correlation scores for all six countries under study. This side by side comparison demonstrates how poorly China and

Singapore are scored in the political transformation index. They have nearly the same scores as the Philippines, Indonesia, and Pakistan. Only Chile stands out with great political transformation scores correlating with great corruption scores. This summary of comparison support my research assertion that political indices are not greatly correlated to corruption indices.

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Figure 71 Source TI (Transparency International) and BTI (Bertelsmann Transformation Index). Notes: Comparing corruption perception indices with political transformation indices for China, Pakistan, Indonesia, Philippines, Singapore, and Chile from 2003 to 2012. The Philippines and Indonesia score lower in corruption than China despite higher scores in political transformation. Singapore scores nearly 4 times higher than Philippines and Indonesia in corruption yet lower in political transformation scores. Scoring range is 0 to 10 with 10 being best.

TI CPI & BTI Political Transformation Index 2003‐ 2012 10

4 2003 3 2006 2 2008 1 2010 0 2012 Pakist Philipp Indon Singap ChinaP ChileP anPolit inePoli esiaPo orePol olitical Philipp Indon Singap olitical China Pakist ical tical litical itical Chile Transf ines esia ore Transf CPI an CPI Transf Transf Transf Transf CPI ormati CPI CPI CPI ormati ormati ormati ormati ormati on on on on on on 2003 3.4 1.6 2.5 1.8 2.5 3 1.9 3 9.4 2.8 7.4 4.8 2006 3.3 3.05 2.2 3.58 2.5 6.95 2.4 6.3 9.4 5.35 7.3 9.1 2008 3.6 3.15 2.5 3.65 2.3 6.3 2.6 6.45 9.2 5.37 6.9 9.3 2010 3.1 3.37 2.3 3.65 2.4 5.9 2.8 7 9.3 5.4 7.2 9.3 2012 3.6 3.32 2.5 3.43 2.6 6.4 3 6.85 9.2 5.32 7.2 9.2

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Connecting the Dots: ACMLG Monitored Indices

1. Anti-corruption Legislation:

The guiding legislation for China’s anti-corruption initiatives is the Criminal Law and the

Anti-unfair Competition Law. The Criminal Law under Article 191 makes money laundering a criminal offense. China, like the Philippines has an Anti Money Laundering Law and Anti-

Money Laundering Regulation Concerning Financial Institutions that impose obligations on financial institutions to combat money laundering. The Interim Regulations on Prohibiting

Business Bribery is one of the Supreme People’s Court’s anti-corruption provisions (Smith, p.3).

According to Business Anti-Corruption Portal, China enacted the Unfair Competition Law in

1999 to aid their transition in the market economy. They saw the need to regulate the private sector that makes bribery by private companies of public officials illegal. In 2007, China enacted the equivalent of a Freedom of Information Act with the Regulations on Open Government

Information. This may explain partly why Global Integrity Report shows relatively higher marks for access to public information as a category, receiving 70 out of 100 with 100 being best, an

83 in 2008, an 81 in 2009, and an 83 in 2011. (See Table 37).

These are markedly higher marks than what it receives in the free media or civil society categories. It received a 44 in 2007 for media freedom, which slid even lower to 24 in 2011. In

2010, China enacts the equivalent of the Philippines SALN (Statement of Assets, Liabilities, and

Net worth) law. The difference is that officials are not required to disclose their assets to the

361 public and there are no penalties for not disclosing their financial activities. Unlike China, the

Philippines boast a whole plethora of overlapping multiple anti-corruption legislation. According to Business Anti-Corruption Portal, in May 2011, China, like Chile and unlike the Philippines,

Singapore, Indonesia and Pakistan, criminalized the bribery of foreign government officials. This shows the Chinese concern that corruption may be adversely affecting their success as the most attractive destination for investment (Business Anti-Corruption Portal website). Global Integrity

Report echoes this observation about efforts of the Chinese to build up their anti-corruption legislation. They began with a score of 78 out of 100 with 100 being best, in 2007 and ended with a 100 perfect score in 2011 (Global Integrity Report website). (See Figures 77, 78 and Table

37). By comparison, the Philippines has constitutional and statutory laws and regulations covering every aspect of the corruption/bribery issue. In this case , it is obviously many laws do not mean more effective.

Figure 78 shows a phenomenal 100 out of 100 best scores for Pakistan in a row in the area of anti‐corruption law making. China and the Philippines scoring a perfect 100 in 2011. This suggests as my research claims that countries are making the effort to demonstrate the willingness to institute recommended anti‐corruption legislation. Willingness to enact the laws is a start. Now they must enforce them. All countries in my research score well in law making.

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Figure 78 Source GIR (Global Integrity Report). Notes: Comparing anti-corruption laws for China, Pakistan, Indonesia, and the Philippines from 200y7 to 2011. China, Pakistan and the Philippines all score high 100s by 2011. China (blue line) shows an upward trajectory as does the Philippines (purple line) and Indonesia (green line). Scoring range is 0 to 100 with 100 being best.

GIR Anti‐Corruption Law Index 2007‐2011 120 100 80 60 Anti‐CorLaw China 40 Anti‐CorLaw Pakis 20 Anti‐CorLaw Indon 0 2007 2008 2009 2011 Anti‐CorLaw Phil Anti‐CorLaw China 78 78 78 100 Anti‐CorLaw Pakis 100100100100 Anti‐CorLaw Indon 51 89 67 78 Anti‐CorLaw Phil 69 89 89 100

2. Anti-corruption Agencies:

According to the Business Anti-Corruption Portal, China has no independent anti- corruption agencies from the (Chinese Communist Party). China’s agencies tasked with combating corruption are under the Discipline Inspection Committees (DIC) responsible for investigating violations from party members of the Communist Party of China (CPC). This is problematic as the investigators often have to investigate officials who themselves appointed their superiors in the party hierarchy. Nevertheless, the Central Committee for Discipline

Inspection (CCDI) reported that 146,000 party members were punished of which 5,300 were

363 criminally prosecuted in 2010. The National Bureau of Corruption Prevention (NBCP) was established in 2007 in compliance with UNCAC. It signifies China’s attempts at satisfying international standards on the corruption issue.

However, this body does not have any investigatory powers and limits itself to awareness and education programs. This is not unique to China as much of the progress made on anti- corruption internationally have to do with such information campaigns and not investigative or enforcement efforts. China’s anti-money laundering agencies are People’s Bank of China (PBC),

China Banking Regulatory Commission (CBRC), China Securities Regulatory Commission

(CSRC), and China Insurance Regulatory Commission (IRC). Other anti-corruption bodies include the People’s Security Bureau (PSB), Supervisory Bureaus (SB), and the People’s

Procuratorates (PP) (Smith, p.2). Improvement in anti-corruption agencies in China is reflected in their GIR scores in this category. They received a low 55 in 2007 and improved to 70 out of a possible 100 by 2011. By comparison, the Philippines scored a 78 in 2007 and dropped to a 73 in

2011. (See Figures 79 and 80).

Figure 80 compares China’s performance in anti‐corruption agency with Pakistan, the

Philippines and Indonesia. All four countries under study score a passing range with Pakistan failing and Indonesia getting the best score. This suggests that efforts are at least underway to match anti‐corruption laws with anti‐corruption agencies that would implement anti‐corruption programs.

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Figure 80 Source GIR (Global Integrity Report). Notes: Comparing anti-corruption agencies for China, Indonesia, Pakistan and the Philippines from 2007 to 2011

GIR Anti‐Corruption Agency Index 2007‐2011 100 90 80 70 60 50 40 Anti‐CorAge China 30 20 Anti‐CorAge Pakis 10 0 Anti‐CorAge Indon 2007 2008 2009 2011 Anti‐CorAge Phil Anti‐CorAge China 55 59 68 70 Anti‐CorAge Pakis 90 72 69 63 Anti‐CorAge Indon 66 83 81 86 Anti‐CorAge Phil 78 79 66 73

3. Office of the Ombudsman. Unlike the Philippines, China does not have an Office of the

Ombudsman. However, other agencies do provide the functions of an ombudsman like

entity through the Supreme People’s Procuratorate, the Supreme People’s Court, the

National Audit Office, the Petition Office, and the Ministry of Supervision. Like the

Philippines, these agencies are subject to political pressure. GIR (Global Integrity Report)

however, does not give it a low score. It scores moderate with at 71 in 2007 and a 76 out

of a best 100 in 2011. Of the countries under study, GIR gives China the lowest scores in

this category with Indonesia receiving the highest at 91 in 2007 and 92 in 2011. The

Philippines by comparison scored a 92 in 2007 which went down to 87 in 2011. Like the

Philippines, Pakistan scores a dropped from 90 in 2007 to an 89 in 2011. China and

Indonesia show improvements in this category. (See Figures 81 and 82).

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Figure 82 below prove my research finding that despite not having the actual

agency for an ombudsman, China has a functionally equivalent one that scored a decent

70 out of 100. Even Pakistan performs well in this category, while the Philippines and

Indonesia score great. This suggests that these three poor scoring countries are making

some effort to lay the institutional groundwork for better corruption scores.

Figure 82 Source GIR (Global Integrity Report). Notes: Comparing national ombudsman indices for China, Pakistan, Indonesia, and the Philippines. China(blue line) ranks lowest

GIR National Ombudsman Index 2007‐2011 100 90 80 70 60 50 NationOMB China 40 30 NationOMB Pakis 20 NationOMB Indon 10 NationOMB Phil 0 2007 2008 2009 2011 NationOMB China 71 80 79 76 NationOMB Pakis 90 78 82 89 NationOMB Indon 91 60 87 92 NationOMB Phil 92 83 75 87

4. National Audit Office (NAO). This would be the equivalent of the Philippines’ COA

(Commission on Audit). NAO appears to be in the forefront of combating corruption in

China by its method of open auditing. It publishes reports and expenditures of

government agencies. Some are available online although some may be kept secret based

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on political pressure. Still China receives some of its best GIR scores on this category. In

this category, the Philippines outscores China, Indonesia, and Pakistan among the

countries under study. It scores 96 in 2007 and a 93 in 2011. China however distinguishes

itself in this category by being the only one of the four countries that improved. China

had a 73 in 2007 and a 92 out of a best score of 100 in 2011. Pakistan scored an 80 in

2007 and dropped to a 76 in 2011. Indonesia scored 95 in 2007 and dropped to a 90 in

2011. All four countries show some of their highest marks in this category.

Figure 84 support my research theory that despite not having an active civil society and a free press, China has oversight institutions like the super auditors. This is most important for authentic checks and balances as they measure how much money is really being lost. China’s great scores in this suggests that not enough attention is given to institutional checks on finances and more to items like a free media and forgetting why China may be doing as well as it is in all fronts because it does have the bone structure of real checks and balances.

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Figure 84 Source GIR (Global Integrity Report). Notes: Comparing super audit institutions indices for China, Pakistan, Indonesia, and the Philippines. The Philippines ranks the highest here with China second to it.

GIR Super Audit Institutions Index 2007‐2011 120 100 80 60 SupAuditIns China 40 20 SupAuditIns Pakis 0 SupAuditIns Indon 2007 2008 2009 2011 SupAuditIns Phil SupAuditIns China 73 84 84 92 SupAuditIns Pakis 80 60 81 76 SupAuditIns Indon 95 87 60 90 SupAuditIns Phil 96 95 93 93

5. Investigatory Powers:

Smith (2011) reports that the

Philippines’ anti-corruption agencies compare poorly with its counterparts in China in terms of investigatory powers. This comparison also holds when it is compared to Indonesia and Singapore. China’s PPs (People’s Procuratorates) and PSBs (Public Security Bureau), have rigorous investigatory powers which allow for: Searching the person, residence, property of anyone suspected of a crime or anyone hiding a criminal or evidence of a crime, request or seize material or documentary evidence, order the return of stolen goods, request the repatriation of criminals when they have fled the country, and request for assistance from international organizations when necessary, interrogate suspects and question witnesses, cross examine, people, objects, property, corpses involved in embezzlement, seize relevant accounting information in cases of bribery and embezzlement, and request the assistance of specialists in the area ( 2011, p.5). This is an important difference because the Philippines main problem in its anti-corruption initiatives is not that it have not defined or declared those offenses as crimes or their

368 corresponding penalties, the weakness in its strategy is its inability to gather evidence that will stand up in a court of law.

6. Arrest and Detention Powers:

“The Philippines anti-corruption agencies compare poorly with their counterparts in

China in terms of arrest and detention powers” (Smith, 2011, p.7). The PP and PSBs can detain and issue warrants of arrest to anyone attempting to flee, destroy or fabricate evidence. China also has a Discipline Inspection Committee which can detain Communist Party of China members for suspicion of bribery or corruption. There are no similar anti-corruption agencies in the Philippines which have these kinds of arrest, detention, and disciplinary powers

7. Power to Freeze Property:

China’s anti-corruption agencies have the power to freeze property suspected of corruption (Smith, p.6). Philippine agencies have to apply ex-parte to a court for a freezing order

(Salazar et al, p.52). This is a vital difference because time is of the essence when freezing suspect accountThey can be swiftly transferred electronically and lost forever when the cumbersome court system is used.

8. Sanctions & Sentence Powers:

Both China’s and the Philippines’ anti-corruption agencies have no power to pass sentence. Supervisors Bureaus may impose administrative sanctions or when the offenses are not criminal offenses. Those found guilty of corruption and bribery may be fined or imprisoned for up to 10 years (Smith, p.7). This is similar to the Philippine Ombudsman administrative function to impose fines, or remove from office. Only a proper court in the Philippines may impose

369 sentences of imprisonment and forfeiture properties in corruption crimes (Salazar et al, p.53).

Like China and Indonesia, the Philippines used to be able to impose the sentence of death in the case of corruption cases that rise to the level of plunder until the law’s repeal in 2006.

9. Whistleblower Laws:

The Philippines whistleblower protection laws compare unfavorably with China. China

Criminal Procedural Law requires individuals and entities to report criminal activity. Its AML laws penalize those who do not report large and suspicious transactions and will hold individuals responsible with a fine of up to $65,000, jail time, and removal from the possibility of working in the financial industry (Smith, p.7). While China’s whistleblower laws are punitive, the

Philippines’ are “incentivizing”. The Philippines has immunity laws for anyone willing to testify against public officials in cases of corruption. However, government institutions are required to report suspicious transactions or suffer fines or imprisonment (Salazar et al, 2010, p.54).

Figure 86 shows that even if China does not have a law specifically named whistle blower law like the Philippines, it has the functional equivalent which is what my research brings up as a basis in international agreements. Surprisingly, China, the country that is rated not free, scored the best in this category of whistleblower protections. This again demonstrates my claim that despite the absence of a freewheeling media, China ensures that accountability is required in their system by providing the teeth to ferreting out information on corruption activities.

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Figure 86 Source GIR (Global Integrity Report). Notes: Comparing whistle blower protections for China, Pakistan, Indonesia and the Philippines. China ranks the highest in this index

GIR Whistleblower Index 2007‐2011 90 80 70 60 50 40 WhistleBlow China 30 20 WhistleBlow Pakis 10 0 WhistleBlow Indon 2007 2008 2009 2011 WhistleBlow Phil WhistleBlow China 73 75 79 83 WhistleBlow Pakis 53 75 68 54 WhistleBlow Indon 19 59 0 81 WhistleBlow Phil 56 38 52 79

On the other hand, the Global Integrity Report Integrity scores give the nod to China on this category of whistleblowing. China consistently posted scores higher than the Philippines,

Indonesia, and Pakistan. China scored a 73 out of a 100 in 2007 compared to the Philippines 56,

Indonesia’s 19, and Pakistan’s 53. By 2011, China scored 83 to the Philippines 79, Indonesia’s

81 and Pakistan’s 54. Some factors may explain this strong showing. According to Business

Anti-Corruption Portal, whistleblowing is guaranteed under the Chinese Constitution under

Article 41. This article ensures whistle blower protection from retaliation. The Regulation on the

Punishment of Civil Servants of the Administrative Organs protects whistleblowers in government. The CCP national leadership regularly reminds its citizens to report corruption.

Nevertheless, whistleblowers take enormous personal risk particularly in the far flung places where the ones reported on are also the administrators of whistleblowers’ protections. China shows its resolve in its anti-corruption efforts by providing a hotline and website people can use

371 to report corruption crimes. The Philippines also has these provisions including a hotline and website. (See Figures 85 and 86).

10. Public Procurement Protections China’s guiding legislation for procurement protection is

the Government Procurement Law of 2002 which was modeled after United Nations

Model Law on Procurement of Goods, Construction, and Services. It has not met

international standards as procurement still favors local suppliers. Free competition is

required to be able to join the WTO (World Trade Organization) sponsored Government

Procurement Agreement (GPA). China has submitted offers with no success. By law,

unsuccessful bidders may challenge the decisions in court. Competitive bidding is

required by law. Problems arise because public procurement officials are still not

monitored as to conflict of interest, assets, and spending habits. Global Integrity 2011

reports that those violating the bidding process are disqualified from future bids and that

this is strictly enforced. China again shows improved scores in another category with 71

out of a best of 100 in 2007 and a 91 in 2011. Pakistan, China, Indonesia, and the

Philippines all reflect strong and improved scores with the Philippines 87 in 2007 and an

88 in 2011; Pakistan with 62 in 2007 with an improvement to 78 in 2011; Indonesia with

a 79 in 2007 to an 83 in 2011. (See Figure 87).

Certain actions taken by the government may account for China’s high scores in this category. Aside from the Procurement Law, there is the Contract Law and the Public Bidding

Law and the Law on Unfair Competition that assist this procurement process. In addition, China as far back as 1995 established the TCMs (Tangible Construction Markets) to make the bidding

372 process more transparent. Although not all TCMs are as sophisticated as the one in Beijing, the

TCM in Beijing sets a high standard in bidding and procurement procedures. The Business anti- corruption portal reports that the Beijing TCM has sophisticated electronic equipments that record all stages of the bidding process from pre-qualification, preparing bidding, opening bids, evaluating bids, selecting winning bids, and signing of contract and invoice service. These processes are video recorded and watched by supervisors. The downside is not all TCMs have video recorders. these equipments.

Figure 88 below shows China soaring with the highest score of 91 in the procurement index in 2011. This further supports my research finding that despite doing poorly in political and democratic indices, it nevertheless is building oversight infrastructure to protect the bidding process for corruption.

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Figure 88 Source GIR (Global Integrity Report). Notes: Comparing procurement protections for China, Pakistan, Indonesia, and the Philippines. China ranks the highest in this index

GIR Procurement Index 2007‐2011 100 90 80 70 60 50 Procurement China 40 30 Procurement Pak 20 Procurement Indo 10 Procurement Phil 0 2007 2008 2009 2011 Procurement China 71 78 83 91 Procurement Pak 62 63 62 78 Procurement Indo 79 86 88 83 Procurement Phil 87 87 81 88

11. Overseas Regulators Interaction:

Like the Philippines, China is a signatory of the UNCAC and can exchange information on corruption, enforcement, legal assistance with international organizations based on reciprocity

(Smith, 2011, p. 7). “The Philippines expressly reserve its right to refuse cooperation in cases where it deems its national interest in jeopardy” (Salazar et al, p.54). Business Anti-Corruption

Portal reports “China not only signed UNCAC, but also has the International Association of

Anti-Corruption Authorities (IAACA) headquarters in Beijing. This is as a symbol of their commitment to fighting corruption” (Business Anti Corruption website.). China is not a signatory of the OECD anti-bribery convention but sits in its working groups and attends meetings as an ad hoc observer.

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12. Civil Society and Press Freedom. According to Business Anti-Corruption Portal, Chinese

media are ranked as “not free” by Freedom House. The media are an integral partner in

exposing corruption and state owned media is used regularly in this manner by the CCP.

Independent reports not authorized by the central committee by blogger or Internet cyber

dissidents, are subject to harassment, defamation suits, and long prison sentences, and

sometimes even death for disclosing state secrets. Efforts by the government to shut

down Internet sites critical of the government have been met with resistance.The Internet

is now seen widely as an effective form of dissent in a closed society. It is widely thought

that the journalist who exposed corruption in the food department over use of tainted oil

in cooking oil, was murdered as a result of his series of exposes. This experience under

communist China’s authoritarian system is shared by journalists in supposedly

democratic Philippines, a country now ranked as the second most dangerous place for

reporters. Another experience held in common by China, and the Philippines is

corruption in the media itself. The difference is Philippine journalists receive

“envelopes” from interested parties in return for good reports, while Chinese reporters

may actually be deprived of pay if found in conflict with the national leadership.

There are some signs that the Chinese leadership is serious about corruption. It convicted the director of Farmers Daily newspaper for accepting CNY 200,000 in bribes in exchange for withholding reports on the mine explosion in Lijawa in 2008. Global Integrity Report scores

China’s media’s freedom with a 44 out of a possible 100 in 2007 to a 24 in 2011. By comparison, the Philippines received a score of 83 in 2007 to a 72 in 2011 which makes its scores the highest of the four countries under study. Pakistan scored a 40 in 2007 and a 59 in

2011 while Indonesia scored a 72 in 2007 and a 58 in 2011. Why the Philippines performs more

375 poorly in corruption scores compared to China, Indonesia, and Pakistan despite higher scores in media freedom, is a subject of much interest. (See Figure 90).

Figures 90 and 91 below support my research finding that China scores very poorly in free media and civil society indices. China hit a staggering 24 out of 100 in 2011 in free media scoring and a dismal 54 out of 100 in civil society. My research points out the disconnect between China’s very poor scores in free media and high scores in oversight indices. China scores very well in indices like access to information, whistleblower, and procurement indices.

This is evidence that China has developed its own indigenous system of checks and balances.

This may not be in the western model, but it appears to have helped them get better corruption scores over the past 2 decades. By comparison, the Philippines scores better in both categories. This is important to my research finding that better civil society or free media indices do not necessarily produce the accountability effect other oversight indices do.

Figures 90 Source GIR (Global Integrity Report). Notes: Comparing free media indices for China, Pakistan, Indonesia, and the Philippines. The Philippines scores the highest in this index

GIRFree Media Index 2007‐2011 90 80 70 60 50 40 FreeMedia China 30 20 FreeMedia Pakistan 10 0 FreeMedia Indones 2007 2008 2009 2011 FreeMedia Philipp FreeMedia China 44 35 30 24 FreeMedia Pakistan 40 64 72 59 FreeMedia Indones 82 39 70 58 FreeMedia Philipp 83 73 68 72

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In form but not in practice, civil society organizations are allowed to organize in China.

The right of free speech, free press, and free association are guaranteed in the Chinese

Constitution. The reality is that of the 430,000 officially registered NGOs, three to four times that number are thought to be operating illegally. CSOs (Civil Society Organizations) are subject to close monitoring and surveillance and political organizations are harassed with prison sentences and high fines for criticizing the government. The case of the blind Chinese human rights activist Chen Guangcheng came into international prominence when he escaped to the US in May 2012. Like many others like him, he was confined under house arrest after having been imprisoned illegally. Like CSOs in the Philippines, Chinese CSOs have no influence on policy making decisions. Global Integrity Report scores China’s civil society organizations a weak 56 in 2007 and even weaker 53 in 2011 out of a high of 100. By comparison, the Philippines scores higher than China, Pakistan, and Indonesia of the four countries under study in this category. The

Philippines received 98 in 2007 and a 73 in 2011, which is still higher than Pakistan’s 72 in 2011 and Indonesia’s 69. Why do higher CSO) scores not produce better corruption scores for the

Philippines? Why has China’s low CSO score not impacted its higher corruption scores when compared to the Philippines? (See Figure 91).

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Figure 91 Source GIR (Global Integrity Report). Notes: Comparing civil society organizations for China, Pakistan, Indonesia, and the Philippines. China scores the lowest in this index with the Philippines scoring the highest.

GIR Civil Society Organization Index 2007‐2011 120 100 80 60 CivSocOrg China 40 20 CivSocOrg Pakistan 0 CivSocOrg Indones 2007 2008 2009 2011 CivSocOrg Philippin CivSocOrg China 56 65 53 53 CivSocOrg Pakistan 73 91 91 72 CivSocOrg Indones 88 81 65 69 CivSocOrg Philippin 98 78 84 73

An answer to these questions may be found in another GIR index for Access to

Information. Here, China scores the highest of the four countries under study in this category.

China received a score of 70 in 2007 and an 83 in 2011 out of a possible high of 100 while the

Philippines received a 66 in 2007 and a low of 58 in 2011, which is the exact opposite of their scoring in the free media category. Pakistan scores higher than the Philippines at 75 in 2007 and a 71 in 2011 while Indonesia scores lower than the Philippines at 42 in 2007 and 52 in 2011.

Access to public information normally provided for by a law like a Freedom of Information Act, which the Philippines is yet to pass as of this writing, is critical to unearthing corruption regardless of how they are reported in mainstream media, which in a free society, is not so free when owned, bought and paid for by an entrenched predatory elite. Democracy means informed consent by the governed, with an emphasis of “informed”. If information is curtailed or manipulated, then consent is not really freely given. (See Figure 92).

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Figure 92 demonstrates my research claim that China has oversight provisions that hold their officials accountable. This may not be in the form of a free press and civil society, but it takes the form of freedom of the citizenry to access information about their government and hold them accountable.

That is a far more superior index of transparency and accountability.

Figure 92 Source GIR (Global Integrity Report). Notes: Comparing access to information in China, Indonesia, Pakistan, and the Philippines. Surprisingly, China scores the highest here despite poor showing in Fig 91 for media freedom. Conversely, the Philippines scores a low of 58 in this index despite scoring the highest in the media freedom index. Scoring ranges from 0 to 100 with 100 being best. China (blue line), Pakistan (red line), Indonesia green line), Philippines (purple line).

GIR Access to Information Index 2007‐2011 90 80 70 60 50 40 AccInfoLawChina 30 AccInfoLawPakistan 20 10 AccInfoLawIndonesia 0 AccInfoLawPhilippines 2007 2008 2009 2011 AccInfoLawChina 70 83 81 83 AccInfoLawPakistan 75 75 73 71 AccInfoLawIndonesia 42 57 50 52 AccInfoLawPhilippines 66 65 53 58

Despite higher scores in the GIR access to information index, China continues to suffer from low political freedom scores because it continues its crackdown on government critics.

Despite somewhat of a loosening on foreign press activities because of the Beijing Olympics, serious repression continues to censor the Internet, with Google willing to submit to censorship in order to win new licensing agreements from the authorities. Yet there is some progress on

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Internet freedom reported by BTI 2012. The Internet software called the Green Dam Youth

Escort, which was intended to censor content and required for every computer software by 2009, was scrapped due to widespread national and international outcry.

Figure 93 below compares free media indices and control of corruption indices for four countries, China, Pakistan, Indonesia, and the Philippines. These four countries were in the bottom 8 of the very first TI CPI in 1995. This is important to my research because it answers the question of whether there is a correlation between a free media and better corruption scores. Of the four countries, China shows the worst free media scores with better corruption scores. By comparison, the Philippines, Indonesia, and Pakistan score better free media scores but worst scores when compared to China. This further supports my research claim that economic indicators are better predictors of better corruption scores.

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Figure 93 Sources: GIR (Global Integrity Report) and WGI (World Governance Indicator). Notes: Comparing free media indices with control of corruption indices for China, Pakistan, Indonesia, and the Philippines. The Philippines has the highest scores in free media. Despite having higher scores in free media than China, the Philippines scores lower than China in corruption scores.

GIR Free Media & WGI Control of Corruption Indices 2007‐2011 90

40 2007 2008 30 2009 2011

0 ControlCo FreeMedi ControlCo ControlCo ControlCo FreeMedi FreeMedi FreeMedi rruptChin a rruptPaki rruptIndo rruptPhili a China a Indones a Philipp a Pakistan sta ne pp 2007 44 33 40 24.3 82 33.5 83 26.2 2008 35 35.4 64 21.8 39 34 73 24.8 2009 30 32.1 72 12 70 26.3 68 22.5 2011 24 28.9 59 15.6 58 27.5 72 22.7

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It is difficult for western democracies to understand the incongruence between poor political transformation scores and high economic scores enjoyed by China and other authoritarian regimes. By western standards, a lack of a system of checks and balances, adherence to the rule of law, and transparency and accountability to the governed, should essentially be followed with failure in the economic and corruption front, as well. BTI 2012 explains that China by self description is a unitary centralized authoritarian state like Singapore with one party in power from its inception. (See Figures 93, 94, 95, and 96).

The Leninist formula of all power to the people, is expressed not in the laws or the constitution but in the “party”, and by extension its party leaders and members. They are not directly elected by the people they speak for, and in whose name they draw power. They are selected by party members. All branches and institutions of government are accountable to the party. Even the judiciary enjoys no independence from party authority. This of course is anathema to western democracies who are wedded to the concept of accountability to the people represented and subservience to no one but the law. Yet despite all these, this system works for them in some fashion in terms of attaining goals in the interest of their state and people, their stated goals being social stability and economic development.

Communist ideology is ultimately rooted in economics. China’s focus on economic success and the delivery of economic prosperity to its people are aligned with this belief system.

Communists view freedom in terms of economic freedom over political freedom, economic freedom having sequential primacy over political freedom. At no time has this thinking been put in more evidence than in China’s phenomenally successful handling of its economy that withstood the shocks of the global financial crisis. Behind this success are economic policies, which include free market and statist features. Although China’s economy is export oriented like

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Singapore’s, its introduction of the largest stimulus package of $586 billion which included large investments in infrastructure and social programs, enabled them to ride out the financial crisis and prevent social unrests and compensate for the drop in exports in 2009.

China’s masterful handling of its economy produced a trade surplus of $183.1 billion with foreign reserves of $2.85 trillion. This is 50% of GDP and 30% of all global reserves. It enjoys a realized incoming FDI of $105.7 billion and an overall budget deficit of 3%. Despite its export orientation and free market reform, China continues its protectionist policies whenever it serves them best.China does not allowits currency to appreciate significantly, which would render them less competitive in international markets. By comparison, the Philippines are yet to find its footing and balance on how to advance its own interests.

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Figure 94 Sources: GIR (Global Integrity Report) and WGI (World Governance Indicator). Notes: Comparing civil society organization with control of corruption indices for China, Pakistan, Indonesia, and the Philippines. The Philippines scores the highest and China the lowest in this index but the Philippines scores lower than China in corruption indices.

GIR Civil Society Organization & WGI Control of Corruption Indices 2007‐2011 120

100

2007

40 2008 2009 2011 20

0 ControlCo ControlCo ControlCo ControlCo CivSocOrg CivSocOrg CivSocOrg CivSocOrg rruptChin rruptPakis rruptIndo rruptPhili China Pakistan Indones Philippin a ta ne pp 2007 56 33 73 24.3 88 33.5 98 26.2 2008 65 35.4 91 21.8 81 34 78 24.8 2009 53 32.1 91 12 65 26.3 84 22.5 2011 53 28.9 72 15.6 69 27.5 73 22.7

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Figure 95 below compares all 6 countries’ control of corruption scores. Predictably, Singapore and Chile straddle the stratosphere with great scores. Of the bottom four, the Philippines began with the best score, better than Indonesia, China, and Pakistan. China, consistent with its other high performance in other indices such as economic and oversight indices, ended up ranking higher than

Indonesia, the Philippines, and Pakistan. Looking at the trajectory of the lines in figure 5, Indonesia stands out being the only one with an upward meaning better trajectory, overtaking the Philippines. This supports my research claims that the Philippines scores poorly in corruption and has become worse and not better in this index as is widely claimed by political partisans.

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Figure 95 Source WGI (World Governance Indicator). Notes: Comparing control of corruption indices for China, Pakistan, Indonesia, Philippines, Singapore, and Chile. Singapore (aqua line)and Chile (orange line) are above the others in this category. The Philippines (purple line) began with higher scores than China (blue line), Pakistan (red line), and Indonesia (green line), yet ending in a downward trajectory lower than China and Indonesia by 2011.

WGI Control of Corruption Index 1996‐2011

120

100

80 ControlCor China ControlCor 60 Pakistan ControlCor Indonesia 40 ControlCor Philippines ControlCor 20 Singapore ControlCorChil e 0 19 19 20 20 20 20 20 20 20 20 20 20 96 98 00 02 03 04 05 06 07 08 10 11 ControlCor China 43.9 45.9 50.7 33.7 43.4 34.6 31.2 37.1 33 35.4 32.1 28.9 ControlCor Pakistan 8.8 15.6 22.4 22 27.3 12.7 13.7 23.4 24.3 21.8 12 15.6 ControlCor Indonesia 30.7 9.8 19 8.3 14.6 17.1 20 21.5 33.5 34 26.3 27.5 ControlCor Philippines 51.2 55.1 40 39 38.5 30.2 35.1 22 26.2 24.8 22.5 22.7 ControlCor Singapore 96.6 96.1 96.6 98.5 98 98.5 98 97.6 97.6 98.1 98.6 96.2 ControlCorChile 89.8 87.8 92.2 91.7 86.3 90.7 91.2 91.2 89.8 90.3 90.9 91.9

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In looking at the summary of MLG Independent Variables and Dependent Variables in

Tables 40 and 41, we find China notably scoring high in the economic indices like a BTI GDP growth of 10.4 in 2010 and a GIR 85 out of a possible 100 in the privatization index. China also scores highly in anti-corruption institution building indices such as a GIR anti-corruption legislation score of 100 and GIR procurement protections score of 91. Although still in the bottom tier of corruption ratings, these scores correlate strongly with China’s improved corruption scores when compared to those of the Philippines. (See Tables 40 and 41).

Table 40 Sources: BTI (Bertelsmann Transformation Index), WGI (World Governance Indicator), GIR (Global Integrity Report). Notes: IV (Independent Variable)

China I 19 19 20 20 20 20 20 20 20 20 20 20 20 20 V 96 98 00 02 03 04 05 06 07 08 09 10 11 12 BTI FDI%GDP 3.4 2.9 2.8 3.5 2.9 4.1 3.9 2.3 3.1 BTI GrowthGDP% 9.1 10 10. 10. 11. 13 9.6 9.2 10. 1 2 6 4 BTI 2 5 6.3 6.5 6.5 OrganizationMarke tComp BTI Private 3 4.5 5.5 6 6 Property GIR Privatization 73 78 78 85 index PolStability WGI 41. 30. 35. 32. 27. 32. 30. 27. 27. 28. 23. 25 3 3 1 2 9 2 8 4 4 2 6 WGI Rule of Law 36. 38. 35. 39. 40. 38. 38. 34. 39. 44. 44. 40. 4 8 9 2 2 8 3 9 7 2 5 4 BTI Rule of Law 1 2.3 2 2.3 2.3 GIR Rule of Law 62 68 68 76 GIR Anti‐CorLaw 78 78 78 10 0

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GIR Anti‐CorAge 55 59 68 70 GIR CivSocOrg 56 65 53 53 GIR FreeMedia 44 35 30 24 GIR AccInfoLaw 70 83 81 83 GIR WhistleBlow 73 75 79 83 GIR Procurement 71 78 83 91 GIR NationOMB 71 80 79 76 WGI 11. 10. 11. 6.3 7.2 7.7 7.7 6.3 5.3 5.3 5.2 4.7 VoiceAccoun 5 6 5

Table 41 Sources: TI (Transparency International), GIR (Global Integrity Report), WGI (World Governance Indicator), GFI (Global Financial Integrity). Notes: DV (Dependent Variable). IFF (Illicit Flow of Funds) D 19 19 200 200 200 200 200 200 200 200 200 20 20 20 V 96 98 0 2 3 4 5 6 7 8 9 10 11 12 CPI TI 2. 3. 3.4 3.5 3.5 3.4 3.4 3.2 3.3 3.5 3.6 3. 3. 3. 43 5 6 1 6 GIR anti‐ 61 65 70 79 corruption scorecard WGI Control of 43 45 50. 33. 43. 34. 31. 37. 33 35. 32. 28 Cor .9 .9 7 7 4 6 2 1 4 1 .9 GFI IFF 169 183 162 183 251 291 355 405 399 ,13 ,62 ,15 ,26 ,47 ,09 ,37 ,86 ,65 0 4 2 6 2 1 1 3 9

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The most important conclusion I can make when comparing Chinese and

Philippine anti-corruption MLG experience is that despite China’s dismal scores in civil society, press freedom, political transformation when compared to the Philippines, China still has the better corruption scores. China has fewer anti-corruption legislation and anti-corruption agencies than the Philippines. Surprisingly, China scores just as well in anti-corruption MLG strategies such as whistleblower, procurement, ombudsman, and super auditing agencies indices as the

Philippines. It has developed its own indigenous system of checks and balances. China has anti- corruption initiatives and a system of transparency that do not include active civil society participation or press freedom as they are known in the west. It must be noted that China only has equivalent laws and agencies as the anti-corruption laws and agencies I used to measure the countries under study. What really sets China apart from the Philippines is its success in economic indices. A clear correlation may be seen in the trajectory of China’s improving GDP,

FDI, and Economic Transformation scores when compared with its improving corruption scores in the same time period. China has a good “bone structure” when it comes to oversight agencies.

It scores strongly in those areas. I would assert that that is what spelled the difference in better corruption indices despite dismal scores in the civil society free media areas.

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Comparing and Contrasting the Philippines with

PAKISTAN

Background. Historical, Political, Economic

Historical

Pakistan shares a number of similarities with the Philippines. Both were under military dictatorships, Pakistan under General Ayub Khan’s military coup in 1958 and the Philippines with the declaration of Martial Law by President Ferdinand Marcos in 1972. Khan’s “guided democracy” and Marcos’ “democratic revolution from the center” used the military ostensibly to reform society. The Philippines did not suffer a division of territory like Pakistan did in 1970 with the creation of its eastern part as Bangladesh. Charismatic leader Zulfikar Ali Bhutto was elected prime minister of the remaining Pakistan. Although not a dictator, he became more authoritarian by the end of his term (BTI 2012 website). Like Allende in Chile, he nationalized banks and key industries, which did not help an already stricken economy. Bhutto was overthrown and executed in a military coup by General Zia ul-Haq. The Philippines has not suffered the same bloody transfer of power.

The Philippines has not had a military coup successfully wrest power from an incumbent since the Ramos/Enrile military coup partnered by Corazon Aquino later known as the People

Power Revolution. Zia later died in a plane crash under mysterious circumstances. The

Philippines has not had bloody outcomes for leaders dislodged from power. Marcos was flown by the US to Hawaii for exile while former Philippine President Estrada who was convicted of

390 plunder spent house or “hospital” incarceration. The incarcerator became the incarcerated when

Estrada’s successor and incarcerator, former President Arroyo was herself arrested and incarcerated without bail by her successor, President Aquino. The more genteel” house or hospital” incarcerations characteristic of Philippine ousting of leaders, is in stark contrast to the assassinations and executions in Pakistan, claiming Benazir Bhutto as its last victim in 2007.

These political upheavals are reflected in the World Bank World Governance Indicator (WGI) scores for political stability in Pakistan. Of the countries under study, Pakistan receives the lowest scores of 12.5 out a 100 in 1996 to a .5 in 2011. The Philippines scored a 30.3 in 1996 which dipped to 9 by 2011, China with 41.3 in 1996 which dipped to 25 by 2011, and Indonesia with a 13 in 1996 and an improvement to 21.2 by 2011. Indonesia is the only country under study to post gains in this category. (See Figures 99 and 100).

Consistent with Pakistan’s political upheavals are patterns of corruption. Pakistan scored an 8.8 in 1996 out of a possible high of 100 to a 15.6 in 2011, in the WGI control of corruption index. Transparency International’s CPI echoes these scores with 2.3 in 1995 and a 2.5 in 2011.

Pakistan has the lowest CPI scores of the countries under study. Business Anti-Corruption Portal explains in part Pakistan’s low corruption scores. Like the Philippines, China, and Indonesia, corruption in Pakistan is described as endemic. The latest scandal to come to the fore is the prosecution of the Prime Minister’s son and Minister for Industries and the Minister of

Commerce whose bank account increased by half a million USD. Charges of corruption were also leveled against President Zardari but were dropped as he enjoys protections in the Pakistan

Constitution under Article 248. (See Figure 97 and 98).

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Figure 97 shows how Pakistan kept its poor corruption scores consistently over almost 2 decades. However, there is an upward trajectory from a 1 out of 10 with 10 being best in 1996 to a 2.5 by 2011. My research argues that this very slight improvement may be due to

Pakistan’s attempts to comply with international standards urged on it by anti‐corruption organizations, ACMLG intensified activities within this time frame.

Figure 97 Source TI (Transparency International)

Pakistan TI CPI 1995‐2011 3 2.5 2 1.5 1 Pakistan 0.5 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1995 1996 1998 1999 2001 (102 (133 (145 (158 (163 (179 (180 (180 (178 (182 (41) (54) (85) (99) (91) ) ) ) ) ) ) ) ) ) ) Pakistan 2.251 2.72.2 2.3 2.6 2.5 2.1 2.1 2.2 2.4 2.5 2.4 2.3 2.5

Political Comparison:

Citing Bertelsmann Foundation 2012, Business Anti-Corruption Portal reports;

“corruption charges are used by local governments and the intelligence agencies to intimidate, blackmail, or to neutralizes political opponents” (Business Anti-Corruption Portal website.

General Information Political Climate, para.2). This is an experience Pakistan and the

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Philippines hold in common.This is areason why anti-corruption efforts are seen as selective and ineffective.They are targeted only at political opponents. Like Chile, Pakistan’s military enjoys substantial influence. The difference is Chile’s military participation is wielded legally within its institutional frameworks. It is another branch to check executive power, while Pakistan’s military role has been more of a means to overthrow political rivals. Pakistan’s military also deepens its share not only of military procurement rents but land deals, property development, manufacturing, agriculture, banking, insurance, health, education and private business empires.

Chile’s military is legally allocated 10% of the revenues of the biggest state run copper producer.

According to the Business Anti-Corruption Portal,

Pakistan has not had much history of democratic governance. It has been ruled by a strong president elected by an electoral college and a chief army staff. Presently it follows a Westminster model of a strong prime minister and a weak president. Immature and inexperienced political leadership has brought back authoritarian preferences with a strong bureaucratic elite and an influential chief of army staff.(Business anti-corruption Portal, 2012) This lack of democratic maturity is reflected in the scores given to Pakistan by the

Bartelsmann Transformation Indicator (BTI). It received a 0 in 2003 and a 2.5 in 2012 out of a possible 10. The other countries under study receiving lower scores were China with a 0 in 2003 and a 1.5 in 2012. Interestingly enough, Singapore, a high performer in practically every category including corruption indices, scores as low as the other two authoritarian regimes with a

0 in 2003 and a 2 in 2012. China and Singapore are high economic performers while Pakistan is a poor one. The difference among these authoritarian regimes appears to be the continued close influence and presence of the military in its country’s governance, which is not the case in

Singapore and even China. (See Table 42 in index).

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Military Rule Comparison:

According to Sayeed (2006), the military and lately the Islamic community, escape accountability from corruption agencies behind the all purpose shield of protecting national economic and military interests. Defense and foreign policy institutionalize corruption through its military campaigns in Kashmir and Afghanistan, where purchases of weapons may be kept opaque under national security interest arguments. Big business also escapes the ambit of corruption agencies purportedly in order not to dampen investment. Although corruption exists in all levels of government, bureaucratic civil servants, military, and political officials, only the military has not been held accountable by any corruption agency (para.16-20). Nevertheless, by

2012, attempts at holding military generals accountable are going on as of this writing.

According to The Hindu, in November 20, 2012, Pakistan is preparing for the first time since

2008, a case against three retired generals for alleged involvement in the leasing of government owned land to a golf club for suspiciously low prices. “As can be expected, this has not gone down well with the army generals”.

Corruption in the Pakistani military is actually aided by US tax payer dollars. Ibrahim

(2009) found that the US did not have any way of verifying whether aid was used as promised.

In fact, instead of funding the war on terror, US aid money has been spent on sophisticated aircraft. 54.9 percent of the total funds given them was spent on F-16s, anti-ship and anti-missile defense systems, an air defense radar system at USD 200 million, all these despite the fact that terrorists have no air attack weapon (p. 5). The sale of military weaponry traditionally is the most

394 laden with multiple ways of siphoning kickbacks to foreign accounts of high government officials and heads of states. It is found that the majority of the funds given by the US and coalition to aid the Pakistani war on terror on their borders, was diverted to the Ministry of

Finance. It is then entirely possible that US tax payer money could end up funding the very weapons that will be trained on its citizens at some point in time. It is no surprise then that the

Pakistani war on terror is an abysmal failure, with their soldiers bereft of basic equipment like boots, vests, and shoes. US tax payer money going into “black hole” aid programs is not unique to Pakistan. Similar reports surface about US aid money in the Philippines ending up in private accounts of public officials.

Figure 98 supports TI’s CPI with dismal corruption scores for Pakistan. In a scale of 0 to

100 with 100 being best, Pakistan’s control of corruption scores is from 8s to low 20s. The erratic trajectory of corruption scores of Pakistan seen in Figure 98 correlates with the political upheavals going on the same time period as my research found.

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Figure 98 Source WGI (World Governance Indicator)

Pakistan WGI Control of Corruption Index 1996‐ 2011 30

15 ControlCor

0 1996 1998 2000 2002 2003 2004 2005 2006 2007 2008 2010 2011 ControlCor 8.8 15.6 22.4 22 27.3 12.7 13.7 23.4 24.3 21.8 12 15.6

Table 43 below scores Pakistan in several indices. While scoring poorly in general, there are glimmers of strength in oversight scores, and anti‐corruption legislation. This indicates that as difficult as it is for a politically unstable country under elite state capture to break free, there are signs that attempts at compliance are being made to improve their standing in corruption scores.

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Table 43 Source GIR (Global Integrity Report). Pakistan’s scores on several indices; Civil Society, Election Political Process, Government Accountability, Administration and Civil Service, Oversight, and Anti-Corruption Rules. Time period is from 2006 to 2010. Scoring range is from 0 to 100 with 100 being best.

Pakistan 2006 2007 2008 2010 CivSocTot 63 77 79 67 CivSocOrg 73 91 91 72 AccInfoLaw 75 75 73 71 FreeMedia 40 64 72 59

ElecPolProc 70 65 63 59 NationElect 77 78 66 66 ElecMonAge 80 74 80 77 PolPartFina 51 43 42 33

GovAcc 59 68 69 66 Executive 46 68 59 59 Legistlative 58 66 68 67 Judiciary 67 73 69 71 BudgetProc 65 63 81 69

AdminCivSe 62 60 69 69 CivSerReg 53 50 59 57 WhistleBlow 53 75 68 54 Procurement 62 63 62 78 Privatization 79 52 75 85

Oversight 82 74 78 75 NationOMB 90 78 82 89 SupAuditIns 80 60 81 76 TaxesCustom 83 83 83 75 StateOwned 78 80 68

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FinanSecReg 74 BusiLicReg 84 69 63 67

Anti‐CorRul 81 75 78 70 Anti‐CorLaw 100 100 100 100 Anti‐CorAge 90 72 69 63 RuleLawAcc 77 79 74 73 LawEnforce 58 48 69 44

Figure 100 shows Pakistan’s scores in several indices. The scoring is from 0 to 100 with

100 being best. Pakistan never scores higher than 40 in any category, confirming other anti‐ corruption organizations’ scores for it. What stands out as alarmingly bad scores are Pakistan’s score in political stability. This supports my finding that peace and order have to be present in order to even approach reforms in any other institutions of government and society. Pakistan scores a .5 out of a possible 100 in political stability. That is beyond poor scores. That is alarming and correlated with poor corruption and other scores in other indices.

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Figure 100 Source WGI (World Governance Indicator)

Pakistan WGI 1996‐2011 45 40 35 30 25 20 ControlCor 15 RuleLaw RegQuality 10 GovEffective 5 PolStability 0 1996 1998 2000 2002 2003 2004 2005 2006 2007 2008 2010 2011 VoiceAccoun ControlCor 8.8 15.6 22.4 22 27.3 12.7 13.7 23.4 24.3 21.8 12 15.6 RuleLaw 28.7 24.9 20.6 28.2 28.2 20.6 21.5 23.4 19.6 19.2 25.6 20.7 RegQuality 30.9 27.9 21.1 21.1 23 18.1 26.5 36.3 32 32 31.1 29.9 GovEffective 30.7 36.1 31.2 41.5 40.5 39.5 40 42 40.3 28.6 26.3 22.3 PolStability 12.5 13.5 14.5 5.8 6.7 6.7 5.3 2.4 1 0.9 0.5 0.5 VoiceAccoun 29.3 31.3 11.1 14.4 13 14.9 16.8 22.6 20.2 22.6 26.5 26.3

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Economic Comparison:

Figure 101 below shows that despite consistently being in the bottom rung of rankings when compared to the other countries under study, Pakistan’s GDP per capita increased from

294 in 1980 to 1,194 in 2010.

Figure 101 Source World Bank Datta. Notes: GDP (Gross Domestiic Product) per capita. Scores are actual USD amounts. Time frame is from 1980 to 2010. Note the Aqua line going upwards in trajectory. This means improvement in GDP per capita.

WB Pakist GDP/cap 1,400 1,200 1,000 800

600 Pakist 400 200 0

Economic deregulation and privatization have been prescriptions to containing corruption.

Whether this has produced that desired outcome is not clear to Sayeed (2006) who writes;

Pakistan has vigorously pursued privatization and deregulation of the economy. This has at best produced mixed results. Some of the sectors privatized have indeed become more efficient and benefitted from being out of direct government control, while others-

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particularly public monopolies-have only turned into private monopolies with no benefits to the consumer. Moreover, the process of privatization itself has been called into question as being less than transparent, and collusive. Deregulation of the economy has in many cases gone to the other extreme, where regulation that protects public interest has also been dismantled, with results including cartels and market manipulation (para.29).

Indices from Global Integrity Report, Bertelsmann Transformation Indicators (BTI), and

World Bank Data support Sayeed’s observations. BTI gave Pakistan relatively higher marks when compared to its scores in other categories; in Organization of Market Competition Index, which scores how free markets are, a 3 out of a possible high of 10 in 2003, 5.5 in 2006, 5.3 in

2008, a 6 in 2010, and a5.8 in 2012. By comparison, the Philippines received a 3 in 2003, 6.5 in

2006 and 2008, a 7 in 2010, and a 6.3 in 2012. Meanwhile, Indonesia received a 3 in 2003 and a

6.5 in 2012. Global Integrity Report (GIR) supports BTI findings with a score of 79 out of a possible high of 100 in 2004 in the Privatization category. By 2010, Pakistan received a higher score of 85. By comparison, the Philippines scored a high of 92 in 2004 and an 86 in 2010,

Indonesia received a 50 in 2004 and a 67 in 2010, while China received a 73 in 2007 and an 85 in 2010. (See Table 42 in index) (Table 43 above).

However, economic scores do not positively correlate with these privatization deregulation scores. BTI reports that Pakistan’s FDI (Foreign Direct Investment) as a percentage of its GDP (Gross Domestic Product) was .7 in 2003, 3.4 in 2006, 3.3 in 2008, and 1.1 in 2010.

Meanwhile, the Philippines received a .6 in 2003 and a .9 in 2010; Indonesia a -.3 in 2003 and a

1.9 in 2001 while China received a 2.9 in 2003 and a 3.1 in 2010. GDP growth paints an equally dismal picture for Pakistan in the BTI ratings. BTI scores it a 5% GDP growth in 2003 and a 4.1 in 2010, the Philippines a 4.9 in 2003 and a 7.3 in 2010, Indonesia a 4.7 in 2003 and a 6.1 in

2010 and China with 10 in 2003 and a 10.4 in 2010. Pakistan has the lowest score of the four

401 countries under study for this category. It appears by this data that liberalization strategies by themselves do not deliver economic growth or combat corruption. (See Tables 42, 44 and

Figures 101and 102 ).

Figure 102 shows a sharp upward trajectory for the Philippines (green line) between

2009 and 2010. From a low of 1.1 GDP growth, it jumped to 7.6 by 2010. This supports my research finding that GDP growth is impacted by corruption scores and vice versa. Most of the corruption scandals levied against Arroyo were happening in that time frame of low growth.

Aquino, who won on an anti‐corruption agenda, won in 2010 accompanied by this surge in GDP growth. Pakistan on the other hand began ranking the poorest in 2002 of the 4 countries China,

Indonesia, and the Philippines, and ending up with the worst growth rate in 2010. However, like the Philippines, it did make an upward jump (see red line) between 2008 and 2010 from 1.6 to

4.1.

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Figure 102 Source BTI (Bertelsmann Transformation Index). Notes: Comparing growth as a percentage of GDP (Gross Domestic Product) for Pakistan, China, Philippines, and Indonesia. Pakistan (red line) scores the lowest with China (blue line) the highest. This low performing scores in economic indicators correlate with Pakistan’s low scores in corruption indices. The Philippines (green line) scores higher than Indonesia (purple line) in this index. Scoring is real GDP growth rates.

BTI GDP Growth

6 CHNBTI GrowthGDP% PAKBTIGrowthGDP% 4 PHBTI GrowthGDP% IN BTI GrowthGDP% 2

0 20 20 20 20 20 20 20 20 20 02 03 04 05 06 07 08 09 10 CHNBTI GrowthGDP% 9.110101012139.69.210 PAKBTIGrowthGDP% 3.2 5 6.4 7.8 6.2 6 1.6 3.6 4.1 PHBTI GrowthGDP% 4.4 4.9 6.4 5 5.3 6.6 4.2 1.1 7.6 IN BTI GrowthGDP% 4.4 4.7 5 5.7 5.5 6.3 6 4.6 6.1

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Connecting the Dots: ACMLG Monitored Indices

The following are indicators monitored by anti-corruption multi-level governance actors as measures of how well or poorly a country is likely to do in corruption scores. The presence of these factors is supposed to be causal to less occurrences of corruption.

1. Anti-corruption Legislation:

The main controlling legislation behind Pakistan’s anti-corruption regulations and initiatives are the Penal Code of 1860, the Prevention of Corruption Act of 1947, and the

National Accountability Ordinance (NAO) of 1999. One law that is unique to Pakistan the counterpart of which is not present in China, Indonesia, Singapore or the Philippines, is the

National Reconciliation Ordinance (NRO) of 2007 instituted by then President Musharaf. It provided that all corruption cases before 1999 be dropped. It is reported that nearly 8,000 government officials escaped prosecution under this law. The audacity of this law is breath taking. No other country in modern times has been known to absolve en masse the crimes of thousands of people by law. By 2009, the Supreme Court revoked the NRO and began proceedings against the Zardari government. In the end, they could not go after Zardari as he had constitutional guarantee of immunity (Business Anticorruption Portal. Pakistan Country Profile,

Public Anticorruption Initiatives). Unlike Chile but like China, Indonesia and Singapore, and the

Philippines, presumption of guilt is applied as a standard when a public official’s wealth is clearly disproportionate to his lawful income (ADB/OECD Anti-Corruption Initiative for Asia

Pacific, 2010, p.37).

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Interestingly enough, GIR scores Pakistan with perfect 100 out of 100 in 2006, 2007,

2008, and 2010 in the category of anti-corruption legislation. This may be because of the adoption of the “burden of proof” criteria shifting the burden of proving unexplained wealth from the prosecutor to the accused in corruption cases. By comparison, the Philippines also received 100 in 2008 and 2010, while China received a 100 in 2011. GIR and WGI findings reflect the large gap between great performances in writing anti-corruption legislation, from actually having them work to lower corruption. (See Figure 103). It may also be because

Pakistan does not provide immunity for legislators against anti-corruption proceedings.

Legislators are considered public office holders and not just elected officials. (OECD website.

Adboecdanti-corruptioninitiative/policy analysis/35022355.pdf.) Another reason for such strong showing in the GIR scoring on Pakistan’s anti-corruption laws is the 2009 revocation of the notorious National Reconciliation Ordinance by the Supreme Court. (See Index Table 43).

2. Anti-corruption Agencies:

Pakistan’s premier anticorruption agency is the National Accountability Bureau (NAB).

NAB was created by the NAO. One of the biggest differences between this agency and its counterparts in the Philippines, Indonesia, China, and Singapore, is it cannot investigate members of the judiciary and the military. The judiciary and military establishments have their own internal means of holding their members accountable. This is a weakness not shared by many other anti-corruption agencies. Its biggest similarity to the Philippines is that Musharaf is reported to have used it mainly to go after political rivals, and as such showed very poor results.

NAB officials also reported having been pressured to drop cases against pro-Musharaf people.

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This kind of selective and self serving use of anti-corruption laws and enforcing agencies is what is behind its abject failure in the third world countries. Anti-corruption efforts have not broken through patronage politics and politics of vengeance. Is there anything the international community could do about it or is it just a reality that must be accepted as part of these countries’ evolutionary political experience? (See Index Figure 104).

Accountability Courts are also bodies created by the NAO to try cases specifically dealing with corruption and abuse of power cases involving public officials. The equivalent of this would be the Philippine Sandiganbayan.Both share the same experience of little to no success in convicting the guilty. Many officials were acquitted through the NAO and found their way into positions of importance in the judiciary. This eventually makes it difficult to prosecute cases even with the dismantling of the NAO in 2009.

Like the Philippines and Indonesia, Pakistan has an Office of the Ombudsman. China and

Singapore do not have a separate and independent office for an Ombudsman. It is interesting that the larger more successful economies like Singapore and China do not have an Office of the

Ombudsman. They have agencies that function as such but not a specified one. They do not have many other anti-corruption laws and agencies yet improve or post better scores than the countries in this study that have them. Chile, Singapore and China demonstrate that specific anti-corruption laws and programs are no substitute to efficient enforcement of fundamental criminal laws and institutions of checks and balances.

3. Investigatory Powers:

Pakistan’s Ombudsman’s mandate makes no reference specifically to anti-corruption complaints but to offenses by government officials against individuals. It is not allowed to

406 investigate defense matters and those in military service. This is a big difference from the

Ombudsman’s offices in the Philippines and Indonesia. NAB like its counterpart in the

Philippines can access bank accounts (U4 Anti-Corruption Resource Centre, 2010, p.6). Unlike the Philippines, Pakistan has no immunity for public officials and can be prosecuted for crimes

(U4, p.7).

4. The Office of the Ombudsman (Wafaqui Mohtasib) of Pakistan. Like the Philippines,

Pakistan’s Ombudsman has the power to investigate, power of courts to subpoena

testimony and gather evidence, but it cannot give penalties. According to Business Anti-

Corruption Portal, Pakistan’s Ombudsman is empowered to investigate and rectify

complaints of injustice committed by government officials and public servants. However,

unlike the Philippines, Pakistan’s Ombudsman cannot investigate the military or security

personnel. Despite this major weakness, GIR scores Pakistan ahead of the Philippines in

this category. Pakistan received an 89 in 2011 to the Philippines’ 87. The Philippines was

slightly ahead of Pakistan in 2007 with a score of 92 to Pakistan’s 90. Like the

Philippines, it publishes its reports online. Both countries’ OMBs suffer the same

difficulty of bowing to pressure from the political or appointing officers. (See Index Figure

105).

5. The Office of the Auditor General. Like the Philippines, Indonesia, and China, Pakistan

receives relatively higher scores in this category. It does receive the lowest score of the

four countries under study with an 80 in 2007 and a 76 in 2011. By comparison, the

Philippines received a 96 in 2007 and a 93 in 2011. Both agencies cannot impose

penalties but can report their findings. The Philippines has more advanced technology in

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place for detecting fraud. According to Business Anti-Corruption Portal, Pakistan, like

the Philippines, makes reports and recommendations but these findings and reports from

the auditing bodies are buried and forgotten to ensure that no real prosecutions and

convictions take place. (See Index Figure 106).

6. Federal Investigation Agency. The FIA is the investigative agency responsible for anti-

corruption, anti-terrorism, copyright infringements. The National Accountability Board

(NAB) and FIA often overlap in duties, but FIA has reportedly more specialized training

in new technology for enforcement particularly in the area of intellectual property

protections. FIA’s raids have resulted in 130 new arrests over those filed in 2005.

However, citing the US Department of State, Business Anti-Corruption Portal 2012

reports that they have had limited deterrent effect due to the politization of the

bureaucracy. This is an experience shared by the Philippines as Philippine government

bureaucracy still goes by the unwritten rule of “to the victor, the spoils”. This means that

the party in power acts like a national employment agency petitioned by supporters for

jobs and government contracts. As a consequence, enforcement of the law is also

selective according to party and political loyalties.

7. E-Governance./Procurement Protections. Of the countries under study, GIR scores

Pakistan the lowest in this category with 62 in 2007 and a 78 in 2011. By comparison, the

Philippines receives an 87 in 2007 and an 88 in 2011; Indonesia 79 in 2007 and an 83 in

2011 and China with a low of 71 in 2007 and an impressive 91 in 2011. All four

countries show improvement in this category. Although corruption is seen as pervasive in

Pakistan’s procurement process, it has taken significant institutional protections to

combat corruption. The Public Procurement Regulatory Authority is tasked with

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streamlining and standardizing the procurement process. It is guided by the Public

Procurement Rules of 2004 which requires the publishing of tenders worth 2PKR million

and above. The Philippines by comparison has no amount listed before publication is

required to be made. All government purchases are to be published. Like the Philippines,

those found guilty of violating procurement statutes and rules are banned from future

biddings in Pakistan. (See Figure 107).

8. Power to Freeze Property:

Pakistan has the power to seize and freeze property during the course of an investigation and like

Singapore, China, Indonesia, the burden of proof shifts to the defendant and the defendant has the burden to prove his innocence. (APG Mutual Evaluation Report, 2009, p.53).

9. Sanctions & Sentence Powers:

The NAO criminalizes both private and public sector corruption. This is something they have in common with China, Indonesia, and Singapore but not the Philippines. Pakistan’s penalty of 14 years which can involve hard labor is harsher than China, Indonesia, Singapore, and the

Philippines, with the proviso that China, the Philippines, and Indonesia all have or have had the death penalty for offenses of corruption. The Ombudsman has no power to mete out sentences and penalties.

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10. Whistleblower Laws: Unlike the Philippines, Pakistan does not have a whistleblower law

but in theory expects National Accountability Bureau (NAB) to provide protection for

witnesses and those who report on corruption. The Office of the Ombudsman provides a

hotline for tips online. Of the countries under review, only China provides penalties for

the disclosure of the identity of whistleblowers. Hence most people according to GIR

2008, and as cited by the Business Anti-Corruption Portal do not trust the institutions to

act on complaints or protect the whistleblowers from retribution. (See Figures 108 and

109).

11. Overseas Regulators Interaction:

Pakistan ratified UNCAC in December 2007.

12. Civil Society and Media Freedom. Like the Philippines, Pakistan’s civil society

organizations composed of the media, academia, business, and the public sector, act as an

advisory body called the National Anti-Corruption Strategy Project, helping to formulate

anti-corruption policy. Like Indonesia, Pakistan’s NGOs helped in passing the Freedom

of Information legislation. The Philippines by comparison as of this writing, has yet to

pass its own version. According to Reporters without Borders as cited by the Business

Anti-Corruption Portal, Like the Philippines, Pakistan continues to be one of the most

dangerous places for journalists in the world.

Like China, Chile, Indonesia, Singapore, and the Philippines, freedom of speech, press, and association are constitutionally guaranteed in Pakistan. These freedoms are guaranteed under

Article 19. Like China, Indonesia, and the Philippines, free media is often reined in under

“emergency” rules. Even the Freedom of Information Act has largely been ineffective because of

410 the restrictions placed for “security” reasons. Freedom House considers Pakistan media “not free” as compared to the Philippines which is considered “partly free”. Pakistan’s passing of a freedom of information act is reflected in GIRs scoring them higher than the Philippines in this category. Pakistan received a 75 in 2007 and a 71 in 2011 compared to the Philippines 66 in

2007 and a 58 in 2011, Indonesia’s 42 in 2007 and 52 in 2011, and China with 70 in 2007 and an

83 in 2011. (See Index Figures 110 and 111).

According to the Business Anti-Corruption Portal, Transparency International Pakistan was responsible for helping create tighter and more transparent bidding processes which ensured savings of 23 to 42 percent in 2004 on excavators and bulldozers compared to prices in 1994. No similar reports of direct impact on the costs of equipments or purchases are reported by

Transparency International Philippines. Some of this civil society success may be reflected on

GIR’s relatively higher scores for Pakistan in this area. Pakistan received a 73 in 2007 and a 72 in 2011 compared to the Philippines which received a high 98 in 2007 and a 73 in 2011;

Indonesia with an 88 in 2007 and a 69 in 2011 and China with the lowest scores in this category among these four countries under study with a 56 in 2007 and a 53 in 2011. (See Index Figure

112).

12a. Transparency International Pakistan. Apart from helping pass the Freedom of Information

Act, TIP (Transparency International Pakistan) is also be credited for having the government sign a TI Integrity Pact. It alsosigned an anti-bribery pact with the Karachi Water and Sewerage

Board. TIP succeeded in having the Trading Corporation of Pakistan sign a memorandum of understanding for transparent public procurement. It sponsored an e-system to log complaints

411 online. It succeeded in having Pakistan International Airlines sign a memorandum of agreement.

(Business Anti-Corruption Portal, 2012, para. 3 Pakistan Country Profile, Private Anti-

Corruption Initiative). Nevertheless, TIP had to bow under pressure and not produce its 2011 corruption reports and tone down its criticism of Zardari’s administration.

12b. Center for Peace and Development Initiatives. This organization is involved in making

the policy making process more participatory and transparent by promoting access to public

information and budget process monitoring.

12c. Free and Fair Election Work (FAFEN). FAFEN is engaged in the promotion of electoral integrity by observing election processes, reporting on electoral violence, intimidation, and fraud in its published reports on its website.

Table 45 Sources: BTI (Bertelsmann Transformation Index), GIR (Global Integrity Report), WGI (World Governance Indicator), TI (Transparency International), GFI (Global Financial Integrity). Notes: IV (Independent Variable), DV (Dependent Variable)

Pakistan I 19 19 20 20 20 20 20 20 20 20 20 20 20 20 V 96 98 00 02 03 04 05 06 07 08 09 10 11 12

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BTI FDI%GDP 1.2 0.7 1.2 2 3.4 3.7 3.3 1.4 1.1 BTI GrowthGDP% BTI 3 5.5 5.3 6 5.8 OrganizationMark etComp BTI Private 4 6.5 6.5 6 6 Property GIR Privatization 79 52 75 85 index PolStability WGI 12. 13. 14. 5.8 6.7 6.7 5.3 2.4 1 1 0.5 0.5 5 5 5 WGI Rule of Law 28. 24. 20. 28. 28. 20. 21. 23. 19. 19. 25. 20. 7 9 6 2 2 6 5 4 6 2 6 7 BTI Rule of Law 2 4 3.8 3.3 2.8 GIR Rule of Law 77 79 74 73 GIR Anti‐CorLaw 10 10 10 10 0 0 0 0 GIR Anti‐CorAge 90 72 69 63 GIR CivSocOrg 73 91 91 72 GIR FreeMedia 40 64 72 59 GIR AccInfoLaw 75 75 73 71 GIR WhistleBlow 53 75 68 54 GIR Procurement 62 63 62 78 GIR NationOMB 90 78 82 89 WGI 29. 31. 11. 14. 13 14. 13 14. 16. 22. 26. 26. VoiceAccoun 3 3 1 4 9 9 8 6 5 3

D 19 19 20 20 20 20 20 20 20 20 20 20 20 20 V 96 98 00 02 03 04 05 06 07 08 09 10 11 12 CPI TI 1 2.7 2.2 2.3 2.6 2.5 2.1 2.1 2.2 2.4 2.5 2.4 2.3 2.5 GIR anti‐ 81 75 78 70 corruption scorecard WGI Control of 8.8 15. 22. 22 27. 12. 13. 23. 24. 21. 12 15. Cor 6 4 3 7 7 4 3 8 6 GFI IFF 2,0 3,2 1,7 85 1,1 6,1 55 40 69 5 41 33

The most important conclusion I have for this section on Pakistan, is it has the distinction of being the only country of my six countries under study, that actually mandates that the

413 military is immune from corruption investigations. That in itself should explain why it remains in the bottom of the pile of all of the indices examined in this research.

In summarizing Pakistan’s ACMLG IVs (Independent Variables) and DV (Dependent

Variables) represented by economic, political, and corruption scores from GIR, BTI, WGI, and

TI and GFI, I find Pakistan’s low scores in both areas congruent with each other. Low economic and political ACMLG scores have resulted in low ACMLG corruption scores. However, there are areas of improvement worthy of mention. Pakistan scored a high of 85 out of a possible 100 in GIR’s privatization index, a 100 in anti-corruption legislation and a 100 in the ombudsman index. These marks have not impacted corruption scores for the better. Other than WGI’s scores ranging from 81 to 70, Pakistan continues to straddle the bottom tier of corruption rankings and ratings. (See Table 45).

Comparative Summary and Conclusions Statistical Comparison of IV (Causes) and DV (Consequences) of Corruption

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The following three figures A1, A2, and B are meant to show the correlation or lack thereof between Independent Variables Figures A1 GDP/Capita and A2 Voice & Accountability to Figure B the Dependent Variable CPI score. The reader will be able to appreciate from Figure

A1 is how much better the GDP per person of Singapore is from the rest of the pack. Economic prosperity separates this country markedly when compared to the others in the graph. All six countries started in the 5 thousand and below USD in 1980. Singapore climbed to almost 50,000 per capita by 2010 with the lowest being Pakistan at 1,019 USD per capita. The rank order is 1 to 6 with 1 being the highest and 6 the lowest: 1. Singapore 2. Chile 3. China 4. Indonesia 5.

Philippines 6. Pakistan. When the same six countries’ ranking from best to worst, (1 being best and 6 being worst) is compared to the ranking order in Figure B showing corruption scores, (1 being best and 6 being worst) one will notice that the numbers are mirror images of each other.

This perfect mirror image ranking is shown in Figure C. This infers that economic indicators as discussed in this chapter has great correlation with corruption scores and ranking order.

Figure A1 Independent Variable. BTI GDP per Capita. Economic Correlate. The higher the trajectory of the line in the graph means the better the country is doing in terms of GDP per capita from 1980 to 2010.The time period covered is from 1980 to 2010. By 2010 the rank order of the best scoring countries are: 1. Singapore (Purple Line), 2. Chile (Blue

415

Line), 3. China (Aqua Line), 4. Indonesia (Red Line), 5. Philippines (Green Line), 6. Pakistan (Orange Line). GDP is shown in US Dollars from 0 to 50,000 on the X axis. The years are shown on the Y axis.

GDP per capita 50,000 45,000 40,000 35,000 Chile GDP 30,000 Idonesia 25,000 Philippi 20,000 Singap 15,000 10,000 China 5,000 Pakist 0

It is widely heralded that democratic political systems characterized by free expression, transparency and accountability, make great correlates to levels of corruption. Figure A2 below show a rank order giving Chile first place best ranking with Chinawith the worst rank of 6.

Singapore, which ranked number 1 best performer in the GDP indicator, is ranked number 4 in voice and accountability. When compared to corruption rankings in Figure B, Figure A2 shows that there is less correlation between best scores in voice accountability and best scores in corruption.

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Figure A2. Independent Variable (IV). World Bank Voice & Accountability. Political Correlate. The rank order 1 being best and 6 being worst are as follows. 1. Chile (Red Line) 2. Philippines (Blue Line) 3. Indonesia (Green Line) 4. Singapore (Purple Line) 5. Pakistan (Orange Line) 6. China (Orange Line). The scoring is 0 to 100 with 100 being the best score. The time period is from 1996 to 2010.

WB Voice & Accountability 100

60 VoiceAccounPhilip VoiceAccounChile

50 VoiceAccounIndon VoiceAccounSinga

40 VoiceAccoun China voiceAccounPakis

0 1996 1998 2000 2002 2003 2004 2005 2006 2007 2008 2010 2011

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Figure B. Dependent Variable (DV). Transparency International CPI. Corruption Levels. This covers the time period from 1995 to 2011. Scoring is from 1 to 10 with 10 being best. This covers the time period of 1995 to 2011. The best scores are ranked 1 to 6 with 1 being best. 1. Singapore (Red Line) 2. Chile (Purple Line) 3. China (Aqua Line) 4. Indonesia (Green Line) 5. Philippines (Blue Line) 6. Pakistan (Orange Line).

TI CPI 1995‐2011 10 9 8 7 Philippines 6 Singapore 5 Indonesia 4 Chile 3 China 2 Pakistan 1 0

418

Figure C. Summary and Comparison of IV Fig.A1 GDP/Cap (Blue Column), IV Fig.A2 Voice & Accountability (Green Line), with DV Fig. B Corruption Scores (Red Line). The rank order is 1 to 6 with 1 being best. Note that the blue column (IV GDP/Cap) perfectly matches the red column (DV Corruption Scores) for Singapore, Chile, China, Indonesia, Philippines, and Pakistan. Note that the green column (IV Voice & Accountability) when compared with the red column (DV Corruption Scores) do not demonstrate the same correlation with the green column rising and falling at different levels from corruption levels.

IV DV Correlation 7 6 5 4 3 IV GDP/Cap 2 DV Corruption Scores 1 IV Voice & Account 0 Singapor Indonesi Philippin Chile China Pakistan e a es IV GDP/Cap 123456 DV Corruption Scores 123456 IV Voice & Account 416325

The figures above provide persuasive statistical evidence for this research’s findings, conclusions and prescriptions. They provide statistical support to news and scholarly report about what accounts for the numbers being what they are. I observe that corruption exists in all kinds of regimes and political systems. The one indicator that is constant across the board for all countries under study is that a good economy is highly correlated with better levels of corruption.

The reverse is also true. The worst a country’s economic indicators, the worst corruption scores are. This is not to say that ACMLG is a total loss and waste of time as some scholars suggest.

Evidence from this chapter shows that countries are trying to comply with setting the building blocks for anti-corruption initiatives. Among the indices that the countries do well in despite

419 poor corruption scores, are the following: the legal framework, presence of an Ombudsman, super auditing agencies, procurement index, whistleblower index, and even compliance with

FATF’s anti-money laundering provisions.

The Philippines for example just passed one of the last hurdles to banking secrecy being used to launder the money of the corrupt. They have now added the provision that suspected accounts under investigation may be frozen and seized without the knowledge of the account holder. They have also finally complied with the provision that includes not just banks and financial institutions as subject to special scrutiny, but real estate, jewelry, and other luxury items. The domestic anti-corruption structure is in place in these countries. The problem is lack of enforcement by a predatory elite. Now it is the task of ACMLG to ensure enforcement by attaching sanctions to their recommendations. It is the view of this research that attached penalties will persuade elite behavior to make the transition from predatory to corporeal. I assert that ACMLG provisions when enforced will persuade the predatory elite that it is in their best interest to share the rents with the state itself. This is what elites in successful non-democratic states like Singapore and China do. There is no reason why elites in more transparent states cannot do the same when provided with the right incentive or in this case disincentive.

Finally, the intent behind using “hard numbers” or statistical analysis in this chapter, produced by independent international monitoring organizations not beholden to local elites, and combining that with the rigor of disciplined scholarship, is to depersonalize and depoliticize the issue of corruption generally, and in the Philippines, specifically. By doing so, I hope to end the endless finger pointing; taking turns at the trough in tandem at plunder politics, and begin the discussion about real changes and not just personnel changes at the top.

420

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Chapter V Conclusions and Prescriptions

Conclusions

My research finds that anti-corruption institution building such as anti-corruption legislation, the kind that provides search, seizure, and repatriation powers, anti-money laundering laws, government, independent agencies and programs such as the Office of the Ombudsman,, media freedom, freedom of information, whistleblower protections, procurement protections, e- government, cooperation with international regulators, have had some success in some countries and nil to no impact on others. Without elite implementation, these anti-corruption initiatives offer no more than an appearance of compliance. Nevertheless, when combined with international collective action imposing sanctions for non-compliance, these structural preparations can be enforced and can produce the intended outcome.

It is also this research’s conclusion that state capture and the absence of institutional checks and balances, contribute largely to the lack of implementation of even well written anti- corruption laws. It comes to the conclusion that the perpetrators can hardly be trusted to police themselves let alone subject themselves to punishment. The Chilean and Hong K ong checks and balance anti-corruption structure would be more reliable than that of Singapore’s which leaves to chance a structure of absolute power and hopes the leadership is moral. Systems and structures are what prevent corruption and not just moral leadership.

It also comes to the conclusion that since the corrupt predatory elite are unlikely to file suit against themselves for corruption, that international agreements must allow for the use qui tam laws that say that private citizens and NGOs have standing in filing suit against the

427 kleptocracy. This research prescribes that international agreements allow for the enforcement of

US anti-corruption laws in member countries. Since the US is one of the main destinations of ill gotten wealth, recovery of such should be more possible. Another main conclusion of my research is that economic prosperity is the best predictor of good performance in corruption indices, regardless of political system. The economy is causal to poverty and poverty is causal to patronage politics and patronage politics is causal to corruption. This is the causal sequential flow that makes economic factors not just the problem but also the solution. It is therefore a prescription of this research for anti-corruption organizations to begin focusing on debt forgiveness or debt restructuring as an anti-corruption tool. Economic indicators are the best predictors of corruption because GDP, FDI, and foreign reserves, for example, all measure behavior and not opinion. The behavior of investing in an economy indicates confidence that comes from certainty. The existence of a great volume of foreign reserves indicates that the leaders are not engaged in wholesale looting of the treasury. It is also my conclusion that the most successful economic model is not pure statist or pure free markets but a combination of both. The countries in my research which have used the hybrid model, post the best scores in both corruption and economic indicators.

It is also this research’s prescription that UNCAC and OECD anti-bribery convention close the loopholes in the language of their agreements that allow for recalcitrant countries to continue not complying with its provisions. In matters of transnational corruption, the search, seizure, and repatriation of illicit wealth, international agreements must trump domestic law. It is also the prescription of this research to begin the international codification not just of articles of agreements, but the sanctions attached to non-compliance with those international anti- corruption agreements.

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I began this inquiry with the question of whether or not anti-corruption multi-level governance (ACMLG) works in lowering levels of corruption. To do this I mapped out who, where the ACMLG (Anti-Corruption Multi-Level Governance) actors are and what they are doing. Contrary to what I would have liked to demonstrate, this research finds that ACMLG has not improved levels of corruption in the short term in the case of the Philippines and Pakistan in the past fifteen years. It has however, laid national and international anti-corruption frameworks and foundation for systems that potentially may have the force of law that can then lower levels of corruption. For the purposes of this research, I focused on grand corruption or the outright theft of public funds by high government officials that end up in private accounts abroad. This is the most insidious form of corruption that impacts both the public and private spheres. Non- compliance with anti-corruption laws and programs on this level results in non-compliance in all levels. Evans (1989) powerfully asserts that “Personalism and plundering at the top destroys any possibility of rule governed behavior in the lower levels of the bureaucracy, giving individual maximization free rein” (p. 570).

Why has anti-corruption MLG (Multi-Level Governance) not worked in lowing levels of corruption? It has not worked because the various multi-level strategies did not answer and were not designed to factor in the most obvious question. What if the highest officials are the most corrupt and are the very ones in charge of anti-corruption initiatives and enforcement? There is little logic in expecting the perpetrators and first beneficiaries of corruption to themselves be the instruments of their own demise. International anti-corruption work did not provide for the reality that predatory elites in captive states are not likely to enforce anti-corruption measures,

429 even were they to go through the motions of instituting anti-corruption efforts. International

Governmental Organizations by the very fact that they are governmental, means that they work with domestic governmental organizations. Corrupt domestic government officials are not likely to cooperate with IGOs’ anti-corruption initiatives. Perpetrators cannot themselves be entrusted with the task of policing themselves.

Economic Factors

ACMLG (Anti-Corruption Multi-Level Governance) has not worked partly because the economic liberalization/deregulation and democratic political solutions have not brought the expected results of breaking the monopoly of government officials’ creation and distribution of rents. Public monopoly was replaced by private monopolies. Democratic institutions aimed at increasing accountability and transparency were rendered palliative in effect as methods of accountability like a free press, civil society, access to information, institutional checks and balances, were simply co-opted by the ruling elite which financed parties in power.

Consequently, beautifully worded and scholarly crafted anti-corruption legislations and programs served well as window dressings but produced little to no effect on the grip of rulers on the state coffers and the extraction and distribution of rents. In the Philippine scenario, anti-corruption

MLG remains fixated on Marcos’ transgressions so much so that 25 years of worsening corruption have not been held in check by state and non-state actors. Part of the reason for this is state and non-state actors partly responsible for ousting Marcos have a stake in the success of the

People Power Revolution that replaced him. Hence they virtually relinquished their oversight duties and became part of government propaganda. They forgot that the restoration of democracy they fought for does not mean the installation of one party in power with no other parties to check its power. Ted Greenberg, former Chief of the Money Laundering Section, U.S.

430

Department of Justice, and former Senior Financial Specialist of the Financial Market Integrity

Unit at the World Bank said during the book launching of Frank Vogle’s “Waging War on

Corruption” that global activists are still stuck on the old cases, on the Marcoses when new dictators and heads of state are using the same banks to deposit and launder their money.

Ogus (2004) argues that decentralization, which is another anti-corruption prescription, may offer more layers of opportunity for rent seeking than a “one time bribe to one official” that a centralized system of corruption does. Despite this observation, data from a study by Fisman and

Gatti (2002) “suggests that fiscal decentralization correlates better with lower levels of corruption than fiscal centralization” (p. 339). Deregulation is another anti-corruption prescription which has been met with some success with the argument that less regulation means less opportunity for rent seeking. A perfect example is the decrease in police corruption in off- course betting in Hong Kong with its deregulation. How this may apply in the Philippine setting, is to legalize Jueteng. Jueteng (gambling) is the all purpose palabigasan (rice granary) or source of bribes for corrupt officials and managed to bring down a president of the republic, Joseph

Estrada.

Vinod (2003) finds that the invisible hand of market forces cannot cure the market failure brought about by conflicts of interest such as expecting banks to go against their self interest of welcoming laundered money from corruption when it is income and revenue for them. This is why regulation has to step in to make up for these market failures (p. 875). Credit rating agencies contribute to curbing corruption by counteracting government propaganda by instituting fiscal discipline (p.878). “If countries do not discipline themselves, markets do it for them through hot money transfers. Since markets treat everyone equally, market discipline is politically more bearable than edicts from IMF bureaucrats who can sometimes make wrong policy

431 recommendations” (p.878). Vinod 1999 as cited in Vinod 2003 recommends the following to curb corruption; “1. Reduce red tape 2. Increase efficiency of the judiciary, 3. Increase per capita

GNP 4. Increase economic freedom and schooling 5. Reduce income inequality” (p. 879). Note the emphasis Vinod puts on economic oriented anti-corruption strategies. My own research finds that countries in my study that do well in this economy oriented prescriptions do have low levels of corruption.

Free market competition has similarly not worked in developing countries as expected because regulatory intervention often has to be used in times of market failures. Contrary to the trends, even international trends for anti-corruption efforts, Ogus (2004) finds that criminal regulations often come with the disadvantage of increased rent, hence administrative instead of criminal sanctions may be more appropriate. Regulatory requirements where there are clear and precise rules, offer less opportunity for corruption particularly in a developing country where checks and balances and accountability are nascent. Another western anti-corruption strategy that has worked is the consultative involvement of third parties in policy making. This has resulted in more transparency and accountability as well as more opportunities to come into contact with regulators and can therefore, increase incidences of corruption. Ogus argues that this may be a price to pay for more transparency (p. 342).

Part of the reason anti-corruption MLG fails is that economic liberalization strategies to minimize elite discretion over rent distributions failed. Vinod (2003) explains in part why economic liberalization strategies failed to bring about desired outcomes. He argues convincingly that corruption increases the risk and cost of capital in corrupt developing countries in open economies. In open economies, there is a bias for investors to invest in stable western economies. This means that there is an asymmetry between capital flight and FDI in corrupt

432 developing countries. Because investment risk is higher in corrupt countries, investors require a higher return, making the cost of capital higher in developing corrupt countries (p. 885). The double bind in this predicament is that the nature of free markets suggests that the more control a state puts on capital flows, the less foreign direct investments there is.

As such, Vinod argues for fewer controls on capital flows because controls discourage foreign trade and makes room for more corruption and delays. This then leads to fewer competitors for domestic suppliers which then results to monopolistic behavior. This leads to stunting innovative forces needed to compete in a global marketplace (p. 887). An example would be how there is more foreign direct investment in Mexico which does not have the same capital flow controls as India. So although the fear is great that the wealthy in corrupt developing countries is high that they will invest in foreign economies and cause massive capital flight, empirical data proves that more capital controls means less investment. Mexico proves that less capital controls did not lead to less investment. India has more capital controls and less investment. The Philippines dabbled in trade liberalization and privatization but did not provide the kinds of incentives that would lower the risk for foreign investors. It privatized certain industries by selling public companies to cronies. It continued with control of select industries through government owned corporations, but unlike Chile and Singapore, the benefits do not accrue to the state but to private individuals’ pockets.

Ogus (2004) contends that the central issue is “barriers to entry and other regulatory controls” that are exploited for and by private purposes in the Philippines (p. 334). A virtuous cycle can only come about with political will induced by domestic need or international pressure.

Ogus argues that the goal should not be eradication of corruption as he believes this to be impossibility, but a reduction of incidences and intensity of corrupt behavior in regulatory

433 provisions, some of them running contrary to those prescribed by the west. One anti-corruption western prescription is privatization. While there is some evidence that this does reduce discretionary power, it creates a new group of people with their own discretionary power. These new groups have inside knowledge that are unavailable to others. This is to these great advantage.This advantage takes the form of price control and market manipulation. This creates vast opportunities for middle men to collect “tongs” (rents).

So how can we produce a hybrid that would use some of the best qualities of state intervention but at the same time curb the opportunity the model presents for predatory behavior?

Paldam (2003) comes closest to the conclusion my research makes. I argue that economic factors are more correlated to corruption than political factors. “This all leads to a clear and tractable main structure of causality. The economic theory says that corruption is an endogenous product of economic factors, though perhaps with some feedback loops, which are fortunately weak. The cultural theory sees corruption as a product of culture and politics. In this theory, corruption is exogenous to the economy” (p.219). Paldam argues that corruption is a product of economic factors. The rival view is that corruption is not an offshoot of the economy but of culture and politics. Paldam found that it takes two centuries for economic transition to occur, and at least half a century even for the Asian Miracle or Tiger economy countries (p.220).

This suggests that the Philippines and countries under study are very early in this process other than Chile which has had its independence for over 100 years. A key argument is

“dictatorship concentrates the group of the corrupt, hence reduces the amount extorted” (p.230).

My own research found that democracy by itself does not reduce corruption but but higher GDP,

FDI, and better Gini inequality scores, do. This research finds that despite the large number of anti-corruption legislation and government programs, despite the impressive number of anti-

434 corruption civil society organizations when compared to the countries under study in this research, the Philippines trails behind Pakistan, Indonesia, and China which were behind it in the first Transparency International CPI scores and rankings in 1995.

This research also finds that despite the relative lower presence of anti-corruption MLG when compared to the Philippines, such as a lower number of anti-corruption legislation, government programs, and civil society participation, Chile, Singapore and China rank higher than the Philippines in corruption scores. Indonesia, Pakistan, and the Philippines all rank higher than China and Singapore in the political and democratic transformation status, yet China and

Singapore score higher in corruption scores. The common denominator is that both China and

Singapore have efficient economies which is lacking in the comparatively more democratic states of the Philippines, Indonesia, and Pakistan. Only Chile among the countries under study support the general thesis that economic prosperity correlates with democratic institutions. This tends to support the theory that there is greater positive correlation between older democracies

(like Chile) and economic growth. This growth has a negative correlation with corruption.

(Emerson, 2006, p.211).

This is supported by Paldam’s findings. “By far, the most important determinant of corruption has turned out to be real GDP per capita. The complex transition from a poor traditional country to a wealthy liberal democracy also includes a dramatic reduction in the level of corruption” (p.237), Paldam finds that the transition of economic growth follows the same trajectory as corruption. He asserts further that although cultural transition is a factor, there are more countries sharing the same economic and corruption path than those who share cultural and corruption paths.“Culture is thus an inferior explanation of the level of corruption” (p.238).

O’Connor and Fischer (2012) supporting this research’s findings, also found wealth to be the

435 significant predictor of corruption when compared to values and institutions. They found that base levels of wealth and government size mattered most when predicting corruption levels. The kind of values they found most predictive of corruption are values promoting trust and social action (p. 652). They write,

Our results indicated that wealth, government size, and self expression societal values separate those countries that are less corrupt from those that are more corrupt. Within countries, only increasing wealth was related to an individual country’s decreasing corruption. In other words, our findings may warrant a critique of the manner in which institutions such as the World Bank have favored international best practice for good governance over local, culturally compatible solutions. In particular, this study provided no evidence to support the importation of democratic institutions, or the forced adoption of rational values, as a means to reducing corruption (at least on the short term) (p.653).

International Factors

Another reason for the failure of anti-corruption MLG rests on the nature of international law and its lack of enforcement mechanisms. Agreements, treaties, and conventions’ success relies on answering the question of what sanctions or penalties are enforced on the non- compliant. There are some encouraging trends like the FATF blacklisting of non-cooperating countries with regards to enforcement of anti-money laundering and terror funding laws. Of all the weapons devised by the international community against corruption, the choking off of the flow of illicit wealth has the most potential for successfully deterring bad behavior. Closing off the loopholes in opportunities for elites to continue their predation will come at different rates of success due to different economic and political experiences. Opportunities for kleptocracy may continue to exist at differing rates and intensities in different countries, but predators will have

436 less and less havens to put their loot in if the international community acts as one to police those highways, byways and destinations of illicit wealth. International collective action must be strengthened with agreements, not just on goals and intent but on corresponding incentives and disincentives for compliance or non-compliance.

There is scholarship that attests that the solution to the problem of corruption will ultimately rest on domestic leaders. Ksenia (2008) asserts that international solutions to corruption such as anti-money laundering and bribery conventions have not worked because they work against the interest of developing countries. The reason cited for this is International Monetary Fund (IMF) imposed economic policies tend ‘to serve the interest of the bank and not the interest” (Ksenia, p.28) of these countries, which are impoverished by these policies. This research supports the contention that international efforts to combat corruption have failed, but not because they go against the interest of developing nations. This research agrees that IMF policies that tend to impoverish the public and cause more political upheavals have worked against the interest of developing countries, but finds no logical linkage to this being a function of anti-bribery conventions.

Brown and Cloke (2011) comment on how surreal international anti-corruption efforts have become when academies and schools on corruption are established having little to do with the apprehension of perpetrators of scams like the BAE (British Aerospace Enterprise) Systems defense contracts. International resources have to be shifted and targeted at the tracking, seizure, and successful litigation of illicit wealth by closing off the very avenues they flow through to discourage the gargantuan illicit pay offs given in large defense contracts such as those involved in the BAE scandal.

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Elite Behavior

Future research must focus on why some elites behave in a predatory way in some states but not in others. Research must face head on the power asymmetries in developing countries characterized by institutionalized “bullying” by an elite who replies to questions as to why they persist with their behavior with the universal reply of bullies all over; “Because we can”. This implies then that if the argument of the predatory elite for acting in that manner is because they can, as in there is no other force that can stop them, then an external force must be conjured up to stop them.

On the other hand, the models of Singapore and the tiger economies demonstrate that even if the elites there can engage in predatory behavior, they do not do so. So the question remains:

What would motivate the Philippine elite to stop engaging in predatory corruption and crony capitalism? What would be the kind of logical motivator that Peter Evans writes about, that would induce similar restraints? Perhaps if the predation continues and the slide to even more poverty and political instability continues, which would then result in more armed insurrection from the poorest of the poor, then that extremity may herald change in the elite’s behavior. So far the military that shares the largesse continue to prop up this elite. Would their monopoly of lethal force continue if armed rebellions become more prevalent and successful?

Why do elites in different countries behave differently in terms of levels of predation and corruption? Although this is not the central question of this thesis, the answer to this question may provide many insights on policy directions that will have to be taken to address this problem

438 at the core. Levels of elite predation and state capture lie at the root of anti-corruption MLG’s failure. Cosmetic democratic institutions like those that came with the People Power Revolution that ousted Marcos and installed Corazon Aquino, succeeded in expanding contestation and competition which are necessary ingredients to checks and balances that curb corruption, but did not dismantle the predatory elite’s power. With the decentralization of power came the decentralization of corruption. More political personalities took over the distribution rents and rent allocations, but the same owners of property and production, controlled the state through their agents. The same repressive mechanisms were strengthened to maintain incumbents in office (Slater, 2007 as cited in Gryzmala-Busse, 2008, p. 657). An example of this mechanism that was carried over from the Marcos regime, was how Marcos increased the power and resources allocated to the military and Supreme Court, but in doing so made these institutions beholden to him. Gryzmala-Busse (2008) writes,

And once state revenues go into the pockets (or rather, the offshore bank accounts) of rulers, state institutions find themselves with insufficient funding. Staff members go unpaid, weakening regulatory oversight and enforcement and creating incentives for state officials to compensate their meager salaries through selling services for additional fees or skimming from government accounts (p. 662). This research finds and supports other scholarly findings that predatory corruption became more ravenous because of the time limit set on the ruler’s time in office after Marcos. Predators perceived that they have a finite amount of time or a short window of opportunity, (6 years term for the president) to make hay and did so at an accelerated and intense pace that was not seen until the waning years of the Marcos regime. Those that came after Marcos used the same predatory regimes’ use of government employment as rent distribution. Evans (1998) uses the manner of how people get jobs in a state to measure the practice of klepto-patrimonialism. For example, Japan’s prime minister appoints dozens, US president appoints hundreds, Brazil’s

439 president appoints thousands (p.577). Philippine presidents appoint thousands and act as a super national employment agent that appoints based on patronage and not merit. This politicizes the government bureaucracy and makes it difficult to impose high standards of behavior.

Kahn and Formosa (2002) write that the word “crony” had its benign origins to mean old school chum. In the Philippines, its early meaning in 1946 referred to political association, old school mates, close friends, and relatives.. The term crony reached the peak of its notoriety during Ferdinand Marcos’ dictatorship where state power was used to grant special monopolies to special friends. “Crony capitalism” describes a capitalist economy in which contracts, loans, appointments, concessions, subsidies, tax incentives and so on are awarded to friends, relatives and other clientelistic associates rather than on the grounds of contracts, proper procedure and the like” (p. 51). Post Marcos governments continued the system of Crony Capitalism in the form of private monopolies of industries by cronies, distribution of high paying positions in government owned corporations, and the distribution of rent rich activities in the extraction of natural and mineral resources among others. They continued to use the laws of the land to legally neutralize their rivals through the development and control of state institutions following “rule by law rather than rule of law” standards (Gryzmala-Busse, 2008, p.656).

Because the “cost of exit” from power is so high in predatory states, rulers hang on to office with such ferocity and tenacity (Gryzmala-Busse, 2008, p.648). In the Philippines, the cycle of vendetta/plunder politics is so intense that each incumbent will do everything in his power to stay in office because it is the only means to survive, to extract rents, and to escape prosecution.

Clearly one solution to state capture is increased competition and institutionalized successions where the losers are not persecuted. Another explanation for why some elites stay predatory is that it is the kind of predation that is enforced by allies abroad. (Wedeman, 1997, p. 464). It

440 could also be that there is more distribution of rents and efficient co-optation of all actors so that the repressive rule does not reach a tipping point. To reach a tipping point would mean that the repressive rule would no longer be sustainable for the elites and the voters. Moreover, Evans

(1998) adds the theory that unlike the tiger economies in East Asia, the Philippines and Brazil among others have to contend with a traditional landed elite (p.577).

Gryzmala-Busse, as do most scholars, puts the Marcos dictatorship in the predation category that keeps all the rents to itself. It is more accurate to say that Marcos stayed as long in power as he did because of his ability to distribute rents and build consensus than use repression. In the early days after he declared Martial Law, he was considered a strong leader and did not need the elite’s participation in organizing the state. He tried to do what Japan and other East Asian economies were doing in terms of being a developmental state. He used state intervention to rationalize and make government programs comprehensive such as massive road and infrastructure building. Since absolute power tends to corrupt absolutely, and tends to corrode even the best intentions, the end of Marcos’ regime was marked with greater difficulty in securing support from his international and local backers. The reason for this is that unlike other developmental states that succeeded in bringing about efficient economies using authoritarian methods, Marcos was seen to have appropriated and squirreled away all rents for himself, his family, and his friends.

Evans, (1989) finds that the structure of predatory and developmental states is critical to finding out whether they are “captured” or “autonomous”, and how they emerge and what can be done to hasten the transition of states from the “predatory” stages to arrive at the developmental stages (p. 563). This in turn would provide insight into how to craft anti-corruption public policy that would factor in that reality. Public Choice theorists explain predatory behavior as a state

441 behaving as “rational maximizers”. This protects and promotes the survival of its supporters through preferential contracts, jobs or through state intervention in industries. Kreuger (1974) as cited by Evans (1998) asserts that a competition for rents is largely a competition for entry into government (p.564). So granting that this argument is valid, and that this is a reality that cannot be escaped, the question remains: What makes elites in some countries able to distribute rents among a larger number of people, and others keep the rents almost exclusively to themselves?

Bardhan (2005) claims that how economists view corruption is useful in this discussion. While social scientist and anthropologists may view corruption in terms of norms and morality, economist view it in terms of incentives and organizations (p.343). The economist’s solution to the problem of elite corruption would therefore be a system of incentives and disincentives to elite predation.

Evans (1998), describes what an enlightened developmental elite looks like but does not explain how they got there from being a predatory elite. Examples of developmental states like

Japan, Korea, Taiwan, and Singapore have elites that can behave in a “corporatist” way by realizing that they can maximize their gain only if they can act in a corporal way. Why then do some states like the Philippines, fail at attempts at this? One explanation this research found is what the developmental states have as a common denominator that the Philippines does not share. There is a siege/survival impetus at play in these tiger economies that serves as a corporal motivator to act in a rational manner that would enhance their survival. Although the Philippines also faces multiple threats from internal enemies like the communist and Islamic insurgencies, they are threats that are largely contained by its military. An external threat, such as a military threat from another state, is far graver.

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The elites in these countries rationally arrive at the conclusion that their own narrow interests cannot be served if there is no nation to begin with. They arrive at the logical conclusion that they need all hands on deck in order to ensure survival. The Philippines does not have this survival/crisis impending attack from a foreign country or impetus to justify their country’s ideology such as China. What would make elites organize a state that is autonomous or insulated from forces around it? What conditions would be required to produce that kind of state? What would keep the political class from its preoccupation with rent seeking which Evans writes has turned “the rest of society into prey” (Evans, 1998, p.570). Hence if elites are moved by self interest, then the argument for international intervention is still valid as it is the only entity independent and strong enough to “motivate” self interested elites into protecting themselves from economic sanctions. Consider this thought: If international backers can prop up absolutist states, then the same international impetus can do the opposite and put the restraints on predatory states.

The Predatory State

Arguments about what constitutes a meritorious state abound. Rose-Ackerman (2001) cites

Mark Warren who points out that “governments are needed in just those situations in which people cannot trust each other voluntarily to take others’ interests into account. The state is a way of managing inter-personal conflicts without resorting to civil war” (p. 527). Arguments about what a meritorious state should look like abound, but few describe the path to get there if the predatory elite is recalcitrant. “This embedded autonomy, which is precisely the mirror image of the incoherent absolutist domination of the predatory state, is the key to the developmental state’s effectiveness. It depends on the ability to construct an apparently contradictory combination of Weberian bureaucratic insulation with intense immersion in the surrounding

443 social structure” (p. 575). How did these elites get that way? A description of what works and what is ideal is not enough. Scholarly research must move from the “what” question to the

“how” question in terms of how to get there.

The role of the state is to enforce voluntarily arrived at contracts and to secure the property and persons of state members. The state’s most minimal role is to be the enforcer of contracts.

The state would be unable to perform this most basic role if there is no motivation for individuals to constrain their behavior and conform it along collective aims (Evans, 1998, p. 565). “The state should be relatively autonomous in the sense of being constrained by the structural requirements of capital accumulation without being closely connected to or dependent on specific private elites” (p.566). Because of the “personalization” of state apparatus, FDI was nil to none towards the end of the Marcos regime. Marcos had to use loans at high interest rates to sustain development. FDI is wary of the inherent instability of kleptocratic regimes. Not learning from recent history, Philippine post Marcos leadership continues with this pattern of rent distribution and regime personalization.

This pattern of rent distribution appears to work for a sufficient number of people.There is little incentive to change the status quo no matter how much lip service they give for the benefit of international regulators. If rent distribution and competition are institutionalized or systematic, then organizations gain. If there is no distribution or competition and all rents accrue to individuals, then that is predation. The East Asian tiger economies institutionalized rent distribution and competition to benefit the collective. The Philippines on the other hand, continue to accrue all rents to individuals, which can only be called predation.

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Grymala-Busse (2008) observes that clientelism, predation, fusion and exploitation are modes of state capture impacting state capacity. There are a number of ways incumbents can extract private benefits from the state. Among these mechanisms of diverting resources to private accounts usually abroad are: Skimming or theft of foreign aid, mineral aid money, awarding of government contracts to allies with expectations of campaign contributions and kickbacks, expropriation of political opponents’ assets, asset nationalization, secret accounting procedures, and extra-budgetary funds that are unaudited and hidden from the public. “To develop maximum control over state agencies, rulers will purge the civil service, weaken regulatory agencies, politicize fiscal bodies (such as central banks and budget office’s), and take over the allocation of foreign aid, customs, and mineral wealth” (p. 649).

Corruption exists in all types of regimes, communist, socialist, free market economies, old and new democracies, just in varying degrees of intensity and impunity. It must be admitted that the kind of grand corruption that exists in the developing countries, is the kind that does the most harm to the greatest number of the most vulnerable. There is no question that there is a direct correlation between high levels of corruption and economic indicators. Most countries with successful economies have less corruption. The discussion of the merits and demerits of state intervention in the economy, between regulatory state and developmental state versus economic liberalization, still does not answer the question of how elites arrive at having a strong collective autonomous state that protects its citizens from multinational and national predators yet other elites do not. Evans (1998) describeswhat these states look like but have not explained how and why those elites are more “corporal” as Evans describes it than predatory states. “The state’s ability to support markets and capitalist accumulation depended on the bureaucracy being corporately coherent entity in which individuals see furtherance of corporate goals as the best

445 means of maximizing their individual self interest” (Evans, 1998, p. 568). This is a description of what a corporal state looks versus a predatory state. It does not explain how the state became that way.

Institutions

Fisman and Miguel (2008) found that governments must be willing to experiment with what works. The sticks and carrots approach is best (p.74). The problem in endemic corruption is that there seem to be no carrots to offer the corrupt because the corrupt way works for the population on so many levels. There can be sticks used, and many threat type disincentives are offered.

However, aside from the nascent reward system used, there is no big ticket reward for grand thieves to stop their grand thievery. “The Tony Sopranos of the world have figured out that there is good money to be made by over-invoicing contracts; double the budget for supplies, buy some cheap concrete, and split the leftover cash with your cronies in the roads ministry” (Fisman and

Miguel, 2008, p.73). Announcing there will be an audit of projects before the project even starts lowers the percentage stolen from the budgeted amount. According to Fisman and Miguel,

Economic Forensics and not what people say about something secretive like corruption, but what can be seen and measured, is what is important (Fishman and Edward, 2008, p.69).

Bhargava & Bolongaita (2004) write that independent oversight agencies, independent civil society, media involvement and parliamentary oversight were successful in the Philippines. This

446 was written during former president Joseph Estrada’s time (1998-2002), and since then the very same issue of corruption and worse was seen subsequently during former president GMA’s

(Gloria Macapagal Arroyo’s) time. This suggests that nothing, not the media, or parliamentary oversight were really effective. Bhargava and Bolongaita (2004) write, “Corrupt officials are not about to strengthen the bodies that run after them” (p.254). In accountability legislation, technology, civil society, the Philippines finds itself ahead of Indonesia’s anti-corruption coalitions (p.257-258). The problem with all these suggestions is in hindsight 8 years later, they have not worked. Even non-state actors get co-opted by the ruling party and report only the transgressions of those they helped put down like Estrada and managed to ignore all of former president Gloria Macapagal Arroyo (GMA’s) transgressions until much later when the looting had already been done. CSOs tend to buy into the benefits of supporting the party in power instead of maintaining their role as independent anti-corruption champions. The disincentives of dissent are also formidable. The triple threat to life, liberty, and livelihood with no institutional recourse to protection, have stymied even the staunchest of hearts in the Philippines. This is why it is the contention of this research that ACMLG strategies remain the best option. The geographical and metaphorical distance of global anti-corruption activists and organizations from domestic overlords, is the key to their independence.

Nwabuzor (2005) writes that corruption scandals continue to plague developing countries because of poor investigative and enforcement mechanisms (p.122). “Far more serious is the outright diversion of funds due the government into private pockets” (p.123). Nwabuzor (2005) proposes that multinationals report annually all the payments they make to foreign governments and entities. This information can be held by Transparency International or the International

Chamber of Commerce for anyone who would like to investigate any discrepancies. Another

447 suggestion is that multinational contracts have an anti-corruption clause written in contracts with heavy fines and prison terms as penalties. Corruption cases by multinationals must be published in cities where they are head quartered to encourage the local population to protest and appeal to these companies’ stockholders to use their influence to stop the bribing of foreign officials

(p.136).

Prescriptions

Economic ACMLG Prescriptions:

While this research agrees with O’Connor and Fischers’ argumentthat the implantation of fully grown democratic institutions has not yielded the intended outcomes when it comes to corruption, their arguments do not address nor do they negate this research’s arguments for the need for international collective action. This research argues that international collective action against corruption or Anti-Corruption Multi-Level Governance (ACMLG), restrains and mitigates the effects of state capture in developing countries. If the economy is the biggest predictor of corruption, then economic strategies must be the biggest focus used in future international anti-corruption initiatives. An example of this would be the forgiveness of debt or the radical reduction of interest on loans in developing countries. The Philippines, as this research has found, is weighed down by having to use a sizeable portion of its national budget just on interest payments on loans. This then inhibits them from undertaking the kind of economic development, the kind that has been seen to lower levels of corruption in studies.

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An economy oriented Anti-Corruption MLG (ACMLG) strategy would be to tie in foreign aid to Foreign Direct Investment incentives such as insurance and loan guarantees. This research also finds that part of this economy oriented AC MLG strategy must have more focus on first world actors, like banks and international financial institutions, which must share the bigger burden and responsibility for capital flight and the flow of illicit wealth from developing countries. It is time to push the ACMLG movement from awareness, education, seminars and training programs, towards highly targeted, economy oriented strategies.

Ampratwum (2008) writes that international aid and trade should not be attached to anti- corruption efforts as corruption is basically a domestic problem (p.85). I strongly disagree, as once again this statement is put forward but does not offer any answer to the question of what if domestic stakeholders are held captive by a predatory elite and that the highest government officials entrusted with anti-corruption are themselves the most corrupt? Only consequences or sanctions enforced can bring about compliance to previously agreed upon laws and procedures.

In fact, the reason international anti-corruption efforts have failed is little asking of the what if question is done. Hence, consequences for non-compliance are mainly informative and self evaluative.

Nothing can be more in the interest of developing countries than international collective action to stop the bleeding caused by kleptocracy. At the root of this bleeding are the international banking and financial systems that protect its flow and destination. A small attempt at enforcement is made by the Financial Action Task Force (FATF) with its black listing of non- cooperative countries. This should be refined and supported not watered down as Ksenia

449 suggests. (Ksenia, 2008, p. 231). I agree with conclusions about prevention being more important than retribution as a matter of containing corruption. (Ksenia, p.228). The system at present is not equipped to gather the kind of evidence, or undertake the cost of retributive justice.

Prevention in real time and not after the kleptocratric heads of state are out of office, should be the focus. I call this new strategy a Preemptive Strike Against Perpetrators of Plunder.

Moreover, this research strongly disagrees with Ksenia’s view that foreign aid should not be conditional on good behavior on the part of aid recipients. The reason ACMLG policies have not worked is precisely because no conditionality is attached to aid given corrupt countries.There are no means of accounting for tax payers’ money from donor countries. Because of weakness or absence of institutional checks and balances in some developing countries, the ruling predatory elite’s power can only be checked by a “power greater than themselves” which is the ad hoc countervailing power of public and private, national and international collective action, also known as MLG. Domestic ruling predators’ defiant and smug question “and who is going to make me?” is at the root of non-compliance with anti-corruption MLG’s initiatives. Vinod

(2003) agrees and suggests that international intervention in legal infrastructure protecting property and contracts, guarantees and subsidies for Foreign Direct Investment (FDI), insurance subsidy for FDIs and law enforcement assistance against corruption abuses are necessary for curbing corruption. “Foreign aid must be tied as incentives to FDIs. FDIs are better for developing countries than loans as there is long term investment involved and investments are not just arbitrarily pulled out. Foreign aid could do this with matching grants to encourage honest investors to invest in disadvantaged countries. Foreign aid dollars should be allocated in technical surveillance and forensics that would enforce anti-corruption laws” (p. 888).

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There are those who also argue that corruption cannot be empirically measured, and perception indices or dummy variables cannot really do the job, (Fisman and Miguel, 2008, p.

68). The inference is that since we cannot measure it, there is not much we can do to contain it.

Fisman and Miguel (2008) argue otherwise and suggest that corruption can be measured through the stock market, which follows political connections such as when rumors of ill health about

Suharto surfaced which sent the stock market value of companies connected with him plummeting. Interestingly, stocks of well connected companies in England do not budge with even the appointment to office of their chief executives. For example, the appointment of Rolls

Royce chairman John Moore to the House of Lords had no impact on his company’s stock value

(Fisman and Miguel, 2008, p. 70). The lesson from their observation is that the behavior of companies connected to a regime is a measurable indicator of corruption. My own indicators, also measure people’s behavior and not just what they say in surveys. For example, whether or not people are prepared to invest their money in a country in the form of FDIs, is behavior that tells me more about the state of corruption in that country than interviews asking people whether or not they think there is corruption in that country.

The answer therefore, is not less MLG but more enforcement mechanisms for MLG agreements. This research finds and supports other scholarly conclusions that the power of entrenched elites cannot be checked without “powerful motivational logic to constrain individual behavior” (Evans, 1998, p,565). It is this research’s conclusion that just education/information/awareness campaigns, mutual agreements, “self monitoring” or “self evaluations” are not enough to curb corruption.. Those who argue for less international intervention in curbing corruption due to cultural and sovereignty sensitivities like Ksenia, will find that grand corruption, as many anti-corruption scholars like Raymond Baker, Theodore

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Greenberg, and Frank Volker, are now coming to see, is deeply and causally linked to and negatively impacts other international interests like human rights, poverty alleviation, political stability, and eventually international security. There is prudent logic in not waiting for conditions in weak states to go from weak to failed before taking preemptive action and saving international stakeholders a fortune in human and monetary resources to restore stability in those countries. Most of the illicit funds go to first world countries. Most funds that end up in corrupt hands come from first world aid. First world countries must step up and take responsibility for their share of the transnational corruption problem.

Legal ACMLG Prescriptions:

Brown and Cloke (2011) object to the focus on the demand side of the corruption equation, letting off tax havens, multinationals and international banks in their role and participation in contributing to corruption. They refer to John Christensen’s paper, which argues,

the role that offshore tax havens play in servicing illicit economic activities, the detrimental impact that this has had upon key governments in preventing the development of effective international action to police cross border financial flows and trace the movement of dirty capital. He concludes that by arguing that the global anti-corruption movement needs to enter a new phase where attention begins to move from merely focusing on the demand side of the equation (the bribe takers and embezzlers) to much more directly address the role of

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accountants, bankers, lawyers, and offshore financial centers in enabling corrupt practices (p. 121). I fully agree with this conclusion that the emphasis should be on choking off the flow of illicit funds. This research’s conclusion and prescription are based on the logical argument that if the corrupt have nowhere to hide their illicit wealth, and that they can be tracked and seized, they would be more discouraged to acquire them to begin with no matter what regime/political/economic/social system they belong to that gives them the power to acquire them to begin with.

Blanchflower (2002) laments that more is not done to answer the question of where illicit funds go and how they can be repatriated. There is good reason for not asking and answering this question. It is replete with problems in terms of legal impediments such as banking secrecy laws and lack of political will on the part of all concerned to get involved. The main problem is the cost of such enterprises. Who will shoulder the legal and investigative costs of tracking, freezing, seizing, and repatriating illicit wealth? Even if there are laws to allow for them, the prohibitive cost still stands in the way of success (p.298).

This research finds that this is an area where US laws like its qui tam laws can really help.

Because it is unlikely that sitting heads of state will initiate proceedings to investigate their own corrupt behavior, nor will their administrations that are held captive by them, private individuals with an eye to a substantial percentage of the looted money should be able to have standing to file a suit against them. Laws on immunity protections of heads of state must also be lifted. If immunity laws for heads of state cannot be overcome, then the suit can be filed against the

“asset” itself in civil court. This is what was done with the Marcos repatriated money. Since

453 there was no acknowledgement of ownership of said accounts by the Marcoses, then, it was given a legal personality.

Part of the focus of new economic oriented ACMLG must be to allocate a substantial amount of its resources towards the cost of litigation and repatriation of illicit wealth. Non-state funding and resources from civil society may also come in the form of organizations of lawyers willing to donate their services pro-bono towards this cause. The use of Lincoln’s Law or qui tam laws gives whistleblowers standing to sue from personal knowledge of the crimes. Also known as the whistle blower law, this Act can also be applied to International Law and answers the burning question of this dissertation; what if the enforcers of anti-corruption laws are the highest officers of the land? Can they be expected to file anti-corruption or allow for the filing of anti-corruption law suits against them? The answer is private individuals and organizations in class action law suits being given standing when trying to recover ill gotten wealth. This leads to my idea of using Adam Smith’s and James Madison’s “greed to counter greed” method of balancing power asymmetries as an anti-corruption strategy. With the wider use and practice of qui tam laws for

“bounty hunting” illicit wealth stolen from developing countries, US litigious culture could be utilized to curb corruption by “preying” on “predators” illicit accounts with an eye to 30 percent of recovery.

Carrington (2007) observes that the United States is not new to experiences of corruption. It enacted legislation “based on an ancient English practice identified by the Latin phrase qui tam, describing actions brought on behalf of the Crown by one of its subjects. This law authorized private citizens to represent the United States in claims against those who defraud it, and gave them an incentive to do so by assuring them a substantial share of any recovery resulting from their efforts” (p. 122). Lincoln’s law came about during the civil war in 1862 called the False

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Claims Act, because of cases of war profiteering through overpriced supplies like charging double for disease laden horses by friends of the Secretary of War Simon Cameron, who was dismissed by Lincoln (p. 123). Multiple parties filing these kinds of lawsuits against war contractors had the deterrent effect it was intended for. The same deterrent effect can be provided by the same laws if used internationally to fight corruption against sitting heads of state. This is the heart of the problem as it is the heart of the solution. Corrupt heads of state logically would not be filing cases against themselves. The advantage of qui tam cases is that they are civil and do not require a “beyond a reasonable doubt” standard of proof but just a “preponderance of evidence” standard.

Further, the whistleblower, known as the realtor, is entitled to subpoena evidence and may continue with the case even if the Department of Justice does not join it. US laws also protects qui tam realtors by not requiring them to shoulder the defense cost in the event they lose the case. If successful, the realtor can receive as much as 30% of the damages plus reimbursement of lawyers’ fees. In addition, whistleblowers are protected by law from harassment, dismissal from employment and guaranteed confidentiality. However, the relator may not disclose his knowledge of the evidence to the public especially when such information can harm the plaintiff’s business interest such as their value in the stock exchange (p.125). The success of qui tam laws is not possible without the aid of “sunshine laws” or a Freedom of Information Act.

The Philippines is yet to enact both qui tam and FOI (Freedom of Information) laws. This is what makes Philippine anti-corruption initiatives vulnerable to charges of window dressing efforts. It writes the language of the anti-corruption laws enough to sound good to international regulators and observers, but stops short of actually including laws that would ensure their success and efficacy.

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Carrington (2007) asserts that the international community can enable foreign governments to take advantage of qui tam laws in the US (p.134). The Hobbs Act, Foreign Corrupt Practices

Act, the Dodd whistleblower Act, the Patriot Act, and other US anti-corruption laws have international effect on corrupt sitting heads of state which can be utilized more effectively. This would mean amending international conventions to say that judgments of US courts or participating countries of the Conventions should be honored and enforced. The US Patriot Act for example, can be utilized effectively to curb kleptocracy in developing countries (Carrington,

2007, p.135). There is no denying the fact that US banks are often the destination of illicit wealth from these countries. The Patriot Act can be expanded to include looking into not just funds suspected of being terror accounts, but funds that are suspected to be fruits of corruption.

What would justify such an inquiry on the part of the US? Other laws such as the Foreign

Corrupt Practices Act already aid in this effort. The Patriot Act will give investigators the power to act in cases where the movement of the products of crime can be swift and elusive. Another justification for such an inquiry into suspect accounts is that much of those funds are US tax payer monies in the form of foreign aid, stolen by sitting heads of state. This would answer the prevailing problem of state capture in the third world.State capture allows the ruling elite to commit corruption with immunity and impunity. They hold all the levers of power including those of the judiciary. By allowing US and member nation courts jurisdiction over the behavior of foreign nationals and sitting heads of state involved in grand corruption, the OECD and the

UNCAC will really put teeth in their agreements. The World Bank, OECD (Organization for

Economic Cooperation and Development), and the ICC (International Criminal Court) can conceivably come up with a forum where qui tam law cases can be heard and adjudicated. The

World Bank can make loans conditional on local legislation allowing for the adjudication of

456 grand corruption cases abroad. Carrington (2007) writes, “Shocking though the thought is, what the world may need and what effective globalization of the marketplace requires, are thousands of plaintiffs’ lawyers (yes just the American sort so despised by business) who are motivated and empowered to investigate the bribery of officials of weak governments and present their evidence to a forum that is in turn invulnerable to bribery or intimidation” (138).

Civil Society ACMLG Prescriptions:

There is scholarly support for this research’s finding for ACMLG collective action being pivotal as a temporary ad hoc entity in lowering levels of corruption in developing countries.

Petkoski, Warren, and Laufer (2009) write that lowering corruption may be aided by “Bringing vulnerable individual players into an alliance of like-minded organizations, while leveling the playing field among competitors. This cooperation may complement or temporarily substitute for and strengthen weak local laws and anti-corruption practices” (p.817). When self regulation and self monitoring do not work in the collective action model of using state and non-state actors as an ad hoc oversight entity, (Braithwaite, 2006 as cited in Petkoski, Warren, and Laufer, 2009) write;

developing countries might jump over their regulatory state era and move straight to the regulatory society era of networked governance. Developing states might therefore cope with their capacity problem for making responsive regulation work by escalating less in terms of state intervention and more in terms of escalating state networking with non-state regulators(p.819). Bentzen (2012) writes about the degree to which power distances and inequalities are accepted and expected in society. “In societies where power is expected and accepted to be distributed unequally, people tend to be less critical toward decisions made by authorities” (p.

175). This means that those in authority do not experience any cost to committing corruption.

For as long as they are in power, there is little likelihood of getting caught much less suffering

457 any adverse consequences for their actions.. This is true for the Philippines whereby corrupt behavior is penalized when the head of state is out of power or out of favor. This is a huge problem because there are no checks provided for in the system to prevent the looting as it is taking place. There are, only unsuccessful attempts at holding those responsible after they are no longer in power. They use a system that does not provide for proper investigation or collection of evidence and therefore rarely can secure convictions in a court of law. The “panapanahon” (each in its own time of victory or defeat) mentality is a cultural norm integral to why anti-corruption policies have not worked. The plunder/vendetta cycle of politics that says it is the norm that plunder is for the victors to enjoy and vengeance for the vanquished to suffer, is partly responsible for the culture of corruption in the Philippines. This also supports the argument for the necessity of using non-state actors internationally, which have no axes to grind or interests to protect in the domestic arena, to mitigate the power asymmetries in developing countries.

Brinkerhoff (2000) asserts that political will must be present in order for any anti-corruption initiative to succeed. It is important to assess whether there is real political will behind the effort or whether elites are just taking action enough to look good in the eyes of international regulators and observers. Are they really instituting or enforcing the kind of reforms that would produce results?“Vested interests can have a strong impact on political will to address corruption. In many democratizing countries, reformist governments are politically weak, resting on broad and unstable alliances and confronting public bureaucracies and military establishments that are suspicious of and resistant to change” (p. 246). Brinkoff puts forward his suggestions on how to assess political will. The framework for assessment of political will may also function as guidelines to how anti-corruption success may be measured. Brinkoff asks,

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Some of the questions that can be asked are: who and where is the support for anti-corruption efforts? Are they public officials, elites, or people outside of the ruling elite? The answer to this question may determine the degree of sincerity these entities would be willing to give to the effort. Another question to be asked is are anti-corruption stakeholders mobilized? Do they have comprehensive and lasting solutions to the problem? Are there real teeth to the sanctions they impose for corrupt behavior? Are there visible signs of continuity of efforts? (p. 248)

If the reason for the failure of ACMLG is that the populace themselves accept corruption as an efficient way of wealth distribution, then the solution is to enable the populace to have alternative means of survival and income other than rent distributions. Sunder (2005) writes that corruption is not caused by individuals who are corrupt but a society which expects corruption to be the norm. “Corruption is not simply a problem of greedy men and women using public office for private gain. It is a degenerated state of expectations the citizens hold about the behavior of one another. Expectations or culture of proper behavior are a type of wealth of a society, at least as important as human and natural resources. When people expect corrupt behavior from one another, the expectations capital is depleted, and the society becomes and stays corrupt” (p. 420).

The problem is when, like in the Philippine scenario, corruption actually works for the people as a kind of wealth distribution mechanism through the system of pork and patronage politics. The populace does not hate corruption. They hate it only when they or their patrons are not the ones in power to enjoy it. So they patiently await their turn at the trough and engage in what I call

“taking turns at the trough” in tandem politics. So what should and could be done when the population itself tacitly and secretly approves of corruption as a way of life?

The fact of the matter is, ACMLG practitioners and policy makers all know where illicit money is being made. They know in what industries (such as defense, construction, and extraction of natural resources and minerals) they can be found.They know who the players are

459 likely to be engaged in corruption in those areas. They know who have the authority to approve rents in these businesses. They know which multinationals are involved in these businesses.

They know what banks are used by these multinationals are using. They know what countries allow the deposits of these kickbacks of sitting heads of state. Despite all that, scholarly and diplomatic language dance around the truth. In crime prevention, profiling of criminals is a tool of detection and investigation. Corruption is a crime and a crime with millions of victims. As a crime, it must use criminal profiling the way it is used in other crimes. This means that presumption of innocence standards are relaxed in areas of where high probability of a certain crime is committed. Since hot beds of corruption are known to all concerned, then it stands to reason that ways be found to tighten the ability of companies to deposit illicit wealth in suspicious and secret accounts for sitting heads of state. Organizations like the Global Financial

Integrity and the FATF are involved in these kinds of efforts. There should be more emphasis and concentration of resources in these areas instead of pure educational and information drives.

If the reason anti-corruption MLG fails is that corruption has deep roots in developing countries’ historical and cultural experience, then the solution is a strategy that factors in this experience, such as the prevalence of state capture and how to mitigate its effect. Sunder (2005) explains this lowered expectation on the part of the citizenry as an outcome from developing countries’ colonial experience. Local leaders simply took over from the colonial masters in the exploitation of the populace by using their new found political power to “expropriate wealth heretofore reserved for the colonialists”. Civil servants devised new ways to force people to go to them for permits, licenses as a way to extort money to supplement their incomes. Instead of stimulating wealth creation in the private sector and have the private sector be the source of jobs, the government became the “employer of last resort”. This in turn destroyed the work ethic and

460 efficiency of the economy because the government had to push inflation and print money to pay for this massive employment program (p. 421). Sunder lists a slew of recommendations but does not answer the question of why the prevailing elite would be willing to institute changes that will essentially kill the goose that lays their golden egg. This is where previous scholarship on the issue of corruption is inadequate. Some of Sunder’s recommendations are echoed by other scholars such as election reform, civil service and pay reform, transparency and accountability in government, modernizing payment systems which is a precursor to e-government solutions education, and enforcement. Why an entrenched predatory elite benefiting from the status quo will institute or enforce said reforms remained unanswered.

Myint (2000) observes “The main conclusion to be drawn is that undertaking reforms both economic and political by reduction of institutional weaknesses offers the best hope to overcome corruption. Corruption will not disappear because of reforms. But reforms will bring it under control and minimize its adverse consequences so that the country can proceed w Myint argues that the example of HK, China, and Singapore, which started out with deep corruption problems but were able to transform themselves in a short amount of time, points to the efficacy of market reforms and democratic institutions in bringing about change (p. 54). Myint’s anti-corruption recommendations have made it into worldwide anti-corruption conventions and programs. They are: “First fry big fishes. Second, political will and leadership. Third Information campaign.

Free press. Fourth, Oversight bodies and watch dogs. Fifth. Institution building, legal framework, investigative agencies independence”. (p.56). Yet none of these have been known to overcome the problem of state capture by predatory oligarchic elites.Big fishes cannot be fried, as Myint suggests ,without the rest of her institutional change suggestions actually functioning.

This research finds that even if these institutions are present, they rarely function in corruption

461 ridden countries. The goal of this research is to go a few steps further and find out why they do not function and what the remedy is.

Looking more closely at examples of success, this research observed that ICAC (Independent

Commission Against Corruption) in HK (Hong Kong) and CPIB (Corrupt Practices Investigation

Bureau) in Singapore, the most celebrated anti-corruption agencies in the world because of their success at curbing corruption, nevertheless have philosophical and structural differences. CPIB insists that a clean government is a justification to having no checks to its power. HK applies checks even to ICAC’s power. There are no checks to CPIB’s power which still does not answer the question of what if the most corrupt is also the highest officer of the land. CPIB is under the

Prime Minister’s control. That is well and good if by accident of fate and pure luck the country picked a moral leader. Who checks the CPIB should a non-moral leader emerge? The Chilean and HK checks and balance anti-corruption structure would be more reliable than that of

Singapore’s which leaves to chance a structure of absolute power and hopes the leadership is moral. Systems and structures are what prevent corruption and not just moral leadership.

Tay and Seda (2003) write the following conditions for curbing corruption: checks and balance, meritocracy, breaking up monopolies, assets disclosure, press freedom, independent judiciary, independent parliament, strong civil society, campaign finance rules, decentralization of government and economy (p. 26). Those with high state capture and corruption must deregulate and liberalize its economy because the less involvement the state has in direct economic activities, the less opportunity for corruption (p.38). After Marcos, all succeeding presidencies kept the government owned corporations that continue to be milking cows and source of corruption since then. Free press: The PCIJ started the expose on Estrada (p.42).

However, what did it do to monitor and hold Gloria Macapagal Arroyo (GMA) in check? The

462 fact that she is now indicted for plunder says there was not much Philippine press did to curb her alleged abuses. There must be constitutionally independent bodies, independent from the president, in cases where the president, which happens with mind numbing frequency, is the one under investigation. In the Philippines, all anti corruption bodies are appointed by and report to the president so in a way are subject to presidential influence. Estrada was scorned for his anti- corruption programs in the face of corruption charges against him (p.47). The same can be said of GMA.

Institutional ACMLG Prescriptions:

There are a few anti-corruption initiatives indigenous to specific countries. In the Philippines, there is a bill pending authored by Senator Francis Escudero which will require all government officials and employees to sign a waiver allowing for the disclosure of all their peso and dollar accounts. This is supposed to be compared to the Statements of Assets and Liabilities that government officials are required by law to submit. As of this writing, this bill has languished in the Senate with little success of passing. If passed, this would successfully curb the ability of corrupt officials to salt away their illicit wealth in bank accounts abroad. Extradition laws allowing for the prosecution of high government official in foreign tribunals are also being proposed. Tightening loopholes that allow legal entities like corporations acting as dummies for corrupt high government officials are also being put forward with predictably little success.

As far as breaking the strangle hold of a predatory elite, this research is recommending using the ancient Athenian procedure for selecting officials for public office, which is drawing by lot.

All cabinet ministers and appointive offices would be selected by the president by lot from a pool of qualified candidates pre-screened by professionals from representatives from all political

463 parties and civil society. This is already being done partially in the appointment of Philippine

Supreme Court justices. A list is drawn up by professionals in the field with another difference that the President himself includes his own choice in the list. This negates every effort of impartiality on the part of the president who then makes the final selection. He does not make his final selection by lot as this research recommends. Drawing by lot is the fairest way to choose officials in positions of heightened scrutiny. For example, because no one can predict who will be drawn by lot for minister of public works, the influence of money behind the party in power seeking to profit by way of their connection, will be negated in that one change alone. No one can be assured of special access to winning contracts or bids because of their support for elected officials. Proposals for Constitutional reform that could include lessening the disproportionate power and resources allocated to the Executive branch, which by itself sustains the biggest opportunities for corruption, are being considered. Another suggested Constitutional reform that may mitigate the iron hold of the predatory elite is to remove the power of pork barrel politics by changing into a parliamentary form of government. This way government projects will have some national coherence instead of subject to what projects the financial backers of officials want. This will not totally eradicate the problem, but it will remove the almost 40 percent kickbacks that go to private accounts from pork barrels.

China has its own indigenous way of curbing corruption as well. China has the Target

System of multilevel accountability. This system checks and balances hold high level officials accountable for their subordinate’s corruption. So if lower cadre commits a corrupt act, his boss will also be held liable. Interestingly enough, this kind of accountability is practiced, not by governments but by businesses worldwide. (Chan and Gao, 2008, p.107). In China, there has been some success with their indigenous efforts of tying the performance of lower rank and file

464 on corruption to their supervising officers. Since the performance of underlings can impact the salaries and tenure in office of their superiors, members of the bureaucracy monitor each other more closely. China attaches the performance of underlings to the evaluation of their superiors.

Hence bad performance from those below them in the bureaucracy could mean poor progress reports for superiors who could also mean removal or demotion. Singapore’s indigenous way of curbing corruption is rotating officers in money making sensitive posts. (Tay and Seda, 2003, p.4).

Some other solutions put forward to curb corruption are: The declaration of election fund contributions must be required and investigations must be done as a matter of rote on what business institutions are supporting which candidates in high office. It can be expected that the very same people will be expecting special treatment from the candidates they funded. Another ingenious idea is use of trial and error when coming up with solutions to problems. FDR tried this during the depression in the US and China does as well in merging their planned economies with free market concepts (BTI, 2012 website). There should be repeal of immunity laws for elected officials. As it is, they are immune from investigation and prosecution in their own country while they are in office. (oecd.org).

The following are some anti-corruption recommendations that I support. Laws must be rationalized. Some laws allow for the seizure of illicit property and if already converted into something else, the seizing of its equivalent. Korea allows this, but Japan limits confiscation to the bribe itself. Lifestyle checks are important deterrents.It is easier to detect an unexplained luxurious lifestyle than prove that a bank account held in family members’ or agents’ names actually belong to a public official. Audit and anti-corruption agencies are appointed by and answer to the chief executive. So if it is the chief executive who is corrupt, how is he to be

465 audited with accuracy? To check for this, appointment powers of independent accountability agencies must be shared by the legislative and the judiciary the way it is in Chile.

Adam Smith Weighs in on Corruption:

Let greed check greed by allowing for the bounty hunting of illicit wealth by private individuals or organizations using qui tam laws. – Maria Gracia Yllana, 2013.

Corruption cures may be found in some unlikely places. For example, Adam’s Smith’s cure for corruption is premised on the idea that man is endowed with love for praiseworthiness that

466 can withstand his natural inclination for love of praise: “Thus we are told that nature in its infinite wisdom, antecedently invested man with a love of praiseworthiness capable of withstanding an amplified love of praise” (Hanley, 2008, p.142). Smith accepts that human beings in commercial societies are uniquely vulnerable to corruptions of civilization but that nature itself endowed human beings with a love of virtue, as well. Smith claims that man in the end appeals to “that much higher tribunal, to the tribunal of their consciences” (p.143).

It is not enough to appear to be fit. It is important to be deserving of approbation. However, this does not mean that Smith favors love of praiseworthiness over love of praise. His ideas on commercial man would prevent such a bias. This means love of praise and praiseworthiness in

Smith’s view can be turned into virtue. This is the cornerstone of my argument for ACMLG

“naming and shaming” or “conscienticizing” strategies. Hanley (2008) writes, “Smith thus rejects the suggestion that the solicitude for praise or sensitivity to appearances necessarily leads to duplicity; solicitude for how one appears to others is a necessary starting point for modern moral education” (p. 144). Smith writes that the “the great secret of education is to direct vanity to proper objects” which is different from Rousseau’s admonition not to allow vanity to grow.

The question Smith admonishes us to ask is are we deserving of the approbation we seek?

Therefore according to Smith we must say “I rejoice not because you approve of me but because you approve of the good that I have done that is worthy of praise” (147). I would argue that if practitioners of grand corruption know that there is a chance that their activities can be exposed, the withdrawal of approbation from their peers in their country clubs and social networks, and the ridicule their children and grandchildren will receive from society, will be enough deterrents to bad behavior. This fulfils the above quote from Smith that man seeks to be worthy of approbation.

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Smith as cited in Hanley (2008) asserts “His self approbation, in this case, stands in need of no confirmation from the approbation of other men. It is alone sufficient, and he is contented with it. This self-approbation, if not the only, is at least the principal object, about which he can or ought to be anxious. The love of it, is the love of virtue” (148). This is what Smith argues should be the case and comes with education. For those who are unevolved, social approbation, reflected in societal censure, would be Smith’s example of turning vice into virtue. Therefore, this research concludes that the anti-corruption strategy of “naming and shaming”, is by Smith’s analysis, an excellent tool to contain corruption. If we are to allow Smith’s argument that man by nature seeks the approval of others and seeks material wealth in order to gain that approval, then the denunciation and exposure of even the biggest and most powerful individuals can have a deterrent effect. In other words, what good are all his mansions, bank accounts, fleet of limousines, planes, boats if he is reviled universally or by his own peers? This is why I recommend that this “conscientizing” anti-corruption strategy must be more amplified and utilized.

Hill (2006) comments on Adam Smith and his views on corruption by pointing out that while

Adam Smith recognizes the pitfalls of commercial man, and agrees that capitalism has within it the seeds of its own demise, he is optimistic about it being a harbinger of virtue rather than vice.

Adam Smith did not see corruption as inevitable in economically prosperous states. My research supports Adam Smith’s theory about economic prosperity not leading to more corruption. In fact, contemporary data proves that economic prosperity leads to less corruption and not more.

Among China, Pakistan, Indonesia, and the Philippines, China has the highest GDP, the highest

FDI correlating with the best corruption scores of the four countries mentioned. (See Figures 73,

74, 75, and 76). China also has the largest GDP among the four countries and now ranks as the

468 largest economy in the world second only to the US. Its GDP of 8.36 trillion USD offsets its 2.5 million USD flow of illicit funds (See Table 36). His prescription therefore, which rings true today is more prosperity equals more development. Less interference by the government in the natural laws of the markets by instituting monopolies equals less corruption. (p.646). Among the six countries under study, Singapore and Chile also posts high GDPs and FDIs which correlate with great corruption scores as discussed more broadly in Chapter IV.

Smith was critical of social engineering and would likely frown on efforts to impose change through laws and regulations. “It was this belief in a natural economic order which led Smith to make his celebrated statement that in pursuing her own advantage, each individual was ‘led by an invisible hand to promote an end which was no part of her intention’, namely the general welfare and prosperity of the nation” (Hill, 2006, p.648). Although Smith believed that there is no reason other than injury to another that should allow the state to interfere with man’s right to pursue his own interests and exchange the fruits of those interests with others in whose interest such exchange is beneficial, Smith deplores the “spirit of rapacity” that animates monopolies, stating that private monopolies are just as onerous as state monopolies. Hill (2006) writes,

As a result of the dispensation of monopoly grants and the arbitrary bestowal of extraordinary privileges and retains upon different sectors of industry by government, some individuals were able to enrich themselves without at the same time enriching the nation. Smith condemned all these impositions and restrictions as corruptions of natural social laws and violations of the personal rights of individuals. They are not only extremely hurtful to the natural state of commerce but are usually obtained via corrupt (non-free markets) means, namely through patronage, electoral and related forms of bribery (p.649). This suggests that Smith would endorse the privatization, free market liberalization anti- corruption strategies being propagated today with the caution against the creation of the same monopolies and cartels in the private sectors where people enrich themselves without enriching the state, as well. By Adam Smith’s description of virtue then, the elites in Singapore and China,

469 countries under study who enrich themselves but at the same time enrich the state in general would be met with approval by him. By contrast elites in the Philippines fail Adam Smith’s basic principle of free markets, that in pursuing individual or in this case, elite enrichment, the state must also be enriched. He does not say how this can be achieved without interference or intervention by laws and regulations. Like many contemporary anti-corruption scholars and strategists, Smith did not view corruption in terms of issues of morality but of a breakdown of systems. According to him, corruption comes from artificial market manipulations to favor a few and lack of basic impartiality in the justice system.

Smith therefore, is not against the intervention of laws and regulation, only that they be used sparingly. He believed as many modern scholars do, that corruption can only be curbed through

“appropriate corrections to the legal framework; that this would, in turn, presumably change norms. Moral sentiments alone are incapable of policing the problem of corruption as Smith understands it; they need the proper legal framework (albeit spare and restrained) framework in order to function properly” (Hill, 2006, p. 650). Although Adam Smith is invoked today by the wealthy capitalists and barons of industry as the father of free market capitalism, Smith wrote about corruption in order to denounce and confront “the corrupt yet legal norms of the elite classes, norms that enabled them to exploit and control those in the lower orders and in the long run, undermine the prosperity of the nation” (p. 651).

Smith claims that when all preferential systems are removed, then the system of natural liberty will flourish naturally. He does not provide for how these preferences are to be removed, only the consequence of it being the natural order. Smith is famous for allowing state intervention only in three fields, national security, justice system, and the provision of basic services. Smith as cited in Hill (2006) writes, “Commerce and manufactures is the best police for

470 preventing crimes….nobody will be so mad as to expose himself upon the highway, when he can get better bread in an honest and industrious manner” (p. 654).

I concur with Smith’s conclusions as to the power of commerce and industry to police crimes, even the crime of corruption. It is my observation that Filipinos turn to corruption because there is not much else to earn a living through. Hence any solution to corruption in the

Philippines and countries like it, will have to be economic in nature first and foremost. The data from my study, which indicates that economic prosperity is the best predictor of good performance in corruption indices, regardless of the political system, supports Smith’s conclusions and observations. Smith abhors monopolies or any relationships of inequity where one is dependent on the other, and the other has to then be fawning and obsequious to gain the favor of the former. This may come as a surprise to extreme right wing ideologues who see

Smith as their icon.

The advent of modern technology and the World Wide Web can make a big difference in anti-corruption efforts. If we take Adam Smith’s observations to heart that man is concerned about accumulating wealth to gain his fellows’ approbation, then their disdain is a strong deterrent to bad behavior. A big deterrent then would be the exposure of illicit activities by these actors and since mainstream media is often in collusion with and owned by those actors, cyber space or the Internet and the rapid networking derived from it, can work to advantage. Bertot,

Jaeger, and Grimes (2010) write, “Another type of opportunity for social media in openness and anti-corruption is through the increased opportunities for citizen journalism. Through social media, citizen journalism can report when the traditional media fails, when the media are strongly influenced or controlled by the state or those in power, or when the media provide insufficient coverage” (p. 269).

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An example of this would be the galvanizing of information disseminated online during the height of the Myanmar crisis in 2007 where monks were reportedly burned alive. Face book was in its early stages then but was widely used by university students. Student activists then networked with other activists worldwide to help stop the atrocities. Activist worldwide coordinated efforts with other like minded activists to apply pressure on the junta. The usefulness of social media in anti-corruption efforts and social change has already been demonstrated in many cases. Myanmar and Egypt are the most well known successes. In 2007, activists from all over the world coordinated with each other using the Internet and were able to halt the wholesale murder of monks and Myanmar citizens by their military junta.

The strategy used by global activists was to use the current technology to communicate with each and the world the information they have and appeals or pressures being brought to bear in real time. Global exposure of the atrocities, pressure brought to bear on corporations investing in

Myanmar, thousands of calls pouring globally through the telephone lines and email accounts of

CEOs of those corporations, in many ways are responsible for the incredible progress of seeing incarcerated opposition leader Aung San Suu Kyi, who is now elected Prime Minister. Those of us, who remained sleepless for several days straight in 2007 monitoring the events in Myanmar online, are buoyed by this success and mindful of the importance of the Internet and social media for helping bring it about. The events in Eqypt and the Arab Spring of 2010 are also testament to the power of keyboard warriors in social media to check arbitrary power.

The Egyptian revolution of 2010 seen in the context of the Arab Spring, was brought about by young people behind their computers. Young people at universities are the demographics that use the new technology extensively and they are also the sector of society most likely to champion change and difficult causes. So while it is true that not all countries have broad access

472 to the Internet or ICT (Information Communication Technology) capacities, the activist elements that initiate the conversation and discussion around corruption and other causes, and the policy makers do have access to communicate with each other. Mainstream media has been found to follow the lead of social media on many issues as the discussions and analysis in social media are much freer and untrammeled than mainstream media. Policy experts, who may not be able to come out under their own names, may do so under a pen name in social media and still contribute their expertise to the discussions.

This by passes the captive media in most under developed nations. Reporters without borders and citizen journalists can post on YouTube any document or illicit transaction they may record in their video iPhones. Once information is released in this manner in the social media, mainstream media has no choice but to follow suit. Non-state actors are critical partners of state actors in the fight against corruption precisely because of the built in reality of elites running government not logically implementing action that would diminish their power or influence.

Pre-emptive, targeted, coordinated action against perpetrators of corruption is the weapon of the future. Finally, if banks released information about accounts suspected of being owned by

Ferdinand Marcos after he was ousted from power, without a warrant, litigation, or due process, then banks can do the same to corrupt sitting heads of state while they are in the action of thieving and not after they have hidden away their wealth which then becomes costly to trace and recover

Contribution to the Body of Knowledge:

The most important contribution of my research to the body of knowledge is it asks the tough question of why ACMLG efforts have not worked in lowering levels of corruption. In

473 doing so, I break new ground by finding out what is wrong with ACMLG’s present iteration that is keeping it from attaining set objectives. Unlike previous scholarship I have encountered, I not only describe the problems and present ideal models as solutions. I answer the question of “how” to get to the ideal scenarios. I add to the body of knowledge my own original solutions to the problem, as well as my innovations on existing solutions already presented by other scholars. A solution that is original to me is the use in modern day of the ancient Athenian process of selection by lot. Like the ancient Athenians, I assert that this is the fairest, non-partisan, and corruption proof method of selecting people in high office in corruption prone areas. This minimizes the influence of money in the system. Another solution original to me is my innovation on the use of qui tam laws to fight transnational corruption. I go a step further from previous scholarship on this by recommending the use of the practice of bounty hunting, in the search, seizure, and forfeiture of illicit wealth derived from plunder and predation by the third world kleptocracy. By applying the older scholarship on greed curbing greed, I am able to present a viable solution to the problem of high cost of litigating and recovering stolen assets. As such, I would agree with Kevin Jackson who asserts that countries that use the issue of sovereignty to escape compliance with international agreements will someday be a thing of the past. I agree with him when he writes that someday an international court will adjudicate these matters where compliance will not just be voluntary, as in present day MLG arrangements, but compulsory.

Unlike Multi-Level Governance scholars like Elke Krahmann who did not address legal frameworks, sanctions and compliance issues in her description of what MLG is, my research draws the conclusion that more formal, codified sanctions matching and enforcing agreements around the issue of corruption, should be done in order to achieve stated goals. Krahmann

474 describes MLG as either formal or informal coordination among international and national state and non-state actors around specific issue areas. Cooperation largely meant these different actors meeting each other, declaring goals and objectives, and defining compliance to mean signing or ratifying agreements. The problem not addressed by previous MLG scholars is the problem of state capture and the dominance of predatory elites in the third world. The answer, which she had not addressed, was because those arrangements and agreements did not factor in state capture and unlikelihood of corruption perpetrators, often the highest ranking government officials, themselves to comply with actions that threaten their own power. She did not factor in that corrupt heads of state are unlikely to file lawsuits against themselves.

My own idea of MLG around the issue of corruption recommends real teeth in international legal frameworks and their local counterparts. I recommend enforcement provisions in the form of sanctions and blacklisting. This would be supported in part by James Rosenau’s concept of devolution of power and conferring legitimacy of that power to the efficient. The idea of conferring legitimacy through efficiency is an idea that I agree with that could be used as the theoretical basis when codifying sanctions. However, like Krahmann and unlike me, Rosenau still essentially writes about a coalition of the willing, instead of what I have coined as the coalition of the united. My overall view therefore, is that at least around the issue of transnational corruption, the model must mimic what I have coined as more government than governance.

This implies that international agreements have the force of law by virtue of its ability to impose previously agreed upon sanctions. I assert that the new way forward for future ACMLG configurations will be enforcement through codification of sanctions and penalties for non- compliance.

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It is the intention of this dissertation to depersonalize and depoliticize the issue of corruption. Evidence suggests that it keeps recurring no matter who sits in office. It should be clear by now that the problem is systemic and will require systemic solutions and not just a change in leadership. By being presented with empirical evidence and using scholarly discipline,

I hope to persuade people who are directly affected by corruption to begin to look at it in terms of being a systemic problem with deep historical, cultural, political, and economic roots. Using anti-corruption laws exclusively against political enemies is what has passed for a solution. This has deterred no one from the behavior and encouraged a system of what I have coined as taking turns at the trough of plunder politics. The problem of corruption is transnational and will require Multi-Level Governance solutions. Coordination and cooperation with all ACMLG state and non state actors are critical to success.

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Wedeman, A. (1997). Looters, rent-scrapers, and dividend collectors: Corruption and growth in

Zaire, South Korea, and the Philippines. The Journal of Developing Areas, 31(4): 457-

478,

479

Acronyms

AFSD Administrative and Financial Services Division

AML Anti-Money Laundering

AMLA Anti-Money Laundering Act

AMLC Anti-Money Laundering Council

APEC Asia Pacific Economic Cooperation

BTI Bertelsmann Transformation Index

CAD Commercial Affairs Department

CCP Chinese Communist Party

CEC Corruption Eradication Commission

CDSA Corrupt Drug Trafficking and Serious Crimes Act

CIG Compliance and Investigation Group

COA Commission On Audit

CPIB Corrupt Practices Investigation Bureau

CSO Civil Society Organizations

DAP Development Academy of the Philippines

DOJ Department of Justice

FCPA Foreign Corrupt Practices Act

FDI Foreign Direct Investment

FIA Federal Investigation Agency

FIB Financial Investigative Branch

FID Financial Intelligence Division

FIELD Financial Integrity and Economic Development

FIU Financial Intelligence Unit

480

GCB Global Corruption Barometer

GFI Global Financial Integrity

GIR Global Integrity Report

GLC Government Linked Corporations

GPA Government Procurement Agreement

ICA Immigration and Checkpoint Authority

IFF Illicit Flow of Funds

IGO International Governmental Organizations

IMAG Information Management and Analysis Group

INGO International Non-Governmental Organizations

INTRAC Indonesian Financial Transaction Reports and Analysis

KPK Komisi Pembarantasan Korupsi

LEG Legal Evaluation Group

MACMA Mutual Assistance in Criminal Matters

MLA Mutual Legal Assistance

MNC Multi-National Corporations

NAB National Accountability Bureau

NCCT Non Cooperative Countries

ODA Official Development Assistance

OECD Organization for Economic Cooperation and Development

OFW Overseas Filipino Workers

OMB Ombudsman

PAP Political Action Party

POCA Prevention of Corruption Act

PEP Politically Exposed Persons

481

PCU Proceeds of Crime Unit

PSB Public Security Bureau

PRATK Center Pusat Pelaporan dan Analisis Transaksi Keuangan

SALN Statement of Assets and Liabilities

SEC Securities and Exchange Commission

StAr Stolen Assets Recovery

STR Suspicious Transaction Report

STRO Suspicious Transactions Reporting Office

SWS Social Weather Stations

TAN Transparency and Accountability Network

TCM Tangible Construction Market

TCSP Trust and Company Service Providers

TI Transparency International

TSS Technical Services Staff

UNCAC United Nations Convention Against Corruption

WB World Bank

WGI World Governance Indicator

WTO World Trade Organization

482

INDEX

Charts and Graphs

Figure 13 Source Global Integrity Report Philippine Anti-Corruption Agency Index for 2004, 2006, 2007, 2008, 2010. Scoring range 0 to 100 with 100 being best. Taller columns mean better scores.Shorter time span is due to availability data.

Philippine GIR Anti‐Corruption Agency Index 2004‐2010 80

65 Anti‐CorAge

55 2004 2006 2007 2008 2010 Anti‐CorAge 78 79 66 73 73

Figure 16 Bertlesmann Transformation Status Index forPhilippine Political Participation for 2003 to 2012. Scoring ranges from 0 to 10 with 10 being best. Taller columns mean better scores.

Philippine BTI Political Participation Index 2003‐2012 9 8 7 6 5 4 Political Participation 3 2 1 0 2003 2006 2008 2010 2012 Political Participation 386.35.56.8

Figure 19 Source World Bank World Governance Indicator Government Efficiency Index from 1996 to 2011. Comparing government efficiency scores for Singapore, Philippines, Chile, Indonesia. Scoring range is 0 to 100 with 100 being best. Blue column is for 1996, Red column for 2011. Taller columns mean better scores. Red columns taller for the Philippines and Indonesia means improved scores.

WGI Government Efficiency 1996 & 2011 120

100

60 GovEff1996 40 GovEff2011

0 Singapore Philippines Chile Indonesia GovEff1996 10049.887.837.1 GovEff2011 99.1 55.9 83.9 46.9

III

Figure 21 Source World Bank Data GDP. Notes: Comparing Chile, Indonesia, Philippines, Singapore GDP for time period 1980 to 2011. Score based on amounts in USD. Higher numbers mean better. Upward line trajectory means improving scores. Countries are color coded as follows: Blue for Chile, Red for Indonesia, Green for Philippines, Purple for Singapore. Note that the red line for Indonesia soars the highest. Indonesia has a biggest economy. When measured per capita, Indonesia’s bigger population lowers in ranking when compared to Singapore.

GDP for Chile, Indonesia, Philippines, Singapore 1980‐2011 900,000,000,000

800,000,000,000

700,000,000,000

600,000,000,000

500,000,000,000 Chile Indonesia 400,000,000,000 Philippines 300,000,000,000 Singapore

200,000,000,000

100,000,000,000

0 1980 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 1,982

Figure 22 Source World Bank Data GDP. Notes: Comparing the Philippines (green line) with Indonesia(red line), Chile (blue line), Singapore (purple line). Philippines has the lowest GDP per capita when compared to Indonesia, Singapore, and Chile. Scoring based on USD amounts. Purple line Singapore’s trajectory upwards shows it pulling away from the others rapidly.

GDP per capita Chile, Indonesia, Philippines, Singapore 1980‐2011 50,000 45,000 40,000 35,000 30,000 Chile GDP per cap 25,000 Indonesia GDP per cap 20,000 Phil GDP per cap 15,000 Singapore GDP per cap 10,000 5,000 0

Table 10 Source World Bank Data GDP. Lists comparison of GDP amounts in USD for Chile, Indonesia, the Philippines, Singapore from time period 1980 to 2011.

GDP

Chile Indonesia Philippines Singapore

1980 27,572,307,600 78,013,206,038 32,450,398,740 11,861,065,765

1981 32,644,872,980 92,473,878,832 35,646,642,136 14,132,149,056

1,982 24,339,421,605 94,715,163,814 37,140,164,100 16,016,926,501

1983 19,770,402,077 85,369,201,879 33,212,130,823 17,708,667,154

1984 19,232,737,055 87,612,439,197 31,408,478,618 19,631,102,110

1985 16,486,012,247 87,338,874,330 30,734,266,462 19,043,841,075

1986 17,722,536,671 80,060,657,612 29,868,363,901 18,539,281,155

1987 20,902,096,532 75,929,617,715 33,195,974,365 20,844,839,068

1988 24,640,912,616 88,787,623,310 37,885,485,203 25,302,099,573

1989 28,385,038,397 101,455,197,786 42,575,217,415 30,434,923,041

1990 31,558,927,517 114,426,498,045 44,311,595,230 36,092,962,043

1991 36,424,168,146 128,167,999,847 45,417,505,303 43,066,242,460

1992 44,467,946,384 139,116,270,052 52,976,363,148 49,043,269,370

1993 47,693,992,627 158,006,849,879 54,368,183,872 59,983,977,573

1994 55,154,226,760 176,892,148,243 64,084,543,195 69,230,583,563

1995 71,349,202,309 202,132,032,844 74,119,868,202 80,788,992,427

1996 75,769,008,174 227,269,671,349 82,848,194,395 94,688,546,180

1997 82,808,986,192 215,748,854,647 82,344,374,414 104,561,712,489

1998 79,373,597,080 95,445,548,017 72,207,022,472 95,823,611,618

1999 72,995,286,764 140,001,352,527 82,995,145,601 85,963,561,402

2000 75,210,511,780 165,021,012,262 81,026,294,681 95,922,652,586

2001 68,568,293,067 160,021,012,262 76,261,998,623 91,148,432,628

2002 67,265,403,373 195,660,611,034 81,357,657,790 90,582,818,234

2003 73,989,608,529 234,772,458,818 83,908,205,720 93,362,870,573

2004 95,652,734,478 256,836,883,305 91,371,236,939 109,336,483,914

2005 123,055,482,823 285,868,610,017 103,065,972,408 123,506,892,268

2006 154,669,553,123 364,570,525,997 122,210,719,246 139,125,048,812

2007 173,079,355,829 432,216,737,775 149,359,920,006 168,434,001,846

2008 179,626,731,848 510,244,548,960 173,602,533,346 166,792,256,695

2009 172,590,595,086 539,579,959,053 168,333,540,385 175,934,878,516

2010 216,308,875,370 708,026,840,495 199,589,447,424 213,154,518,683

2011 248,585,243,788 846,832,283,153 224,753,569,097 239,669,598,462

Table 11 Source World Bank Data GDP. Comparing GDP for Chile, Indonesia, Philippines, Singapore in time period 1980 to 2011. Scored in USD amounts.

GDP per Capita

Chile GDP per cap Indonesia GDP per cap Phil GDP per cap Singapore GDP per cap

1980 2,466 517 689 4,193

1981 2,877 599 737 5,579

1,982 2,111 600 746 6,051

1983 1,688 529 649 6,605

1984 1,615 532 597 7,186

1985 1,362 520 569 6,960

1986 1,440 467 538 6,783

1987 1,670 434 582 7,512

1988 1,935 499 647 8,890

1989 2,191 560 708 10,384

1990 2,393 621 719 11,845

1991 2,712 684 719 13,737

1992 3,251 730 819 15,180

1993 3,424 816 822 18,103

1994 3,891 900 947 20,249

1995 4,952 1,014 1,070 22,922

1996 5,179 1,124 1,170 25,796

1997 5,580 1,052 1,137 27,545

1998 5,278 459 975 24,400

1999 4,792 665 1,097 21,715

2000 4,878 773 1,048 23,815

2001 4,394 742 966 22,027

VII

2002 4,262 893 1,009 21,691

2003 4,636 1,058 1,020 22,690

2004 5,929 1,143 1,089 26,241

2005 7,549 1,258 1,205 28,953

2006 9,392 1,586 1,403 31,609

2007 10,406 1,859 1,685 36,707

2008 10,695 2,172 1,925 34,465

2009 10,179 2,273 1,836 35,274

2010 12,640 2,952 2,140 41,987

2011 14,394 3,495 2,370 46,241

Table 12 Source Bertelsmann Transformation Index.Table shows scores for the Philippines in Political Transformation and Economic Transformation indices from time period 2003 to 2012. Score ranges from 0 to 10 with 10 being best. Notes: This index shows about the same scores for political transformation when compared to economic transformation.

Philippines 2003 20062008 2010 2012

Political Transformation 3 6.95 6.3 5.9 6.4

Stateness 3 6.8 7 6.5 6.8

Political Participation 3 8 6.3 5.5 6.8

Rule of Law 3 6.5 6.5 5.8 6

StabilityDemocraticInst 3 7.56 6 7

PoliticalSocialIntegration 3 65.8 5.8 5.5

EconomicTransformation 2.7 5.86 6 6.21 5.96

LevelSocialEconomicDev 3 5 5 5 5

VIII

OrganizationMarketComp 3 6.5 6.5 7 6.3

CurrencyPriceStab 3 77 6 7

Private Property 3 7 7.5 7.5 6.5

Welfare Regime 2 4.5 4.5 6 6

EconomicPerformance 3 67 7 6

Sustainability 2 54.5 5 5

Figure 24 Source World Bank World Governance Indicator for political stability for 4 countries Singapore, Philippines, Chile, and Indonesia. Time period covered are color coded. Blue for 1996 Red for 2011. Scoring range is from 0 to 100 with 100 being best. Taller columns mean better scores. Note: Red columns all taller than blue for Singapore, Chile, and Indonesia. Taller red columns mean improvements in scores. Only the Philippines has a shorter red column.

WGI Political Stability 1996 & 2011 100 90 80 70 60 50 40 PolSta1996 30 PolSta2011 20 10 0 Singapore Philippines Chile Indonesia PolSta1996 85.1 30.3 63.9 13 PolSta2011 90.1 9 65.1 21.2

Figure 25 Source Transparency International Corruption Perception Index ranking for blue line Philippines, red line Indonesia, green line China, purple line Singapore in time period 1995 to 2011. This is based on rank order best being smaller numbers from 1 to 182 countries. Higher number line trajectory means poorer scores. Pakistan has the lowest ranking followed by the Philippines, Indonesia with China ranking better than the other 3 countries it started in the bottom of the original CPI rankings in 1996

TI CPI Ranking 1995‐2011 160

140

120

100

80 Philippines 60 Indonesia 40 China Pakistan 20

0 1996 1998 1999 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 rank rank rank rank rank rank rank rank rank rank rank rank rank rank Philippines 44 55 54 65 77 92 102 117 121 131 141 139 134 129 Indonesia 45 80 96 88 96 122 133 137 130 143 126 111 110 100 China 50 52 58 57 59 66 71 78 70 72 72 79 78 75 Pakistan 53 71 87 79 77 92 129 144 142 138 134 139 143 134

Figure 26 Source TI (Transparency International) CPI score for Chile time period 1995 to 2011. Scoring range is from 0 to 10 with 10 being best. Bigger numbers are better. Taller columns mean better scores.

Chile TI CPI 1995‐2011 8.2 8 7.8 7.6 7.4 7.2 7 6.8 Chile 6.6 6.4 6.2 6 199 199 199 199 200 200 200 200 200 200 200 200 200 201 201 5(41 6(54 8(85 9(99 1(91 2(10 3(13 4(14 5(15 6(16 7(17 8(18 9(18 0(17 1(18 ) ) ) ) ) 2) 3) 5) 8) 3) 9) 0) 0) 8) 2) Chile 7.946.86.86.97.57.57.47.27.37.37 6.96.77.27.2

Figure 27 Source TI (Transparency International) CPI (Corruption Perception Index) CPI (Corruption Perception Index)Chile rankings from 1995 to 2011. Scoring is based on place from 1 to 182 countries. Lower numbers mean better rankings. Chile ranks consistently in best rank of 18th place out of 182 countries to 25th place out of 182 countries. Chile always ranks in the upper 9% of all the countries measured.

Chile CPI rank 1996‐2011 30

10 Chile

0 1996 1998 1999 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 rank rank rank rank rank rank rank rank rank rank rank rank rank rank Chile 21 20 19 18 17 20 20 21 20 22 23 25 21 22

Figure 28 Source World Bank WGI (World Governance Indicator) Chile’s scores for time period 1996 to 2011 in blue line control of corruption, red line rule of law, green line regulatory quality, purple line government effectiveness, aqua line political stability, orange line voice and accountability. Scoring range is from 0 to 100 with 100 being best. Bigger numbers are better. Note: Chile’s best scores are in green line regulatory quality and blue line control of corruption.

Chile WGI 1996‐2011 120

100

60 ControlCor RuleLaw 40 RegQuality GovEffective 20 PolStability VoiceAccoun 0 1996 1998 2000 2002 2003 2004 2005 2006 2007 2008 2010 2011 ControlCor 89.8 87.8 92.2 91.7 86.3 90.7 91.2 91.2 89.8 90.3 90.9 91.9 RuleLaw 84.2 84.2 87.1 88.5 87.6 88.5 88.5 89.5 87.6 88.5 87.7 88.3 RegQuality 96.6 92.2 91.2 91.2 91.2 90.2 90.7 91.7 91.7 93.2 92.3 93.4 GovEffective 87.8 85.4 84.9 85.9 86.8 87.8 85.4 83.8 87.4 84 83.7 83.9 PolStability 63.9 45.2 63 82.2 70.2 71.2 74.5 65.4 58.7 58.9 67.9 65.1 VoiceAccoun 68.3 63.9 74.5 80.3 79.3 88 89.4 80.8 82.7 77.4 82 81.2

XII

Table 18 Source Transparency International Indices in 2010 & 2011: Notes: CPI(Corruption Perception Index), CoCo (Control of Corruption), GloCo(Global Competitiveness), HuD(Human Development, JudIn(Judicial Independence), RuLw(Rule of Law), VoA(Voice & Accountability), Pop(Population) in Millions, GDP(Gross Domestic Product) in Billions, LiE(Life Expectancy) in years, InM(Infant Mortality, Lit(Literacy)in percentages. The scores are arranged according to higher numbers meaning better performing. The numbers for population, GDP, life expectance, infant mortality, and literacy are not rank ordered according to performance.

Countries CPI CoCo GloCo HuD JudIn RuLw VoA Pop GDP LiE InM Lit

Philippines 2.6 -0.82 4.08 0.644 2.9 -0.54 -.09 93.3 200 68 23.2 95

Singapore 9.2 2.183 5.63 0.866 5.6 1.69 -.29 5.1 209 81 2.1 95

Indonesia 3 -0.72 4.38 0.617 3.6 -0.63 -.05 240 707 69 27.2 92

Chile 7.2 1.502 4.7 0.805 5.5 1.28 1.04 17 213 79 7.7 99

Table 23 Source TI (Transparency International)Scores for the Philippines, Singapore, Indonesia, Chile. CPI scores 0 to 10 with 10 being best. Control of Corruption scores bigger numbers to mean better scores. Globa competitiveness mean bigger numbers to mean better score. Human development score means bigger numbers are better scores. Judicial Independence gives bigger scores to mean better. Rule of Law gives bigger numbers to mean better. Voice and accountability give bigger numbers to mean better scores. Population number is actual count. GDP bigger numbers mean better. Life expectancy means bigger numbers to be better. Literacy means bigger numbers to be better. Gini index means smaller numbers to be better. Poverty rate means smaller numbers to be better. Foreign aid is actual number. Note Chile’s 2.6% poverty to the Philippines 45% poverty.

CPI Con Glob Hum Jud Rul Voc Pop GDP Lif InfM Lite Gin Pov aid/ sco Cor Com Dev Ind Law Acc ulat Bil2 eE ort2 racy i erty capi re Score score score Scr Scr Sc ion 010 xp 010 Rt Ind % ta $ ex

Phil 2.6 -0.82 4.08 0.64 2.9 - - 93. 199. 68 23.2 95. 44 45 3.4 ippi 4 0.5 0.0 3 58B .2 40 nes 41 924 M 3 %

XIII

Sing 9.2 2.18 5.63 0.86 5.6 1.6 - 5.1 208, 81 2.1 94. NA NA NA apor 3 6 9 0.2 M 77B .2 7 e 9 9

Indo 3 -0.72 4.38 0.61 3.6 - - 239 706, 68 27.2 92. 39. NA NA nesi 7 0.6 0.0 .9 59B .4 2 4 a 3 55 M 7

Chil 7.2 1.50 4.7 0.80 5.5 1.2 1.0 17. 212, 78 7.7 98. 52 2.6 4.7 e 2 5 8 4 1 74B .7 60 M 6 %

Figure 29 Source GFI (Global Financial Integrity) IFF (Illicit Flow of Funds). Chile’ Illicit Flow of Funds for time period 200 to 2008. Scores are actual USD amounts in millions. Smaller numbers are better. Shorter columns are better.

Chile GFI IFF 2000‐2008 35,000

30,000

25,000

20,000

15,000 Chile GFI IFF

10,000

5,000

0 2000 2001 2002 2003 2004 2005 2006 2007 2008

XIV

Table 16 Source GFI (Global Financial Integrity) IFF (Illicit Flow of Funds), WGI (World Governance Indicator), CPI (Corruption Perception Index) TI (Transparency International). Notes: Compares Independent Variables WGI and CPI with Dependent Variable GFI IFF

200 200 200 200 2004 200 2006 2007 200 Total Illicit 0 1 2 3 5 8 Outflows

Chile GFI IFF in 3,14 4,53 5,07 4,97 10,2 7,37 12,3 29,1 5,95 82,731 9,192 millions 8 2 0 8 38 1 18 22 4

WGI Control of 92 86.3 90.7 91.2 91.2 89.8 90.3 Corruption

CPI TI 7.5 7.5 7.4 7.2 7.3 7.3 7 6.9

Table 19 Source GIR (Global Integrity Report) 2008 for Chile. This is the only year that Chile reflects scores in these indices. Scoring range from 0 to 100 with 100 being best.

GIR Chile 2008

CivSocTot 80 GovAcc 67 Oversight 85 Anti-CorRul 83 CivSocOrg 85 Executive 75 NationOMB 77 Anti-CorLaw 100 AccInfoLaw 70 Legistlative 70 SupAuditIns 85 Anti-CorAge 78 FreeMedia 85 Judiciary 62 TaxesCustom 100 RuleLawAcc 78 BudgetProc 63 StateOwned 73 LawEnforce 75 ElecPolProc 84 AdminCivSe 62 FinanSecReg NationElect 97 CivSerReg 76 BusiLicReg 92 ElecMonAge 100 WhistleBlow 13 PolPartFina 55 Procurement 69 Privatization 90

Table 21 Source World Bank Data Comparing Chile’s Gini (Inequality Index), GDP (Gross Domestic Product) per capita for Chile from 1987 to 2006. Scoring range for Gini means lower numbers are best from 0 to 100 with 0 being best. GDP per capita is actual USD amounts. It appears that improving numbers for GDP has improved inequality Gini

XV only slightly from 56.2% to 51.8%. This is cautionary that economic growth may not always be benefitting the most number of people.

1987 1990 1992 1994 1998 2000 2003 2006 Gini Index CHL 56.2 55.3 54.8 56.1 55.5 55.3 54.6 51.8 Chile GDP per cap 1,670 2,393 3,251 3,891 5,278 4,878 4,636 9,392

Table 22 Source BTI (Bertelsmann Transformation Index) Chile’s scores for political transformation and economic transformation for time period 2003 to 2012. Scoring range is from 0 to 10 with 10 being best. Chile’s best scores in political transformation correlates with best scores in economic transformation. They are almost mirror images of each other.

Chile 2003 2006 2008 2010 2012

Political Transformation 4.8 9.1 9.3 9.3 9.2

Stateness 5 9.89.8 9.8 9.8

Political Participation 4 9 9.5 9.8 9.5

Rule of Law 5 9.3 9.3 9.3 9.3

StabilityDemocraticInst 5 9.510 10 10

PoliticalSocialIntegration 5 88 7.8 7.5

EconomicTransformation 4.4 8.61 8.68 8.68 8.54

LevelSocialEconomicDev 4 88 8 7

OrganizationMarketComp 5 9.89.8 9.8 9.8

CurrencyPriceStab 5 1010 10 10

Private Property 5 10 10 10 10

Welfare Regime 3 7 7.5 7.5 7.5

EconomicPerformance 5 99 9 9

Sustainability 4 6.56.5 6.5 6.5

XVI

Figure 32 Source World Bank Data for GDP (Gross Domestic Product) per capita for Chile for time period 1980 to 2011. Scoring based on actual USD amounts. Bigger numbers mean better scores. Sharp upward trajectory of blue line means improvement.

Chile GDP per cap 16,000

14,000

12,000

10,000

8,000 Chile GDP per cap 6,000

4,000

2,000

XVII

Figure 35 Source BTI (Bertelsmann Transformation Index). Notes: Comparing Chile’s Market Organization Index representing the Independent Variable with its Corruption Perception Index representing the Dependent Variable. Scoring range is from 0 to 10 with 10 being best. Taller columns mean better scores. Blue column Market organization correlate with tall red columns representing corruption scores. This shows that great scores in market organization also means great scores for corruption.

Chile BTI Market Organization Index & TI CPI 2003‐2010 12

6 BTI Market Org 4 TI CPI

0 2003 2006 2008 2010 BTI Market Org 5 9.8 9.8 9.8 TI CPI 7.4 7.3 6.9 7.2

Table 26 Source BTI (Bertelsmann Transformation Index) Lists Indonesia’s scores for political transformation and economic transformation for 2003 to 2012. Scoring ranges from 0 to 10 with 10 being best. Indonesia’s scores for political transformation correlates with its scores for economic transformation.

Indonesia 2003 2006 2008 2010 2012

Political Transformation 3 6.3 6.45 7 6.85

Stateness 3 6.56.8 6.8 6.8

Political Participation 3 7.5 7.3 7.8 7.5

Rule of Law 3 5.5 5.5 6.8 6.3

XVIII

StabilityDemocraticInst 3 6.5 7 7 7

PoliticalSocialIntegration 3 5.55.8 6.8 6.8

EconomicTransformation 2.7 5.79 5.99 5.79 6.21

LevelSocialEconomicDev 2 6 6 6 6

OrganizationMarketComp 3 5.5 5.8 6 6.5

CurrencyPriceStab 3 77 7 8.5

Private Property 4 6 6.5 6 6

Welfare Regime 2 5 5 5 5

EconomicPerformance 3 7 7 6 7

Sustainability 2 44 4.5 4.5

XIX

Figure 37 Source TI (Transparency international). Notes: CPI stands for Corruption Perception Index. CPI for Indonesia for time period 1995 to 2011. Scoring ranges from 0 to 10 with 10 being best. Higher numbers are better. Line graph showing upward trajectory means improving scores.

Indonesia TI CPI 1995‐2011

3.5

2.5

1.5 Indonesia

0.5

0 1995 1996 1998 1999 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 (41) (54) (85) (99) (91) (102) (133) (145) (158) (163) (179) (180) (180) (178) (182) Indonesia 1.94 2.65 2 1.7 1.9 1.9 1.9 22.22.4 2.3 2.6 2.8 2.8 3

Figure 38 Source World Bank WGI (World Governance Indicator). Notes: Comparing Corruption Control from 1905 to 2011 for 4 countries. Singapore, Philippines, Chile, Indonesia for time period blue column 1996 and red column 2011. Scoring ranges from 0 to 100 with 100 being best. Bigger numbers mean better scores. Taller columns mean better scores. The Philippines shows the shortest red column which means worsened scores while Chile shows taller red column which means improvement.

WGI Control of Corruption 1996 & 2011 120 100 80 60 40 ConCor 1996 20 ConCor2011 0 Singapore Philippines Chile Indonesia ConCor 1996 96.6 51.2 89.8 30.7 ConCor2011 96.2 22.7 91.9 27.5

Table 27 Source World Bank Data. Notes: Gini (Inequality Index) and GDP (Gross Domestic Product) for Indonesia from 1984 to 2005. Gini lower numbers mean best and higher numbers mean worst. GDP per capita are actual USD amounts. Bigger numbers are better. Improving GDP per capita has not significantly improved inequality scores.

1984 1987 1990 1993 1996 1999 2002 2005

Gini Index IN 30.5 29.3 29.2 29.3 31.3 29 29.7 34 GDP per cap IN 532 434 621 816 1,124 665 893

XXI

Figure 41Sources: GIR (Global Integrity Report), WGI (World Governance Indictors), TI (Transparency International). Notes; Abbreviations- CivSocTot (Civil Society Total) ElecPolProc (Electoral Political Process), GovAcc (Government Accountability), AdminCivSe (Administration Civil Service, Anti- CorRul 9Anti-Corruption Rule, ControlCor (Control of Corruption), RuleLaw (Rule of Law), RegQuality (Regulatory Quality), GovEffective (Government Effectiveness), PolStability (Political Stability), VoiceAccoun (Voice and Accountability), CPI TI (Corruption Perception Index Transparency International). Scoring range is from 0 to 100 with 100 being best. Blue column stands for 2004 and red column for 2011. Taller columns mean better scores. Bigger numbers mean better scores. Red columns are taller than the blue columns every index means improvement for Indonesia in all measures.

Indonesia GIR WGI TI Indices 2004 &

100 2011 90 80 70 60 50 40 30 20 2004 10 2011 0 Ele Ad Ant Co Reg Go Pol Voi Civ Go Ov Rul cPo min i‐ ntr Qu vEff Sta ceA CPI Soc vAc ersi eLa lPr Civ Cor olC alit ecti bilit cco TI Tot c ght w oc Se Rul or y ve y un 2004 71 73 63 49 85 55 17 25 25 44 4.3 40 2 2011 83 83 74 79 89 75 28 31 42 47 21 47 3

XXII

Figure 42 Source World Bank WGI (World Governance Indicator). Indonesia’s scores for blue line control of corruption, red line rule of law, green line regulatory quality, purple line government effectiveness, aqua line political stability, orange line voice and accountability for time period 1996 to 2011. Score ranges from 0 to 100 with 100 being best. Bigger numbers are better. Indonesia scores best in orange line voice and accountability and purple line government effectiveness.

WGI Indonesia 1996‐2011 70 60 50 40 30 ControlCor RuleLaw 20 RegQuality 10 GovEffective 0 1996 1998 2000 2002 2003 2004 2005 2006 2007 2008 2010 2011 PolStability ControlCor 30.7 9.8 19 8.3 14.6 17.1 20 21.5 33.5 34 26.3 27.5 VoiceAccoun RuleLaw 39.7 27.3 28.7 20.1 20.6 25.4 25.4 27.3 30.6 31.7 31.3 31 RegQuality 57.4 36.8 41.7 27 20.6 25 31.4 43.6 42.2 45.6 40.2 41.7 GovEffective 37.1 29.3 44.9 38 37.6 44.4 38.5 43.9 45.6 46.1 47.8 46.9 PolStability 13 7.2 3.4 8.7 2.9 4.3 7.2 9.6 13 15.8 20.3 21.2 VoiceAccoun 23.6 17.3 34.6 39.4 37 40.4 44.7 43.3 46.2 46.2 47.4 46.9

XXIII

Figure 43 Source GIR (Global Integrity Report). Notes: Comparing National Ombudsman Index for Indonesia and the Philippines from 2004 to 2011. Scoring ranges from 0 to 100 with 100 being best. Blue line Indonesia shows an upward, meaning better scores than red line Philippines. Blue line overtakes red line by 2011.

GIR National Ombudsman Index 2004‐2011 100

40 IN NationOMB 20 PH NationOMB

0 2004 2006 2008 2009 2011 IN NationOMB 91 60 87 92 95 PH NationOMB 92 83 75 87 87

XXIV

Figure 54 Source GFI (Global Financial Integrity). Notes: Comparing IFF (Illicit Flow of Funds) for the Philippines, Indonesia, and Chile from 2001 to 2008. Scoring is based on actual amounts in million USD. Smaller numbers mean better scores. Red line Indonesia began with the smallest number of IFF. Red line overtakes both green line Chile and blue line Philippines by 2008. Increasing trajectory means worsening scores. Blue line Philippines shows upward trajectory. Green line Chile shows upward worsening trajectory with a sudden dip, meaning great improvement, in 2008 after a spike, really bad scores in 2007.

GFI Illicit Flow of Funds 2001‐2008 35,000

30,000

25,000

20,000

15,000 Philippines Indonesia 10,000 Chile 5,000

XXV

Figure 44 Source GIR (Global Integrity Report). Notes: Comparing Audit Institutions Index for Indonesia and the Philippines from 2004 to 2011. Scoring ranges from 0 to 100 with 100 being best. Red line Philippines outscores blue line Indonesia. Higher numbers mean better scores.

GIR Supreme Audit Institutions Index 2004‐2011 120 100 80 60 IN SupAuditIns 40 20 PH SupAuditIns 0 2004 2006 2008 2009 2011 IN SupAuditIns 95 87 60 90 97 PH SupAuditIns 96 95 93 93 93

XXVI

Figure 46 Source GIR (Global Integrity Report). Notes: Comparing anti-corruption agency index for Indonesia and the Philippines from 2004 to 2011. Scoring ranges from 0 to 100 with 100 being best. Higher numbers mean better scores. Higher trajectory of lines mean better scores. Blue line for Indonesia starts lower than the red line (Philippines) but blue line overtakes the red line. This means Indonesia out performs the Philippines in this index.

GIR Anti‐Corruption Agency Index 2004‐2011 100

50 IN Anti‐CorAge 40 PH Anti‐CorAge

0 2004 2006 2008 2009 2011 IN Anti‐CorAge 66 83 81 86 88 PH Anti‐CorAge 78 79 66 73 73

XXVII

Figure 47 Source GIR (Global Integrity Report). Indonesia’s whistle blower score from Indonesia GIR WhistleBlower Index 100 90 80 70 60 50 40 IN WhistleBlow 30 20 10 0 2004 2006 2008 2009 2011 IN WhistleBlow 19 59 0 81 92

2004 to 2011. Scoring range is from 0 to 100 with 100 being best. Taller columns mean better scores.

Figure 48 Source GIR (Global Integrity Report). Notes: Compariing whistleblower index for Indonesia and the Philippines from 2004 to 2011. Score ranges from 0 to 100 with 100 being best. The taller the column the better the score. Blue column is for Indonesia. Red column is for the Philippines. Note that the blue line was shorter than the red line in 2004. By 2011, the blue line is taller than the red line.

Indonesia & Philippine GIR Whistleblower Index 2004‐2011 100 80 60

40 IN WhistleBlow 20 PH WhistleBlow 0 2004 2006 2008 2009 2011 IN WhistleBlow 19 59 0 81 92 PH WhistleBlow 56 38 52 79 79

XXVIII

Figure 49 Source GIR (Global Integrity Report). Indonesia’s procurement scores from time period 2004 to 2011. Scoring ranges from 0 to 100 with 100 being best. The taller the columns the better the score.

Indonesia GIR Procurement Index 2004‐2011 92 90 88 86 84 82 80 IN Procurement 78 76 74 72 2004 2006 2008 2009 2011 IN Procurement 79 86 88 83 90

Figure 55 Source Transparency International. Singapore’s score ranging from 0 to 10 with 10 being best. Time period 1995 to 2011. The higher the number the better the score. The higher the line trajectory, the better the score.

Singapore TI CPI 1995‐2011 9.5 9.4 9.3 9.2 9.1 9 8.9 8.8 Singapore 8.7 8.6 8.5 20 20 20 20 20 20 20 20 20 20 19 19 19 19 20 02( 03( 04( 05( 06( 07( 08( 09( 10( 11( 95( 96( 98( 99( 01( 10 13 14 15 16 17 18 18 17 18 41) 54) 85) 99) 91) 2) 3) 5) 8) 3) 9) 0) 0) 8) 2) Singapore 9.38.89.19.1 9.2 9.3 9.4 9.3 9.4 9.4 9.3 9.2 9.2 9.3 9.2

XXIX

Figure 56 Source World Bank WGI (World Governance Index). Control of Corruption Index. Singapore’s scores for control of corruption from time period 1996 to 2011. Scoring range is from 0 to 100 with 100 being best. Taller columns mean better scores. Singapore consistently scores close to best score of 100 in this corruption index.

WGI Control of Corruption Index 1996‐2011 99

98.5

97.5

96.5 Singapore

95.5

94.5 1996 1998 2000 2003 2004 2005 2006 2007 2008 2009 2010 2011 Singapore 96.6 96.1 96.6 98 98.5 98 97.6 97.6 98.1 98.1 98.6 96.2

XXX

Figure 57 Source World Bank WGI (World Governance Indicator) Singapore’s score for control of corruption (blue line), rule of law(red line), regulatory quality (green line), government effectiveness (purple line), political stability (aqua line), voice and accountability (orange line). Time period is from 1996 to 2011. Score ranges from 0 to 100 with 100 being best Higher numbers are better. Higher placement of line in graph means better scores. Note that only the orange line sits disproportionately lower than the other lines. Singapore scores best in all other indices except voice and accountability. It’s scores is more than half worse than the scores she received in the other indices

Singapore WGI 1996‐2011 120

100

60 ControlCor 40 RuleLaw RegQuality 20 GovEffective 0 1996 1998 2000 2002 2003 2004 2005 2006 2007 2008 2010 2011 PolStability ControlCor 96.6 96.1 96.6 98.5 98 98.5 98 97.6 97.6 98.1 98.6 96.2 VoiceAccoun RuleLaw 89.5 90 87.6 90.9 93.3 94.7 95.7 92.3 92.3 92.3 92.9 93.4 RegQuality 100 100 100 100 99 99 99.5 98 98.1 99 98.6 97.2 GovEffective 100 100 100 93.7 96.6 96.1 99 99.5 100 100 100 99.1 PolStability 85.1 75 81 88.5 77.9 87 87 93.3 91.8 96.2 89.6 90.1 VoiceAccoun 55.3 53.8 53.8 49.5 42.3 49 51.4 33.7 35.1 35.1 38.4 42.7

XXXI

Figure 58 Source Transparency International. CPI (Corruption Perception Index) Singapore TI CPI ranking from 1996 to 2011. Score ranges from 1 to 182 with 1 being best or highest ranking. The lower the column the better the score. Singapore consistently ranks in the top ten of CPI rankings. First out of 182 countries is nothing less than superb score.

Singapore TI CPI Rank 1996‐2011

4 Singapore

0 1996 1998 1999 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 rank rank rank rank rank rank rank rank rank rank rank rank rank rank Singapore 77745555544315

XXXII

Table 31 Source BTI (Bertelsmann Transformation Index) Singapore’s scores for Political Transformation includes stateness, political participation, rule of law, stability of democratic institutions, and political social integration. Economic Transformation includes scores level of social economic development, organization market competition, current price stability, private property, welfare regime, and economic performance sustainability. Scoring ranges from 0 to 10 with 10 being best. Time period covers 2003 to 2012. Note that the political transformation scores for Singapore are half of its economic transformation scores. This supports my research finding of the lack of correlation between political indices and economic indices for Singapore.

Singapore 2003 2006 2008 2010 2012

Political Transformation 2.8 5.35 5.37 5.4 5.32

Stateness 5 10 10 10 10

Political Participation 3 3.8 3.3 3.3 3.3

Rule of Law 3 6 6.3 6.3 6

StabilityDemocraticInst 0 2 2 2 2

PoliticalSocialIntegration 3 5 5.3 5.5 5.3

EconomicTransformation 4.7 9.21 9.57 9.14 9.18

LevelSocialEconomicDev 5 9 10 9 9

OrganizationMarketComp 5 9.5 10 10 9.8

CurrencyPriceStab 5 9.5 10 10 10

XXXIII

Private Property 5 9 9.5 9.5 9.5

Welfare Regime 3 8 8 8 8

EconomicPerformance 5 10 10 8 9

Sustainability 5 9.5 9.5 9.5 9

XXXIV

Figure 62 Source TI (Transparency International). Notes: CPI (Corruption Perception Index) scores. China’s CPI scores from 1995 to 2011. Scoring ranges from 0 to 10 with 10 being best. Upward trajectory means improving scores.

China TI CPI 1995‐2011 4 3 2 1 China 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1995 1996 1998 1999 2001 (102 (133 (145 (158 (163 (179 (180 (180 (178 (182 (41) (54) (85) (99) (91) ) ) ) ) ) ) ) ) ) ) China 2.162.433.5 3.4 3.5 3.5 3.4 3.4 3.2 3.3 3.5 3.6 3.6 3.1 3.6

Figure 63 Source TI (Transparency International). Notes: CPI (Corruption Perception Index) rankings. China’s CPI rank from 1996 to 2011. Scoring ranges from 0 to 100 with bigger numbers meaning worse scores. Smaller numbers mean better scores. Note that even if China’s number increased, this is also because of the number of new members being ranked. For example. China ranked 50 out of a total of 54 which means it was almost in the bottom of the rankings. In 2011, China ranked 75 out of 182 countries. This means China nearly halfway to the top rank from being almost in the very bottom.

China TI CPI Ranking 1996‐2011 90 80 70 60 50 40 30 China 20 10 0 1996 1998 1999 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 rank rank rank rank rank rank rank rank rank rank rank rank rank rank China 505258 57 59 66 71 78 70 72 72 79 78 75

XXXV

Table 35 Source World Bank Data. Notes: China GDP (Gross Domestic Product) per capita from 1980 to 2011. Table list actual amount of GDP in USD for time period 1980 to 2011.

China GDP per Capita 1980 193 1992 363 2004 1,490 1981 195 1993 374 2005 1,731 1,982 201 1994 469 2006 2,069 1983 223 1995 604 2007 2,651 1984 248 1996 703 2008 3,414 1985 292 1997 774 2009 3,749 1986 279 1998 821 2010 4,433 1987 249 1999 865 2011 5,445 1988 281 2000 949 1989 307 2001 1,042 1990 314 2002 1,135 1991 330 2003 1,274

Figure 65 Source World Bank Data. Notes: GDP (Gross Domestic Product) per capita. China’s GDP per capita for time period 1980 to 2011. Higher numbers mean better scores. Scores are based on amounts in USD. Upward trajectory means improving scores.

China GDP per cap 6,000

5,000

4,000

3,000 China GDP per cap 2,000

1,000

0 982 , 1980 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 1 1982

XXXVI

Figure 66 Source World Bank WGI (World Governance Indicator) China scores in control of corruption (blue line), rule of law(red line), regulatory quality(green line), government effectiveness (purple line), political stability (aqua line), and voice and accountability(orange line). Time period is from 1996 to 2011. Scoring ranges from 0 to 100 with 100 being best. Lines on the upper portion of the graph mean better scores. Upward trajectory of lines mean improving scores. Downward trajectory of lines mean worsening scores. Bigger numbers mean better scores. Purple line or government effectiveness is highest with orange line voice and accountability lowest.

China WGI 1996‐2011 70

ControlCor 30 RuleLaw 20 RegQuality GovEffective 10 PolStability

0 VoiceAccoun 1996 1998 2000 2002 2003 2004 2005 2006 2007 2008 2010 2011 ControlCor 43.9 45.9 50.7 33.7 43.4 34.6 31.2 37.1 33 35.4 32.1 28.9 RuleLaw 36.4 38.8 35.9 39.2 40.2 38.8 38.3 34.9 39.7 44.2 44.5 40.4 RegQuality 47.5 37.3 36.3 33.3 42.6 44.6 50.5 48.5 51 51.5 45 45.5 GovEffective 46.8 53.2 53.7 55.1 57.1 59 53.2 58.5 62.6 60.2 59.8 60.7 PolStability 41.3 30.3 35.1 32.2 27.9 32.2 30.8 27.4 27.4 28.2 23.6 25 VoiceAccoun 11.5 10.6 11.5 6.3 7.2 7.7 7.7 6.3 5.3 5.3 5.2 4.7

XXXVII

Figure 77 Source GIR (Global Integrity Report). Notes: China begins with a score of 78 in 2007 and ends with a score of 100 in 2011 on its anti-corruption legislation. Score ranges from 0 to 100 with 100 being best. Taller columns mean better scores.

China GIR Anti‐Corruption Law Index 2007‐ 2011 120 100 80 60 Anti‐CorLaw 40 20 0 2007 2008 2009 2011 Anti‐CorLaw 78 75 78 100

Figure 79 Source GIR (Global Integrity Report). China’s anti-corruption agency score from the time period 2007 to 2011. Score ranges from 0 to 100 with 100 being best. Taller columns mean better scores.

China GIR Anti‐Corruption Agency Index 2007‐ 2011 80 70 60 50 40 30 Anti‐CorAge 20 10 0 2007 2008 2009 2011 Anti‐CorAge 55 59 68 70

XXXVIII

Figure 81 Source GIR (Global Integrity Report). China’s national ombudsman scores from the time period of 2007 to 2011. Score ranges from 0 to 100 with 100 being best. Taller columns mean better scores.

China GIR Nationnal Ombudsman Index 2007‐ 2011 82 80 78 76 74 72 NationOMB 70 68 66 2007 2008 2009 2011 NationOMB 71 80 79 76

Figure 83 Source GIR (Global Integrity Report). China’s super auditing institutions scores for the time period of 2007 to 2011. Score ranges from o to 100 with 100 being best. Taller columns mean better scores.

China GIR Super Audit Institutions 2007‐2011 100 90 80 70 60 50 40 SupAuditIns China 30 20 10 0 2007 2008 2009 2011 SupAuditIns China 73 84 84 92

XXXIX

Figure 85 Source GIR Global Integrity Report). China’s whistle blower scores for the time period of 2007 to 2011. Score ranges from 0 to 100 with 100 being best. Taller columns mean better scores. Tallest column is in 2011. There is an upward trajectory of columns which infers improving whistleblower scores.

China GIR WhistleBlower Index 2007‐2011 84 82 80 78 76 74 WhistleBlow 72 70 68 2007 2008 2009 2011 WhistleBlow 73 75 79 83

Figure 89 Source GIR (Global Integrity Report) China free media scores from time period of 2007 to 2011. Score ranges from 0 to 100 with 100 being best. Taller columns mean better scores. Note that the columns progressively became shorter and shortest in 2011.

China GIR Free Media Index 2007‐2011 50 45 40 35 30 25 20 FreeMedia 15 10 5 0 2007 2008 2009 2011 FreeMedia 44 35 30 24

Table 39 Source BTI (Bertelsmann Transformation Index). Notes: Comparing FDI (Foreign Direct Invest) as a percenttage of GDP (Gross Domestic Product) for China, Indonesia, Pakistan, Philippines, Singapore, and Chile from 2002 to 2010. Singapore’s

XL performance of 18.5 by 2010 correlates strongly with its high performance in its corruption indices. Philippines’, Indonesia’s, and Pakistan’s comparatively much lower FDI scores also correlates strongly with their low corruption scores. Scoring is based on actual FDI as a percentage of GDP.

2002 2003 2004 2005 2006 2007 2008 2009 2010

ChinaBTI FDI %GDP 3.4 2.9 2.8 3.5 2.9 4.1 3.9 2.3 3.1

Indon BTI FDI%GDP 0.1 -0.3 0.72.9 1.3 1.6 1.8 0.9 1.9

Phil BTI FDI%GDP 2 0.6 0.8 1.9 2.5 7.4 0.9 1.2 0.9

Pakistan FDI%GDP 1.2 0.7 1.2 2 3.4 3.7 3.3 1.4 1.1

Sing BTI FDI%GDP 8.1 11.2 13.8 17.2 17.8 20.9 4.8 8.1 18.5

Chil BTI FDI%GDP 3.8 5.8 7.65.8 5 8.8 8.9 8 7.1

XLI

Figure 76 Source BTI (Bertelsmann Transformation Index). Notes: Comparing FDI (Foreign Direct Investment) as a percentage of GDP (Gross Domestic Product) for China, Indonesia, Pakistan, and the Philippines from 2002 to 2010. China (blue line) begins and ends with the highest scores. The Philippines (green line) starting ahead of Indonesia and Pakistan, ends with the lowest scores by 2010 despite a steep ascent in 2007 and a sharp plummet by 2008. Indonesia (red line) begins lower than the Philippines and Pakistan in 2002 but ends up higher by 2010. Indonesia’s better performance in economic indices in Figures 74 and 76 may explain why it scores higher than the Philippines in corruption indices in Figures 73 and 75. Scoring based on actual amounts in USD. Higher numbers mean better scores. Lowering line trajectories mean worsening scores. Upward line trajectories mean improving scores.

BTI FDI%GDP 2002‐2010 8

China FDI %GDP 4 Indon BTI FDI%GDP Phil BTI FDI%GDP 3 Pakistan FDI%GDP

0 2002 2003 2004 2005 2006 2007 2008 2009 2010

‐1

XLII

Figure 99 Source WGI (World Governance Index). Notes: Comparing political stability indices for Pakistan, China, Indonesia, and the Philippines. Pakistan(purple line) scores the lowest in this index below 1. China (green line) shows a downward trajectory along with the Philippines which scores lower than Indonesia (red line) by 2011. Scoring ranges from 0 to 100 with 100 being best. Higher numbers mean better scores. Higher line trajectories mean improving and better scores. A downward line trajectory means worsening scores.

WGI Political Stability Index 1996‐2011 45

PolStability Philippines 20 PolStability Indonesia PolStability China 15 PolStabilityPakistan

0 1996 1998 2000 2002 2003 2004 2005 2006 2007 2008 2010 2011 PolStability Philippines 30.3 32.7 11.1 18.8 7.7 5.3 13.5 8.2 8.2 8.6 8 9 PolStability Indonesia 13 7.2 3.4 8.7 2.9 4.3 7.2 9.6 13 15.8 20.3 21.2 PolStability China 41.3 30.3 35.1 32.2 27.9 32.2 30.8 27.4 27.4 28.2 23.6 25 PolStabilityPakistan 12.5 13.5 14.5 5.8 6.7 6.7 5.3 2.4 1 1 0.5 0.5

XLIII

Figure 96 Source WGI (World Governance Indicator). Notes: Comparing voice and accountability indices for China, Pakistan, Indonesia, the Philippines, Singapore, and Chile. Chile (orange line) scores the highest here with China (blue line) scoring the lowest. The Philippines scores higher than China, Indonesia, Pakistan and Singapore in this index. Scoring ranges from 0 to 100 with 100 being best.

100 WGI Voice & Accountability Index 1996‐2011 90

VoiceAccoun China 40 voiceAccounPakis VoiceAccounIndon 30 VoiceAccounPhilip 20 VoiceAccounSinga VoiceAccounChile 10

0 1996 1998 2000 2002 2003 2004 2005 2006 2007 2008 2010 2011 VoiceAccoun China 11.5 10.6 11.5 6.3 7.2 7.7 7.7 6.3 5.3 5.3 5.2 4.7 voiceAccounPakis 29.3 31.3 11.1 14.4 13 14.9 13 14.9 16.8 22.6 26.5 26.3 VoiceAccounIndon 23.6 17.3 34.6 39.4 37 40.4 44.7 43.3 46.2 46.2 47.4 46.9 VoiceAccounPhilip 55.8 60.1 53.4 52.4 51.4 51 48.6 45.2 45.7 44.7 48.3 48.8 VoiceAccounSinga 55.3 53.8 53.8 49.5 42.3 49 51.4 33.7 35.1 35.1 38.4 42.7 VoiceAccounChile 68.3 63.9 74.5 80.3 79.3 88 89.4 80.8 82.7 77.4 82 81.2

Figure 75 Source World Bank WGI (World Governance Index). Notes: Comparing control of corruption indices for China, Pakistan, Indonesia, and the Philippines from 1996 to 2011. China (blue line) shows a descending trajectory as does the Philippines (green line) which began with the highest scores in 1996 to show a steep decline by 2011. Indonesia (purple line) shows an ascending trajectory as does Pakistan (red line) but ending up close

XLIV to the same scores they started with. Scoring range from 0 to 100 with 100 being best. Lower lines mean worse scores. Higher lines mean better scores.

WGI Control of Corruption Index 1996‐2011 60

40 China Control of Corruption

Pakistan Control of Corruption 30 Philippines Control of Corruption

20 Indonesia Control of Corruption

0 1996 1998 2000 2002 2003 2004 2005 2006 2007 2008 2010 2011

XLV

Figure 74 Source World Bank Data. Notes: Comparing GDP (Gross Domestic Product) per capita for China, Pakistan, Indonesia, and the Philippines. China (green line) shows a steep ascent in its trajectory from 1980 to 2011. Indonesia (blue line) shows a higher trajectory than the Philippines (red line) which may explain Indonesia’s (blue line) better corruption scores than the Philippines demonstrated in Figure 73. China’s increase in GDP correlates with its improved corruption scores. Scores are based on actual amounts in USD. The higher lines mean better scores.

GDP/cap 1980‐2011 6,000

5,000

4,000

Indonesia GDP per cap 3,000 Phil GDP per cap China GDP per cap

2,000 Pakistan GDP per cap

1,000

0 1980 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 1,982

XLVI

Figure 73 Source TI (Transparency International). Notes: Comparing corruption indices of China, Philippines, Indonesia and Pakistan from 1995 to 2011. China (green line) shows an upward trajectory beginning low in 1995 and ending up highest by 2011. Conversely, the Philippines (blue line) began higher than the others ending up in decline by 2011. Pakistan (purple line) showing the lowest beginning makes an upward climb. Indonesia (red line) shows an upward trajectory. Scoring ranges from 0 to 10 with 10 being best.

TI CPI 1995‐2011 4

3.5

2.5

Philippines 2 Indonesia

1.5 China Pakistan

0.5

Table 36 Source GFI (Global Financial Integrity). Table shows yearly amounts in USD as well as Total for from time period 2000 to 2008. It also shows what the average flow of funds for China for that time period is. China has the largest amount of IFF (Illicit Flow of Funds) of all six countries under study. It also is the second biggest economy in the word.

Global Financial 20 20 20 20 20 20 20 20 20 Total Average Integrity Illicit Flow of 00 01 02 03 04 05 06 07 08 Flow of Flow of Funds in millions Illicit Illicit Funds Funds

XLVII

China 16 18 16 18 25 29 35 40 39 2,401,556 266,839 9,1 3,6 2,1 3,2 1,4 1,0 5,3 5,8 9,6 30 24 52 66 72 91 71 63 59

Table 38 Source BTI (Bertelsmann Transformation Index) Index)China’s scores on Political Transformation and Economic Transformation. Political Transformation includes stateness, political participation, rule of law, stability of democratic institutions, and political social integration. Economic Transformation includes scores level of social economic development, organization market competition, current price stability, private property, welfare regime, and economic performance sustainability. Scoring ranges from 0 to 10 with 10 being best. Time period covers 2003 to 2012. Note that the political transformation scores for China are half of its economic transformation scores. This supports my research finding of the lack of correlation between political indices and economic indices for China.

China 2003 2006 2008 2010 2012 Political Transformation 1.6 3.05 3.15 3.37 3.32 Stateness 5 8.5 8.8 8.8 8.8 Political Participation 1 1.5 2 2 1.8 Rule of 1 2.3 2 2.3 2.3 Law StabilityDemocraticInst 0 1 1 1.5 1.5 PoliticalSocialIntegration 1 2 2 2.3 2.3 EconomicTransformation 2.6 5.79 6.25 6.21 6.57 LevelSocialEconomicDev 2 5 5 5 5 OrganizationMarketComp 2 5 6.3 6.5 6.5 CurrencyPriceStab 3 8 7 7 7 Private Property 3 4.5 5.5 6 6 Welfare Regime 2 4.5 4.5 5 5 EconomicPerformance 4 9 10 8 10 Sustainability 2 4,5 5.5 6 6.5

XLVIII

Figure 68 Source BTI (Bertelsmann Transformation Index). Notes: Comparing China’s political transformation through rule of law (blue column) and political participation (red column), indices with its economic transformation (green column) through its economic performance and organization of market competition indices (purple column). Taller columns mean better scores. Note that the green columns are disproportionately taller the purple column. The blue and red columns are nearly one third the height of the green column. This supports my research conclusions that political indices do not correlate with economic indices in a meaningful way for China.

China BTI Rule of Law, Political Participation, Economic Performance, & Organization Market Competition Indices 2003‐2012 12 10 8 6 4 Rule of Law 2 Political Participation 0 2003 2006 2008 2010 2012 EconomicPerformance Rule of Law 12.322.32.3 OrganizationMarketComp Political Participation 11.52 21.8 EconomicPerformance 4910810 OrganizationMarketComp 2 5 6.3 6.5 6.5

XLIX

Figure 69 Source BTI (Bertelsmann Transformation Index). Notes: Comparing organization market competition index for China, Indonesia, Pakistan, Philippines, Chile, and Singapore from 2003 to 2012. Scoring ranges from 0 to 10 with 10 being best. Years are color coded. Taller columns mean better scores. Singapore and Chile has the tallest columns in market competition scores. China’s columns are nearly the same height as Pakistan, Singapore, Indonesia, and the Philippines in this index. This infers that the markets are not as free as they need to be based on BTI’s assessment.

BTI Organization Market Competition Index 2003‐2012 12

6 2003 4 2006 2008 2 2010 2012 0 OrgMarCom OrgMarCom OrgMarCom OrgMarCom OrgMarCom OrgMarCom p p China p Pakistan p Indonesia p Singapore p Chile Philippines 2003 233355 2006 5 5.5 6.5 5.5 9.5 9.8 2008 6.3 5.3 6.5 5.8 10 9.8 2010 6.5 6 7 6 10 9.8 2012 6.5 5.8 6.3 6.5 9.8 9.8

Figure 72 Source BTI (Bertelsmann Transformation Index) and TI (Transparency International). Notes: Comparing economic performance indices with corruption indices for China, Pakistan, Indonesia, Philippines, Singapore, and Chile from 2003 to 2012. Pakistan, Philippines, and Indonesia all have lower corruption and economic performance indices than China. Scoring ranges from 0 to 10 with 10 being best. Years are color coded. Taller columns mean better scores. Note how Chile’s and Singapore’s columns for economic scores are nearly as tall as the columns for corruption scores. Philippines, Indonesia, and Pakistan have shorter columns in economic scores matching shorter

L columns in corruption scores. China shows very tall columns on economic scores and noticeably shorter columns on corruption scores.

BTI Economic Performance Index & TI CPI 2003‐2012 12

2003 4 2006 2008 2 2010 2012

0 EcoP EcoP EcoP EcoP EcoP Pakis Philip Indo Singa EcoP China er er er er Chile er tan pines nesia pore er CPI Pakis Philip Indo Singa CPI China CPI CPI CPI CPI Chile tan pines nesia pore 2003 3.442.532.531.939.457.45 2006 3.392.272.562.479.4107.39 2008 3.6102.572.372.679.2106.99 2010 3.182.342.472.869.387.29 2012 3.6 10 2.5 4 2.6 6 3 7 9.2 9 7.2 9

Figure 70 Source BTI (Bertelsmann Transformation Index). Notes: Comparing economic performance indices of China, Pakistan, Philippines, Indonesia, Singapore, and Chile from 2003 to 2012. China clearly outperforms Pakistan, Philippines and Indonesia and on par with Singapore and Chile. Scoring ranges from o to 10 with 10 being best. Years are color

LI coded as follows: 2003 (blue), 2006 (red), 2008 (green), 2010 (purple), 2012 (aqua). Taller columns mean better scores. China, Singapore, and Chile have the tallest columns in almost every color. That means great economic performance for those years.

BTI Economic Performance index 2003‐2012 12

6 2003 4 2006 2008 2 2010 0 2012 EcoPer EcoPer EcoPer EcoPer EcoPer EcoPer China Pakistan Philippines Indonesia Singapore Chile 2003 433355 2006 9767109 2008 10 7 7 7 10 9 2010 847689 2012 1046799

LII

Figure 87 Source GIR (Global Integrity Report) Procurement Index China for time period of 2007 to 2011. Scoring ranges from 0 to 100 with 100 being best. Taller columns mean better scores.

China GIR Procurement Index 2007‐2011 100 90 80 70 60 50 40 Procurement 30 20 10 0 2007 2008 2009 2011 Procurement 71 78 83 91

Table 42 Source BTI (Bertelsmann Transformation Index)Pakistan’s scores on Political Transformation and Economic Transformation. Political Transformation includes stateness, political participation, rule of law, stability of democratic institutions, and political social integration. Economic Transformation includes scores level of social economic development, organization market competition, current price stability, private property, welfare regime, and economic performance sustainability. Scoring ranges from 0 to 10 with 10 being best. Time period covers 2003 to 2012. Pakistan 2003 2006 2008 2010 2012 Political Transformation 1.8 3.58 3.65 3.65 3.43 Stateness 3 4.8 4.8 4.5 3.8 Political Participation 2 4 3.8 4.8 4.5 Rule of Law 2 4 3.8 3.3 2.8 StabilityDemocraticInst 0 1.5 2 2 2.5 PoliticalSocialIntegration 2 3.7 4 3.8 3.7 EconomicTransformation 2.7 5.29 5.18 4.29 4.18 LevelSocialEconomicDev 2 4 4 3 3 OrganizationMarketComp 3 5.5 5.3 6 5.8 CurrencyPriceStab 3 8 7 4 3.5 Private Property 4 6.5 6.5 6 6 Welfare Regime 2 4 3.5 3 3 EconomicPerformance 3 7 7 4 4 Sustainability 2 2 3 4 4

LIII

Table 44 Source World Bank Data. Notes: GDP per capita in USD. Pakistan’s Gross Domestic Product per capita from time period 1980 to 2011. Numbers are in actual USD for each year.

Pakistan GDP per capita 1980 294 1981 337 1,982 367 1983 322 1984 338 1985 326 1986 323 1987 327 1988 365 1989 370 1990 358 1991 395 1992 412 1993 425 1994 418 1995 476 1996 484 1997 465 1998 451 1999 446 2000 512 2001 490 2002 481 2003 544 2004 629 2005 691 2006 789 2007 871 2008 979 2009 949 2010 1,019 2011 1,194

LIV

Figure 110 Source GIR (Global Integrity Report) Pakistan’s free media scores form time period 2007 to 2011. Scoring ranges from 0 to 100 with 100 being best. Taller columns mean better scores. Columns represent scores for the year.

GIR Pakistan Free Media Index 2007‐ 2011 80 70 60 50 40 30 FreeMedia Pakistan 20 10 0 200720082009 2011 FreeMedia Pakistan 40 64 72 59

Figure 111 Source GIR (Global Integrity Report). Pakistan Access to Information scores from time period 2007 to 2011. Scoring ranges from 0 to 100 with 100 being best. Taller columns mean better scores. Columns represent scores for the years.

GIR Pakistan Access to Information Index 2007‐2011 76 75 74 73

72 AccInfoLawPakistan 71 70 69 200720082009 2011 AccInfoLawPakistan 75 75 73 71

Figure 112 Source GIR (Global Integrity Report) Pakistan scores for Civil Society Organization from time period of 2007 to 2011. Scoring ranges from 0 to 100 with 100 being best. Columns represent scores for the year. Taller columns mean better scores.

GIR Pakistan Civil Society Organization Index 2007‐2011 100

40 CivSocOrg Pakistan

0 2007 2008 2009 20011 CivSocOrg Pakistan 73 91 91 72

Figure 108 Global Integrity Report (GIR) scores on Pakistan’s whistleblower performance. Time period covers 2007 to 2011. Scoring ranges from 0 to 100 with 100 beiing best. Taller columns mean higher numbers. Higher numbers are better scores.

GIR Pakistan Whistleblower Index 2007‐2011 80 70 60 50 40 30 WhistleBlow Pakis 20 10 0 2007 2008 2009 2011 WhistleBlow Pakis 53 75 68 54

LVI

Figure 107 Source GIR (Global Integrity Report) Pakistan’s procurement scores for time period 2007 to 2011. Scoring ranges from 0 to 100 with 100 being best. Taller columns mean higher numbers. Higher numbers mean better scores.

GIR Pakistan Procurement Index 2007‐2011 90 80 70 60 50 40 Procurement Pak 30 20 10 0 2007 2008 2009 2011 Procurement Pak 62 63 62 78

Figure 106 Source GIR (Global Integrity Report) Pakistan’s super auditing institutions scores from 2007 to 2011. Scoring range is from 0 to 100 with 100 being bestt. Taller columns mean better scores.

GIR Pakistan Super Audit Institutions Index 2007‐2011 90 80 70 60 50 40 SupAuditIns Pakis 30 20 10 0 2007 2008 2009 2011 SupAuditIns Pakis 80 60 81 76

LVII

Figure 105 Source GIR (Global Integrity Report) Pakistan’s National Ombudsman scores from time period of 2007 to 2011. Scoring ranges from 0 to 100 with 100 being best. Taller columns mean better numbers.

GIR Pakistan National Ombudsman Index 2007‐2011 95

80 NationOMB Pakis

70 2007 2008 2009 2011 NationOMB Pakis 90 78 82 89

Figure 104 Source GIR (Global Integrity Report) Pakistan scores for anti-ccorruption agency performance. Aqua columns represent scores for the time period 2006 to 2010. Scoring ranges from 0 to 100 with 100 being best. Higher numbers are better. Lower numbers mean worse.

Pakistan GIR Anti‐Corruption Agency 2006‐ 2010 100

40 Anti‐CorAge

0 2006 2007 2008 2010 Anti‐CorAge 90 72 69 63

Figure 103 Sources: GIR (Global Integrity Report) and WGI (World Governance Index). Notes: Comparing anti-corruption legislation indices with control of corruption indices. High scores in legislation do not correlate with low scores in corruption indiices. Scoring is 0

LVIII to 100 with 100 being best. Higher numbers mean better. Lower numbers mean worse. Dark qui column is anti-corruption law and ligh aqua column is corruption control.

Pakistan GIR Anti‐Corruption Law & WGI Control of Corruption 2006‐2010 120 100 80 60 Anti‐CorLaw 40 20 ControlCor 0 2006 2007 2008 2010 Anti‐CorLaw 100 100 100 100 ControlCor 23.4 24.3 21.8 12

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Figure 109 Source GIR (Global Integrity Report). Notes: Comparing whistleblower indices for Pakistan, China, Indonesia and the Philippines from 2006 to 2010. Pakistan scores the lowest in this. index Note: Pakistan once again scoring and ranking poorly. Whistle blower provisions in law are vital to securing evidence and gaining convictions. China scores very highly in this area despite not being an open society. The Philippines and Indonesia score well in this particular block in the building block process of anti- corruption structures.

GIR Whistleblower Index 2006‐2010 90 80 70 60 50 40 WhistleBlow Pakistan 30 WhistleBlow China 20 WhistleBlow Philippines 10 WhistleBlow Indonesia 0 2006 2007 2008 2010 WhistleBlow Pakistan 53 75 68 54 WhistleBlow China 73 75 79 83 WhistleBlow Philippines 56 38 52 79 WhistleBlow Indonesia 1959081

Index

Global Financial Integrity panel of experts on corruption discussion:

Frank Vogl began his opening remarks by talking about his anger, passion, and hope. He talked about his anger about the complacency about corruption. He said that “this town is full of people who like to write about corruption, who after they’ve written about it think they’ve solved it.” He said “We need action. We need activists not commentary and punditry.” He decried the fact that there is not more outrage that tax payers’ money is stolen outright and with impunity in the form of foreign aid and grants. He spoke about his passion for the victims of corruption. He lamented that corruption is still seen as a victimless crime. He said, “For every penny lost to corruption, there is a victim.”

He says it is note worthy that no banker has gone to jail nor any CEO lose his job after being fined millions of dollars for corruption. This comment is pivotal as it marks the first time I have come across well known figure in the anti-corruption firmament broke through the politeness and niceties of the diplomatic dance and scholarly prose on the subject of corruption.

Vogl spoke bluntly and candidly like the international community and academics have not done before. He said his book is not just about his anger and passion but also about his joy. He spoke about his joy over the large number of people, journalists and civil society speaking truth to power. He gave the example of the courage of thousands in Egypt who went out in the streets against their illegitimate government. He spoke about his joy over the global anti-corruption movements’ achievements over the past two decades.

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He noted that after the fall of Berlin, not a single organization against corruption was present. When they came to the scene back then they were called idealistic and cartoons were drawn depicting them as idealistic Don Quixotes fighting the windmills. He noted that there was no academic work done on corruption. There were no conventions or treaties on corruption. The major international organizations including the WB (World Bank) did not want to get involved in the issue of corruption. Now they have programs on corruption. He says there are mass movements that are being created in India, Belaruss etc so there is reason to be hopeful that “we can win this war on corruption.” The G20 produced significant detail on illicit financial flows.

Twenty years ago there was no repatriation of stolen assets. That never happened. However Vogl says that rhetoric is far ahead of the action. People are not yet walking the talk. Mubarak still controls his assets in London. Abacha of Nigeria still controls his money. Swiss governments only discover stolen wealth when corrupt heads of governments fall. Vogl is hopeful that the next book he writes will be entitled “How we Won the War on Corruption”. He sees us winning this war by “confronting illegitimate governance and thuggish government officials who corrupt and extort”.

Another panelist, Raymond Baker director of GFI says Nigeria is the most corrupt country in the world. He asserts that half of illicit outflows from Africa come from Nigeria. Ted

Greenberg, in defense of domestic anti-corruption activists, says those in the US are enveloped in a protective umbrella. He doesn’t have to worry about his life or his car exploding in the morning like his counterparts in third world countries have to. Greenberg notes that from the G7 to the G8 to G20 all now have action plans against corruption. Lots of action plans. He says, “We can’t implement them because countries don’t trust each other. We are the boots on the ground. We have to go after sitting heads of state that are moving money through the US.” This is one of the

LXII most exciting comments made by an anti-corruption scholar. There is blunt talk about the need to go after “sitting” heads of state in the present and not after they are out of power. He adds that

Social Media can be a valuable tool in the movement. Facebook has 901 million active users.

Twitter has a billion active users to move things instantly around the world. YouTube at 800 million users. Greenberg speaks more truth to power, by saying that global activists are still stuck on the old cases, on the Marcoses when new dictators and heads of state are using the same banks to deposit and launder their money. He says that there are only 25 full democracies in the world so it is up to the global civil society composed of brave individuals to do something about this problem.

Jean Pesme, Director of the StAR Initiative, agrees that corruption is not a victimless crime. He adds that there is strong demand worldwide for good governance as expressed in the

Arab spring. Leadership by individuals and organizations is needed. Structural and systemic changes are needed and both policy makers and practitioners must be in the same room when they come up with the solutions. He says policy makers can’t keep making claims without giving the practitioners in the field the tools to implement them. An audience member in the forum asks the panel, “How do you measure your impact? It is very nice to have rules on the book but do you enforce them? Great to have conventions and scholarship but is it acted upon? Is the momentum from the Arab spring still alive?”

Raymond Baker responds by saying that he agrees that regulations on the banks did not produce the results they liked. But the momentum of the Arab spring is still there. Frank Vogle adds that a new development in the movement is that it has moved from a somewhat elite movement to a mass movement. Raymond Baker says it is critical to view the problem as systemic or affecting the whole system. It is not one person’s problem. It is everyone’s problem

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“It affects everything you’re doing including areas of security”. Vogle asserts that the problem has always been that we believe we have to turn a blind eye to corruption overseas if the corrupt are our allies in order to win. He says that there are no easy answers to the question of what would replace that policy. In terms of US foreign and security policies, he has no answers to this question at this time. He does say it is time to answer the question.

Ted Greenberg says that the Intelligence community collects information on corruption but their activities are not seen. He says money laundering activities are being gathered. Vogle asserts that not enough is being done by the US government on this issue and cites the examples of Iraq and

Afghanistan where the White House and the Pentagon have allowed a tremendous amount of US tax payer money go into corrupt hands. Yet we ignore it. Vogl adds that once the great suffering of victims of the crime of corruption is exposed, justice will be looked at differently in order to let the punishment fit the crime. An audience member comments that there is no serious incentive to stop the behavior because the DOJ (Department of Justice) likes to settle cases and not litigate them. Vogle agrees and gives the example that BAE (British Aeronautics Enterprise), even after being fined 200 million dollars can still be a defense contractor. Another audience member comments that large financial institutions contribute to election campaigns so there is institutional timidity in prosecuting corruption in these cases. There is also the matter of ideological resistance and not just complacency. There is the historic battle between the progressives who think that the only villains in this story come from the north and the conservatives who want extreme conditionality in exchange for giving aid. (Please see the above panel discussion on YouTube, http://www.youtube.com/watch?v=A-oLyNgECRM)

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