The Philippines became a democracy in 1946 when it gained independence from the US. Today the country is considered the oldest democracy in Asia and is often defined as a pluralistic democracy with a market-based economy. The Philippines has an abundance of agricultural resources, significant light industry and service sectors, and a vibrant economy, as indicated by its GDP growth of 7.3% in 2008. While the Philippines now enjoys relative political and macroeconomic stability, it was not always so. The country suffered an interim period (1972-1986) under an authoritarian regime led by President Marcos. Democracy was re-established in 1986 when President Aquino came to power following a People Power Revolution that toppled the Marcos regime. Following a period of political instability involving several unsuccessful coups, the Philippines is now led by President Gloria Macapagal Arroyo.
Arroyo became President in 2001 after the still popular President Estrada was ousted because of his failure to address and combat large-scale corruption. In September 2007, Estrada was found guilty of corruption and malfeasance charges, only to be given a full pardon by President Arroyo a few weeks later. This pardon has fuelled speculations of a secret deal between the two politicians after it was revealed that the pardon was granted following a promise by Estrada not to run for office again. Nevertheless, President Arroyo won a political victory out of the affair, as Estrada's guilty verdict lent legitimacy to her taking over the presidency. However, President Arroyo's claim to legitimacy has since been weakened by allegations of corruption in her own administration. Political corruption is reportedly undermining people's trust in the country's leadership. This is supported by the Social Weather Stations (SWS) Surveys of Enterprises on Corruption 2006-2007 that shows that Arroyo is considered to be the most corrupt Philippine President in history, while a scandal over government kickbacks in a telecommunications deal that broke in the beginning of 2008 led to demonstrations and popular demand for the President's resignation. The scandal had further eroded the public trust in Arroyo and put her in danger of having to face impeachment by Congress to launch impeachment proceedings against her for a less serious charge while allegedly, at the same time offered Member of Congress bribes to vote against it. According to the Philippine Law, the President can only be impeached once a year.
The Philippines has a history of corruption, and practically all governments have had to struggle with the problem. Corruption in the Philippines is characterised by a combination of societal factors, institutional factors and an incentives system that contributes to corruption. According to Transparency International 2009, the level of petty corruption has decreased in the Philippines with 7-12% of Filipino households surveyed reporting that they paid bribes the previous year. However, according to the same household survey report, nearly 77% stated that the government's anti-corruption initiatives are ineffective. Of the business executives surveyed by the Transparency International Bribe Payers Index 2008, 92% identify the government's anti-corruption initiatives as either 'very ineffective' or 'ineffective'. Furthermore, the SWS Surveys of Enterprises on Corruption 2006-2007 conclude that the general public is dissatisfied with the Arroyo administration. Business executives surveyed by the World Economic Forum Global Competitiveness Report 2009-2010 perceive the level of public trust in politicians to be very low in the Philippines.
Business and Corruption
According to the World Economic Forum Global Competitiveness Report 2009-2010, companies identify corruption as the most problematic factor for doing business in the Philippines. Other surveys indicate that bribery has been an increasing problem for companies. According to the SWS Business Survey on Corruption 2007, three out of five managers were asked for a bribe in at least one transaction the previous year, with the amount paid being higher than previously. Corruption is often encountered when interacting with public officials. Half the companies surveyed by SWS report that they are discouraged by the systemic nature of corruption, which forms an integrated part of the way government works. Areas where bribes or facilitation payments are often expected are when dealing with taxes, obtaining operating licences, construction permits and import licences. For example, nearly 28% of companies in the Philippines report that bribes are solicited in their meetings with tax officials. Although the level of corruption in the private sector is reportedly not as high as in the public sector, one out of five company managers claim that bribes are needed to win a private contract. According to the SWS Surveys of Enterprises on Corruption 2006-2007, only 7% of the managers reported corruption to the authorities. More than 66% of managers state that it is futile to report corruption, while 49% were afraid of reprisals, thus indicating the need for a reliable whistleblower mechanism to which companies can report corruption.
Other common types of private sector corruption in the Philippines are illegal donations to political parties and bribery in order to influence policy-making. According to the SWS Business Survey on Corruption 2007, 25% of companies said that a typical company within their sector would make an average political donation of PHP 245,000 during the 2007 election campaigns. It is a common feature for companies in the Philippines to support politicians directly or to donate to their parties. Some companies also report that politicians expect them to make campaign donations. The concentration of wealth within a small group of elite families, coupled with political donations, has led to concerns as to their undue influence on both Philippine politics and business life.
According to Transparency International 2009, the Philippine business sector is highly affected by corruption, although the level of corruption is perceived to have declined from the previous surveys. Moreover, one-fifth of households surveyed believe that the business sector almost always bribe to influence the government policies or laws and regulations. Business executives surveyed by the World Economic Forum Global Competitiveness Report 2009-2010 report that public funds are fairly commonly diverted to companies, individuals or groups due to corruption and that government officials often favour well-connected companies and individuals when deciding on policies and contracts. Surveyed business executives also identify the lack of ethical behaviour of companies in their interactions with public officials, politicians and other companies represents a competitive business disadvantage for the Philippines.
Companies that are planning to invest in or are already doing business in the Philippines are highly recommended to implement integrity systems and conduct extensive due diligence when entering into business partnerships or contracting agents to facilitate business transactions in the country. Controlling corruption risks is essential in order to avoid cases like that of a US company that had to pay a large penalty under the US Foreign Corrupt Practices Act in 2008. The company was subsequently forced to close for having been in a partnership with a Philippines-based company that had made numerous illegal payments to foreign government officials. According to the SWS Business Survey on Corruption 2007, two out of five Filipino managers spend an average of PHP 292,000 to combat corruption and fraud in their own companies, and one out of five donates an average amount of PHP 136,000 to an anti-corruption fund. The Philippine private sector thus acknowledges that corruption is a huge problem that companies need to work towards solving.
Regulatory Environment
The Philippines is characterised by cumbersome bureaucracy. Business executives surveyed by the World Economic Forum Global Competitiveness Report 2009-2010 perceive the level of government administrative requirements to be quite burdensome. According to the World Bank & IFC Doing Business 2010, starting a business in the Philippines costs 28% of income per capita on average, involves 15 procedures and takes 52 days, which is more costly, complicated and time-consuming than the East Asia & Pacific region's corresponding averages. However, the minimum capital required is competitive at 5.5% of income per capita. Foreign companies should note that foreign investment is restricted in many sectors of the economy. The government has set up a Board of Investments (BOI, link somewhat unstable) in an effort to counter this and promote foreign investment. The BOI offers investors regulatory and incentive system guidance.
Post-Marcos structural reforms implemented in order to benefit economic development locally, such as deregulation, privatisation and decentralisation, have reportedly resulted in decentralising corruption as well. Due to a lack of transparency and accountability in the decentralisation process, local officials have been given additional authority which has increased their opportunity for personal enrichment. It is reportedly common for civil servants to supplement their relatively low salaries by extracting bribes, a possibility that is greatly facilitated due to the country's complex and sometimes contradictory regulatory regime. Moreover, business executives surveyed by the World Economic Forum Global Competitiveness Report 2009-2010 indicate that it is quite challenging to obtain information about changes to government policies and regulations affecting their industries. The level of corruption in dealing with inspectors from various government agencies is quite high in the Philippines. In the process of deregulation, companies have offered bribes to government officials in order to protect their market and ward off competition. The privatisation process has resulted in irregular and corrupt bidding practices in order to acquire government-owned or government-controlled companies. Companies should note that a lack of transparency still prevails in the public procurement process. Political deals are made where politicians can secure the allocation of resources from the centre to their local districts as a reward for their political support. As these deals are included in the procurement budget, it blurs the transparency of the procurement process and results in substantial losses to the state budget. Although a Philippine Government Electronic Procurement System (PhilGEPS) has been set up to increase transparency of the procurement regime, companies are still recommended to conduct extensive due diligence during the procurement process in order to mitigate the corruption risks associated with public procurement in the Philippines.
According to the US Department of State 2009, companies generally have little confidence in the Philippine judicial system. The main reasons for this are the allegedly incompetent and understaffed court personnel, corruption and long delays of court cases. Serious concerns have been raised as to the sanctity of contracts and of property rights based on allegations that judges accept bribes to rule in favour of one or the other party in a trial. Many foreign companies view the judiciary as a disincentive for investing in the Philippines, as settling a court case may take 5-6 years or longer if there are appeals. Therefore, many companies seek out alternative dispute resolution possibilities. The Philippines is a member of the International Centre for the Settlement of Investment Disputes (ICSID) and of the Convention on the Recognition and Enforcement of Foreign Arbitrage Awards. Nevertheless, it is reported that Philippine courts are disinclined to abide by the arbitration process and that the enforcement of decisions may take several years. Several disputes have been raised over water rights in relation to agricultural and industrial production. Companies should note that exploration and utilisation rights of natural resources such as water can only be legally bestowed on companies that have at least 60% Filipino ownership under the 1987 Constitution. Access the Lexadin World Law Guide for a collection of legislation in the Philippines.
Corruption Levels
Sectors (Judicial System, Police, etc.) describe which kind of corruption can be encountered in different areas. This section covers various forms of corruption, including bribes and facilitation payments. All information is based on publicly available information and should be viewed as general guidelines on the types of corruption existing in the country. Levels of corruption in the different sectors indicate where corruption can be encountered. The levels are defined as follows:
Individual Corruption: Corruption that takes place primarily in relations between individual citizens and public officials and authorities.
Business Corruption: Corruption that takes place primarily in relations between enterprises/companies and public officials and authorities.
Political Corruption: Corruption that takes place in the higher echelons of public administration and on a political level.
Frequency refers to quantitative surveys on corruption in the respective sectors.
Judicial System
Individual Corruption
Global Integrity 2008 and Transparency International's Global Corruption Barometer 2009 both report that citizens perceive the judiciary to be corrupt. According to Global Integrity 2008, corruption often starts with lawyers, rather than judges and magistrates, and several lawyers (at least 94 lawyers between 1947 and 2007) have been disbarred by the Supreme Court due to corruption.
Judges have been known to take bribes in order to grant bail to litigants, even in cases where the law prohibits granting bail. Citizens may also encounter other procedural irregularities in the courts which can give rise to corrupt behaviour, such as lack of legal and procedural knowledge, resulting in false charges.
Business Corruption
According to the Transparency International Bribe Payers Index 2008, companies' confidence in the judicial system is low in the Philippines because of allegations of graft and corruption, as well as incompetence within the judiciary. Companies should note that numerous irregularities occur in judicial procedures. For example, there are cases in which the public prosecutors were absent in criminal cases. There is also an insufficient supply of judicially competent personnel, which causes postponements and prolonged delays. Some trials can drag on for years. Some companies prefer to avoid the courts altogether due to low confidence levels in the judicial system.
Political Corruption
The judicial system is constitutionally independent from both the legislative and the executive branches. However, there are many instances where judges interfere in policy-making instead of simply interpreting the law. Furthermore, the judiciary is perceived as burdened by very cumbersome procedures, and it is also perceived to be corrupt. Many judges are believed to accept bribes by influential elites. According to the Bertelsmann Foundation 2006, this is confirmed by lawyers in a SWS survey. About half the lawyers had personal knowledge of judges taking bribes. One prominent example is of Justice Secretary Hernando Perez, who was prosecuting former President Estrada for economic plunder. Perez was forced to resign for accepting a USD 2 million bribe from one of Estrada's associates in order to secure a lucrative contract.
According to the law, members of the judiciary have to submit a Statement of Assets and Liability and Networth (SALN). However, contrary to the SALN of senators, Members of Congress etc. which can be accessed by the public, the SALNs of judges are kept secret and beyond public scrutiny. The lack of transparency adds to public perception of the judiciary as tainted. The official argument for the secrecy is that granting public access to the SALNs would, allegedly, endanger the judges, diminish their independence and expose them to kidnapping, extortion, etc.
World Economic Forum: The Global Competitiveness Report 2009-2010: - Business executives give the judiciary's level of independence from influences of government, citizens and companies a score of 3.1 on a 7-point scale (1 being 'heavily influenced' and 7 'entirely independent').
- Business executives give the efficiency of the legal framework for private companies to settle disputes and to challenge the legality of government actions and/or regulations a score of 2.7 and 2.8 respectively on a 7-point scale (1 being 'extremely inefficient' and 7 'highly efficient').
According to Transparency International's Global Corruption Barometer 2009, citizens in the Philippines perceive the police to be the most corrupt public institution. Especially the traffic police are notorious for their corrupt behaviour. They are known for making up traffic violations in order to extort money from drivers or for taking bribes to ignore traffic offences.
Business Corruption
It is a well-established fact that a culture of corruption exists within the police, who are perceived to be the most corrupt institution in the Philippines. Global Integrity 2008 states that the police are under-funded and that corrupt practices of police officers aggravate the situation. Companies dealing with transport should be aware that the traffic police are particularly corrupt and prone to inventing traffic offences in order to demand bribes or write out fines. According to the World Economic Forum Global Competitiveness Report 2009-2010, companies are critical of the police's reliability to protect them from crime and to respond to crimes committed against them. The police are also believed to be involved in kidnappings and organised crime.
Political Corruption
In 2003, President Arroyo stated that corruption within the police force poses an obstacle to national security. Police corruption is suspected to have been a factor behind the escape of terrorists from Philippine police custody.
The collective action aspect of police corruption was substantiated in a 2005 Guardian news story, which reported that all 529 officers of the North Abra provincial force were transferred amidst reports of corruption and links to organised crime.
Frequency
World Economic Forum: The Global Competitiveness Report 2009-2010: - Business executives give the reliability of police services to enforce law and order a score of 3.5 on a 7-point scale (1 being 'cannot be relied upon at all' and 7 'can always be relied upon').
Most public agencies and offices delivering basic services to Filipinos are tainted by corruption. This is confirmed by the Transparency International's Global Corruption Barometer 2009, which reveals that citizens in the Philippines find that corruption flourishes in permit and registration offices. The survey also establishes that citizens encounter corrupt behaviour in connection with gaining access to public utilities. According to the UNDP Asia-Pacific Human Development Report 2008, corruption has increased the costs of power projects, resulting in implementation delays and unreliable and expensive electricity services for citizens. Electricity is two to three times the price of other countries in the region.
Business Corruption
There is a high probability that companies will be exposed to corruption in the Philippines in connection with obtaining permits and licences, as well as in gaining access to public utilities. According to several sources, including the US Department of State 2009, companies dealing with infrastructure projects should note that these projects are subject to corruption, not only in allocation, but also in procurement, contracting and implementation phases.
According to the UNDP Asia-Pacific Human Development Report 2008, public utilities contracts are also tainted by corruption, from the tendering and bidding process to the operation and maintenance of the project. Companies should note that foreign companies are at a disadvantage when bidding on public utilities and infrastructure projects, as they tend to favour Filipino-controlled companies as contractors. Corruption has increased the costs of power projects, resulting in implementation delays and unreliable and expensive electricity services for companies.
Political Corruption
The introduction of lifestyle checks in the Philippines in 2004 to determine if officials had illicit incomes resulted in resistance from government officials. One example of resistance came from the Department of Public Works and Highways, which according to several sources for instance Bertelsmann Foundation 2008, is notorious for illicit payoffs in infrastructure projects. The list of corrupt transactions includes diverting public funds away from projects, bribe-taking, lack of a transparent bidding processes, overpricing, and carrying out substandard work on the projects. In late 2007, the first phase of the National Roads Improvement and Management Program (NRIMP) allegedly involved big-rigging and collusion. This prompted the World Bank to defer the USD 232 million road project loan on the NRIMP phase 2 (NRIMP2) until the World Bank was able to review the report investigated by the World Bank's independent investigation unit and the Ombudsman. The second loan was approved in May 2008. The World Bank team and the Philippine government are now cooperating to implement strict controls on NRIMP2. Among others, these include strengthening procurement processes and internal controls, and reinforcing the transparency in the bidding process.
A corruption scandal that broke in 2008 and implicated the President concerned the USD 329 million national broadband project won by a Chinese state-owned company, ZTE. The chairman of the Commission on Elections (COMELEC) was forced to resign after being accused of having offered a PHP 200 million bribe in order to hasten the approval of the deal. A businessman who lost the bid has accused the husband of President Arroyo of putting pressure on him to withdraw his bid. As a result, the Supreme Court has ordered a stop to the implementation of the project. The project is estimated to be overpriced by USD 130 million.
Frequency
The World Bank & IFC: Doing Business 2010: - In order to construct a warehouse, a company must go through 24 procedures and spend 203 days to obtain the required licences and permits at a cost of approximately 82% of income per capita.
World Economic Forum: The Global Competitiveness Report 2009-2010: - Business executives give government administrative requirements (permits, regulations, reporting) a score of 2.7 on a 7-point scale (1 being 'extremely burdensome' and 7 'not burdensome at all').
According to Transparency International Global Corruption Barometer 2009, a considerable amount of Filipino households point to the interaction with land authorities as an area where bribes are often demanded. Moreover, households perceive land matters to be distorted by grand and political corruption.
Citizens living in the countryside report that it is difficult to ensure property rights, and that they thus risk losing their land plots and their livelihoods. Deeds of ownership have proven especially difficult to establish for peasants in the countryside because many have not legally registered their property. Furthermore, citizens entering registration bureaus risk encountering corrupt officials, who frequently demand bribes in order to register their property.
Business Corruption
According to the US Department of State 2009, foreigners in the Philippines are prohibited from owning land; however, they are permitted to lease land for a maximum of 75 years. Deeds of ownership are difficult to verify, as registration is inconsistent. Companies should note that, as the judicial system has shown irregularities, the upholding of property rights and the sanctity of contracts (including leasing contracts) is questionable. Furthermore, frequent delays exist in contract enforcement, which results in insecurity for property owners. This insecurity poses a serious constraint on investment activities.
Political Corruption
According to UPI Asia 2008, Philippine farmers were in principle secured the right to land through a 1988 land reform law. However, legal processes and political interference have subverted the land redistribution process. Some powerful landlord families are still obstructing the redistribution of the land. One of these is the family of President Arroyo's husband. The ownership of the land property has already been paid for, but the title is not transferred from the Arroyos to the government. Jose Miguel Arroyo has been put on as payee despite the fact that he insists that he is not the owner of the land. This has lead to a standstill because the title cannot be transferred to the farmers until it first has been transferred to the government. The land redistribution law expired in 2008, resulting in the legal position of the farmers being unclear.
Politicians have received huge bribes to facilitate illegal or under-priced land deals. One scandal that amounted to PHP billions in bribes involved the selling of a large plot of property to a Thai businessman at an undervalued price. The land was not only sold at a discounted price, but was also sold illegally as foreigners are prohibited from owning land.
- 51% of households consider grand or political corruption in land matters to be a 'very serious problem'.
- 48% of respondents consider bribes to land authorities to obtain favourable decisions a 'very serious problem' in the Philippines.
Tax Administration
Individual Corruption
According to the Transparency International Global Corruption Barometer 2009, citizens are very distrustful of the tax authorities. The media frequently publishes cases of tax corruption, such as tax officials extorting money. The salary level of tax officials is low, making it relatively easy to identify corrupt tax officials that lead extravagant lifestyles.
Business Corruption
The Philippine tax regime has a high degree of bureaucratic complexity. There are numerous accounts of bribery in connection with meetings with tax officials, indicating that corruption flourishes in the tax system. Global Integrity 2008 describes the tax laws in the Philippines as 'very weak' and they are being enforced discriminatingly. According to Manila Times 2008, the Bureau of Internal Revenue has filed 11 cases against companies that have illegally sold their tax credit certificates to other companies at discount prices. Many companies choose to pay bribes in order to diminish the time-consuming red tape involved with paying taxes. There are also reports of businesspeople being over-taxed, and having to bargain to reduce their tax burden. Based on the SWS Surveys of Enterprises on Corruption 2006-2007, one of the top two reasons for companies for not reporting bribery was due to the fact that 'nothing will be done' and 'afraid of reprisal'
Political Corruption
The amount of taxes collected by the Philippine tax authorities is well below what is expected. One reason for this is corruption. Tax fraud and tax evasion are found at all rungs of Philippine society. According to Global Integrity 2004, former President Estrada's election campaign was handsomely supported by a tobacco tycoon who wanted a reprieve from a tax evasion case. After Estrada's election, the case was dropped.
It is noteworthy that the Bureau of Internal Revenue is suspected of connivance in tax evasion, which is an indication that corruption is not simply a problem of lower-level tax officers.
Frequency
The World Bank & IFC: Doing Business 2010: - During the course of a year, a medium-sized company can expect to make an average of 47 different tax payments and spend 195 hours managing the tax burden at a total tax rate of 49.5% of profit.
SWS: Survey of Enterprises on Corruption 2008: - Business executives rate the Bureau of Internal Revenue's sincerity in fighting corruption a net score of -56 (+50 or above being 'very good' and -50 or worse 'very bad').
Customs Administration
Individual Corruption
Global Integrity 2008 reports that citizens perceive customs to be just as corrupt as the tax authorities, making the Bureau of Customs one of the most corrupt state agencies. This perception is supported by publicised cases of customs officials being directly involved in smuggling.
Business Corruption
According to Global Integrity 2008, companies are rather dissatisfied with customs officials due to the fact that customs and exercise laws are always being enforced discriminatingly. One-fourth of the companies surveyed by the SWS Business Survey on Corruption 2007 stated that they had been asked for bribes when dealing with import requirements. The forms of corruption most commonly encountered within the Bureau of Customs (BOC) are bribery and tariff evasion. The charge that the BOC is one of the most corrupt government bodies is further substantiated by the Transparency International Bribe Payers Index 2008.
Customs regulations are complex and burdensome. Companies are left with a feeling of considerable uncertainty. Companies should be aware that the Philippines' customs authorities are also suspected of colluding with technical smugglers. According to UPI Asia 2008, technical smuggling is rampant in the Philippines and is costing a loss of USD 4 billion in revenues each year. The same source also states that customs authorities, government officials and the First Gentleman allegedly collude with illegal smugglers.
An example of a corruption case in relation to customs, according to AmCham Vietnam 2008, is that of a Philippine shipping company, controlled by a US shipping company, which had bribed the BOC in order to allow the company to violate customs regulations, settle customs disputes to its advantage, and other types of customs fraud. The US company was punished in the US under the Foreign Corrupt Practices Act for the actions of its Philippine partner.
Frequency
The World Bank & IFC: Doing Business 2010: - A standard export shipment of goods requires 8 documents and takes 16 days at an average cost of USD 816 per container.
- A standard import shipment of goods requires 8 documents and takes 16 days at an average cost of USD 819 per container.
Companies operating in the Philippines should be aware that the privatisation of government-owned or government-controlled companies is plagued by irregular and corrupt bidding practices. Transparency in public procurement and contracting has improved somewhat with the passing of the Procurement Law in 2003. Nevertheless, companies should note that a lack of transparency still prevails in the public procurement process, and according to the Bertelsmann Foundation 2008, more than 30% of the budget allocated to government projects is lost due to corruption. For example, senators allocate central resources to their own districts, thus reducing the transparency of the procurement process, and taking development funds which could have gone to better use elsewhere. Companies are recommended to make use of a specialised public procurement due diligence tool in order to mitigate the corruption risks associated with public procurement in the Philippines.
Companies should be aware that in accordance with Philippine law, government procurement contracts still favour Filipino-controlled companies and thus local suppliers, which places the foreign companies at a disadvantage.
For more information on public procurement, see 'Public Anti-Corruption Initiatives' in the Initiatives section.
Political Corruption
According to the World Bank Working Paper 2006, the process of awarding government contracts for infrastructure and other such projects has been an important source of extra income for politicians and government officials. Selling contracts has also been a source for financial funding for political parties, because companies have either directly bribed politicians or donated cash to parties and campaigns in order to secure good relations and thus be given priority for government contracts. In general, public procurement lacks transparency in the bidding process, leading to overpricing of projects and substandard work. A corruption scandal in connection with an Internet broadband network project between the Philippine government and the Chinese company ZTE allegedly resulted in overpricing by 100%.
According to Pulse Asia 2009 and the SWS Surveys of Enterprises on Corruption 2006-2007, the departments of Public Works, Health, Education and National Defence are all engaged in public procurement, but these departments are all known for being very corrupt.
For more information on public procurement, see 'Public Anti-Corruption Initiatives' in the Initiatives section.
- Business leaders give the favouritism of government officials towards well-connected companies and individuals when deciding upon policies and contracts a score of 2.1 on a 7-point scale (1 being 'always show favouritism' and 7 'never show favouritism').
SWS: Business Survey on Corruption 2007: - 50% of business leaders surveyed said almost all the companies in their line of business give bribes to win government contracts.
- 50% of business leaders surveyed said one-fifth of the companies in their line of business give bribes to win private sector contracts.
Environment, Natural Resources and Extractive Industry
Individual Corruption
According to the Transparency International Global Corruption Report 2008, the irregular allocation of mining rights in Rapu-Rapu has indirect detrimental effects on local communities. Local Filipino farmers experience the damaging effects of the mining industry in which negligent behaviour caused cyanide spillages contaminating the water supply to the adjacent farm areas.
Business Corruption
The Philippines has vast natural resources. In order to protect resources, such as natural forests and rare animal species, the Philippines has introduced an anti-logging campaign. The campaign is directed mainly toward local small and medium-sized logging companies, whereas the campaign has mostly ignored the operations of large companies. Large logging companies feel that they can act with impunity because they have so much political influence through donations, bribes or personal relationships. Therefore, these companies can freely log more trees than their licences permit.
Prior to beginning mining projects, companies are required to get consent from the local population in areas that have a large percentage of Indigenous people, as mining projects tend to have a huge impact on the local community. In the pursuit of getting mining rights, there are examples of companies bribing the Indigenous community leaders in areas of poverty to obtain their support and help in seeking the consent of the population.
In the Philippines, the supplying of water was privatised by the government in 1997 and awarded to Maynilad Water Services and Manila Water Company. The companies were granted a 25-year concession agreement from the government to supply water to the western and eastern zones of the capital city of Manila respectively. However, according to IFI Water Watch Alerts 2009, 10 years after the privatisation occurred, the water rates had sharply increased by 357.6% for Maynilad Water Services and by 414.4% for Manila Water Company. Both companies have failed to deliver the promised services, such as around-the-clock water supply and lower water tariffs.
Political Corruption
Large logging companies are cutting trees beyond the area granted by their permits, i.e. they are engaged in illegal logging. According to Philippine Centre for Investigative Journalism 2005, they enjoy such impunity because of the personal connections between owners and high-level government officials. An example of this close relationship is the former Environment Secretary, Michael Defensor, who is a friend of the Chua family who own Toplite Lumber Corporation, one of the largest lumber companies in the Philippines.
According to the UNDP Asia-Pacific Human Development Report 2008, corruption in connection with extractive industries is exacerbated by the fact that the Philippine political elite has personal stake in mining ventures.
According to the Transparency International Global Corruption Report 2008, the Philippine National Irrigation Administration (NIA) has spent approximately USD 1 billion on irrigation projects in order to improve agricultural production. However, there is no water in the canals that have been built for this purpose. The project is a public-private partnership with a US multinational company as a contractor. This is yet another irregularity as foreign companies are only permitted to explore, develop and run operations that involve natural resources such as water in a company that have 60% Filipino ownership. Regardless of whether the water is delivered to the irrigation system or not, this company gets a guaranteed fee for 20 years. The NIA has to borrow the money from the national treasury to be able to pay the contractor. This project, wrought with irregularities, was approved by former President Ramos in the 1990s because he allegedly had close relations with an executive of the US company.
Public Anti-Corruption Initiatives
Legislation: Corruption-specific legislation in the Philippines dates back to 1960, when the country passed its first anti-corruption law, although provisions for penalties for corrupt officials were originally established by the Act Revising the Penal Code 1930. The Philippines ratified the United Nations Convention against Corruption (UNCAC) in 2006. The country has a well-developed legislative framework aimed at fighting corruption; Global Integrity 2008 describes the framework as 'very strong'. The Anti-Graft and Corrupt Practices Act 1960 defines 11 types of corrupt behaviour among public officials. It also requires that public officials file Statements of Assets and Liability and Networth (SALN) every two years. The Constitution 1987 also includes articles on accountability of public officials and SALN (Art. IX, sect. 1-18). An Act Establishing a Code of Conduct and Ethical Standards for Public Officials and Employees was passed in 1989 and formulated standards for personal integrity and accountability of civil servants. Rules on gifts are included in the code of conduct and explicitly forbid solicitations of gifts, favours, etc. The Revised Penal Code also defines gifts as bribes (Art. 210), and the Anti-Graft and Corrupt Practices Act forbids officials from receiving gifts (sect. 3). The Constitution 1987 (Art. 6, sect. 20) stipulates that transparency must be upheld by requiring all records of Congress to be preserved and made open to the public and the Commission on Audit (see below) to annually publish a list of amounts paid and expenses used by each Member of Congress. While the Philippines may have a good framework against public sector corruption, there is little evidence to suggest that the country's anti-corruption legal framework addresses private-to-private corruption. Consult the Lexadin World Law Guide for a collection of laws in the Philippines.
Government Strategies: The government's anti-corruption activities are viewed as an integral part of the overall development strategy, which has been developed in cooperation with international organisations, such as the Asian Development Bank, USAID, the World Bank and others. As formulated in the Medium-Term Philippine Development Plan 2004-2010, the government has declared an all-out fight against graft and corruption. The low level of business confidence in the judicial system led to the implementation of the Action Programme for Judicial Reform, proposed and developed by a former Chief Justice and supported by several international donors to rectify the deficiencies in the judicial system and turn it into an efficient, independent and transparent body. However, many of the reforms in the programme were not implemented, and the programme did not generate the government's desired effect. The tax system was another area that was chosen to be a target of reforms. In order to improve governance, reduce corruption and increase tax revenues, the World Bank stepped in with a loan to support the Board of Internal Revenues' programme to modernise the tax administration system in 2007. As an anti-corruption measure, the government has established a reward scheme where the tax agencies that meet their targets or surpass them are rewarded, while those that do not meet their quotas are punished.
Anti-Corruption Agencies: The Office of the Ombudsman (see below) serves as the main anti-corruption agency authorised to investigate and prosecute corruption cases involving public officials. It also takes care of corruption prevention measures, such as awareness-raising campaigns and analysing anti-corruption measures. A Presidential Anti-Graft Commission has also been established to support the President in coordinating and supervising the government's anti-corruption efforts and to investigate and hear administrative cases regarding civil servants appointed by the President that function in the executive branch and government-owned and government-controlled companies.
Office of the Ombudsman: The Office of the Ombudsman has existed for several decades and is today the main anti-corruption body in the Philippines with a mandate to investigate and prosecute corruption cases. It was strengthened in 2003 by a doubling of its budget that increased its investigative and prosecutorial capacities. Corruption cases are brought before the Sandiganbayan, a special court for handling such cases. Criticism of the Office of the Ombudsman has focused mainly on its overemphasis on targeting petty corruption instead of targeting the 'big fish'. Another point of criticism refers to the political appointment of the Ombudsman (President Arroyo appointed a law school classmate of her husband's) and the political interference in the work of the Ombudsman. According to Global Integrity 2008, the office's shortcomings are somewhat disputed, as the Office of the Ombudsman is described as 'strong' by Global Integrity 2008.
Anti-Money Laundering Council (AMLC): Congress established the AMLC financial intelligence unit in 2001. The AMLC's task is to carry out investigations into money laundering activities and analyse data from banks and financial institutions regulated by the Central Bank of the Republic of the Philippines, the Securities and Exchange Commission (SEC) and the Insurance Commission (IC). According to the House of Representatives, the AMLC can file complaints with the Ombudsman as well as the Department of Justice (DOJ) in order to get money laundering offenders prosecuted or start civil forfeiture proceedings in cooperation with the Office of the Solicitor General (OSG). According to the US Department of State 2009, some of the criticism of the AMLC is that casinos are currently excluded from the list of institutions that the AMLC can monitor, as well as a 2008 court ruling that made it more difficult for the AMLC to get information about suspicious bank accounts. However, the AMLC itself is pushing for increased authority in these areas. Currently, the governor of the central bank is the head of the AMLC and both the chairman of the SEC and the commissioner of the IC sit as members of the AMLC.
Commission on Audit (COA): The COA was established in accordance with the Constitution 1987. It not only monitors government financial operations, but has the authority to examine and audit all public financial transactions. Furthermore, it plays an important role in promoting transparency and accountability in public financial transactions. In this capacity, the COA is currently engaged in implementing an electronic New Government Accounting System. In the pursuit of greater transparency, the COA has launched an interactive portal that has a Fraud Alert Form with which whistleblowers can easily report fraud, mismanagement and waste of public funds. However, the portal cannot guarantee anonymity. Although the COA has helped to expose corruption and illegal practices, it does not have the authority to prosecute and punish corrupt civil servants, a task which is left to the Office of the Ombudsman. According to Transparency International 2006, the COA staff are demoralised by the lack of prosecutions and convictions. Furthermore, as a result of exposing of corrupt practices, they face harassment and threats.
Lifestyle Check Coalition: The Lifestyle Check Coalition, comprised of 16 government agencies and NGOs, was established in order to investigate the ethics and lifestyles of government officials. However, this measure has not yet proven effective in exposing high-level corruption, as only low-level officials have been investigated. The coalition has also not succeeded in getting organisational insiders to serve as whistleblowers to report on the questionable lifestyles of high-level officials.
Commission on Elections (COMELEC): The COMELEC dates back to 1940, when it was established as an independent body to conduct and supervise elections in the Philippines. It represents an attempt to rid elections of irregularities, such as election-rigging, vote-buying and corruption. However, the COMELEC's reputation has been tarnished by several scandals. One of the most famous scandals involves a taped conversation between President Arroyo and the COMELEC commissioner during the presidential election vote-counting in 2004. It is unclear whether the conversation was a serious attempt to rig the votes or whether the conversation was 'merely' an example of conflict of interest. According to sources such as Global Integrity 2008, there are no indications of any reduction in the level of election-related corruption and irregularities.
Anti-Corruption Fund (ACF): The ACF consists of two parts. The first part consists of a USD 21 million anti-corruption support programme set up by the US government's Millennium Challenge Corporation (MCC) and implemented through USAID. The programme delivers material and training to the Philippine anti-corruption efforts and the MCC has specifically where the air should be directed. Amongst these are requirement to reach certain targets, such as a 40% increase in conviction rates for all cases brought before the Sandiganbayan as well as a significant increase in the case successfully mediated by the Ombudsman. The second part of the ACF consists of PHP 1 billion in funds added by the Philippine Government as the counterpart fund and is managed by the Presidential Anti-Graft Commission (PAGC). The PAGC-controlled part of the Anti-Corruption Fund given to five primary agencies: the Philippine Drug Enforcement Agency (PDEA), the Bureau of Internal Revenue (BIR), the Bureau of Customs (BOC), the Presidential Council for Values Formation (PCVF) and the Philippine National Police (PNP). All the funds are aimed at programmes within these agencies that deal with anti-corruption. All the five primary recipients of funds from the ACF are thus government agencies.
Centre for Asian Integrity (CAI): The CAI has been set up by the Office of the Ombudsman, the University of the Philippines, Australian universities and international donors. The CAI is a virtual academy that offers training courses on anti-corruption and governance. The main objective of the project is to enhance integrity of Philippine government agencies, companies as well as NGOs.
E-Governance: Development of e-governance has been slow in the Philippines, primarily because so few people have Internet access. The Bureau of Internal Revenues (BIR) has become more transparent with the use of electronic information exchange to connect to the One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center. Despite the number of payments and cost of paying taxes in the Philippines, the time spent dealing with the tax authorities amounts to only 195 hours annually, which is only slightly above the OECD average, indicating that e-registration and e-payment of taxes has had a positive effect. The Bureau of Customs has also set up web-enabled clearance and payment service. Customers can also obtain confirmation of receipt etc. via SMS on mobile phones. The Department of Budget and Management has launched the Philippine Government Electronic Procurement System (PhilGEPS), which serves as the central portal for all government procurement.
Public Procurement: The Government Procurement Reform Act 2003 stipulates that preference in purchasing be given to companies with at least a 60% Filipino ownership, thus favouring local suppliers. A government e-procurement system has been implemented in most government departments as well as government-controlled companies and organisations in order to help reduce graft and corruption in procurement. Global Integrity 2008 describes public procurement in the Philippines as 'strong'. Procurements are mandated by the Procurement Law to be published to the general public. However, there have been some cases where some major tenders, especially foreign-funded projects, were published just before the closing date for bids, which gave bidders insufficient time to react and submit their bids. According to the law, tenders have to be made public in the national media or the Internet. The Philippine Government Electronic Procurement System (PhilGEPS) is the central online portal where all public procurement activities are posted. This is meant to be a vehicle to increase transparency within government procurement procedures. If bidders are found to be providing false information, or otherwise violating bidding regulations, they may be blacklisted. The list of debarred bidders can be found on the Government Procurement Policy Board website. Procurement manuals and documents are also available on the website. As a means of inhibiting opportunities for conflicts of interest within public procurement, decisions regarding procurement are made by a panel consisting of 5-7 officials; these officials are regularly rotated.
Whistle-Blowing: The Philippines still does not guarantee protection of whistleblowers in its legislation even though the government's Medium Term Philippine Development Plan 2004-2010 advocates the development of such legislation and, according to AIMS-Hills Governance Research 2006, there were eight pending whistle-blowing bills in Parliament. Once it is passed, the whistleblower protection legislation will be viewed as an important part of anti-corruption framework. In 2007, Congress drafted legislation to protect public and private sector whistleblowers. The hope is that this legislation will help reduce corruption across all sectors. According to the whistleblower bill, it will be the Ombudsman who will be responsible for setting up the whistleblower programme. Until a specific law is passed, whistleblower protection is, according to Global Integrity 2008, covered in laws that deal with witness and complainants protection (R.A. 6981 and P.D No. 749). Whistleblowers are frequently subject to harassment and intimidation. According to Global Integrity 2007, prospective whistleblowers typically use the media, the church or political figures to shield themselves and their families from possible retaliation by the people they expose. In the beginning of 2008, a high-profile case of a whistleblower feeling threatened and harassed broke in the media. According to news reports, police officers sent by the government kidnapped Mr. Lozada, who was a government official, in order to prevent him from testifying in the Senate on the overpricing of a government contract for national broadband. This case directly implicated President Arroyo's husband and the chairman of the COMELEC. The government allegedly sent the police as protection against death threats against Lozada. Lozada was detained for 24 hours before he was allowed to go. Lozada was still being harassed in 2009; he has been arrested on charges of perjury filed by one of President Arroyo's close associates. In sum, whistleblower protections in the Philippines are still very weak. The COA has launched a Fraud Alert Form to which whistleblowers can easily report fraudulent use of funds. However, the website states that they are unable to guarantee anonymity of the whistleblower (see above).
General Comments on the Public Anti-Corruption Initiatives: President Arroyo promised that Congress would pass an anti-corruption law in 2008, but this has still not happened. Although the government declares that anti-corruption measures are of the highest priority, public sentiments on corruption issues in the country suggest that there is a mismatch between the proclaimed commitment to counter corruption and the actual effects of these measures. The government has shown commitment to e-governance as an attempt to increase transparency and to stamp out much of the corruption caused by face-to-face interactions with public officials, but one of the obstacles is that many Filipinos have no Internet access. Many anti-corruption initiatives are conducted in cooperation with international donor organisations. However, even though there is a large number of anti-corruption measures and initiatives, implementation of and compliance with such measures still lag behind.
Private Anti-Corruption Initiatives
Media: Freedom of the press is legally protected in the Philippines; however, Freedom House 2009 has described the Philippines' press environment as only 'partly free' due to an increase in violence against journalists. Assaults, arrests, lawsuits and censorship against journalists in the Philippines pose a serious threat to the freedom of the press. The Philippines still ranks the country among the most dangerous places in the world for reporters. Most of the journalists who have been killed or threatened were working on exposing corruption, or writing critically about the government, police or the army. According to Freedom House 2009, 34 journalists have been killed since 1992. In recent years, suing a journalist for libel has been another way for people to set obstacles for the press. Libel is punishable by prison or large fines. President Arroyo's husband has been particularly active in this respect and by 2007 he had filed libel suits against 46 journalists. This lead to 40 media workers filing a civil suit against him for abusing the court system to harass the media. In the end, Jose Miguel Arroyo dropped all his suits. The Philippines is ranked 122nd out of 175 countries on the Reporters Without Borders Worldwide Press Freedom Index 2009, while Freedom House 2009 ranks the Philippines 97th out of 195 countries and describes the country's media environment as 'partly free'.
Civil Society: In the Philippines citizens have a constitutional right to association and assembly and thus to form civil society organisations (CSOs). CSOs in the Philippines are very active. A variety of NGOs exist, from religious groups to poverty alleviation groups etc. NGOs working with anti-corruption conduct joint projects to monitor government activities. The Catholic Church is very vocal in criticising the Arroyo government for corruption and on the Bishop-Businessmen Conference it has been advocating for a new government to bring down the level of corruption. According to Global Integrity 2007, several anti-corruption CSOs have dual character; they work outside the state advocating reforms while, at the same time, being part of state institutions (for instance, legislators, government executives, local government officials) working within the system to advance the cause of good governance. According to Global Integrity 2008, in order to maximise their influence on policy-making and government practices, several CSOs join forces and work together. Kidnapping, arrest and extra-judicial killing of government opponents and CSO activists has been a serious problem in recent years, and CSO work continued to be somewhat risky in 2008.
Transparency International Philippines: Transparency International Philippines is active in raising public awareness concerning corruption. On its website, it provides updates about anti-corruption activities in the Philippines and internationally.
Philippine Center for Investigative Journalism (PCIJ): The PCIJ publishes articles and books on malfeasance, presidential graft, irregular bidding in local governments, irregularities within the judicial system and more.
Transparent Accountable Governance Project (TAG): The TAG is a coalition of private sector organisations, civil society organisations and government institutions. The project attempts to gather information about corruption in Philippine society and provides investigative reports on corruption cases and anti-corruption initiatives. The project is funded mainly by the Asia Foundation and USAID.
Public Service Labor Independent Confederation (PSLINK): The PSLINK is a confederation of public sector unions of Philippine government employees from different national government agencies, state universities and colleges, local government units, government-financial institutions, health, teachers and special sectors. One of its main causes is to fight corruption and protect whistleblowers. The PSLINK has a small fund to help whistleblowers financially in cases where they have lost their job because of reporting their superior's corrupt behaviour.
Makati Business Club (MBC): Originally established in 1981 as the Forum for Constructive Ideas, MBC is an influential forum of the Philippines' largest companies. MBC seeks to address public policy issues that go beyond business, including topics such as governance, politics and media control. MBC is also behind the business sector initiative Coalition on Corruption (CAC) that monitors procurement activities such as pork-barrel monitoring, Internal Revenue Allotment monitoring, textbook procurement, corruption diagnostics, etc. In response to criticism that the Ombudsman mostly goes after so called 'small fish', CAC and MBC introduced a project called 'Catching the Big Fish' to build up an anti-corruption fund in April 2008 that targets corruption among high-level politicians and other major players. This programme will be supported by government funds through a Governance Investment Fund for Transparency (GIFT). In this connection, the MBC asked for the resignation of President Arroyo's advisor, Romulo Neri, for his role in a corruption scandal involving kickbacks in a government deal with the Chinese company ZTE, which also implicated President Arroyo.
Resources
The websites listed below provide useful facts on the Philippines as well as contacts and tools for companies operating in the Philippines:
Business Fighting Corruption An online resource centre for business on collective action to avoid corruption which contains a guide and resources for partnerships with companies and other stakeholders to fight against corruption.
UNCAC Status: Signed 9 December 2003. Ratified 8 November 2006.
Status on UNCAC Implementation This field describes the country's status on the United Nations Convention against Corruption. Please note any declarations and reservations made upon ratification. The list of signatories can be found on the UNODC website. Read Transparency International's summary and assessment of the UNCAC.
Transparency CPI This field consists of the score for the country in question on the Corruption Perceptions Index from Transparency International as well as its ranking.
Country Risk Classification The classification of countries by risk category has the aim of providing OECD countries with a basis for calculating the premium interest rate to be charged to cover the risk of non-repayment of export credits. Countries are placed in risk categories 0 - 7, with 0 being the lowest risk category and thus the least expensive. Conversely, premium group 7 is the highest risk category. Each classification is comprised of 2 components: 1) an assessment of the country's economic/financial situation, and 2) its overall political stability. Access the complete list of OECD Country Risk Classification figures.
SWS is a private, non-profit social research institution. Its members, called 'Fellows', are social scientists in economics, political science, sociology, statistics, market research, and other fields.
Partner Embassies
Consulate of Denmark
31/F Citibank Tower 8741 Paseo de Roxas Makati City
Postal Address: P.O. Box 3309, Makati Central Post Office 1273 Makati City
Manila Times: 'Maricel Cruz: JdV dares President: Lead Moral Revolution', 18 October 2007.
The World Bank: 'Philippines: Bureau of Internal Revenues Receives Support From World Bank For More Efficient And Equitable Tax Administration', 14 March 2007.
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